By Krishnakumar (KK) Davey, IRI
Representing $166 billion of IRI's $1.1 trillion total tracked sales, the convenience store channel was negatively impacted by COVID-19 in 2020. However, the channel remains very valuable to CPG retail and offers meaningful year-over-year growth year over year for many manufacturers. Understanding the different pockets of growth for convenience and how to best leverage them can help the industry bounce back stronger this year.
Convenience channel growth tends to be cyclical and driven by three macro trends – disposable income, housing and construction activity, and gas prices. For example, if gas prices increase, then consumers often don’t have spare change to purchase a snack or beverage after filling up their tank. Typically, as construction and housing sector activity increases, food service in the convenience channel picks up. However, in 2020, mobility was the dominant factor that impacted convenience channel sales, with most of the population working from home.
Ironically, while consumers were looking for convenience in 2020, they weren’t looking for it at convenience stores! Across all CPG channels, grocery, club, dollar and e-commerce emerged as the big winners, with e-commerce increasing by 59%. Several dynamics impacted convenience chain sales performance, including consumers consolidating their shopping trips due to safety concerns, visiting larger stores where they can more easily distance themselves from other shoppers, self-checkout or contactless payment, and curbside pickup or delivery. The convenience channel benefitted from larger basket sizes, like other channels, particularly due to the beverage alcohol category. With bars and other drinking establishments closed, shoppers went to the convenience store to buy beverage alcohol.
The convenience channel must be able to quickly adapt to changing consumer needs to succeed in the new normal, and there are three opportunities that brands and operators can leverage.
Drive E-Commerce Sales
According to NACS, there are 150,274 convenience stores in the U.S., or one store for about every 2,100 people, and the average time it takes a customer to walk in, purchase an item and depart is between 3 to 4 minutes. With convenience stores located close to many households, they can fulfill demand quickly via e-commerce. We see chains like 7-Eleven already doing this with 7NOW, delivering snacks, drinks and other items quickly in many metro areas, in partnership with DoorDash.
Also, having curbside pickup available in suburban areas makes it even more convenient for shoppers while they are filling up their gas tanks. Convenience stores can potentially increase their assortment and help fulfill a variety of shopper needs.
Capitalize on Consumer Mobility
Understanding the continued restrictions on restaurants and bars, plus the ever-changing needs of consumers, can uncover new opportunities for the channel. For example, spirits and liquor sales increased quite a bit as bars and pubs in the U.S. were closed during much of 2020. We expect mobility and all consumption away from home to increase quickly as vaccination rates improve. As this happens, we forecast convenience to bounce back to as high as 8% growth.
Source: CDC, RBC Capital Markets; Google Workplace Mobility; mobility forecasts represent IRI Strategic Analytics POV.
But there will still be a phased approach when it comes to consumer mobility and normalcy. Millennials and higher-income households will likely be the first to get back to near-normal, pre-COVID-19 activities, but seniors are less likely to do so in the near future. This is important to keep in mind as stores tailor their assortment and various promotions to specific target groups.
Additionally, with spring break around the corner and summer not far behind, convenience and gas stores have a good opportunity to reignite America’s love of road trips with signature, prepackaged offerings. It could be picnic baskets packaged with a kite to take to a nearby park, a customizable “snack pack for your road trip” box or partnering with local restaurants on a “taste of the town” offering that gives nearby businesses a boost and visitors an easy way to sample some local items as they are passing through.
Rebuild Food Service Operations
High margin offerings in convenience, such as fountain sales, coffee and baked goods, took a hit in 2020 due to new safety protocols and dips in traffic. To fix this, operators must invest in rebuilding valuable food service operations that were once traffic drivers. Operators will need to boost customer service if they want to gain new customers and keep loyal ones; this includes supporting in-store cleanliness and hiring additional personnel to staff fresh food offerings.
Operators must also focus on new solutions that will make shopping more comfortable, such as adopting new technologies to accommodate online orders, curbside pickup and delivery. They should also better understand the different parts of the day when consumers shop instead of focusing on the morning commute, which may have now ended permanently for a segment of the population. Operators can also think about work-from-home and school-from-home breaks to help them cater offerings to how consumers are living their daily lives now.
While no one has a crystal ball, we know the road ahead is still uncertain, and the convenience channel is undergoing a transition that’s highly driven by and based on pandemic recovery timing. The good news is there are still multiple paths to growth in convenience. Adopting new technologies, shifting daypart focus, leveraging loyalty programs, figuring out the right assortment for stores based on location and mobility, and offering all-day standout food service items can give convenience an edge this year and get back to higher growth.
View our webinar on this topic, “What’s In Store for Convenience Retail in 2021.”
If you have questions on how IRI can help you maximize growth in convenience this year, please reach out to your IRI account representative or IRI@IRIworldwide.com.