The UK convenience market remains durable and full of opportunity, but will probably be subject to dramatic change during the next five years, according to IGD’s chief economist James Walton.
Speaking at last week’s IGD Convenience Retailing 2014 event, Walton said that while the UK economy was back in growth, this was due to inflation and population growth rather than an increase in volume demand. In fact, per capita volume demand was 7% below the level of 2004.
While price inflation is occurring in traditional convenience categories such as tobacco, alcohol, soft drinks and confectionery, other categories such as fresh produce are subject to deflation and pricing volatility, creating challenges for operators who are evolving their businesses to focus on these areas. With the discounters an increasing presence in the market, fresh produce prices are likely to be deflated to a level much closer to wholesale market prices in future, Walton predicted.
Busy lifestyles and an improving economy means the convenience market will grow 5% a year in the next five years, and the three growth channels of convenience, discount and online have the potential to increase sales by £31bn in the same period, according to IGD. However, businesses will have to invest in quality and competitiveness, and dramatic changes can be expected in the near future, driven by technology, said Walton. As such, convenience retailers reliant on purely physical stores will have to fight hard to succeed against online and multi-channel operators.
“Modern convenience is durable and is still delivering solutions, but satisfaction cannot be taken for granted,” he added. “Consumers are not loyal to a particular store format, they are loyal to ‘easy’.”