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A Convenience Truth

By Pat Pape

Don’t look now, but convenience is everywhere. The fast-and-friendly format that once belonged solely to small neighborhood stores is being encroached upon by a wide range of traditional retailers.

"The notion of convenience retailing is taking on new meaning," said David Bishop, managing partner with Balvor, a Chicago-based retail consulting company. "It’s no longer simply a retail class of trade, but rather a way of connecting with today’s ever-challenged shoppers."

To some observers, the idea of revamping a store’s original business plan or adding an entirely new product assortment may be indicative of a retail identity crisis. But to others, the possibility of capturing a share of the convenience business is tremendously attractive —especially since, as you know, today’s consumers demand and expect convenience.

Even in tough economic times, a large percentage of consumers will not give up convenience in exchange for lower prices. Busy people value their time, and many aren’t willing to drive across town just to save a few dollars. Expanding the consumer offering presents a potentially better payback than engineering a new store format. Because one-stop shopping minimizes the overall effort that buying trips re­quire, many forward-thinking retailers are adding convenience items and ser­vices to their existing product mix.  

Meals in Minutes
Walmart typically manages to stay in step with customers and their needs. Aware that time-crunched Americans are seeking fresher, better-for-you and ready-to-eat foods, the mega-retailer launched Marketside, a free-standing convenience grocery, in October 2008. With 10,000 square feet of retail space, Marketside is open daily from 7:00 a.m. until 10:00 p.m. to provide active people with "fresh, inspiring, afford­able" meals.

Although no one at Walmart’s Ben­tonville, Arkansas, headquarters wants to talk on the record about the new concept, the four existing locations, all of them in Arizona, are described as "pilot outlets" and "community grocery stores" on the Marketside Web site.

In addition to offering shoppers fresh produce, a butcher shop, bakery, wine, a deli and a florist, Marketside sells "restaurant-quality" take-out meals for $6 to $8 each. Recent offerings in­clude hearth-baked pizzas and individ­ual portions of lasagna, as well as penne pasta with chicken and marinated steak fajitas with Spanish-style rice. Familiar household brand names grace Market­side’s shelves, and its Web site boasts 20 percent organic product mix. Mar­ketside stores do not sell gasoline.

Giants and Kids
In April, Giant Food Stores, the Carlisle, Pennsylvania-based grocery chain that operates in Pennsylvania, Maryland, Virginia and West Virginia, opened its first Giant To Go, which officials de­scribe as "the size of a typical convenience store." Located in Lancaster, Pennsylvania, the store encompasses a petite 4,422 square feet, compared to the classic 70,000 square-foot Giant Food Store.

Giant To Go has a wide selection of immediate consumables, take-home meals, meats, a deli, bakery products and fresh produce, as well as eight pumps of Giant-branded fuel, complete with free air, hand-protection mitts and waterless hand soap. The new store is open from 6:00 a.m. until 11:00 p.m. seven days a week.

"We hope to provide our customers the best combination of convenience and value, along with the right on-the­-go selection," said Tracy Pawelski, di­rector of public and community rela­tions for Giant Food Stores. "We expect to begin construction on our second Gi­ant To Go later this year, and we hope to be open in early 2010."

Expansion of the Giant To Go con­cept will depend on the success of the first two locations, she said.

Meanwhile, Toys R Us, the kid-oriented retailer, has added a conve­nience section of approximately 1,300 SKUs to the front of the chain’s current stores, creating a store-within-a-store that takes up only 4.3 percent of their average toy store’s 30,000 square feet of space. Dubbed "R Market," the new section features colorful green signage with R Market’s logo — the iconic re­versed "R" placed next to a shopping cart bursting with stars.

R Markets carry light snacks, breakfast and lunchbox foods; assort­ed paper goods for wiping up spills or hosting a birthday party; baby essen­tials, such as diapers, wipes, baby food and infant formula; and health and beauty aids, including first-aid and wellness products like humidifiers. They also carry convenience store items, such as candy, cookies, cereal and bottled water.

"As part of our business strategy, we are continually focused on improving the shopping experience for customers in our stores," said Jerry Storch, Toys R Us chairman and CEO.

"This includes looking for new ways to provide busy parents with the conve­nience of finding everything they need for their kids under one roof." More than 260 of the company’s 585 Toys R Us stores contain the new convenience sections, and the concept will roll out to additional locations across the country later this year.

Bishop believes Toys R Us is making a logical move. "What Toys R Us is es­sentially saying is: 'We have our current customers walking into our stores and it makes sense to motivate them to spend a little bit more as opposed to at­tracting only new customers," he said.

"Expanding the consumer offering in this way offers them a potentially better payback than engineering a new store format, which usually re­quires a sizable investment in con­sumer communication as well as sales promotion," he added. "It is timely, costly and challenging to get consum­ers to change their existing shopping patterns and come into a store they’ve never visited."

Rock On
As retailers across classes of trade search for ways to grow their business, they’re experimenting with new retail formats and/or enhancing the consum­er value proposition in their existing footprints. Blockbuster is a good exam­ple. The Dallas, Texas-based movie and game rental retailer now offers custom­ers drinks and snacks at experimental beverage bars in several locations. With Jim Keyes, former president and CEO of 7-Eleven Inc. at Blockbuster’s helm, that move seems less surprising.

"In 2008, we launched our Rock the Block concept stores in Dallas, New York City and Reno, Nevada," said Ran­dy Hargrove, a Blockbuster spokesman. "These stores feature some combina­tion of specialized areas that include an interactive next-generation video game destination, a consumer elec­tronics area and a self-service bever­age station with hot and cold beverages and snacks."

According to Hargrove, some of these stores also feature comfortable chairs where customers can relax and play new video game releases from next-generation consoles on flat-screen televisions, all while enjoying various beverage bar products. Blockbuster hasn’t announced the total number of Rock the Block stores, but Hargrove de­scribed it as "a small number."

During Blockbuster’s first quarter earnings call in May, Tom Casey, the company’s CFO, reported that man­agement likes the results from Rock the Block locations, but given today’s cost of capital, Blockbuster will wait for credit markets to return to more normal levels before expanding such initiatives.

Meanwhile, even convenience store retailers are making crossover moves to satisfy and keep their customers. A number of 7-Eleven and Circle K stores, for example, now feature Redbox, a ful­ly automated DVD rental kiosk system in the forecourt area. The dollar-per-night rental service costs the re­tailer nothing more than the space it consumes (about the same amount as the average refrigerator) and Redbox takes care of all maintenance. Best of all, the discount rental service brings customers to the store twice — once when they rent their movie and again when they return it.

Interestingly, Blockbuster plans to distribute 10,000 automated rental ki­osks around the country through 2010.

Branded Blockbuster Express, the ma­chines are the result of collaboration with NCR. Currently, the machines can be found at approximately 425 Publix stores.

Bishop points out that a few conve­nience stores have adjusted their own product mix by making a non-traditional c-store offering, such as DVD movie rent­als, accessible to customers. "It makes renting a video more convenient by increasing the availability of these prod­ucts as well as providing a reason why a consumer visits your store," he said.

What’s Old Is New Again
Since 2007, when Walgreens, the Deerfield, Illinois-based drug store chain, posted its first quarterly profit decline in a decade, the retailer has been seeking new ways to attract more customers and boost profits. Wade Miquelon, senior vice president and CFO of Walgreens, announced at a re­cent Barclays Capital Retail and Res­taurants Conference that the company will pare back the product assort­ments in the chain’s 6,700-plus stores, lower shelves and make store layouts more intuitive, with complementary items sold next to each other. More emphasis will be given to core catego­ries, such as skin care and cosmetics. The ultimate goal: greater customer convenience and increased sales.

Recently, Walgreens installed conve­nience store-type, self-service beverage bars — branded Café W — in select markets. Café W sells premium cof­fees, cappuccinos, frozen drinks, so­das, muffins and snacks in an effort to attract more office commuters, busy moms and after-school teen shoppers. A self-service beverage bar also gives shoppers waiting on a prescription the opportunity to spend more money in the store.

"What some people may not re­member is that Walgreens had soda fountains years ago but exited that business as the retail concept evolved," said Bishop.

This fall, the chain will begin in­stalling beer and wine departments in some of its stores, a move that comes 10 years after Walgreens discontinued carrying both products. By the end of the rollout in late 2010, approximate­ly 70 percent of Walgreens locations will offer a limited selection of beer and wine.

"Clearly, both of these moves are a competitive threat to convenience re­tailers as they could potentially shift customer traffic and purchases by simply increasing the availability of many convenience-related products," Bishop said.

Only a Dollar
Thanks to the recent economic climate, dollar stores saw increased consumer spending last year, with some of those sales coming from middle and high-income shoppers who are not traditional dollar store customers. According to The Nielsen Company, consumers from all in­come levels visited dollar stores in 2008, with high-income consum­ers spending 18 percent more at dollar stores in the second half the year as compared to 2007.

Originally, dollar stores sold items for $1 or less, but today only 23 percent of dollar store products are at or below that price point. That fact seems to have lit­tle impact on shoppers of all income levels who like the low prices and perceived value the stores offer. Dol­lar stores have become the place to pick up common household staples, such as paper goods, cleaning prod­ucts and trash bags, at dis­count prices. But they also offer a selection of typical convenience store food items, with candy, snacks and cookies among the top sellers.

"When a customer goes to a dollar store, they see extreme value that challenges even Walmart from a pricing perspective," said Bishop. "They can buy off-brands at significantly reduced prices. Now, they can even find some well-known national brands."

By offering fast-moving con­sumables at a discount, dollar stores can entice their customer base to visit more often and spend more money. One success is Fam­ily Dollar Stores, a Charlotte, North Carolina-based chain that operates more than 6,600 stores in 44 states. The company report­ed better-than-expected earn­ings for fiscal third quarter, which ended in May 2009.

As unlikely as it seems, even hotels have gotten in on the con­venience act. A grab-and-go out­let called Café Merchant & Bake Shop now serves busy vacationers at Marriott’s San Juan Resort & Stellar-is Casino, and County Inn & Suites of Schaumburg, Illinois, boasts the Coun­try Cupboard Convenience Store, which sells traditional convenience items and a selection of beer, wine and champagne.

The Little American Hotel in Flag­staff, Arizona, has an in-house conve­nience store offering "food for the road" and assorted souvenirs, while InterCon­tinental’s chain of Stay Bridge Suites has been enhanced with Bridge Marts, small stores that offer branded ice creams, soft drinks, sweet and savory snacks and brand-name microwavable meals.

Even McDonald’s is making life a little more convenient for some shop­pers. In July, representatives for a new store in the Raleigh, North Carolina-area announced that it would be the first in the nation to feature a no-cost electric car battery charging station for restaurant patrons.

If this proves successful, McDon­ald’s may add charging stations at oth­er locations. While the cutting-edge move is generating plenty of publici­ty, it may not generate a great deal of electricity. According to reports, there are currently fewer than 1,000 electric cars in use in the United States.

Both of these moves area competitive threat to convenience retailers as they could potentially shift customer traffic and purchases by simply increasing the availability of many convenience-related products.

Make Life Easier
According to an August report released by Nielsen, convenience isn’t the only thing consumers want when they shop. They also want to do business in a clean and organized retail environment that provides quick service.

Convenience stores remain the leader in a number of product categories, such as tobacco, ice and beer, outselling all food, drug and mass merchandisers combined in these high-volume categories. Howev­er the need for convenience is increas­ing, and a business — any business — that makes life a little easier or more convenient will give shoppers addi­tional reasons to return.

"To a degree, it’s a reaction, as well as recognition, that business is chang­ing," said Bishop, who is not surprised by the efforts of so many diverse retail­ers to refine their assortments based on shifting consumer lifestyles.

"Maintaining the status quo is not enough if you want to succeed today," Bishop said. "Convenience retail­ers understand that they can no longer depend on stable profits from the pump. They know the importance of rethinking their business models. They also are well aware that if the competition evolves and you don’t, you’ll prob­ably lose the shopper entirely or at minimum get a smaller share of their wallet over time."

With more focus on quality foodservice and fresh coffee, con­venience stores can remain strong in the face of stiff competition from all areas, he said, adding that the current economic climate is an opportunity for value-priced retailers to build market share.

"In today’s down market, con­sumers have cut back on many ex­travagant purchases, such as pre­mium drinks at Starbucks," Bishop said. "Customers are coming into your store from the coffeehouse or else­where, and you need to demonstrate that you’re capable of earning their patronage. If so, when the market returns, maybe they won’t go back to the coffeehouse."

Bishop also advises convenience retail­ers to rethink their product mix beyond traditional items. Recently, he returned from a trip to Nova Scotia where he vis­ited a drug store that sold Nintendo Wii and DS games and accessories.

"Here’s a drug store playing in the electronic gaming business," he said. "There is nothing to stop convenience stores from carrying that type of product to generate additional revenue, much like was done with the introduction of the pre-paid cell phones."

"Convenience retailers can be very innovative," he said. "It’s just a ques­tion of when, where and how they will do it. For some, it may be new product lines, while for others it may mean new forms of services that the convenience shopper values."

Pat Pape worked in the convenience store industry for more than 20 years before becoming a full-time writer.