SUPERMARKETS AS ALTERNATIVE FORMAT

David Merrefield

In the supermarket branch of food retailing, we're used to thinking about "alternate formats," a useful, if provincial, way to describe other channels of trade that appropriate for their own use any product line traditionally associated with supermarkets. It's probably time to retire that quaint phrase and get used to the fact that the day when supermarkets had a lock on its traditional product lines simply isn't returning.

It's in that spirit that this week's SN offers a front-page feature about the convenience-store industry, with a closeup look at 7-Eleven. Convenience is an industry that sees supermarkets and other channels as alternate providers of what it does best, namely saving the time of shoppers.

Convenience is an industry that's well worth a look. In the aggregate, convenience stores do a lot of business, more than $269 billion, with roughly half that sum derived from fuel sales. Little wonder supermarkets, discount, membership and other styles of mass retailing are taking a new look at offering fuel themselves. 7-Eleven alone drives nearly $30 billion in sales from its network of 21,000 stores worldwide. Stores greet some 20 million shoppers daily. To gauge the size of 7-Eleven, consider that if it were a supermarket company it wouldn't be much smaller than Safeway in terms of sales volume. (It must be acknowledged in such a comparison that Safeway derives its sales solely from this country.)

Given the magnitude of the convenience business, little wonder wholesalers traditionally associated with supplying independent supermarkets are looking to convenience as being among the ways to increase their portfolio of business. To cite just a single example, Fleming Cos. is aggressively seeking additional convenience business and in recent days added 100 convenience stores in the mid-Atlantic to its roster of supplied stores.

Let's take a quick look at some of the opportunities and challenges that face the convenience industry, and 7-Eleven in particular.

Channel Challenge: The core product convenience stores offer is convenience itself, in the form of saving shoppers time. The time saving comes because convenience stores offer few stockkeeping units, decreasing the array of choices facing shoppers. Also, stores offer handheld food that shoppers can consume on the move. Supermarkets and drug stores are working in these directions too, with the possibility of being able to trim some of the advantage the convenience industry possesses.

Shelf Allocation: Many convenience-store operators traditionally have had little expertise in category management. Instead, they handed shelf management over to vendors who, in effect, rented space and maintained their own shelf sets. 7-Eleven has upgraded its technology to enable it to move from a push to a pull supply arrangement. The objective is to offer for sale what customers what, not what vendors are willing to supply and maintain. James Keyes, 7-Eleven president and chief executive officer, detailed the effect technology is having on the company at SN's E-Commerce Summit meeting in March. Fresh: 7-Eleven is now seeking to upgrade the quality of the fresh product it offers, in alignment with growing consumer demand. The effect of that effort is to spark something of a restructuring of its store inventory in order to build clusters of stores relatively close to distribution points. That has caused much buying and selling of real estate in the convenience industry.