Warning: Encroachers Encroaching

walgreensThe competitive landscape is changing again as drug stores, such as Walgreens and Duane Reade, and even furniture stores are beginning to feature foodservice, and dollar stores are selling snacks, cigarettes and beer.

By Marilyn Odesser-Torpey, Associate Editor.

It seems that everybody wants to be a convenience store these days. Walgreens has 10 and growing flagship stores that have jumped headfirst into food and beverage service with barista-brewed coffee and espresso drinks; sandwiches, salads, wraps and sushi; frozen yogurt and more than 100 varieties of Coca-Cola fountain drinks. Some even have outdoor cafes with seating, beer—including local and craft brews—and wine selections.

Duane Reed recently got a nod in the New York Times for its chopped salad. And, according to Jeff Lenard, vice president for industry advocacy for the National Association of Convenience Stores (NACS), 20% of furniture stores sell food. Everybody knows about IKEA’s Swedish meatballs, but Bob’s Discount Furniture Stores, with 42 locations throughout New England, New Jersey, New York, Maryland and Virginia, actually give away gourmet coffee, ice cream, fresh-baked cookies and candy to shoppers.

“There are a whole bunch of channels out there to serve the convenience customer,” Lenard said. “But what the others haven’t sorted out yet is speed of service…that’s still the real c-store differentiator.”

The average c-store transaction can be under four minutes, in many cases more like three minutes, including picking up a sandwich, he noted. With other stores it can take that long to find a parking space and walk from the lot into the store.

Upping Your Game
C-stores are also doing a better job at serving the customer who defines convenience as one-stop shopping by increasing foodservice and beverage offerings, offering seating and expanding in size from 2,500 square feet to more than 5,000 square feet. “That’s fine, but if the customer really wants a fast transaction, that’s where you can get into trouble if you don’t focus on that aspect of the convenience identity,” Lenard said.

Creating easy-to-locate and -access destination areas in the stores, instead of working strictly with planograms, is one way c-store retailers can maintain optimal speed of service while giving customers the variety of products they want. For example, destination areas can be dedicated to coffee service, healthier options and financial services. “This way you’re planning the store around people’s needs rather than how you stock product,” Lenard said.
Some of the more successful retailers—both convenience and non-convenience—have earned a following by working to “become famous” for something, he said. Lenard cited Marverik, Convenience Store Decisions’ 2013 Convenience Store Chain of the Year, for positioning its c-stores as “Adventure’s First Stop,” in other words, the place to stock up on everything for outdoor fun.

Even the chain’s loyalty card program is linked into the theme with adventure-related prizes, including gear, trips and cool vehicles from a Harley to an RV. While not a c-store anymore (it started as one in the late ‘50s, Lenard noted), Trader Joe’s is another retailer that has created a niche for itself with proprietary-branded products. “If you want Trader Joe’s mayonnaise, you have to go to Trader Joe’s,” he said. And, as a result of savvy promotion by the chain, a lot of people do.

Expecting Experts
Convenience stores have a big head start on drug and dollar stores at leveraging foodservice by attracting shoppers around meal occasions, especially breakfast and lunch, said Todd Hale, vice president of consumer and shopper insights for Nielsen research company. Hale pointed to the strength of such food-centric chains as Sheetz, Wawa and Rutter’s, all of which have stores located in Pennsylvania where they cannot sell beer or other alcoholic beverages.
What they have done, he said, is make themselves experts in foodservice. Last year, the New York Times reported that 7-Eleven aims to have 20% of sales come from fresh foods in the U.S. and Canada by 2015, up from 10% currently.

“C-stores don’t need to worry about Walgreens; it’s a totally different animal,” Hale said. “What c-stores  need to be focusing on is becoming more female friendly, both in the appearance of the stores and the products they carry.”

Hale mentioned Canastota, N.Y.-based Nice N Easy Grocery Shoppes as an example of a c-store chain that has successfully reached out to female shoppers with its Easy Street Eatery foodservice brand.

Although Nice N Easy was doing well in the pizza, sub and sandwich categories, the company brought on professional chefs to develop a home meal replacement line of microwaveable meals, such as braised beef pot roast, roast turkey, ribs and pulled pork with prices starting at $6.99.

High gas prices have caused 56% of consumers to combine trips as much as possible to reduce driving and save money on gas, Hale reported in a presentation, entitled “Understanding the Convenience Shopper” that he gave at the NACS State of the Industry Summit. And when gas prices rise, people increase their visits to the pump because they cannot afford to put a lot of gas in their cars at once. This gives c-stores an opportunity to show consumers how much they can offer them, especially in foodservice.

C-stores also have the advantage of size and market penetration over drug and dollar stores. At the end of 2012, there were more than 149,000 c-stores in the U.S., Hale said. At the same time, there were only 40, 727 drug stores and 24,075 dollar stores.

Know Your Customers
Jim Fisher, CEO of Houston-based national retail sales and fuel forecasting company IMST Corp,. agreed that the drug and dollar segments would have to open up “a hell of a lot of stores” to catch up to c-stores. He also pointed out that, for now, the Walgreens stores with foodservice are located in core urban centers, such as Chicago, New York and Boston. “You’re not likely to find foodservice in Victoria, Texas,” he said. “It’s a very market-specific situation and you can’t paint the entire industry with a broad brush by assuming that just because Walgreens is getting into foodservice in certain markets, it is going to affect the entire c-store industry.”

He noted that if Walgreens and/or other drug stores started adding gas pumps to their formats, that would be a “huge, huge position to take” and would result in some really serious channel blurring.

As for dollar stores, Fisher said, they are pretty trip specific. There is no spontaneity as there is with convenience stores, like just stopping in to pick up a 32-ounce bottle of Coke.

Fisher equated the concern about dollar and drug stores to the debut of European hypermarkets into the U.S. in the 1990’s. C-stores, he explained, were worried because these stores were also supposed to have gas pumps and pundits were saying that the sky was falling and that these hypermarkets were going to own the U.S. just like they did Europe,” he said. “It never happened,” he said.

He advises c-stores operators that the best way to stay ahead of any competition is to just make sure they are retailing to the highest degrees and standards. “Ninety-eight percent of all competition is self-created,” he said. “If you’re doing the very best you can, your fear of competition should not be more and more and more; it should be less and less and less.”

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