A few years ago, you almost never heard anyone in the mainstream retail industry worry about competition from convenience stores.
Now, when executives at supermarkets, drugstores and discounters fret about the various formats that lure away customers, the lowly convenience store ranks right up there with other rival retail channels. Why is this once overlooked, much-maligned industry all of a sudden getting so much respect?
Largely, it's because convenience stores offer two things that traditional retailers have been rushing to add in recent years: convenience and food. It helps, too, that many convenience stores today are cleaner, hipper, more focused and better managed than they used to be.
"For a while, convenience stores took the best from other retail channels," said Jeff Lenard, a spokesman for the National Association of Convenience Stores. "Now you're seeing other channels taking the best ideas from convenience stores and making it work for them."
Of course, the convenience store industry wants to tout that message. But it happens to be true. Just about every drugstore and supermarket chain is looking at ways to put more fast-moving items toward the front of the store and facilitate quick trips in and out for customers. Some are even experimenting with their own convenience store formats, and several major chains are jumping into the gasoline retailing business.
In the end, it may be that true convenience is something that is best done by the convenience stores, while full-service stores should focus on doing what they do better. But it's hard to turn a blind eye when the competition is eating your lunch.
Industry trade publication Convenience Store News reports that non-gas sales at convenience stores have grown faster in recent years than sales at any other category of retail outlets, including restaurants, food stores and drugstores, especially between 1998 and 2002. Meanwhile, the number of trips shoppers make to stores is falling across all retail channels, according to Maureen Azzato, publisher and editorial director of the magazine.
"The only place it's not down as dramatically is in convenience stores," she said. "People don't like shopping that much and [want to] be more efficient with how they're doing it."
The blurring of the lines between different types of retail formats has fundamentally changed the business. Today, you can buy patio furniture and toys at the supermarket, bread and milk at the drugstore and groceries at Wal-Mart. It's causing considerable angst among retailers worried about how to differentiate themselves.
Until recently, convenience stores had been somewhat immune to this trend. They always carried a few of the best-selling items from all types of stores, so in some respects theirs was the original line-blurring format. But convenience stores were, for decades, the places where "Bubba" shopped, while being overtly avoided by the predominantly female customer base of traditional shopping outlets.
Now that "convenience" has become mainstream, however, there's a vicious cycle going on: Every time a new major retailer gets further into the convenience stores' core business, the convenience store industry steps further into the best categories of traditional retail.
Already, major chains have put a big emphasis on longer hours, express lines, quick-service food shelves and coolers and separate grab-and-go stores. Each development has made life a little tougher for convenience stores.
But the migration of other retail formats into gasoline sales has pushed convenience stores to change more than just about anything else. Profit margins on gasoline have been depressed by club store chains like Costco and mass retailers like Wal-Mart, which use gas pumps less as profit centers than as traffic generators.
And as gas prices creep higher, it's even more difficult for convenience store operators to keep their profits on gas, and that's been a big blow to the three of four convenience stores that have pumps. Worse, the biggest merchandise draw for such stores, cigarettes, is eroding as a profit center too, as tobacco taxes rise and smoking rates decline.
Where to go? Food. If there's anything that can reliably attract shoppers, it's quick and decent food.
Led by such innovative chains as Wawa and Sheetz, both based in Pennsylvania, the convenience store industry has ventured far beyond the familiar triangle-shaped boxed ham sandwiches into gourmet wraps, freshly prepared hot food and tiny co-branded outlets run by fast-food operators. McDonald's, Subway and Taco Bell, for example, can increasingly be found at convenience stores.
Convenience store operators "now are doing a lot of reexamining of their different product mixes because they want to keep the [product] moving -- they want to make sure they're using their space wisely," said Jennifer Bulat, executive editor of CSP Magazine, a trade publication for the convenience retailing and petroleum industries. "Sometimes general merchandise is the one that takes the hit, or little infill grocery items. It depends how serious the chain is."
Food service, whether it's hot sandwiches, pizza or coffee, now accounts for the second-most purchases in a typical convenience store, according to NACS, and it contributes a fifth of a store's profits. In 2003, prepared food and beverage sales totaled $15 billion, up from $8.7 billion in 1997. An additional $6 billion was rung up last year by nationally branded food operations at convenience stores. In total, the industry has annual sales of about $300 billion.
Of course, it's hard to make prepared foods both good and profitable. But in a head-to-head battle for prepared food dollars, the convenience store industry has an inherent advantage: It's just plain fast.
"Supermarkets may have 24-hour operations and they may have express lanes, but their parking lots are huge and if you just want one or two items, there's no way you can get in and out in two minutes," said Azzato of Convenience Store News.
So maybe the big, traditional retailers should spend a little less time emulating the convenience stores, and instead take care of the customers they really need to please: those who come in and spend hundreds of dollars on major purchases every week or two. In a survey by the Food Marketing Institute of what consumers want in a supermarket, in fact, convenience ranked sixth on the list. The top two consumer desires were clean and neat stores and high-quality fruits and vegetables.
The fact of the matter is, when a major retailer gets it right, consumers will go out of their way to go there.
Otherwise, they'll go to the convenience store.
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