Hitting the Hot Buttons
Nielsen's Hale encourages operators to think outside the c-store box.
“Other channels are messing with your business.”This somewhat ominous warning was offered byNielsen vice president of consumer and shopper insightsTodd Hale to the c-store retailers attending his “Understanding theConvenience Shopper” general session. Grocery stores are experimentingwith gas rewards programs, dollar stores are testing out tobacco, and moredrug stores are getting into the foodservice business.
“How do you compete with (other) retailers in terms of their assortment,and what’s going on inside of their box in terms of how theyconnect with shoppers today and in the future?” Hale said.
To help address this concern, Hale went through some retail “hot buttons”he has come up with based on years of Nielsen research, saying manyof these hot-button issues provide unexpected opportunities for c-storeoperators to compete with outside channels and grow their business.
Price and Value
“Low prices still matter a lot to shoppers these days,” Hale said. “Medianincome has fallen for nine of the past 12 years. It’s tougher for people tobuy stuff because they’re not making as much money. The c-store channelis especially experiencing this pinch because it skews toward low-incomeshoppers.”
To appeal to the price- and value-conscious shopper, other channelshave instituted well-advertised price freezes (as retailers such as Shop Riteand Kroger have done) and engaged in public price wars (championedby Walmart). And of course, there’s the tactic that poses the most directthreat to the c-store industry: gas rewards programs.
“Thirty-two percent of households now buy groceries at retailersbecause of how much money they save on gasoline,” said Hale, pointingout that such programs are still successful despite the fact thatmost grocery gas stations are not as nice or convenient as traditional c-store pumps. “They’re getting a lot ofactivity from people because of how muchmoney they save. We haven’t seen the kindof increase toward loyalty-card programsas much as we have here.”
And, according to Hale, the competitionfor gas is only going to get worse—meaning c-store operators will have torethink their business strategy.
“The fact that more fuel-efficientcars means you’re going to get less tripsis another issue you’re going to have tothink about: how to you compete moreeffectively in a world where your gasolinemay not be as strong as it’s been historically,”he said.
Adding a private-label line may seem tobe a natural way to appeal to consumerslooking for price and value. However,Hale warned that such products haven’tincreased as much as one might expectgiven the economic climate.
“When you look at overall growth inthe last three years, private label lookspretty impressive: about $110 billion insales and a growth rate of 16%,” he said.“But brands during this time were at $524billion and grew by 7%. The fact is, at atime of economic downturn—when peoplehad trouble finding money to spend onproducts and services—private-label shareonly grew by 1 point.”
Still, with one outof every five dollars insupermarkets comingfrom a private-labelpurchase, there clearlyis some demand. Halebelieves it comes downto the dedication anddiligence of the retailers.
“There are someretailers out there that are very good atthis, but there are a lot of other retailersthat thought a ‘Build it and they will come’strategy would work,” said Hale. “You’vegot to really add a lot of science to whatyou do with private label. You’ve got tohave the right items, the right assortment,the right price and good quality—because[a poor product] will turn shoppers away.”
Bigger isn’t always better when it comes tostore sizes, at least as far as Nielsen’s numbersare concerned.
“Over the last five years, there havebeen 20 retailers who have added 13,400new stores,” Hale said. “A third of thatgrowth came from c-stores. … If youlook at that list, 10 of the top 20 wereconvenience-store operators. You guyshave operated on a very fast track when itcomes to expanding store count.”
The fact that the number of c-storesand other small-format retail locations hasincreased even in a weak economy has ledeven large-box retailers such as Target andWalmart to consider small-box businesses.
“When you look at Walmart’s smallboxformats, they’re dabbling in a spacewhere I don’t think they know how tocompete with you guys,” Hale said ofWalmart’s grocery and c-store combination,Walmart Express. “They’ve triedsmall box before, and I think it’s going tobe tough for them to make it happen.”
Whether it’s in small- or large-formatstores, convenience stores or the drugchannel, foodservice has firmly establisheditself as a retail hot topic.
“An amazing occurrence is happeningtoday around food and the fight overfood,” said Hale. “You’re messing withexisting food retailers and non-foodretailers are now messing with you, whenyou think about all the fresh productsthat you can find in drug stores anddollar stores. You’ve even got clothingmanufacturers like Tommy Bahamaopening up restaurants.”
Nielsen’s data shows that sales of freshprepared food are growing across all channels,particularly in grocery. Still, Halehas been impressed with c-store retailerssuch as Nice N Easy, who have used theconsumer interested in prepared-foodofferings to help grow the company’sprivate-label business.
Still, there’s one hot button that foodservicedoes not relate to: value. Halewarned that value ads do not work withfresh food; in fact, Nielsen’s research showsconsumers rarely remember what wasadvertised when numbers are involved.Humor is the device that most sticks inconsumers minds when it comes to foodads. “The connection with food is interesting,”Hale said. “It does help to builda nice equity with shoppers if you cando it well.”