On the face of it, 2004 was yet another good year for the convenience market. Sales grew by 4.9% to a value of £23.9bn, coming on top of an increase of 6.2% during 2003, according to IGD’s report Convenience Retailing 2005. This growth is faster than food price inflation, which was up only 0.3% for the year, and growth in the grocery market overall (+4.2%).
This growth was even more significant as it was achieved against the backdrop of a falling number of convenience stores. The 2004 figure of 52,085 outlets represents a decline of 2.9% on 2003, a steeper drop than than in recent years, and a net loss of around 1,500 outlets.
The main reason for this fall is the continuing slump in the number of unaffiliated independent retailers, which last year was down by a startling 7.4%. At the current rate of decline, by this time next year unaffiliated independent outlets will account for less than 50% of store numbers - the first time in history that this has occurred. IGD estimates that only 46% of c-stores will be non-affiliated by 2010. Taken on a sales value basis, non-affiliated independents and symbol stores are virtually neck and neck, with symbol stores almost certain to overtake the independents at some point during 2005.
A SERIOUS BUSINESS
While many independents have sold their stores to the multiples or joined symbol groups - the number of symbol and fascia stores was up by 3.6% over the year - it is clear that independents are leaving the convenience sector and not being replaced. This view is supported by a stabilisation in the number of independent specialists such as CTNs and off licences, which were previously converting into c-stores at a significant rate but are now retaining their specialisations. Although not spelled out in the report, it is easy to draw the conclusion that the ever- increasing presence of Tesco and Sainsbury in the c-store market is making it less attractive to independent operators, both through stiffer competition and the added pressure of investing in expensive equipment to keep store standards comparable. But one thing is clear - convenience retailing is becoming a very serious business. Sales through convenience multiples grew by 17.8% during the year, with sales through co-ops up by 15.2%, although much of this is due to acquisitions, as sales per store only grew by 2.5%. The value of sales in symbol stores increased by 8.9% - a much bigger increase than the 3.6% growth of store numbers.
In the forecourt sector, the contraction in sites continues, but it slowed during 2004. The drop from 10,500 forecourt c-stores to 10,350 was not as steep as the sector has experienced in recent years, and 90% of the forecourts that have survived now trade with a c-store offer. The sector overall made sales gains of 5%, mainly due to the greatly improved performance of c-stores located on forecourts. The average annual sales per store at a convenience multiple leaped 9.6% to £1.12m, with fresh and chilled foods becoming a great deal more significant - surely a reflection of One Stops being converted into Express stores, and greater fresh and chilled participation at Sainsbury-owned Bells and Jacksons outlets.
‘A POSITIVE ENDORSEMENT’
Chilled food is now the third biggest product category in the convenience multiples, accounting for 11.6% of sales, and behind only tobacco and alcohol in terms of turnover. Fresh fruit and veg is also growing across the board, with 95% of convenience multiples and 76% of symbol stores now offering a fresh range.
The IGD’s annual Convenience Retailing report is the most authoritative study available on the UK convenience market, being compiled from a variety of sources including surveys of leading retailers and suppliers, plus data from William Reed Publishing, publisher of Convenience Store and The Grocer. It uses the standard industry definition of a convenience store - namely stores under 3,000sq ft stocking products from at least seven key product categories.
Report authors David Gordon and Nick Everitt called the latest findings “a positive endorsement” of the strength of the convenience sector, which they expect to grow by 4.5-7% annually for the next five years, and, despite a 3% drop in store numbers, to be worth £29-32bn by 2010. Gordon said: “There have been very good performance increases in convenience multiples and forecourts, reflecting the rationalisation of the market to a situation where a higher percentage of remaining sites are strong performers. The improving quality of the estate is a trend we expect to see continuing.
“There is rising demand for convenience and an increased capability for retailers to meet the demand to deliver these needs. The idea of convenience as a product and service offer is holding firm, so there are good conditions for growth in place.”
As part of the report, suppliers and retailers are quizzed about their attitudes towards the convenience sector.
Around 85% of convenience retailers questioned felt their turnover would increase during 2005, while 79% of suppliers felt they would experience growing sales through the sector this year. Nearly half of these felt they would do so by more than 5%.
Four out every five suppliers responding to the survey said they would be dedicating more resources to the convenience sector this year compared to last year - although only 50% of retailers believe this is actually the case - while 62% of suppliers said they were currently getting an ‘acceptable’ return on their investment in this market.
However, suppliers remain to be convinced about the discipline of c-store retailers. Only 20% of suppliers said they could rely on c-stores to implement agreed activity, although two-thirds of them believe that symbol stores offer greater store discipline compared to independents.