The Competition: Discretionary Spending Looms Large

For the past decade, the list of retailers that have cut into the convenience store industry’s consumer base has included the usual suspects: Wal-Mart, Starbucks, McDonald’s, Walgreens and a slew of other national brands in a smattering of channels.

C-stores are predictably pitted against those same powerhouses in 2008, but the environment is far more volatile this year as a dark cloud hangs over the nation’s economy. Inflation, $4-per-gallon gas, a mortgage crisis and a gauntlet of stumbling blocks are forcing consumers to cut spending and retailers to fight over fewer dollars.

Leading up to the tumult, c-stores’ market presence grew modestly last year, its overall store count hitting 146,294, roughly a 1% increase over the 145,119 stores from the year prior, according to Nielsen data. Industry sales were at $577 billion in 2007, a 1.4% increase over the $569.4 billion posted in 2006, while profit margins dropped to $3.4 billion last year, down about 30% from 2006.

 

Satisfying Consumer Needs

Retailers in all channels are doubling efforts to massage consumers’ uptight spending, with many crafting innovative strategies to attract shoppers who are demanding value, variety and convenience in tough times.

"If there’s a time to think about how you minimize your risks and maximize your opportunities," that time is now, said Todd Hale, senior vice president of consumer and shopper insights for Nielsen Homescan.

C-store owners and operators can look to value pricing, coupons, private labels and a renewed focus on food and household basics to draw customers to c-stores, Hale said.

Focusing on key demographics is critical, namely to optimize promotions through customer-specific loyalty programs. Pat Lewis, owner of Twin Falls, Idaho-based Oasis Stop N Go LLC and the KickBack Rewards network, stressed the need for target marketing though loyalty programs and e-mail and direct-mail campaigns, surveys and related technologies to increase profitability.

A gradual view of retail channels over the past six years paints a telling picture of c-store competitors and their market saturation. From 2001 to 2007, supercenters nearly doubled their presence, jumping from 1,583 sites to 3,038 sites nationwide, while dollar stores have increased store counts by 50% in the same period (13,151 in 2001, 19,624 in 2007).

Wal-Mart, McDonald’s and Starbucks have all retooled programs in hopes of luring on-the-go consumers away from convenience stores. McDonald’s is slashing large soda prices to $1 in a calculated move to attract c-store visitors, while Starbucks dramatically revamped its coffee program to include fresher products, energy-infused drinks and greater variety, among just a few changes the struggling coffee juggernaut has made.

Wal-Mart, meanwhile, is introducing an entirely new concept under a new "Marketside" banner, a 15,000-square-foot storefront focusing on fresh food for upscale shoppers. Expected to roll out in the Arizona market, the Marketside stores will be positioned against UK-based Tesco’s Fresh & Easy Neighborhood Markets, which has 60 stores in Arizona, California and Nevada.

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