Channel Report: C-Stores

Consider the potential. According to the National Association of Convenience Stores' (NACS) 2004 State of the Industry report, there are 130,700 convenience stores in the United States. In 2003, total convenience store sales were $337 billion. That includes $101 billion in merchandise sales, $15.2 billion in foodservice and $220.8 billion in motor fuel sales. C-stores have seen a 16% sales increase in the last year.Despite its rapid growth, the convenience store channel faces some critical challenges today. Rising gasoline prices make it more difficult to profit from motor fuel sales. Pay-at-the-pump has eliminated a customer's need to come into the store to pay for fuel purchases, making in-store sales tougher to grab. Cigarettes -- the convenience store channel's number-one category -- now face a number of threats including rising state excise taxes and an increasing number of municipal smoking bans in public places. In response, the convenience store industry hopes to develop new profit centers, attract new customer groups, adjust store designs to today's consumers and zero in on what "convenience" means to its customers. Store DesignMany stores are streamlining their look, opting for cleaner, less cluttered store layouts. Some believe this is an effort to attract more female shoppers, who prefer a clean, bright store with a clear layout. Traditionally, men shop convenience stores more frequently than women, but women tend to make the majority of family shopping decisions and are the more powerful customer base. "I know 7-Eleven and a few other chains are trying to attract more women into their stores, and as they do that, they need to make women realize that they offer more than the usual bill of fare," says Bill Sinnott, group president of Wilton, CT-based Ryan Partnership, a marketing firm representing brands including Heineken USA and Nestle Waters North America Inc. "In 7-Eleven's case, they're promoting fresh items and meal solutions, so their P-O-P would be critical because customers aren't really going to understand the offer unless you tell them. Working women coming home without plans for dinner usually don't stop at a convenience store. To get them to do so, the shopping environment should be more pleasant and more of a destination. P-O-P can play a big role in making that distinction."The BP stores' Wild Bean Cafe for foodservice is one example of a chain focusing on quality food items.Another critical design point is that simplicity itself can attract customers. Consumers have so many choices today that the retailers and product manufacturers who make choice less taxing may win out. "I think that retailing in general needs to get to the point of simplicity over choice," says Ken Reuter, director of marketing for foodservice and impulse at Wells' Dairy Inc., Le Mars, Iowa, maker of Blue Bunny brand ice cream and frozen novelties. "Don't get me wrong -- consumers want choice. But we're giving consumers such a plethora of choices that it's overwhelming. Stores that can really simplify what the offerings are in clear communications via point-of-sale are the ones that are going to win." As part of that quest to simplify the shopping experience, many of today's convenience stores are getting bigger, expanding to sizes up to 10,000 square feet. But that extra space doesn't necessarily mean more products and P-O-P. Rather, it usually indicates a shift in store design. "There are very few right angles in stores today. Stores are more frequently built around destinations -- a sandwich area, a beer cave, the coffee island, an area with an ATM and financial services. That's the way people want to shop," says Jeff Lenard, director of public affairs for NACS, Alexandria, VA. "They want things more organized, so I think P-O-P presents a tremendous opportunity there."As part of the destination concept, many stores pair complementary products to drive incremental sales. For instance, E. & J. Gallo Winery worked with 7-Eleven to encourage consumers to purchase wine as part of a take-home meal. 7-Eleven featured Gallo's 187 ml single-serve bottles in a cooler alongside its fresh sandwiches."P-O-P for our channel should be more than communicating that you have this product at this price," says Lenard. "In some cases, it can be about communicating what seems to be obvious but might not be -- that you can buy this product in this area of the store. In the coffee area, retailers have to think about what people buy with coffee and whether they have effective signage to push those incremental purchases. In that case, P-O-P fits into the store's overall merchandising scheme." P-O-P also presents the opportunity to remind key customer groups about the store's overall offer. "Near the coffee stand, you would typically expect to see some messaging," says Sinnott. "I'm sure a lot of women stop there in the morning to get a cup of coffee. At the coffee stand, you can say to them through P-O-P, 'Here's a place you can get dinner on the way home.' It could be a big opportunity there." "By taking a category management approach," says Lenard, "stores and manufacturers can see what sells with the beer and add signage accordingly. The customer's already going to get beer, so tell them about the other things they can buy with beer, or give them a new idea to purchase with beer." P-O-P is also more subtle than it once was. "It's done in a more targeted and smarter way," says Lenard. "Sometimes the best P-O-P is something the customer doesn't even notice, but recalls in that it's done subtly and it's done as part of the overall scheme of the store, as opposed to having all these different manufacturers with different fonts and offers."Size MattersWhen placing P-O-P materials in c-stores, size remains the main challenge since the average store is only 2,500 to 3,000 square feet. Despite small size, there are more product categories and subcategories today than ever before. For example, in the beverage category, the booming energy drink subcategory didn't exist five years ago, and bottled water didn't always enjoy the prominence it does today. Those newer products are fighting for shelf space alongside existing products and line extensions. "Convenience stores aren't accordions. They can't expand and contract, so if you bring something into the store, you have to do it very thoughtfully because you don't want it to conflict with all the other things you're trying to communicate in your store," says Lenard. Because space is at a premium, most convenience store chains limit the size and type of P-O-P materials that can be used in-store. "Our experience is that stores do have a rulebook of materials you can use, and items that you provide them have to conform to certain footprints," says Ryan Partnership's Sinnott. "Sometimes you can get non-conforming items in if it makes sense. For example, if a store is promoting its fresh food business, it could help to hang P-O-P that looks like a banana from the ceiling. That's probably not in the rulebook, but nonetheless, if it meets a need, it might work." The channel is known for quick merchandise turnover, preferring temporary P-O-P displays, most of which are made of corrugate, or coated plastic for outdoor use.While it can be difficult to persuade convenience store retailers to make space for P-O-P displays, most are willing to commit to a program if the benefits are clear."Convenience store retailers understand that the salty snack category offers a tremendous opportunity to generate incremental sales and profits when supported by point-of-sale materials, along with a larger marketing initiative," says Jared Dougherty, spokesperson for Frito-Lay North America, Plano, Texas, the maker of popular snack food brands including Lay's Potato Chips, Doritos Tortilla Chips and Fritos Corn Chips. The same is true for Sports Line Distributors Inc., Northbrook, Ill., a supplier of sports collectibles and nov-elty items, which presents convenience stores with a comprehensive merchandising program. While it offers convenience store retailers a gravity-fed, acrylic counter display for its trading card packs, it also uses a three-foot wire endcap -- the same endcap it uses in supermarkets -- for its larger items such as its specialized Monopoly games. "With the track record that we have, we've been using this rack for a couple years. Generally, the stores make space," says Sports Line Vice President Bill Gausselin. "For stores that are just too small, we're in the midst of developing with the manufacturer a two-foot version of the same rack that has more peg space rather than shelf space, so it's just a little bit smaller." Sports Line's story also underlines a shift in the type of merchandise found in today's convenience stores. As c-stores search for new profit centers, some are turning to merchandise they might not otherwise carry, like specialized Monopoly games. While such merchandise might not be business as usual, it taps into the channel's impulse purchase nature and offers a better profit margin than traditional c-store items. "Some of our items retail as high as $39.95 for a Boston Red Sox version of Monopoly. That's traditionally higher than some of the novelty and collectible items a convenience store might sell," says Gausselin. "We have products priced as low as $2.99 up to $39.95, and they all sell well for convenience stores. That opens store operators' eyes a little bit because traditionally, convenience stores would offer $1.99 novelty items that they might make 50% on. But stores have realized that it's to their advantage to make 35% on a $39.95 sale rather than 50% on a $1.99 sale." C-Stores' Strategic Advantage Despite the space restrictions and difficulties with placement, convenience stores remain a critical market for most product manufacturers. "The convenience store channel continues to be an important growth driver for Frito-Lay," says Dougherty. "One in every five dollars spent on salty snacks are spent in the convenience store channel and as consumers continue to balance their on-the-go lives, the salty snack category will continue to drive above-average growth." Convenience store P-O-P is also critical in the beverage industry, with its focus on single-serve products. For some brands, particularly those with a significant single-serve business, convenience store P-O-P serves as a new product launching pad. Arizona Beverage Co., Lake Success, NY, eschews traditional advertising, choosing instead to grab customers at the store level with shelf strips, stickers on bottles and cooler door clings. "We've never done TV or radio, but we rely heavily on P-O-P at the shelf level. We use a lot of P-O-P, and convenience stores are huge for us in terms of our overall marketing strategy," says Francie Patton, vice president of corporate communications for Arizona Beverage. Arizona's colorful, Southwestern-inspired packaging also serves in a way as its own P-O-P. "When Arizona first came out, the beverage industry was basically red, white and blue. You had Coke and Pepsi, and Snapple was out there, but they had glass bottles with brown tea in them," says Patton. "We brought out those big, 24-ounce cans that were turquoise, yellow and all those Southwestern colors, so immediately people were drawn to the packaging and to our products. We got a lot of sampling that way." New Product Sampling One of the competitive advantages the convenience store channel offers product manufacturers is its single-serve orientation. Many find it's easier to launch a new product in a single-serve size in convenience stores because consumers are often willing to sample a smaller size of a new product rather than committing to a larger size of a product they may not like. "Let's say we bring out a blueberry white tea, and get it into convenience stores nationwide," says Patton. "We know when it's going to be successful because we hear it from our consumers. They say, 'I tasted this in 7-Eleven. Where else can I find it?' If a product is taking off in convenience stores, we can make a quick decision about whether to also offer it in a gallon size. We think that's played a big role in our products and our packaging." "The convenience store channel is also an important channel for Frito-Lay to sample new product innovations for our major brands," says Dougherty. "Because the salty snack category is one of the most impulsive snack categories, point-of-purchase materials continue to play a very important role. The majority of the convenience store snacks are purchased in single-serve sizes and are immediately consumed." 'Relevant and Easy'For product manufacturers, making P-O-P programs as turn-key as possible is critical. Plus, it's important to understand a particular retailer's goals and, if possible, tailor P-O-P programs to help them reach that goal. "For P-O-P, relevant and easy to buy are the two key things, relative to what convenience stores are trying to accomplish," says Sinnott. "You've got a tremendous number of outlets out there. You've got people in the store who are working their tails off just to keep the place stocked, so you can't ask them to do a whole lot. When you understand what stores are trying to accomplish, and if you develop something to help do that, you have a better chance of getting something sold in." "I think you have to sell a concept of which P-O-P is part," Sinnott continues. "Convenience stores have become more sophisticated in their marketing approach. They do a good job of analyzing their business and certainly know where some of their weaknesses and opportunities are. If you as a vendor can sit down and say, 'Here's a way to take advantage of your opportunities, and we've got a program to do that,' you'd probably go a lot further than if you were just saying, 'Put up this sign.' "

Channel Report: C-Stores

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