By Chris Blasinsky
ROSEMONT, Ill. – Last week at the NACS State of the Industry Summit, attendees were the first to hear industry benchmarks and metrics for 2016, as well as expert insights on retailing, innovation and what the future holds for U.S. convenience stores. During the event, frequent Summit speaker Todd Hale, Nielsen consultant and principal at Todd Hale LLC, talked about the current and future view of shopper and retail format trends impacting our industry.
When looking at shopper and format trends, it’s okay to look in the rearview mirror, “but what’s more important is what lies ahead,” said Hale, as he continued with an overview of the U.S. retail landscape and performance. Although economic indicators are improving, headwinds remain from an aging population, low population growth, health care and education costs, and a low working rate.
Adding to the current economic state, across Nielsen-measured retail channels, total store sales have been less than spectacular over the past four 52-week periods, where dollar sales grew, on average, by 1.8%. Meanwhile, unit sales growth has also been slow. “In an economic recovery, shouldn’t we expect more growth, or is flat or slow growth the best we can expect?” Hale asked. And although food deflation has greatly impacted most channels, especially supermarkets, the convenience and drug channels experienced stronger growth.
Hale talked about how U.S. store size has fallen as the store count has risen, noting that between 2006-2016, store count across “traditional fast moving consumer goods” retail channels increased 11.6% while square footage dropped 3.7%. Three quarters of all new stores, noted Hale, were from the smaller formats stores, including convenience, drug and dollar stores, while larger mass-merch formats decreased their store count by nearly 1,000 stores. Of those new stores, dollar stores contributed 17% of the new stores while c-stores contributed 32%. Dollar Tree (13,961 stores), Dollar General (13,319), CVS (9,688), 7-Eleven (8,369) and Walgreens (8,011) closed out 2016 with the highest store counts.
Seeing as how small format is where the action is, some mass merchandisers have caught on to this trend in recent years, such as Target opening a smaller urban format for city dwellers (at around 45,000 square feet), and Walmart again tweaking its small format concept with a more traditional c-store/fuel format.
More retailers are also capturing the movement toward fresh, with grocery brands such as Ahold’s bfresh concept emphasizing fresh produce and prepared meals. Grocers such as Kroger and Whole Foods are investing in “watering hole” type offers with bars and seating, which Hale suggested could have the potential to impact the c-store business as more consumers seek out other channels for beer, wine, specialty coffees and prepared foods.
Regional grocers are also driving a lot of innovation and growth, showing that these smaller and more nimble chains understand their shoppers and aren’t afraid to experiment with different formats in different markets. Hy-Vee, for example, has added a high-end cosmetics and beauty care department in some stores; Winn Dixie has created Hispanic-focused formats; and Weis Markets is opening stores with a pub, growler station and ice cream parlor.
Both near and long term, the dollar channel is experiencing rapid expansion, said Hale, with the two top chains entering the c-store space with smaller formats. Dollar General opened its first DGX concept in Nashville earlier this year, which is about 3,400 square feet and sells fountain drinks, coffee and hot-prepared foods to go.
So what’s in store for retail trends through 2021? E-commerce and convenience stores (with fuel) will drive strong compound annual growth rates over the next five years, while department stores and retailers like Staples and Radio Shack will continue to fall by the wayside.
In terms of what’s selling, Hale shared insights on category trends across the retail channels. In supermarkets, for example, the top-selling categories are all edibles (produce, cheese, salty snacks, beer, bread, etc.), with the fastest-growing categories coming from “mostly” edibles such as refrigerated appetizers, liquid tea, sushi, liquid coffee and diarrhea remedies.
Within the drug store channel, non-edibles dominate the top selling categories (upper respiratory medicine, traditional tobacco, cosmetics, candy, etc.). In fact, three of the top 10 are also top sellers in convenience stores: tobacco, candy and beer.
But what consumers are really flocking to is fresh. Fresh sells. Citing data from the Nielsen Perishable Group, Hale said that growth in fresh products closer to the point of consumption, such as sushi, soups, desserts, salads, prepared chicken and pizza, are winning among shoppers who are choosing meals and meal components over ingredients, which signals a demand for immediacy. Nielsen also found that products that make eating healthy quicker for consumers, such as pre-sliced and packaged fruits and veggies, are a huge opportunity.
Digital retailing is of course here to stay, said Hale, noting that although the pace of change is incredible, not all consumers are catching on at the same pace. Everyone seems to be taking on Amazon, and more retailers are progressing their offers with speedy delivery options, click-and-collect and discounts. Meal kit services are making headway, as well as mobile ordering and in-car/dashboard payment options.
In closing, Hale cited what “winning in the future” means for retailers:
- Demand for fresh: Consumers want products that have the appearance of being less prepared, more convenient and experiential.
- Health and wellness: Food transparency isn’t going away any time soon.
- Enhance both the in-store and out-of-store experience.
- Manage the negative and positive impacts of e-commerce.
- Shift from mass marketing to niche marketing among a diverse population and the digital age.
The NACS State of the Industry Summit took place April 4-6 just outside of Chicago. If you attended the Summit and would like access to the presentations, be sure to complete the survey that was emailed to all attendees immediately following the event.
NACS State of the Industry data and metrics shared during the event will be complied along with more in-depth benchmarks, including quartile performance and category-specific metrics, in the NACS State of the Industry Report of 2016 Data. Place your order today by contacting Reed Armstrong at email@example.com.
Chris Blasinsky is the NACS director of editorial projects.