Convenience stores chip away marketshare

story by Kim Souza
ksouza@thecitywire.com

The convenience store market has exploded with enormous growth across the country and around Arkansas in recent years.

Since 2005, more than 8,100 C-stores have been added from coast to coast bringing the total to nearly 149,000 venues – a footprint that dominates the big and small box retail landscape.

A recent report from The Neilsen Company indicates there are more convenience stores than warehouse clubs, supercenters, dollar stores, supermarkets and drug stores combined.

It’s clear that Americans, while cautious with some spending, want and will pay for convenience.

STEADY GROWTH
Neilsen says there is one C-store for every 2,000 people in the United States. Through August 2012, the Neilsen report shows convenient store sales grew 4.9% in the 52-week period. This was better than the 3.7% sales growth for the overall retail sector.

As a sector, sales topped $123 billion in the year measured in the report. At the same time the $310 billion grocery segment grew by 1.5% and the $49 billion drug store category increased sales by 2.5%, excluding prescriptions.

In Northwest Arkansas two Iowa-based chains, Casey’s General Store and Kum & Go, have been in a mad dash to carve up territory in Benton and Washington counties for the past 18 months.

Casey’s has built seven local stores with three more under construction, and one more debated in Bella Vista.

This Iowa-based chain said it will add a total of 40 stores in fiscal 2013, with 13 of those are already under construction and eight more sites are planned with property negotiations underway. Casey’s operates more than 1,700 convenience stores throughout 12 states across the Midwest.

Kum & Go is also off to the races in Northwest Arkansas after the Des Moines, Iowa-based chain opened its first two stores in the Little Rock area in 2011.

Since then Kum & Go has built 15 stores in Benton and Washington counties, almost half of the 37 sites in the entire state.

The two chains are no stranger to competition as they have been battling for territory across the Midwest for more than three decades. Just last month Casey’s closed a deal to purchase 22 Kum & Go stores in Iowa.

The convenience store market is highly competitive and quite fragmented with the top four companies controlling about one-third of the total market.

Convenience stores are cheaper to build and operate than their larger format competitors -- grocery stores, fast-food outlets and even big-box stores like Wal-Mart.

SPEED BUMPS
Neilsen forecasts some speed bumps for the C-store segment as two of the leading trip motivators are decreasing – cigarette sales and gas sales.

More fuel efficient automobiles will likely mean fewer trips to the pump in the next five years. Increasing cigarette health issues and taxes are also taking a bite out of tobacco demand, according to the Neilsen report.

Trends in consumer lifestyles have led to innovation among some C-store owners offering on-the-go meals with a healthier appeal.

Ed Jackson, an executive in Springdale, says he loves the fresh turkey wraps at Kum & Go as a healthy lunch option that costs him just $5 and includes a 32-ounce drink.

He says the wraps are made fresh to his order and fit the healthy and inexpensive criteria he sets for lunches during the work week.

These fresh, ready-to-eat products have the ability to attract higher income shoppers and are gaining traction in the U.S., according to Neilsen.

Neilsen reports this type of fresh food has increased 38% in sales among convenience stores in the past year. Yogurt sales rose 57% in the same time period.

BEVERAGE BARS
Getting a cup of coffee or other dispensed beverage is the single-minded mission of many high frequency convenience store visitors, and often they'll grab a donut or something else to go with it, according to convenience store research by the NPD Group.

NPD's Convenience Store Monitor, which continually tracks the consumer purchasing behavior of more than 51,000 convenience store shoppers in the U.S., found that 86% of dispensed coffee purchases are planned and 7% are purchased on a deal.

Other dispensed beverages are also purpose-driven purchases with only 14% bought on impulse and 13% on a promotional deal, such as a 99-cent (32 ounce) soda.

Consumers of coffee and other dispensed beverages are high frequency buyers who represent 68% more visits than the average convenience store customer.

Dispensed beverage buyers are different than average convenience store buyers, who tend to be blue collar males, 18-to-49 years-old, according NPD. Dispensed beverage buyers tend to be female, ages 35-64, white collar, Hispanic and from larger households. Coffee buyers tend to be male, ages 45-65, a mix of white and blue collar, strong military connection, smaller households and higher income.

"The fact that the buyers of coffee and other dispensed beverages are defined differently than the typical convenience store visitor presents an incremental opportunity for C-stores," says David Portalatin, executive director of industry analysis at NPD. "If a convenience store can deliver on what dispensed beverage buyers are looking for in terms of product quality, a rewards program, and a clean and bright store, it can attract a loyal new customer base."

C-STORE AUDIENCE
LIke Wal-Mart and Dollar General, convenience stores pull a majority of their sales from households with incomes below $40,000. But 73% of households who frequent convenience stores do not have children – this is higher than Dollar General and Wal-Mart.

Neilsen found that 63% of households who are active C-store customers have two or less family members and 27% are male only.

Unlike all other retail segments where women command 60% share or more, men drive 54% of the shopping trips to convenience stores.

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Neilsen found convenience stores appeal to certain ethic groups more than others. Blacks make up roughly 17% of sales at C-stores. This compares to 9% in larger formats, 21% in Dollar Stores and 13% in drug stores.

C-stores capture about 13.7% of Hispanic households and just 1% of the Asian demographic.

NEW COLLABORATIONS
Neilsen expects interesting partnerships to continue developing between retailers and manufacturers that could help further accelerate growth in the C-store segment. One such collaboration with an internet retailer uses C-Store locations to house delivery lockers for online purchases.

“By providing a secure location for deliveries, internet merchants are able to cut shipping costs and C-Stores are able to attract new customers,” the report notes.

Neilsen also suggest U.S. operators take a page from the Asia Pacific retailers in countries like Indonesia and Thailand who offer in-store technology for paying bills and buying movie tickets and receiving money transfers.

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