Paul Bishton often pops into a convenience store mid-week evenings, and from his home in the Birmingham suburb of Harborne he has plenty to choose from. “You get home, you start to cook, you realise you need a red pepper, or something for a stir fry, or a bottle of wine, so you pop out and get it,” he says.
There are, of course, millions like Bishton who need to top up the fridge and turn to familiar names to help them. The Co-Op, Tesco, Sainsbury’s and now Waitrose and Morrisons are the latest to move heavily into the convenience store market, a market which is expected to grow by one-third to £44bn in the next four years.
As it happens, Bishton knows a few things about convenience retail. As managing director of niche retail agency Redleaf he is now advising the Co-op on its local C-store expansion, and a decade ago helped to set up Tesco’s network.
“While town centre retail suffers from structural contraction, the neighbourhood retail market is bucking the trend,” he says.
Growing market
The total value of the C-store market is increasing, and the relative strength of the big brands is growing even faster. Just like the flourishing budget and mid-price hotel sector – in which brands are making headway by simultaneously expanding the market and squeezing the large number of independent operators – supermarkets are expanding sales while moving into territory previously occupied by sole traders.
Estimates suggest that of the 49,000 UK convenience stores, branded grocery chains account for little more than 10% – but their share is growing. Tesco’s 1,000 stores and the Co-op’s 2,800 make them the leaders. Now Morrisons is growing (just 12 C-stores today), Co-op is moving heavily into London, and CostCutter is expanding new formats. The brands may be small, but they look unstoppable.
“Traditionally, neighbourhood retail has been a mom-and-pop business, which the big grocery brands left alone,” says Bishton. “But the opportunities for the big brands to grow their market store got harder and harder and they began to colonise the C-store sector.”
Beginning a decade ago with small outlets on petrol station forecourts – where the big selling lines are sandwiches, crisps and wine, with fresh produce almost non-existent – today C-stores can devote as much as half of their sales area to vegetables, fruit, dairy and fresh meat.
Bishton says: “Today, a lot of shoppers use the C-store to top up with fresh produce, the kind of thing you don’t buy on the monthly shop, or online. It’s certainly what I do.”
Ambitious expansion
Terry Hartnell, head of property at Morrisons, would be delighted to hear it. As Morrisons weighs up the merits of an online grocery operation – rumour says it will press “enter” this autumn – the Yorkshire grocery chain is pushing on with an ambitious C-store expansion. The two new ventures seem to go hand in hand.
After a gentle start in 2012, Morrisons plans to have 50 C-stores up and running by the end of this year, most of them in London and the South East. They are looking for a further 2m sq ft of C-store sales floor spaces in the next three years.
Hartnell says: “We’re aiming for 300 C-stores, to complement our 500 supermarkets. Whether we stop at 300 remains to be seen. The market is extremely attractive, with double-digit growth in sales.”
Just three weeks ago the chain bought 49 Blockbuster stores, following on from its purchase of seven former Jessops stores.
Morrisons sees C-stores as part of a hub-and-spoke structure with its larger superstores. And it insists the emphasis will be on fresh products.
“Our smaller format stores will have a striking resemblance to the supermarkets, with the focus on fresh vegetables and meat, in a way that most C-stores just don’t, along with fresh coffee and food to go.”
Around 20% of floor space will be devoted to fresh produce. Stores will have a net sales area of 2,000-4,000 sq ft.
New territory
The Co-op, long a leading player in neighbourhood retailing, is thinking along similar lines. It opened 83 C-stores last year, as well as acquiring Scottish convenience retailer David Sands and its 28 stores, and 10 Costcutter outlets in London. Like Morrisons, the affluent London and South East market – until now not well-known Co-op territory – is high on its hit list. It is also looking at big city transport hubs. In the meantime, between 10 and 20 of the smaller stores (typically 800 sq ft) are being replaced by larger modern units of up to 4,000 sq ft.
Stuart Hopkins, head of portfolio strategy, acquisitions and disposals for Co-operative Food, won’t say what the optimum size of the Co-op C-store portfolio might be, nor how many more stores it would like. “The market is still immature, there is still a long way to go. It could be thousands,” he speculates. For now, it is opening at least one new store a week, and is likely to add another 80 by the end of this year.
Like Morrisons, new Co-op C-stores will lean heavily towards a fresh food offer. “Up to 50% of floor space will be for fresh produce. We’re changing the perception of what a convenience store can be,” says Hopkins.
Both Morrisons and the Co-op are also exploring the connections between C-stores and online click-and-collect points (see side panel).
The big supermarket brands won’t go unchallenged. The so-called “symbol” groups like Bibby Group’s Costcutter are getting cleverer as they fight back. Costcutter has relaunched the Kwiksave fascia and have opened 20, while the smarter upmarket myCostcutter brand is being rolled out in selected locations. Simultaneously, 150 new stores have joined the Costcutter network, tempted by above-inflation growth in sales. Spar, Londis, Mace and Best One are also emphasising the importance of sheltering under their umbrella. Today, around 30% of stores are badged in this way.
For those independents outside the sheltering franchises, the future looks complicated at best, bleak at worst.
According to the Association of Convenience Stores, retailers are pessimistic. Its Voice of Local Shops survey, which tracked local shop owners throughout 2012, has revealed that when asked about their business in November, less than one-third expected their sales to grow in 2013, and one-quarter expected their sales to fall in 2013.
Do the big names have their cross-hairs trained on the independents? Indeed they do.
Morrisons’ Hartnell says: “The branded market is taking over. Today, there are 2,500 Tesco and Sainsbury’s C-stores, 2,800 Co-op outlets, and that is barely 10% of the convenience store market. So, it’s a big opportunity to gather some of that spending under the trusted brands.”
Chris Keen, director at CBRE, predicts takeovers of the C-store franchises and smaller groups: “We’ll see a lot more of these group talks and partial sell offs as the big retailers chase market share. We think this will come through the multiples acquiring the symbols/franchises. But a significant amount of the independents are very small buildings in very small markets and just not worth it. However, they will be vulnerable to the heightening competition, and some will go.”
The C-store of the future is only now taking shape: it will certainly have more fresh food, but it might also have one of a handful of familiar names up on the fascia.
Click the C-store
Click-and-collect is likely to be an important part of the C-store of the future.
The Co-Op – which has 230 stores signed up to Collect Plus’s click-and-collect network, recently experimenting with Amazon lockers in some of its stores – is expecting it to make a difference.
Head of property strategy Stuart Hopkins says: “It’s early days for the Amazon lockers, we’re looking at the research, but we see that as a real draw for our customers.
“I’m sure there are benefits like extra spending in store, but we are a community retailer and, if it means our customers have another reason to be loyal, it’s a win for us.”
Morrisons is still pondering. “Click-and-collect is definitely an option. We’re very aware of what’s happening and the necessity of going omni channel,” says its property head, Terry Hartnell.
Lockers involve a fixed allocation of floor space – working with Collect Plus is more flexible, says CollectPlus marketing director Catherine Woolfe. That makes it ideal for space-conscious C-stores.
“We don’t talk square feet – we can be quite flexible. We work with retailers to anticipate the kind of volumes they might expect. Until recently it was mostly squishy bags they could store under the counter – fashion mostly – but that is now changing,” she says.
The volume of click-and-collect items handled by convenience stores has grown rapidly – up for an average of 12 items a week, to more than 40. It means considerably improved customer footfall.
Woolfe says: “We know 39% of our users are new to the store where they collect their online buys. And we know that roughly one-third of our users buy something while they collect. So, we’re making a real contribution.”
Collect Plus estimates they bring an average of £1,300 a year in extra revenue to their partner C-stores.
Forecourt
Forecourt C-stores now feel – and often look – like relics from an earlier, less sophisticated age. Flowers and newspapers, biscuits, crisps and a few sandwiches, it’s hard to see them as big players in the increasingly sophisticated convenience store market.
Tellingly, Morrisons – which knows a thing or two about retail – confesses its experiment with a new breed of forecourt C-stores was not a success. “We’re not very convinced we’ve got that formula right. It needs a different product range, something quick, there’s no browsing,” says head of property Terry Hartnell.
However, according to analysis by CBRE, 80% of service stations feature a shop, with 13% of all filling stations in the UK operated by supermarkets.
The big petrol companies are increasingly partnering with retailers to create convenience retail on-site – for instance, Esso has established a joint venture with Tesco, and BP has partnered with Marks & Spencer.
Shell is exploring a partnership with Waitrose through which the supermarket chain’s products are available on two pilot Shell forecourts. The smaller supermarkets and symbol retailers are also busy: Motor Fuel Group has signed a shop supply agreement with Costcutter Supermarkets Group in a deal that will see Costcutter convenience stores on its forecourts across the UK. It already operates on 300 forecourts.
CBRE’s newly published Petroleum Market Overview says it expects the oil companies to push their convenience retail offer to make up for shrinking demand for increasingly pricey petrol.
