Verdict European Convenience Retailing Case Study - Convenience in 2013 (T…

October 2012www.verdict.co.uk

Innovation abounds in the convenience market and grocers react to changing consumer habits.

Analysts at Verdict Research identify the key trends in this dynamic market.

European Convenience Retailing Case study: Convenience in 2013: The Latest European Innovations

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Trends towards top-up shopping in Europe are bringing more frequent visits and more discerning consumers to convenience stores. This has created a number of challenges for retailers seeking to expand as well as opportunities to benefi t from the spotlight on the sector. Five key strategies for succeeding in this dynamic market are identifi ed by Verdict in their latest research.

Multiples seek acquisitions to expand into c-stores: Strategies for successful acquisitionAs retailers seek to capitalise on growth in the European convenience sector, acquisitions are tempting many as a quick route to increasing c-store coverage. Andrew Stevens, Retail Analyst at Verdict Research notes, “Reitan Service Handel (RSH) and Valora are two European retail groups which have benefi ted from expansion through acquisition, with 72.3% and 85.0% y-o-y uplift in store numbers respectively in the year to June 2012.”

18,72016,584 16,182

19,40421,775

72.385.0

2008 2009 2010 2011 2012

Store numbers Total store number growth (%)

Reitan store number growth (%) Valora store number growth (%)

Figure 1: European multiples convenience store growth

Note: Total store numbers = 5 key European retailers (Tesco, Carrefour, Spar, Reitan, Valora) convenience stores

Source: Verdict Research

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“However, acquisitions cost more than the asking price for the stores in question,” Stevens cautions, “They consume much management time and represent a long-term fi nancial commitment.” There are some simple assessments retailers should make when considering this route to expansion;

• Seek an established retailer – One with a well developed portfolio will not require too much management time

• Consider product sourcing – Valora’s acquisition came alongside a fi ve year agreement with Lekkerland. However, supplying symbol groups will always present a diffi cult task

• Plan for the future – Ensure there is a contingency plan in place if a partnership with a wholesaler should end

• Seek new territories – Avoid cannibalisation by looking outside the home market

• Recognise cultural similarities – Seeking similar cultures will ease the transition to a new market. Reitan have expanded within Scandinavia and the Baltics to avoid unknown territory

• Appreciate the aftermath – Valora’s acquisition of Convenience Concept added 1,300 stores to its portfolio, covering the Cigo, ServiceStore DB and U Store fascias leaving the retailer with seven fascias in total which it plans to consolidate into just three.

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The arrival of the grocers brings a new fresh focus in c-stores: M Local leads the fi eldAs multiples expand into c-stores they bring a new expectation from shoppers who are seeking supermarket quality on fresh from local stores. There has been a marked improvement in quality standards and availability in fresh foods at European convenience stores in 2011/2. Morrisons in the UK is pioneering both innovative merchandising and new supply chain conventions for its newly launched c-store fascia, M Local.

M local stores are around 3,000sq ft with 58.0% of space dedicated to fresh food. As at June 1, 2012 there were four M local stores with a further 20 openings planned for the remainder of the fi nancial year to March 2013. Morrisons hopes to roll out a further 50 convenience stores in the year to March 2014.

Source: Morrisons, Verdict Research

Figure 2: Morrisons fi rst M local store at Ikley 2011

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MorrisonsSupermarket

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M LocalM Local


M Local

M Local

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M Local

M LocalM Local


M Local

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Figure 3: Morrisons hub and spoke convenience model 2012

Source: Morrisons, Verdict Research

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Senior Analyst at Verdict Research, Cliona Lynch explains how the retailer is innovating in its supply logistics, “Morrisons operates a hub and spoke model to supply its growing convenience estate. This means that between four and eight smaller M local stores will be serviced from a larger Morrisons’ supermarket. This supermarket will provide deliveries of fresh fruit, vegetables, meat, fi sh and so on up to four times daily to the convenience stores.”

“This model will ensure the high standards in fresh from counters in supermarkets are consistent in smaller stores and, more importantly, that customers can depend on availability.”

Innovative merchandising in M Local stores provides a signpost to the importance of fresh food to the offer. Cliona Lynch describes how Morrisons is setting a high standard for convenience retailers, “Fruit and vegetables are merchandised loose and in rustic, market style baskets. Stores also include fresh bread, freshly squeezed orange juice, coffee bean grinders and a strong range of food-to-go products, including salad and prepared fruit counters.”

Figure 4: Fresh food merchandising in M local 2012

Source: Steve Dresser www.ukretailers.blogspot.co.uk, Verdict Research

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With fresh & quality improvements come a blurring of boundaries with foodservice: Rewe-to-go can learn from Sainsbury’s Fresh KitchenFood-to-go in convenience stores is not new. However, in 2012 we are seeing the food-to-go offer of retailers improving in range and quality to a stage where it rivals foodservice. As these improvements tempt shoppers to trade down to benefi t from the value of convenience stores, foodservice providers become direct competitors. But there are untapped opportunities for c-stores if they can deliver further innovation.

Rewe-to-go, the Rewe group’s standalone food-to-go store, opened in Cologne, Germany in the spring of 2011. The fl agship 130m ² store has six express check-outs, an instore microwave and sells exclusively food-to-go products. Cliona Lynch notes “The most interesting aspect of this opening by Rewe is the comment by the group’s CEO that key competitors for the store were McDonalds and Starbucks.”

“This clearly signifi es a shift in grocery retailer competitive strategies to target not only other retailers but also foodservice providers.”

High street café look & feel

Improving quality & range

Lunch meal deals

Breakfast & Dinner OOH

High street café look & feel

Improving quality & range

Lunch meal deals

Breakfast & Dinner OOH

Figure 5: Meal time opportunities for convenience retailers

Source: Verdict Research

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However, lessons must be learned from the experience of Sainsbury’s in the UK. Fresh Kitchen, a stand alone food-to-go concept was opened by the retailer on London’s Fleet Street in July 2011 and closed in March 2012. “While the foodservice market may appear lucrative to grocers is it important that they do not underestimate existing foodservice competitors who will be fi ghting to retain share,” warns Lynch “There must be a suffi cient gap in the market for a new entrant, as was not the case in London, or the entrant must introduce something signifi cantly different from the store offer, with new and exciting products and instore ambience to tempt shoppers.”

Figure 6: Sainsbury’s Fresh Kitchen 2011

Source: Sainsbury’s, Verdict Research

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Tempting online shoppers instore through Click & Collect: Carrefour sets the standardCarrefour has introduced click & collect on groceries at its Carrefour city convenience store outlet in Paris’ St Lazare train station. The store opened in March 2012 and the Mon Panier app launch coincided with the opening.

The app lists 1,500 core items and is linked to store availability. Staff at the store pick orders ensuring collection is available two hours after an order is placed. There is no minimum spend for shoppers and no charge for the service.

According to Cliona Lynch, Carrefour’s innovative new app sets a high standard for the emerging area of click & collect groceries at convenience stores. “The two hour deadline set by Carrefour is industry leading,” Lynch notes. “However, it matches shopper demands which are ever-increasing. Improvements in technology and service levels are creating higher expectations among shoppers for how retailers can and should be meeting their needs.”

Figure 7: Carrefour city’s Mon Panier app 2012

Figure 8: Mon Panier kiosk

Source: Carrefour, Verdict Research

Source: Carrefour, Verdict Research

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UK online grocer Ocado has opened its third pop-up shopping wall concept in Birmingham on 16 July. The walls are used by Ocado to generate publicity and shopper interest in its mobile app. But the problem with Ocado’s wall is that static images do not excite a tech savvy shopper and the missing link to click & collect limits the appeal.

Delhaize has taken the shopping wall concept one step further, by positioning its ‘cubes’ in busy train stations across Belgium and adding click & collect to the offer. Positioning in train stations targets commuters at a key dwell time in their day. Moreover, Delhaize’s concept allows shoppers to order products for collection at the other end of their commute.

Lynch believes there is huge potential in shopping walls, “Both Ocado and Delhaize merely scratch the surface of what could be a game-changing concept bridging the gap between the growing online and convenience food retail markets in Europe.”

Lynch adds “Our research highlights convenience and online retail are the most buoyant channels for food and grocery spend in Europe as more people seek anytime, anywhere shopping. The typical convenience shopper is young; 43.1% are aged between 18 and 24 years. While Delhaize is ahead of the competition there is much more convenience retailers can do to satisfy the needs of these shoppers”.

Create virtual theatre to inspire shoppers: Delhaize trumps Ocado in bridging online gap with shopping walls

Figure 9: Delhaize Shopping Cube

Source: Delhaize.be, Verdict Research

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Andrew Stevens, Analyst at Verdict concludes “Creating interactive virtual shopping walls across metropolitan train stations will engage shoppers as they consider meal options ahead of their journey home. Incorporating recipe ideas and real-time promotional offers will create a more eye-catching display and generate click-through to the retailer’s mobile site or app. “

“Key to success of the concept is linking to quick and easy click & collect facilities at a convenience store at the other end of the shoppers train, tube or bus journey.”

As top-up shopping becomes a norm for European grocery shoppers, the convenience sector is adapting to new challenges. Expanding multiples are seeking acquisitions to facilitate growth, fresh food is reaching new standards and as it does so, food-to-go is becoming a key battleground. Meanwhile, innovations in technology will see click & collect grow in importance as virtual shopping facilities attract attention away from the c-store itself.

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This case study was taken from Trends and Innovations in European Convenience Retailing – a Verdict Channel Strategy Report.For more information on this report please email [email protected] or visit http://bit.ly/RKQJrE

Trends and Innovations in European Convenience RetailingIntroduction

As top-up shopping becomes a norm for European consumers, the convenience sector is having to adapt to new challenges. Shoppers regularly visiting their local c-store are demanding improved ranges and innovative services. C-stores which adapt quickly to implement strategies which respond to these demands will reap rich rewards.

Features and benefi ts

• Justify investment in the convenience retailing sector by uncovering evidence of the consumer trends supporting

• Choose the best path to growth based on case studies of convenience strategies of Carrefour, Morrisons, Rewe, Delhaize, Reitan, Tesco & Valora

• Quantify the potential of introducing click & collect facilities and shopping walls to integrate new technology with c-stores

• Assess the potential risks and benefi ts of expanding into convenience through acquisition and into food-to-go, foodservice and fresh from a c-store

Highlights

European shoppers are switching away from hypermarkets and are buying little and often in a store close to their home or work. The ongoing move towards top-up shopping is validated in our Consumer Insight Survey which shows the proportion of shoppers who make top-up purchases every day at a convenience store has risen to 5.1% from 2.6% in 2009.

Food-to-go in convenience stores is nothing new. However, the food service propositions of some c-store retailers, such as Rewe, are improving so rapidly that they are starting to rival traditional food service specialists. This has created a blurring of the boundaries between the two types of retailer.

Virtual shopping walls in c-stores serve to create a bridge between two grocery retail channels, catering for the needs of tech savvy convenience shoppers who also want to use online shopping services. Such initiatives scratch the surface in terms of the possibilities for channel integration and this report explores further opportunities.

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Your key questions answered

• How is the growth of multiples impacting the convenience market? What paths to growth are multiples pursuing? How does this affect your business?

• What are the latest innovations in convenience retailing? How have Carrefour, Rewe, Morrisons and Sainsbury’s innovations performed?

• How can I adapt my strategy to benefi t from growth in top-up shopping? What are the pitfalls to avoid and the key areas to invest in?

• Which retailers have been making acquisitions and what features should I be looking for in an acquisition target?

• Which convenience retailers have managed to develop strong food service propositions and which parts of their strategy should I replicate?

About Verdict Verdict is a retail information specialist within the Informa Group. With almost 30 years’ experience, Verdict publishes unrivalled independent analysis. We provide a complete picture of the UK and increasingly the international retail arena, helping retailers, manufacturers, service suppliers, analysts and consultants to fully exploit opportunities within the industry.

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Verdict European Convenience Retailing Case Study - Convenience in 2013 (T…

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