A Forward Look at Convenience Retailing

VRC_Tunnel_Takeover_1As Convenience Store Decisions celebrates its 25th anniversary, retail experts weigh in on what consumers and c-store operators can expect over the next 25 years.

By Howard Riell, Associate Editor

“You can’t connect the dots looking forward,” Steve Jobs once cautioned. “You can only connect them looking backwards, so you have to trust that the dots will somehow connect in your future.”

And so as Convenience Store Decisions celebrates its 25th anniversary it is fitting to look ahead, but also to begin with a step back. How would c-store retailers back in 1989 have viewed today’s industry?

“In many respects the convenience stores that exist today would seem dramatically different, both in how they operate and in what they sell,” said Jeff Lenard, vice president of strategic industry initiatives for the National Association of Convenience Stores (NACS). “But they would also be strikingly similar in that the main thing that they deliver is convenience to the community.”
Indeed, Lenard asked rhetorically, how many operators a quarter century ago could have imagined the presence of energy drinks on their shelves, let alone at their present volume? “Bottled water? Who would ever pay for water? And now you’re even seeing some dispensed water,” he said. “Electronic cigarettes? And who would have thought that marijuana would be considered a growth category and that tobacco would be considered a category that was not one?”

Operators would also have been surprised by the prevalence of food they would be selling. “I don’t think anybody could have foreseen the growth of mobile products, whether it’s gift cards or how to send money to your accounts from your phone,” Lenard said.

And so, what will the industry look like 25 years from today?

“Who knows,” Lenard said. Some things, he conceded, are fairly certain. “We will still be selling convenience 25 years from now. We will sell food, probably a lot more of it. And we’ll sell an awful lot of beverages.”

C-stores will also still serve as important fueling locations. “Those are things that let you pull out the issue 25 years from now and see that I was right,” he said. “I’m not sure convenience will mean that convenient location with 24-hour operations. It may mean some sort of delivery. It may mean some sort of retail outside of the traditional box.”

It is, in fact, outside the box is where the future always resides—and where savvy retailers preparing for the future invariably turn their gaze.

‘Completely Redefined’
“Convenience is going to be completely redefined,” predicted Doug Stephens, futurist, consultant and founder of the Retail Prophet in Toronto. “Soon our appliances will be placing replenishment orders for the things we use most often. Services like Amazon Fresh, InstaCart and other shopping options will do the legwork for us (for more on this concept check out p. 98). Not long from now, the idea of running down to the corner store for what you need will seem conspicuously inconvenient by comparison.”

Tastes and preferences are also changing significantly as one part of the population—baby boomers—ages and another part —Generation Y, also known as Millennials—comes into their prime spending years.

“Boomers are becoming inherently more health-conscious while Generation Y tends to be a more health-minded generation than their parents were at the same age,” Stephens said. “All of this will conspire to put pressure on convenience retailers to ensure healthier selections of products in their stores. This will be a huge adjustment for an industry that thrived for so long on ‘smokes and Cokes’ but we’re seeing this shift transpiring already in chains like 7-Eleven.”

Tobacco, Stephens recognized, is still very popular in blue collar markets, but its overall usage continues to decline. “I think the jury is still out on the vapor cigarettes, given that their health risks are still largely unknown at this point, but I can definitely see them picking up where cigarettes have fallen off,” he said.

In the case of marijuana, Stephens foresees it being “more available than it is today, but much will depend on whether it remains viewed as a medicinal product or as a recreational product like alcohol.”

Shifting the Marketplace
According to futurist Richard Worzel, the principal of IF Research also in Toronto, the major trends that will affect convenience stores will include technology and automation; the continuing demographic movement into cities, especially major cities; and a continued pressure among the gainfully employed that causes them to trade money for time, pushing them toward convenience food and service.

“In Europe, you can already see how the last two factors are shifting the marketplace,” Worzel said. “Major food retailers, such as Tesco, Marks & Spencer and Waitrose in the UK, are spreading out, moving into smaller spaces, including convenience-sized stores in urban neighborhoods, plus kiosks in subways, bus stations and airports that sell exclusively convenience food, such as sandwiches, and microwavable meals.”

In the process, Worzel found that they are buying out or squeezing out mom and pop operations. “This runs counter to the North American trend towards supercenters and superstores, such as Walmart and Costco’s massively-sized stores.” Indeed, consumers are finding that such super-sized centers are less convenient, and take more time to find things, even when doing a lot of shopping.

“Smaller stores are easier and faster to shop,” Worzel maintained. “This trend will also put competitive pressure on convenience chains such as 7-Eleven and others as they will find themselves competing with the supermarket majors for locations and market share.”

IT’s all around
The trend towards convenience food will also be accentuated by the trend towards smaller family sizes, and the tendency for younger people not to marry, and/or to live alone. “Cooking for one has much less appeal than cooking for two or more,” Worzel said. “And as a steadily rising percentage of consumers with disposable income will live in major urban centers, this will also represent the major growth market for retailers of all kinds.”

As a result, one of the first major developments Worzel expects over the next 2-3 decades is for major retailers to move into many more small spaces, heating up the competition with existing convenience store operators of all kinds. “Convenience stores will increasingly be where retailers want to be, and the fights for market share will intensify in this space,” Worzel noted.
Worzel foresees technology continuing to dramatically reshape the retail environment and operations. “Evolutionary algorithms will refashion supply and distribution chains on a dynamic basis, switching between modes of transport, and renegotiating agreements with suppliers and shippers on a daily, hourly, or even minute-by-minute basis,” he said.

Online shopping across all retail channels will also continue to get easier. “Wearable computers, such as the lineal descendents of Google Glass and Apple’s Siri, will be interpreting and anticipating the needs and wishes of their users, proposing acquisitions, or identifying items seen at random through media, video or on the street, then sourcing them,” Worzel said.

Once a desired item is identified, it can be ordered online. Fulfillment will then come through a number of fine-grained alternatives, from drone delivery to pick-up at a corner convenience store or kiosk and delivery to the home, where a ‘computer butler’ or robot can accept delivery for the house or apartment.

Interestingly, when it comes to delivery drones Lenard, of NACS, said he parts company with Worzel. “I think drone delivery might be closer to the idea when we were kids that everybody would travel with jet packs.” That said, Lenard added that innovations in delivery will continue evolving.

“There are all kinds of possibilities for moving things around. Drones may not be the answer, but I think that delivering something that much faster will be the answer,” Lenard said. “I think you will see a continuation of what Amazon is doing with drop boxes at some 7-Elevens, although that’s probably only three to five years out.”

Like retail, payment methods will be streamlined, Worzel suggested, with a customer selecting an item, walking out of the store without producing a credit card, chip or anything else, and payment being effected directly between the consumer’s computer butler, and the retailer’s computer.

This could dramatically affect retail. “Employees will become a rare site as robots and smart computers provide faster, more customized service,” Worzel said. “Only upscale retail establishments will employ humans. This will give greater predictability to retailers in employment costs, staffing needs and cost management.”

Chains like Quick Chek in New Jersey have already rolled out stores with nothing but self-checkout lanes making you realize that the future is indeed already upon us.

Down the Path to Automation
Thomas Frey, founder, executive director and senior futurist of the DaVinci Institute in Louisville, Colo., said he sees technology having profound effects on the ways convenience stores conduct their business. Look for these technological advances and others, he added, to change the equation dramatically:
• 24-hour machine-stores without employees: “As we continue down the path of automation,” said Frey, “virtually every city will have 24-hour convenience stores, 24-hour libraries, 24-hour banks, 24-hour churches, 24-hour schools, 24-hour movie theaters, 24-hour bars and restaurants, and even 24-hour shopping centers. The side effect of a worker-less business is that it can operate 24 hours a day for roughly the same cost as a 12-hour operation.”
• 10-minute drone delivery, 24 hours a day: Fully-automated convenience stores, said Frey, will offer front-door drone delivery of any products in stock within 10 minutes.
• Health food emphasis: “As people become more health conscious,” said Frey, “even the bad-for-you-food will require a healthiness makeover.”
• Convenience store post office: Over the next decade, more post offices will be closed, creating an opportunity for private postal services to be added to convenience store operations.
• Print-while-you-wait stores: “As 3D printing technology advances, convenience stores will begin to add a variety of print-while-you-wait options for products ranging from clothing, shoes, jewelry, drugs, food and more,” Frey predicted. “Many will also offer scan-and-fax options to send objects to people in other cities that are 3D printed at their destination.”
• 3D printed food: “Eventually,” Frey said, “3D food printers will first print the can, and then the soup that goes in it—or the bottle, and then the wine that goes in it.”
• 3D printed clothing and shoes: “Step one, walk into the body scanner to get your measurements. Step two, pick out whatever color, style, or fashion you want. Step three, have it 3D printed on the spot.”
• 3D printed pharmaceutical drugs: In time, Frey suggested, entire pharmacies will be replaced by a single pill-printer machine.
• Marijuana shops: “Within the next decade, marijuana will become legal in virtually every state,” Frey said, “and marijuana products will become a major income stream for convenience stores.”
• From gasoline to electric: As more cars transition from gas to electric, fewer customers will stop as they refuel their vehicles. “Many convenience stores will begin offering ‘charge stations’ as a way to compensate.”
• Shift to driverless cars: “As we move into the driverless car era, fewer people will own their own cars,” Frey said. “Convenience stores will stop focusing on ‘driver products’ such as oil, windshield fluid, wipers, NoDoz, etc., and place more emphasis on ‘rider products’ such as games, movies, music, and other forms of entertainment.”

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