Easy Does It
Offering chilled drinks for home consumption is just one area where UK convenience stores are leading the retail pack. Gwenael Quéré-Joseph of Euromonitor International analyses the key driving forces behind the success of the C-store sector
In the UK, Euromonitor International estimates that the share taken by convenience stores in off-trade alcoholic drinks sales has been growing consistently from 7.5% in 1997 to reach 9% in 2004. This is a particularly impressive performance, with growth achieved in spite of very harsh competition from supermarkets and hypermarkets, which hold nearly 60% of the market and continue to grow. The performance of C-Stores in the UK compares very favourably with Northern Europe, where Cstores’ share of off-trade sales of alcoholic drinks has declined, or at best remained static.
In Finland, Norway and Sweden alcoholic drink sales are, for the most part, limited to stores owned by state-run monopolies, with only lower-strength beers and FABs available for purchase through traditional retail outlets. In Denmark, C-stores’ share of alcoholic drinks sales has declined, mainly due to increased competitive pressure from multiples, which offer cheaper prices attracting shoppers away from convenience and speciality stores. Opening hours in Denmark are very restrictive and alcoholic drinks’ prices are significantly higher than in Germany, prompting a large proportion of consumers to shop across the border.
Ireland is the only market in Northern Europe where the trend is similar to that seen in the UK, due to the dominance of C-store groups such as Musgrave, BWG and ADM Londis. However, at 4% of the alcoholic drinks market, Cstores’ share is still far behind specialists, supermarkets and discounters.
Euromonitor identifies a number of key factors that are driving growth in the UK C-store sector, with particular reference to alcoholic drinks.
With growing numbers of women at work, consumers tend to have more money than time and are looking for convenience. C-stores’ widening range of products and long opening hours are well placed to respond to this growing demand. UK C-store operators have been investing heavily in convenience, enhancing the aesthetics of their stores, presenting bright and airy spaces with clearly labelled products. They have further improved their offering by providing chilled products. This chilled factor is a major unique selling point in alcoholic drinks as the product is often consumed a few hours after purchase. In most C-stores, chilled drinks are sold for the same price as non-chilled.
Big night in
A trend particularly affecting alcoholic drinks sales in the UK is that of the “big night in”. Harris International Marketing (HIM) estimates that on-trade establishments received approximately four million fewer visitors in February 2005 compared with February 2004 over a seven-day period. British consumers are increasingly favouring entertainment at home, alone or with friends, and tend to drink smaller quantities more often during the week. This has resulted in sales of beer, wine and spirits in C-stores reaching a seven-year high in 2004, with alcohol sales representing 11.7% of all purchases made in C-stores. The supermarket giants have also upped the levels of competition within the convenience sector. Faced with a slowdown in supermarket sales growth and restrictions on expansion as a result of planning regulations, Tesco and Sainsbury’s, attracted by the healthy growth of the convenience sector – 7.3% in 2004 over 2003 – have decided to use C-stores to develop their businesses. Both retailers have purchased independent C-stores and well-performing chains, changing the banners to Tesco Metro, Tesco Express and Sainsbury’s Local. Supermarket retailers now operate 1,138 dedicated C-stores accounting for more than half of the sector, according to the Association of Convenience Stores.
Existing C-store players such as The Co-op and Budgens have reacted aggressively to the arrival of the larger groups, strengthening their own networks through acquisitions and developing their own new store formats in a bid to revitalise their businesses and meet the challenge laid down by the supermarket operators. One unique selling point common to UK C-stores is their integration into local communities. Ranges of alcoholic drinks often reflect regional preferences – Foster’s is strong in the south of England, while Carling is popular in the Midlands and north of England – and include regional products such as McEwans in Scotland.
C-stores operated by multiples do try to replicate the supermarkets’ range on a smaller scale, by analysing sales figures of the most popular brands. However, it is only recently that they have started factoring in the characteristics of their local communities, with teams dedicated to this purpose. Tesco Express now carries products targeted to the local ethnic minorities in certain parts of London, such as kosher wine or Magnum Tonic Wine, which is produced in Jamaica.
Despite the recent successes of alcoholic drink sales in the UK Cstore sector, the UK C-store is not without its challenges.
Shelf space is a major factor affecting the range of products that C-stores are able to carry. Most stores carry a broad but shallow range of alcoholic drinks to make the offering relevant to a greater variety of consumers. The profile of the typical consumer of alcoholic drinks in C-stores varies depending on the location, and the stores generally try to tailor their offer to local demand. Sophisticated C-store chains have a clear customer segmentation policy based on local demographics.
A common trait of C-store consumers is that they spend very little time in the shop so operators need to make sure the selected range gives out a clear message. Most C-stores provide well known brands in each category, along with value items such as own-label products, in order to offer all price points corresponding to the profile of their typical consumer.
Typical beer brands found in a north London C-store range from mainstream beers such as Carling and Foster’s to premium varieties including Leffe and Hoegaarden. The majority of wines on offer are typically new world branded products such as Jacob’s Creek, E&J Gallo’s Sierra Valley, and Banrock Station, with a handful of French and German labels. The purpose of stocking well-known brands is to attract consumers into the shop while responding to the growing demand for premium products. It also entices them to trade up. Ranges of own-label wines are also very well developed, with products covering a selection of wine-producing countries, including Budgens’ Cape wines from South Africa.
Spirits ranges are particularly limited due to the security concerns linked to their high price point. With relatively low staffing levels, most C-stores merchandise them behind the counter, where space is restricted. Some C-store chains have introduced security tagging so the product can be displayed “in flow” and be available in a much broader range.
Reviewing the range of alcoholic drinks to correspond with changing demands of consumers is another challenge for UK C-stores. Changes need to be quick and ongoing to attract customers.
C-store managers are faced with the problem of limited shelf space – for each product added to the range, one must be subtracted. Assessing whether a new product might perform as well or better than a known one is difficult, particularly for nonaffiliated stores that do not benefit from the support of a franchise. Similarly, stocking large quantities of cider or Pimms in the summer can be risky, given the unpredictability of the British weather.
Price is another issue which Cstores have had to contend with in recent years, in the face of the price war fought between supermarkets. Consumers have been increasingly made aware of the deals available in multiple stores and are less likely to pay the large premium habitually charged by the convenience sector. C-stores commonly use promotions to attract consumers, and a typical strategy includes a good range of on-shelf multibuys across a range of products coupled with a limited number of off-shelf hero deals. Current promotions include at least 25% off all sparkling wines in Budgens.
Despite all their efforts, Cstores are still more expensive than supermarkets, partly due to smaller economies of scale and greater overheads such as rent. In addition, C-stores cannot afford to sell big brands at a loss, as supermarkets commonly do in order to attract consumers. Today, depending on the product and store, premiums vary from 4% to 15% on supermarket prices. However, provided that the premium stays within certain limits, consumers are still willing to pay for convenience.
Thanks to evolving consumer habits and the capacity of Cstores to adapt, Euromonitor’s assessment is that the dynamic growth of the UK convenience sector will continue in the medium term. Faced with the challenges posed by supermarkets, C-store operators have consolidated their networks, decreased their prices and adapted their ranges to fit consumer needs. These changes will nevertheless continue to necessitate big investments and a capacity to keep up with the ever-evolving market and competition.
In the rest of Northern Europe, with the possible exception of Ireland, the C-store sector is unlikely to experience similar growth. In Finland and Sweden, EU pressure may lead to a relaxation of some of the monopoly regulations, but such changes are not currently on the Commission’s agenda. C-stores in Denmark would have a better chance to compete against supermarkets and German retailers if the legal opening hours were relaxed. Even then, it would take an enormous effort on the part of C-store operators to adapt their offer and their prices to consumer demand.
The recent arrival of Tesco in the Irish market has led to an increase in the number of larger stores. However, planning restrictions and the fragmented nature of the Irish market, will mean that local stores remain the leading point of purchase for alcoholic drinks for some time. With a number of players already present and competing on the British market, Euromonitor forecasts that the Irish C-store sector will follow the UK pattern.