REPORT: CONVENIENCE STORES MUST SELL FRESH FOOD

DENNIS BLANK

ORLANDO, Fla. -- The future of the nation's convenience stores rides on satisfying consumer demand for fresh and chilled food. If the convenience store retailers can't deliver, they risk losing business to food retailers, according to a new forecast presented here last week during the National Association of Convenience Stores Show.

The report, "The Shape of Convenience: The Next Five Years," is a five-year study of the convenience store industry in the United Kingdom and the United States. It was conducted by British consulting firm srcg, London, and is based on interviews with over 30 retailers and 30 manufacturers, as well as focus group interviews and surveys of convenience store shoppers.

"If specialist c-retailers and fuel retailers do not find a way to offer convenient, supermarket-quality fresh food, they will lose out," the report states. "The time of reliance on traditional categories is over. Shoppers in the U.S. particularly want more from their convenience outlet, and if they don't get it from you, all they need to do is cross the road and go into a big-box competitor."

Scott Annan, director for srcg, said the study showed that convenience stores have failed to meet shoppers' needs. Customers complain that in some stores half the products are missing, many are dirty and employees are rude, he said.

Big-box retailers such as Marks & Spencer are setting higher standards by selling the type of products that customers want, he said. Even so, these retailers are in poor locations, he noted, while convenience chains such as 7-Eleven and major oil company service stations are in better locations but have not developed their product line beyond cigarettes, candy and emergency groceries.

"If their top-up shop requirements don't go beyond these staple items," Annan said, "shoppers will choose to fulfill all their needs in one stop at the big-box inconvenient locations rather than visit two shops."

Regional chains such as Morning, Noon and Night in Scotland, Bells Stores in England and Wawa in the U.S. are growing because they are giving the local community what it wants with local products and superior service.

Collaboration with manufacturers, particularly those that now supply the larger retailers, will be a key to convenience stores' success, the study said.

The srcg report warns convenience store operators that over the next five years "a small number of the big-box retailers will achieve sufficient scale in key markets to pose a real threat to specialist c-retailers and fuel c-retailers."

Nine out of 10 survey respondents noted the single biggest threat they currently face is competition from a nearby big-box brand-name store.

The study also predicts that while U.S. convenience retailers recognize they need to keep their core customers -- blue-collar males who buy fast food and snacks -- they must also attract more affluent shoppers and women to their stores.

"These are all areas where costs will increase," the srcg report said. "Independent outlets may find these additional costs to be prohibitive and the lure of easy money from the buyout retailers too much to resist."

To back up the study's findings, Jill Bruce, an executive with Marks & Spencer, London, said sales of fresh and chilled packaged meals at its eight new M&S Simply Food stores are "delivering way beyond expectations."

The company, which reports annual earnings of $4.5 billion among its 320 stores, said it sells no cigarettes, fast food or fuel, and all products are branded with its name.

John Zikias, an executive with London-based British Petroleum, which operates 900 gas station-convenience store outlets in the U.S., and has revenues of $174 billion, said the new BP connect gas station-store format follows the "fresh" trend. Its in-store Wild Bean Cafe offers fresh baked goods, breads, sandwiches and soups along with traditional groceries, snacks, an e-kiosk and general merchandise. The stores are "open, bright, environmental friendly and inviting through the use of full glass store fronts and lower gondolas," Zikias said.

"Consumers are more timed-starved than ever, and suppliers and retailers can work together to develop solutions."