On the face of it, the convenience sector is in rude health. It has grown 7.3% to £23bn since last year’s IGD Convenience Retailing Report and is set to smash through the £30bn barrier by the end of 2008 (see The Grocer, May 1, 2004, p4).
But there has also been a staggering 64% increase in the number of retailers affiliated to symbol groups and a 14.2% fall in the number of non-affiliated independents - a clear sign of how the independent sector is restructuring as the likes of the Co-operative Group and Tesco develop their convenience store operations.
As these multiples deploy their financial firepower and retail expertise to develop the best located sites into top quality c-stores, unaffiliated independents will increasingly struggle to compete, warns the report.
“The convenience sector is becoming polarised, with a clear disparity in performance developing between a small group of the most modern, best-run stores and the remainder, which, although larger in number, no longer represent the state of the art. Store location is becoming critical to commercial success,” the report adds.
Worse still, the report says, smaller operators are in danger of being priced out of the market by the spiralling cost of new stores. Even for larger operators, the limited supply of new sites suitable for development and the high cost of acquiring them could act as a constraint.
“The situation has the potential to trap retailers in a vicious circle as the high cost of maintaining a competitive store reduces the number of sites in which it is cost-effective to invest, driving up the cost of new store openings and making investment in existing stores a higher priority, leading to still higher levels of competition,” it says.
There is already evidence that smaller operators are suffering. The report reveals that the number of non-affiliated independents continues to decline albeit at a slightly slower rate - one a day - compared to the two to three a day last year.
Although independents remain key providers of convenience shopping in the UK, operating 52% of all stores and accounting for 33% of sales, the disparity between their portfolio share and market share underscores the growing gulf between them and the top end operators in operational efficiency.
“Retailers that are currently struggling are likely to see their position deteriorating still further as competitive pressures intensify,” the report predicts. James Walton, the report’s co-author, adds: “Operators at the lower end are going to remain at a disadvantage as the
£23bn - the value of the c-store sector
7.3% - the amount it has grown since 2003
£30bn - the value it is expected to reach by 2008
9.7% - the amount by which average weekly sales have risen
5.1% - the fall in the number of forecourt c-stores
14.1% - the fall in the number of c-stores on company-owned forecourts (the number of dealer-owned stores has grown by 5.7%)
1,418 sq ft - the average size of a c-store up on last year’s 1,371 sq ft.
Top 5 - best sellers are now tobacco; beers, wines, spirits; chilled foods; grocery and non-foodquality of the offer at the top end improves.”
And it is certainly improving, according to the report. Although fresh food remains a weak area both in terms of quality and choice, retailers have dramatically improved their ready meal ranges in their bid to target more top-up shoppers, it says.
They are also beginning to adopt a more sophisticated mindset, thinking in terms of customer and shopping occasion instead of product and category.
There are also signs that suppliers are taking the sector more seriously with 73% of the retailers who took part in IGD’s Senior Management Survey agreeing that suppliers are devoting more resources to convenience compared to 50% last year.
However, the survey also suggests that suppliers feel they are coming under increasing pressure from retailers, with 73% claiming c-store retailers are more demanding than last year. Meanwhile, retailers do not feel they receive the same level of service as the major supermarkets, with 93% disagreeing with the statement “my suppliers give c-stores the same or better level as the supermarkets”.
Pricing is another issue. Retailers and suppliers agree that it is appropriate for c-stores to charge higher prices than larger format stores, but retailers argue that 10% is an acceptable premium. Suppliers say 5% - a change from last year’s figure of 10%. They also say merchandising needs to improve and that availability is still a challenge.
With average weekly sales in the sector up 9.3%, some operators are clearly rising to these challenges. But others, notably many smaller independents, are finding life tough. And the report confirms that the days when you could find a site, open a store and then run it with limited experience, and limited investment, are well and truly over.
But there has also been a staggering 64% increase in the number of retailers affiliated to symbol groups and a 14.2% fall in the number of non-affiliated independents - a clear sign of how the independent sector is restructuring as the likes of the Co-operative Group and Tesco develop their convenience store operations.
As these multiples deploy their financial firepower and retail expertise to develop the best located sites into top quality c-stores, unaffiliated independents will increasingly struggle to compete, warns the report.
“The convenience sector is becoming polarised, with a clear disparity in performance developing between a small group of the most modern, best-run stores and the remainder, which, although larger in number, no longer represent the state of the art. Store location is becoming critical to commercial success,” the report adds.
Worse still, the report says, smaller operators are in danger of being priced out of the market by the spiralling cost of new stores. Even for larger operators, the limited supply of new sites suitable for development and the high cost of acquiring them could act as a constraint.
“The situation has the potential to trap retailers in a vicious circle as the high cost of maintaining a competitive store reduces the number of sites in which it is cost-effective to invest, driving up the cost of new store openings and making investment in existing stores a higher priority, leading to still higher levels of competition,” it says.
There is already evidence that smaller operators are suffering. The report reveals that the number of non-affiliated independents continues to decline albeit at a slightly slower rate - one a day - compared to the two to three a day last year.
Although independents remain key providers of convenience shopping in the UK, operating 52% of all stores and accounting for 33% of sales, the disparity between their portfolio share and market share underscores the growing gulf between them and the top end operators in operational efficiency.
“Retailers that are currently struggling are likely to see their position deteriorating still further as competitive pressures intensify,” the report predicts. James Walton, the report’s co-author, adds: “Operators at the lower end are going to remain at a disadvantage as the
£23bn - the value of the c-store sector
7.3% - the amount it has grown since 2003
£30bn - the value it is expected to reach by 2008
9.7% - the amount by which average weekly sales have risen
5.1% - the fall in the number of forecourt c-stores
14.1% - the fall in the number of c-stores on company-owned forecourts (the number of dealer-owned stores has grown by 5.7%)
1,418 sq ft - the average size of a c-store up on last year’s 1,371 sq ft.
Top 5 - best sellers are now tobacco; beers, wines, spirits; chilled foods; grocery and non-foodquality of the offer at the top end improves.”
And it is certainly improving, according to the report. Although fresh food remains a weak area both in terms of quality and choice, retailers have dramatically improved their ready meal ranges in their bid to target more top-up shoppers, it says.
They are also beginning to adopt a more sophisticated mindset, thinking in terms of customer and shopping occasion instead of product and category.
There are also signs that suppliers are taking the sector more seriously with 73% of the retailers who took part in IGD’s Senior Management Survey agreeing that suppliers are devoting more resources to convenience compared to 50% last year.
However, the survey also suggests that suppliers feel they are coming under increasing pressure from retailers, with 73% claiming c-store retailers are more demanding than last year. Meanwhile, retailers do not feel they receive the same level of service as the major supermarkets, with 93% disagreeing with the statement “my suppliers give c-stores the same or better level as the supermarkets”.
Pricing is another issue. Retailers and suppliers agree that it is appropriate for c-stores to charge higher prices than larger format stores, but retailers argue that 10% is an acceptable premium. Suppliers say 5% - a change from last year’s figure of 10%. They also say merchandising needs to improve and that availability is still a challenge.
With average weekly sales in the sector up 9.3%, some operators are clearly rising to these challenges. But others, notably many smaller independents, are finding life tough. And the report confirms that the days when you could find a site, open a store and then run it with limited experience, and limited investment, are well and truly over.
No comments yet