Back to basics

Stocking the right grocery products at the right price is becoming ever more vital

The best way to handle the small grocery offer through convenience and impulse outlets is a matter of perpetual debate among those in the business … and it's something that is well worth getting right.

While it is widely acknowledged that the cornerstones of C-Store profitability are categories such as drinks, snacks, tobacco and confectionery, it is equally widely accepted that, while it is a must-have, grocery is a little trickier both to define and to manage.

What to stock?

What items should be stocked? How wide should the range be? How should it be priced?

Different outlets seem to answer these burning questions in very different ways and it is this inconsistency of approach that may, to some extent, cause customers to assume that C&I outlets aren't going to satisfy their grocery needs, and therefore to go elsewhere.

Unfortunately, by their very nature, many smaller stores are restricted size-wise and therefore have limited shelf space that they can make available for dry grocery products that are not for immediate personal consumption.

Nonetheless, the fact is that most retailers are not getting it right and are not carrying the right product mix in all key categories or, if they are, they are not consistently having it in stock. In other words, over time, some small grocery offers have inadvertently been training the consumer that they are more likely to get all the goods they need in a supermarket rather than taking the risk of going to a C&I outlet where they may not be able to get what they need.

Furthermore, many consumer studies have identified that, if the key products are not in stock, then the consumer ignores the category totally. And that means lost opportunities and lost profit.

Steve Cardinale, the Marketing Director at the New Sunrise Group, points to the breakfast occasion as a way of highlighting the problems C&I outlets face … and the opportunities that many are spurning.

"Just having bread and milk is not good enough … if you are competing against the Big Box retailers you also need to have all the other key products that are in the pantry and fridge that are used on the breakfast table – such as sugar, butter, jam, cereal and coffee," he said. "All these products must be in stock all the time if you are going to build consumer confidence."

The point being that when a consumer is after wholemeal bread, lite milk or brown sugar, for example, he or she will go to the site where they know it is always in stock.

Range and stock levels are then crucial. While the small grocery offer could broadly be said to be dry and refrigerated foods, as well as non-food products that do not belong to any of the other major categories, further analysis is perhaps useful.

A good small grocery offer should reflect the key cupboards in a household and the occasion that consumers go to the cupboard. Steve Cardinale has broken these down to the pantry, the fridge, the cupboards and the cabinet. He says the kitchen, pantry and fridge are for breakfast, treats and afternoon tea; the laundry cupboard is for washing and feeding the pet; under the sink is for cleaning and wiping; and the bathroom cabinet is for getting ready either to go out or to go to bed.

Meet specific needs

"I like to set up a store so that it feels like we are looking into one of these cupboards to meet a specific need – in most cases it really does not matter if it is not the brand they would normally use," he said. "The important thing is that the mix of products in the pantry, fridge, cupboards and cabinets is correct, and that they are in stock."

He says it may seem obvious, but the reason that the consumer is in the store looking for a product in the first place is because it is out of stock at their home.

Craig Matthews, the National Marketing Manager at the Lucky 7 network, which services consumers looking for top-up purchases and emergency items at the times they need them, says that bread and milk is an emotive topic in independent convenience, as it is a traffic driver much like fuel is to a Petrol & Convenience banner.

"Due to the fact that these items are an everyday purchase, price is top of mind and therefore independents need to be competitive with other groups and chains," he said. "Importantly it is the range and availability of these commodities at the times when consumers want them that needs to be addressed … more often than not, this is the reason why convenience stores struggle to make themselves destinations for milk and bread."

What do your customers want?

And, he says, it all comes down to customer needs and expectations.

"Due to the dynamics of the market, consumers' expectation of what they want out of a convenience store is constantly changing," he said. "Typically 65% or more of all purchases for our network come from the immediate counter area … however we are also aware that it is important to present a full offer to the customer, so we focus a lot of our attention to the general grocery categories with an extended range of goods and a higher weighting on promotional activity."

Certainly promotions, and pricing in general, is an area which deserves serious analysis. In countries such as the United Kingdom there is a clear trend for most small box retailers to try to broaden their customer profile from predominantly young male. They are doing this by moving away from insult pricing and instead setting prices at just a slight premium over the Big Box stores.

"Grocery shopping is not always a 'distress' purchase in our Lucky 7 convenience stores and, in many cases, our stores have regular customers who use the store for more than a few top-up items and we know that when we promote our grocery items in our monthly promotional program, there is a marked increase in purchases on these items," said Mr Matthews. "This is no coincidence and we can determine that a percentage of these sales are a result of consumers coming in for one or two items and picking up the grocery promotions that were not necessarily part of their original purchase intent."

It is clear then that the way that the small grocery offer is priced is attracting a lot more attention and some long-held conventional assumptions are finally being disputed.

"Price positioning of convenience is becoming increasingly challenging due to blurring of channels, with supermarkets becoming increasingly convenient to shop at with the growth of neighbourhood smaller footprint stores," said Kosta Conomos, Executive Director, Nielsen Retailer Services.

"Bread and milk is already a key focus of convenience stores and is increasingly becoming a destination of choice driven by the bread and milk offers in stores … but it is up to the convenience store operator to understand categories which are more impulse versus planned and price their product accordingly."

Again, the secret is perhaps to understand that customers have certain expectations of what convenience and impulse outlets sell, at what price, and what they therefore expect to buy there. But before customer habits can be changed, they have to be understood. Mr Conomos says, for example, that it is a fact that purchases such as phone cards, newspapers and magazine are planned, while beverages and snacks are generally impulse driven.

In stores where space is at a premium, all categories need to earn their spot on the shelves and things can and do evolve and change. For example, Mr Conomos says that major retailers are now increasingly focusing on fresh foods and private labels as potential points of differentiation from competitors … and that has had a knock-on effect for grocery.

He believes there has been an increasing focus put on the 'food to go' category across convenience, with the old meat pie and beverage giving way to some extent to more high-end sandwiches and salads.

Manage your range for evolving trends

"Range management for 'ready to go food' is increasingly shifting to 'time of day' ranging, but volumes are an issue and as a result wastage is difficult to manage," he said. "Ready to go food appears to be the space stores are focusing on from a range point of view, and also store format and design has had a significant focus from many of the players over the past couple of years to keep their formats vibrant."

Craig Matthews from Lucky 7 agrees, saying that economic circumstances are dictating that people are eating out less, which therefore means that they are eating at home more often.

"Independent convenience banners like Lucky 7 are well placed to take advantage of this evolving trend," he said. "Moving forward we will need to place more attention on the development of the food service segments of our offer and provide fresh meal solutions for our customers."

Similarly, Steve Cardinale from the New Sunrise Group says concentrating more on easy foods in food lines is one of the things that independents can do to maximise the opportunities from the trend towards top-up shopping.

"We need to think about meal occasions and to make it simple by thinking of products that are easy to prepare," he said. "Easy foods are products that can be eaten out of a can, placed between two slices of bread, or prepared by simply adding water and heating up."

In terms of pricing, Mr Cardinale says that C&I outlets need to be a little more sophisticated than simply marking up all grocery products by 50%.

Other measures, he says, that could be taken include having a depth of quality rather than a depth of quantity. This means that instead of having three variants of Colgate toothpaste, retailers stock two of the best sellers and one price fighter brand giving customers a choice of 'perceived' quality and a lower price point.

In terms of bread and milk, he says that all suppliers have a price fighting brand and these should be included in the range. Also, he says there should always be a good ambient drink offer, which will, if ranged and displayed correctly, deliver incremental sales without affecting cool room sales.

"New Sunrise has the people, retail systems, and the marketing strategies to help our members remain competitive," he said. "We are not a simple buying group, we do much more and offer our members a full retail program that includes promotions, trade discount and rebates from all major suppliers, as well as shop branding, best sellers' lists, free training programs, operational tools and having experienced retailers available to help our members buy better, sell smarter and bank more."

For its part, Lucky 7 says that one of its key strengths is its strong grocery offer, and that at least 50% of all of its monthly promotional activity is devoted to core grocery lines.

"Convenience stores have built their business on house brand names and market leaders and we do not see this trend changing in the near future," said Craig Matthews. "Importantly major grocery manufacturers need to invest more in the independent convenience channel and realise the opportunity that it presents."

He says that price file maintenance, range and availability will be key in maximising retail space and ensuring that independents can compete against other retail banners.

Exciting times then lie ahead for the small grocery offer through the convenience channel. As the perceived roles of C&I outlets and supermarkets in the weekly shop shift and change, there are clearly opportunities to be had here, and profits to be made. In the end though, it's merely a matter of giving the customers what they want and expect at a price they are happy to pay.

Simple, isn't it?