Big Changes Coming to the Convenience Store Industry

APRIL 3, 2018

Salty road trip snacks, the much-needed allergy medicine before a baseball game, the paper towels you forgot at the grocery store… we’ve all experienced those emergency runs to the convenience store. There’s a sense of relief when the shop around the corner has exactly the products you’re looking for—food, toiletries, gasoline, entertainment. Otherwise, you’d have to inconvenience yourself with an extended trip to a larger, busier establishment.

There’s a science behind the marketable value of a convenience store. First, they’re everywhere. According to the National Association of Convenience Stores (NACS), 93% of Americans live within 10-minutes of a convenience store.1 Second, their stores are typically small, which makes for a limited selection of products that are carefully selected to meet the common needs of shoppers in that area. With so many small locations, the key to success in the convenience store sector is adaptability.

Convenience stores still play a vital role in selling goods at a velocity that large retailers just can’t match. However, just like every other segment of retail, the chains that will come out on top of the shifting landscape will be the ones that can best recognize and adapt to new trends.

CONSUMERS WANT FRESHER OPTIONS

In 2016, the NACS reported the total U.S. convenience store industry reached $233 billion in inside sales with over half coming from food.2 This puts the taste buds of every U.S. shopper at the forefront of the industry’s mind. Luckily, the nutritional quality of foods in convenience stores has improved greatly in recent years, as stores are adding ready-to-eat meals and protein rich snacks to their selections.

Kwik Trip, a Wisconsin-based convenience store brand, partnered with dietician Erica Flint to make healthier food options accessible and affordable. Their commissary is working to deliver fresh fruits, vegetables, meats, and other prepared foods to its 400 locations daily. The brand is also working with the Partnership for a Healthier America to ensure that foods are meeting a nutritional standard and affordability criteria.

The challenge in selling these healthier and ready-to-eat food options is their short shelf life. Foods that are free of preservatives with organic ingredients need to be rotated quickly. As soon as an item is prepared, the clock starts ticking until it meets its expiration date—often lasting only a few days. For grocers, one-third of the cost of goods sold comes from stocking fresh foods.3 Convenience stores competing in this space have many hurdles to overcome as they build their supply chains to maintain freshness. But the reward of supplying a community with healthy, fresh, ready-to-eat foods is high if they can exceed the shopper’s growing expectations.

Machine learning and historical transaction data helps stock the needs of customers, preempting demand and providing consistent supply of desired items.

SHOPPERS HAVE NO TIME TO WASTE

Shoppers who are traveling on the road or on their way to work won’t take the time to navigate through a grocery store or massive retailer. To combat this, mobile payment applications that secure a purchase before the shopper enters the store, like Apple Pay, are changing the way consumers make purchases.

Other applications are taking the concept a step further by automating the vending process, like startup application Bodega. The application combines mobile payment with instant access to goods; customers are automatically charged through their app when they visit a kiosk and pick up a product. Though the company is receiving some pushback, the driving idea behind these kiosks exemplifies the prioritization of convenience and efficiency. Bodega hopes that by having an immediate hyperlocal presence in dense points of interest, the company can cut Last Mile inefficiency and cost while providing instant gratification to customers. Machine learning and historical transaction data helps stock the needs of customers, preempting demand and providing consistent supply of desired items.

Amazon is experimenting with an automated vending and restocking model with their Amazon Go convenience store in Seattle, Washington. Normally, shoppers take their selection to a counter where they wait in line to make their purchase. At Amazon Go, the store is connected by digital technologies to simulate a virtual basket, where shoppers collect their items from the shelf and can walk out of the store to fulfill their purchase. Shortly after customers leave, they are sent a receipt and see a charge on their Amazon account.

Amazon Go is staffed with technicians who troubleshoot any technical problems the store may experience and perform other service tasks like restocking, checking I.D.s for alcohol purchases, and meal preparation. Amazon’s first location opened in late January, and the company is aiming to open six more stores later this year. According to Recode, Walmart is working on building a similar grab-and-go solution that will cut out cashiers and other associated checkout costs. It’s been dubbed “Project Kepler” and will use computer vision to provide an Amazon Go-like experience. Amazon’s move into the retail space is a serious one, and if Walmart follows through on adopting similar technology, a change in shopping norms is certainly afoot.

With emerging technologies like these, shoppers expect to spend less time in the purchasing process, and the appeal of convenience stores continues to climb.  

THE CORNERSTONE OF A CONVENIENCE STORE IS… CONVENIENCE

And that standard of “convenience” is shifting. The easier it is for a shopper to get what they want, the greater the store’s service. Companies like Bodega and Amazon are solving the challenges of speed at similar points—the checkout—by automating the process. They are also planning many steps ahead and searching for ways to automate the restocking processes to ensure that the right products are on the shelf. Solving these challenges can yield strong returns with a more efficient process and greater customer satisfaction.

The convenience store of today is steadily transforming into the fulfillment machine of tomorrow, and there are a lot of great examples.

The convenience store of today is steadily transforming into the fulfillment machine of tomorrow, and there are a lot of great examples. Kwik Trip and Swiss Farms are bringing fresh foods to their neighborhood stores by reinforcing their supply chain. Bodega and Amazon want to offer the most convenient store experience, where customers can come and walk-in and walk-out without a stop at the register. These companies are driving change in stores to meet the demands of customers who have a new standard of convenience.

1.  Bruce L. “Convenience Store Food May Be Changing For The Better”. Forbes. https://www.forbes.com/sites/brucelee/2017/10/20/convenience-store-food-may-be-changing-for-the-better/#134be5773698

2.  “Convenience Stores Hit Record In-Store Sales in 2016”. Convenience. http://www.convenience.org/Media/Press_Releases/2017/Pages/PR040517.aspx

3. Christoph G. “The secret to smarter fresh-food replenishment? Machine learning”. McKinsey&Company. https://www.mckinsey.com/industries/retail/our-insights/the-secret-to-smarter-fresh-food-replenishment-machine-learning

ABOUT THE AUTHOR:

As a member of our strategic accounts team, Eric’s expertise is in finding creative solutions and building lasting relationships with his clients. His philosophy is that business is not just business—there is an important personal aspect to helping a client reach their goals, and he is invested in working to simplify their complex problems. He knows he’s doing something right when he makes life better for his customers—and his customers’ customers—while making their job easier. Outside of Square Root, Eric is an adventure-enthusiast. He enjoys camping, fishing, hiking, skiing, and reading the works of great outdoorsmen like Ernest Hemingway and Teddy Roosevelt. He holds a bachelor’s degree in Economics from Oklahoma State University and has attended Colorado State and Imperial College in London.