Channel Report: Convenience Stores

In past years, gas and tobacco added up to approximately 85% of store sales, according to figures from the National Association of Convenience Stores (NACS). But the volatility of motor fuels makes it difficult to make any profit, and while retailers aren't shying away from the tobacco business, the newest federal and state excise taxes could have an effect on sales. "I don't think anybody would like to see those numbers decrease, but the reality is that there's the likelihood they could," says Jeff Lenard, spokesman for the Alexandria, Va.-based organization."All of the things they emphasized in the past -- a convenient, well-trafficked location, with signage indicating the gas price -- are good to capture the sale," he adds. "But we're seeing a lot more emphasis put inside the store now so that sale translates to a customer. The gas doesn't keep them coming back; it's the in-store experience." Zeroing in on the core consumer of 18- to 34-year-old males, while exploring ways to include women shopping for their families, is paramount in retailers' quest to separate themselves from their competition, too. Undoubtedly the biggest differentiator is expanded foodservice offerings."Convenience retail is really becoming two kinds of chains," says David Portalatin, director of industry analysis for the automotive business unit of the NPD Group in Houston. "Those that can execute a good foodservice strategy, and those that can't."The C-Store Shopper"One of the things that will always be true about c-stores is that core shopper who comes in for cigarettes or other tobacco products and single-serve packaged beverages is still a viable, valuable, frequent consumer," stresses Portalatin. "In comparing the amount of foot traffic to the amount of dollars spent, they contribute a disproportionately large amount of the dollars. But a lot of times, success becomes about locking up that group and then going beyond that to appeal to a broader marketplace."For Kraft Foods, Northfield, Ill., marketing to its target c-store shopper -- which skews a bit higher toward 25- to 44-year-old males -- is very different from its traditional female shopper in other channels. Patrick Hare, director, in-store marketing, says the company has a better understanding of him today: He is shopping for himself; often what he buys will be consumed quickly; and he prefers a clean shopping experience where he can find products easily. Hare adds that Kraft's messaging is different from the traditional grocery store shopper looking for meal solutions. "Our messaging here needs to be about providing immediate solutions that are a good value."Ryan Post, senior brand manager at Oberto, says the Kent, Wash.-based company's in-depth consumer segmentation and research led to its "Eat Like An Alpha" campaign. Creating an emotional connection was a goal, he says. "We want our brand to stand for something and the consumer to be able to relate to that."Catherine Porter, customer marketing, Sara Lee Foodservice, Downers Grove, Ill., says the self-serve environment of c-stores demands unique messaging, believing the product and signage needs to speak for itself. "Unlike grocery retailers where the purchaser is often not the consumer, c-stores are all about immediate consumption. Therefore, everything from the communication to daypart and trip purpose is different from other channels."The company's own research, as well as retailer partnerships, led to a new category leadership program for its fresh customizable beverages, including coffee and cappuccino, called STIR (Strategic and Tactical Insights Reinvention). "STIR is a consumer insights-based approach to beverages that we're using with our existing customers to help drive solution decisions," Porter says. Customer segmentation is becoming much more refined and useful, says Robert Perkins, director of marketing for York, Pa-based Rutter's. "The whole industry talks about the female shopper -- the soccer mom -- and I think it's evolved from just being the soccer mom. But those are the customers who are still coveted vs. the core male customer." Many agree, and new c-stores are being designed to create a more pleasant shopping experience for female shoppers, notes Don Longo, editor-in-chief of Convenience Store News. The recession has played a part, he believes, because more consumers are looking for either one-stop shopping or fill-ins between larger grocery trips.Carlisle, Pa.-based Ahold USA's Giant Food Stores is testing a 4,000-square-foot convenience-oriented store called Giant To Go. Along with products typically found in a c-store, Giant To Go also offers produce, meats and deli items, and an on-site bakery as well as gasoline, in an uncluttered, display-free setting.However, maybe c-stores are trying too hard. "We continue to see that the retailers who excel -- regardless of the economic times -- seem to be the ones who are most in tune with executing what their shoppers really tend to value," adds NPD's Portalatin. "For c-stores, it really is all about doing the basics well."A June 2009 study from The Integer Group and M/A/R/C Research found that 46% of respondents said they bypass c-stores if they believe the selection isn't diverse. The study also saw an 8% increase in its respondents saying, "I will pay more if my life is made easier" compared to earlier this year.Changing FormatsWhile many retailers are bulking up their foodservice offerings, on the far end of the spectrum are those like Sheetz, Wawa and Rutter's that "have already evolved to the point that they want to be more like restaurants that happen to sell gas than gas stations that happen to sell food," says NACS' Lenard. Jerry Weiner, vice president of foodservice for Rutter's, says while foodservice isn't a new thing in many c-stores in Pennsylvania (which have never been able to sell beer, prompting retailers to find revenue-generating replacements), it has expanded "quite dramatically" from its deli-type operations in the '60s.Weiner says developing the image in a consumer's mind that your stores offer fresh food is probably the hardest challenge for the industry. "But there are many operators out there doing an exceptional job of making the statement and changing consumer perception of how they think of fresh food and a convenience store in the same sentence."New store designs clearly communicate Rutter's commitment to its food operations. "You can't walk to the typical c-store part of the store -- the gondola shelving and the cooler doors -- without passing foodservice, no matter which door you come in or which angle you elect to go," Weiner says. "That was by design."He estimates that 30% to 35% of the floor space in a 5,200-square-foot building is dedicated to its fresh food offerings, everything from cold or hot grab-and-go to made-to-order meals. Signage around the area helps communicate the many offerings.Nice N Easy Grocery Shoppes' foodservice offerings fall under the Easy Street Eatery brand, a proprietary program for the Canastota, N.Y.-based retailer that is heavily promoted through its stores. Signage outside the stores, box toppers on pizzas and mailers that target nearby households help the company communicate the quality message consumers want to hear. The company's own menu boards feature full-color graphics of the food.Despite the recession, there are chains growing their business, notes NPD's Portalatin. The NACS State of the Industry Report of 2008 Data says overall c-store industry profits rose 54%, reversing a two-year decline. In-store sales were up 3.2%."If they're growing, it's because they're becoming more differentiated than the competition around them, and they're offering a value proposition for things like fast, convenient and value-priced meal solutions that resonate with consumers," Portalatin says. "They're attracting a greater share of that available consumer traffic, and when the economy does recover, they're going to be handsomely rewarded with a bigger piece of the pie."Collaboration, MVEsBundling programs and co-promotions that pair two brands or a brand with a retailer's private label continue to be standard tactics in c-stores.Kraft's Hare suggests that an Oscar Mayer hot dog, fountain beverage and a pack of Oreo cookies "as a bundled offer solves the c-store customer's dilemma of 'What can I quickly grab for lunch today before I need to get back to work?'"The c-store has recently become a bigger focus for the team at Kraft, dedicated to bringing innovation into that space. "We're doing more customer collaboration as merchandising racks are developed and seeking input from customers and our retail organization," Hare says, leveraging Kraft Food's wealth of category, consumer and shopper insights.For Beer Nut Brand Snacks, Bloomington, Ill., multipurpose displays help the company get secondary placement in c-stores, which Tom Foster, director of new business development, says is the lifeblood for his products. Another way companies are gaining this space is on multi-vendor endcaps (MVEs), and Beer Nuts' new snack-size PET jars as well as other c-store-specific packaging (such as its beer can packaging) are getting placement on these endcaps."Retailers got tired of giving that real estate over to Frito-Lay and getting 15% margin, whereas when they work through us they can get 45%," says Foster. "It's a way of them grabbing back the real estate and saying, 'Those consumers are mine, so let me build an endcap with stuff I want in there.'"Justin Havlick, president and founder of Thanasi Foods, Boulder, Colo., likes the MVE idea. "We typically work with our retailers and distributors to align the best, most complementary products for the MVEs," he says. "These products, along with candy and other types of snack foods that are complementary, do extremely well, and we've seen incredible results out of MVEs in the past couple of years."Rutter's has "cut back tremendously" on the freestanding pieces it allows from the brands "because we think the traffic flow within the store is critical," says Perkins. "The consumer again wants to be able to get in, see what there is, and since impulse is still a big part of our business, we want to be able to strategically put items where they can generate more sales without impeding the traffic flow."Mars Snackfood U.S., Hackettstown, N.J., offers retailers its Fleet of Shippers program, which sends in a different shipper each month to c-stores. "Many feature an eye-catching theme or a Mars Snackfood U.S. sponsorship, which is an effective way to capture consumers' attention," says Larry Lupo, vice president of sales. Themes of recent shippers have included the movie "Transformers: Revenge of the Fallen," the "Most Colorful Fan of NASCAR Contest" and the Snickers NFL "Be a Super Bowl Chompion" sweepstakes.7-Eleven has found success leveraging movie, gaming and sports/entertainment properties to promote its signature products, with its Slurpee and "X-Men Origins" promotion and Big Gulp and SummerSlam Submarine Sandwiches for WWE SummerSlam."Through our scale and leadership position in the industry, we can offer our customers unique promotional experiences and drive traffic to our stores," says Angela Carrales, senior director in the Dallas-based retailer's marketing department. Consumers leave stores with promotional cups and merchandise.Tobacco ConcernsThe Family Smoking Prevention and Tobacco Control Act, which President Barack Obama signed into law in June, granted the FDA regulatory authority over tobacco products."We don't know too much yet about how the FDA is actually going to go through the rule-making on some of the provisions in the law, but it will certainly set guidance for how tobacco products are manufactured and marketed," says Greg Mathe, spokesperson for Richmond, Va.-based Altria, parent company of Philip Morris USA, U.S. Smokeless Tobacco Co. and John Middleton. Even with prices increasing dramatically, Mathe says cigarettes and the tobacco category still remain profitable, and to a certain extent, have the capability to grow. The individual cigarette brands under the Altria umbrella do both pricing and marketing promotions and sweepstakes, keeping the company competitive and top-of-mind with consumers. Following the acquisitions, it has put a greater emphasis on trade programs and merchandising for its smokeless tobacco and cigar products, which should continue to grow 4% to 7% annually."We're putting more emphasis on organization of the category and building awareness for adult consumers that the products are there," says Mathe. Clearer signage and stronger messaging focused around freshness for the smokeless tobacco products is a priority. "That's what we hear from consumers is one of the most important attributes of the product." "C-stores understand that tobacco consumers are a big part of their business and retailers certainly make sure they take care of them," says Jane Green, vice president of marketing for Swisher International, Jacksonville, Fla. "Many other channels like to pretend they're not in the tobacco business anymore, but c-stores clearly understand that it's an important segment and they've done a really nice job of making consumers feel welcome there."The modern smoke-free tobacco category is indeed a bright spot for the tobacco companies. Three dissolvable tobacco products, called Camel Orbs, Camel Sticks and Camel Strips (think breath strips) are being tested in three leading markets, with messaging communicating that these products are also smoke-free, spit-free and create no litter."We're limited as to exactly what we can do in-store," says David Howard, spokesman for R.J. Reynolds Tobacco Co., Winston-Salem, N.C. "Everybody is vying for communication space at retail, and retailers are limited in the space they can provide. We want to help make it easier for our retail partners to help manage that category."One of the ways it does that is through its new website, www.EngageRJRT.com, which launched earlier this year. The password-protected site provides insights and information that not only will help retailers maximize their tobacco category sales, but overall sales as well.

Channel Report: Convenience Stores

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