Home » Convenience, drug stores fare well in economy
Convenience stores saw a sales growth of 2.6 percent in 2010, according to data from Euromonitor International, Chicago, which was a more robust increase than the grocery market overall during the same time period. Drug stores also performed well in 2010 with a 5.4 percent sales growth, according to the market intelligence firm.
Beverage sales contributed to this growth, as Euromonitor data shows that soft drink volume grew by nearly 8 percent in 2010 in the convenience store channel.
“This pace of growth meant that convenience stores gained share of total soft drink sales from other channels,” says Jon Wright, Euromonitor’s head of global retailing research.
Wright adds that the drug store channel performance can be linked to retailers operating in prime locations, improving store layouts and expanding product mix.
“The rising levels of footfall within these stores have aided the growth of types of beverages as consumers enjoy them as convenient products to grab on the go,” Wright says.
The National Association of Convenience Stores (NACS) will release its State of the Industry Report with 2010 data in April, and “indications are it’s a good year,” says Jeff Lenard, NACS’ vice president of communications.
Lenard says that the channel has reported flat to slight growth for some years.
“The good thing we’ve found the last few years, in the recession, is when somebody’s thirsty they get something to drink,” he says. “And if you make it easy for them, they’ll do it. And convenience stores make it easier for them. So we hope that consumers will continue to embrace convenience stores for beverage purchases.”
Euromonitor’s Wright also foresees a positive upcoming year for convenience and drug stores based on a number of factors, including addressing an aging population. Small stores appeal to consumers who don’t want to travel far or are unable to walk around large store formats, he says. The younger demographic also could increase footfall as the population urbanizes and their lives get busier, Wright adds.
“For beverages, this should be seen as a positive as footfall at such stores will grow and, as a result, the grab on-the-go convenience of the products should enable them to see increased sales,” he says.
According to Chicago-based SymphonyIRI Group’s February edition of Times & Trends “CPG Year in Review: Out of Turmoil Rises Opportunity,” beverage categories have performed well.
“Across CPG outlets, the three most rapidly growing categories during the past year are beverage categories,” SymphonyIRI states.
Those categories are ready-to-drink (RTD) coffee and tea, sports drinks and energy drinks. When RTD coffee and tea as well as energy drinks were looked at in regard to the convenience channel, they showed recognizable growth, SymphonyIRI says. Sports drink unit sales increased 11 percent in convenience stores, but showed slower growth compared to grocery channels that had unit sales increase nearly 20 percent, SymphonyIRI’s Times & Trends states.
However, the beer category saw a slight decline at convenience stores, finishing down 2.4 percent in cases and was nearly flat in dollars, being down two-tenths of a percent, according to Dan Wandel, senior vice president of beverage alcohol client solutions for SymphonyIRI. The craft beer segment increased by double-digits in convenience stores, he says.
“When I look at convenience stores, though, the story of the year, aside from the domestic products being down, would be the progressive adult beverage segment,” he says.
Wandel said that strong performance by products such as Four Loko, Joose, Boston Beer Co.’s Twisted Tea, Mike’s Hard Lemonade and Diageo’s Smirnoff Ice varieties contributed to the growth of the flavored malt beverages (FMB) segment, which grew 25 percent in volume and slightly below 25 percent in dollars in the convenience channel.
Drug stores also have seen outlets strengthen their focus on expansion of food and beverage products. Times & Trends cites examples of this, such as Walgreens’ announcement to expand those offerings in all stores, as well as CVS/Pharmacy redesigning 200 of its urban locations to increase its assortment. The publication adds that CVS is expected to continue renovations for more than 1,000 of its stores.
The drug store channel saw strong growth in the coffee and tea categories as well as non-fruit drinks, says Susan Viamari, editor of Times & Trends. Each category experienced double-digit dollar sales growth in three of the past four quarters, she adds. Bottled water and juices also saw an increase in sales in the past year in the drug store channel; however, carbonated beverages and drink mix dollars decreased for the three of the past four quarters, Viamari says.
Another category that fared well at drug stores was beer. Nick Lake, vice president and group client director for The Nielsen Co., Schaumburg, Ill., said that the drug store channel was up about 8.5 percent.
“It’s driven a lot by new stores or more retailers carrying beer,” he says. “In fact, we saw about 3,400 new drug stores stock beer.”
Lake notes that the channel had seen notable growth in the craft beer market, but that is underdeveloped compared to the general market.
Walgreens also expanded its beer offerings with the release of private label beer Big Flats 1901 Premium Lager. The release is nationwide, except for California, which will launch later this year, according to Winery Exchange, the company that launched the new beer.
In the June 2010 edition of SymphonyIRI’s Times & Trends “Store Brands: More Than Just a Safe Harbor in Turbulent Times,” it states that convenience stores continue to increase store brand shares and that is being led by 7-Eleven.
“Store brand share growth is strongest in the dollar store and convenience channels,” SymphonyIRI says. “In each of these channels, store brand assortment is quickly broadening, opening the door to new purchase opportunities.”
To appeal to legal-age millennials, 7-Eleven added to its proprietary wine line-up in November with Cherrywood Cellars in three varietals: Chardonnay, Cabernet Sauvignon and Merlot.
“We are targeting millennials because they like convenience and want to try new products, especially if we offer them a quality product at a great price,” said Jesus Delgado-Jenkins, 7-Eleven senior vice president of merchandising and logistics, in a statement.
Cherrywood Cellars is a mid-tier-price wine priced $7.99 to $8.99 compared to the company’s first wine Yosemite Road, which is $3.99. The retailer also offers Sonoma Crest, a premium wine that is value priced.
NACS’ Lenard says that private label offers retailers multiple outlets, such as being a better profit driver for the bottom line and as being a way to extend your brand beyond the store.
“You don’t have to be a multi-store operator to take advantage of private label,” he says.
Lenard says he has seen outlets use private label bottled water at various community events, allowing the store operator to receive the recognition compared to when they use someone else’s brand. He also has seen private label water used to fund charities that, for example, will give $0.25 of each bottle purchased toward a charity.
However, some strategists caution about the effect that private label can have in these channels.
“Private brands generally don’t succeed in a convenience shopping environment,” says Paul Weitzel, managing partner with Willard Bishop, Barrington, Ill. “Shoppers are making a quick purchase and are looking for the national brands and core items that they have developed equity with over the years. They want to get in and get out and don’t have time to analyze a purchase decision.”
Weitzel has seen retailers turn to private brands as a way to increase their margin, because it can allow retailers to grow their margins by 10 to 15 percentage points, he says.
“If done right, private brands can add value,” Weitzel says. “If not, I think it can definitely affect store loyalty. Retailers do need to be careful with private brands.” BI
Sidebar: Technological avenues
Convenience stores are finding other ways to stay competitive and one way is turning to technology.
Investments in technology at convenience stores and other small volume retailers have been at a slower pace compared to large volume stores, but convenience stores are turning more toward technology, says Paul Weitzel, managing partner with Willard Bishop LLC, Barrington, Ill. The use of “smart” hand-helds that provide data to store operators is one opportunity.
“They provide intelligence that improve store re-ordering like order histories, promotion data, out-of-stock data, etc.,” Weitzel says. “Often, the wholesale partner is providing these units to the store for free or a small fee.”
In addition to back office technology, Jeff Lenard, the National Association of Convenience Stores’ vice president of communications says he has seen stores implement up-selling technology such as the Lift Station platform. The Lift Station is connected to the point-of-sale (POS) cash register system, and when an item is scanned the system identifies an up-sell offer digital ad to the consumer and a selling script to the cashier.
“It’s a little more robust and it allows somebody to sell two of an item or something along those lines, depending on what you want to achieve,” Lenard says.
Convenience stores also are finding ways to communicate with consumers throughout the store in order to “get the product to the customer instead of trying to get the customer to the product,” Lenard says.
Touch screens also are an example of suggestive selling technology. When a consumer orders a sandwich the technology can be used to incent people to purchase a beverage as well, he says.
Lenard also says that talking to people by running ads on gas pumps as a person is filling their gas tank or finding ways to get the product to the pump could be part of the future.
Weitzel expects more technologies to emerge in convenience outlets, such as using technology that detects Blue Tooth signals on cell phones that knows when a shopper is at the gas pump. Store operators can then send promotions to entice consumers into the store.
“Think of what that can do to increase in-store traffic,” he says. “The one thing that is holding us up is having a more sophisticated POS system to accept different discounts by shopper. I think this is the next big idea, and it’s just around the corner.” BI