Signs of the Times
Overextended and anxious about the economy, consumers are responding to economic pressures by buying less, borrowing less and paying down credit card debt.
The amount Americans owe on credit cards and other consumer loans plunged a record $21.6 billion in July, dimming prospects that the budding economic recovery will extend to Main Street anytime soon.
However, the recent drop in consumer debt—five times what analysts had predicted—raises an interesting and perplexing point: If U.S. consumers’ current shift from spending to saving lasts, it will affect both the variety of products available to stock c-store shelves, for when spending is cut, so is production, new product roll-outs and potential product innovations, which c-stores traditionally use to great advantage.
The stumbling economy is also affecting how consumers pay for what they buy: Both Visa and MasterCard report that the proportion of debit card transactions on their networks is growing as credit card transactions shrink.
At Visa, debit purchases have surpassed credit purchases and now account for more than half of all its sales volume. MasterCard reports that 40.6% of its U.S. transactions are now debit, up almost 5% from last year.
This news does have a bit of silver lining, though. More people are paying with cash, too, which means fewer card-processing fees.
Grocery sales in c-stores continue to go up even as the economy struggles to recover, and the reasons appear to be varied.
One channel retailer mused that as budgets shrink, people still drawing paychecks are shopping more carefully by planning menus and buying the bulk of their food at big outlets like Sam’s Club and Walmart. Then, in order to save gas and time, they have increased the interim shopping forays for “plug the hole” items like bread and milk.
Indeed, urban and inner city convenience stores are reporting a strong uptick in grocery sales thanks to their convenient location. But the uptick in sales isn’t stopping at city limits, according industry operators with stores in relatively rural locations.
So, who’s buying their groceries at the c-store these days?
Defining a store’s core customer needs to include factoring in the store’s location, said Darrell Looney, merchandise buyer for Portland, Ore.-based WSCO Petroleum. Looney cited two WSCO stores located near government-assisted housing complexes to make his point.
“We see those customers every day,” he said. “They don’t have enough money to buy what they need for a week at the grocery store, or they don’t have transportation.”
But maybe they have $20 and have to feed the kids, so they run across the parking lot to the c-store and pick up some chicken, a frozen pizza and a couple of cans of soup. “Let’s face it, people who buy groceries at convenience stores are not making good purchasing decisions, and that’s the general customer you’re dealing with,” Looney said. “I think there are just more of those folks out there now due to the economy and unemployment.”
C-Stores Prosper in Bad Times
Looney said he believes convenience stores do better in poor economic times due to the fact that people don’t have enough money on hand to do a major weekly shopping, so aren’t planning ahead. “Every day, it’s, ‘I’ve got to find something to eat.’ It’s almost like our ancestors hunting for food day-by-day,” he said.
This extends beyond grocery to beer. “My beer sales are up tremendously this year. I think this also ties into the economy—more people unemployed, more time on their hands to drink beer. When times get tough and people feel powerless, they don’t make the best decisions,” Looney said.
WSCO sales have been up across all categories, including grocery, despite the fact that he has actually been removing many grocery items over the past couple of years, and adding more candy and salty snacks in their stead. His candy sales have risen 40%.
Location, Location, Location
Tim Grossi, category manager for 35 Dash In Food Stores in La Plata, Md., said his stores’ core customers haven’t changed, but concurred that where you buy groceries depends partly on where you live.
“Convenience stores are one of the major choices in most places, but in some, they’re the only choice,” Grossi said. “In the D.C. area, and in Delaware, Maryland and Virginia where Dash In stores are located, we’re inundated with grocery stores, drugstores and mass merchandisers.”
This high availability of grocery stores notwithstanding, Grossi’s grocery sales are on the rise—up 10% from last year, an increase he attributed to fine-tuning category management. Grossi, who three years ago added a lot of freeze-dried products to his grocery offering, has cut back on space for traditional c-store grocery aisles and narrowed his focus. “I got into Thai Kitchen and Simply Asian soups, noodle bowls and increased the space for heat-and-eat from three to six feet,” he said. “I think I was a little ahead of my time.”
At the beginning of 2009, Grossi’s stores switched, going back to three feet for grocery offerings and began concentrating only on the bestsellers. “The traditional heat-and-eat we have in our stores continues to sell well, the Pop-Tarts, SpaghettiOs, Vienna sausages,” he said. “We added the cereal cups, which have done very well. We narrowed the category, and by narrowing the category and maintaining top sellers in traditional grocery items, we have not lost sales.”
Heat-and-Eat Becoming More Popular
Grossi thinks people are becoming more accustomed to doing the heat-and-eat thing. However, when he compares the prices Dash In would need to charge for some he’d like to carry, he has to turn them down.
When he was recently approached by a manufacturer of popular frozen dinners, Grossi crunched numbers and found he would have had to charge $4.29 for the product, which was selling for $2.99 at Target. Other big box marketers are looking to capitalize on fill-in grocery sales. Toys “R” Us is catering to time-pressed parents with a new department featuring packaged food, beverages and other items typically found in a food store.
The “R” Market department is located in the front of more than 260 of the company’s 585 Toys “R” Us stores. Additional “R” Market locations will roll out across the country later this year. “R” Market features nearly 1,300 items, including snacks, beverages, laundry and cleaning supplies, health and beauty care items, diapers, infant formula and baby food.
Grossi said that when a price disparity is that great, customers are not going to spend the extra money to buy from a c-store. “If they knew they could buy the same product at Dash In for $2.99, they’d go to Dash In every day,” he noted. “Maybe our channel just hasn’t gotten the volume to bring the cost down. Our distribution has to bring our costs down before we can compete in that arena.”
On the other hand, Grossi pointed out, perennial c-store favorites Chef Boyardee and SpaghettiOs, as well as daily need items like bread and milk, are at parity with grocery stores—and these are the items that are selling well.
Getting Through Today
From the customer’s standpoint, it’s easier to buy a loaf of bread and some peanut butter and jelly at a c-store for the kids sandwiches this week and worry about next week later on, said Pervez Pir vice president of Famima USA, which operates 13 stores in the Los Angeles market.
“Even those who are still employed are buying only what they need because they’re living more paycheck to paycheck than they used to and focusing on buying what’s on special, and the c-store is on their way home,” Pir said.
Pir also said he’s seen a much greater increase in Famima’s fresh food sales than in sales of grocery items, which supports the idea that more people are buying what they need for today one day at a time. CSD