What does convenience look like in 2009?

Insight partner and Global Convenience Store Focus co-founder, Dan Munford, considers the challenges and opportunities covered in the Insight NACS newsletter in 2008 and looks ahead to 2009.

Convenience is a better place to be in than most other retail sectors apart from discounting right now. However, shopper behaviours are changing dramatically and convenience retailers need to think carefully about the impact this is having on formats and categories.

In most developed world markets, convenience is growing faster than the grocery market. According to the IGD, the UK convenience market grew by 5.8% to £28.7bn in 2008, while the total market grew by 4% to £140bn. The IGD forecasts convenience will grow by 4.5% per year for the next five years to reach £35.6bn by 2013. The total market, meanwhile, will grow by 4% per annum to reach £170bn by 2013.

Discounters are winning scale in the UK market (already over 5%, according to Nielsen) and this threatens c-stores as much as supermarkets. Convenience retailers need to understand why shoppers like the German discounters.

Lidl’s new 6,000sq ft c-store promotes a strong food-to-go offer comprising a fresh in-store bakery, Douwe Egberts coffee, sandwiches, soft drinks and meal deals. A meal deal, comprising a sandwich, packet of crisps and soft drink, can be purchased for as little as 99p.

In a related development, sales of value own labels at UK supermarkets have risen sharply, according to the latest data from TNS Worldpanel. Value own labels rose by 41.6% in the 12 weeks ending 2 November 2008 compared with the same period last year.

Globally, improved retail concepts and propositions are driving convenience growth. Foodservice is a key opportunity. However, retailers need to watch staff costs carefully in the ‘new economy’ and re-evaluate how changing consumer behaviours towards less car use, more packed lunches, less daily pints of latte and staying-in more, rather than eating and entertaining out, impacts on their future plans.

UK convenience retailers have to respond to present market conditions with the right tactics. However, they should not abandon longer-term strategies towards greener and upmarket food retailing.

Insight’s NACS Green Toolkit product benchmarks how convenience operators have improved the impact of their stores on the environment and cut costs. Tesco’s ‘eco’ convenience format in Hinckley has a 50% lower carbon footprint than older stores and between 30-40% reduced energy consumption.

TNS Worldpanel market share data for the 12 weeks to 2 November 2008 show Waitrose has seen its growth rate fall back progressively for the last eight reporting periods. However, Waitrose has still pushed ahead with its new 6,000sq ft c-store format in Nottingham and first impressions are good.

Local remains another key trend. Sales of locally-sourced foods are holding up turnover in UK fine food stores, according to a survey commissioned by the Guild of Fine Food, the trade association for the speciality food sector. The farm shop sector has benefited from stocking local products with 61% of operators reporting increased turnover this year. This is despite the move by major multiples into local and regional sourcing.

One significant long-term challenge is the looming UK ban on tobacco display. Research in Canada suggests that the industry lost between $70m-$90m of in-store display support and significant footfall as a result.

If you would like to provide Dan with feedback on the newsletter please contact: dan@insightresearch.co.uk