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AACS SOI report: Convenience industry in good shape

The petrol and convenience industry has outpaced the growth of the grocery channel for the fourth consecutive year, with in store convenience sales of almost $8 billion (excluding fuel sales) up 3.7 per cent in 2015, according to the Australasian Association of Convenience Stores’ (AACS) State of the Industry (SOI) report for 2015.

The AACS SOI report pulls together data sources and contributions from across the P&C industry. IRI was appointed to provide the most robust and granular market performance overview for the local petrol and convenience (P&C) industry.

IRI’s MarketEdge service was used to explore category and brand performance, incorporating actual scan sales data coverage for most major P&C retailers, enabling a more granular view of what brands and dynamics are driving performance within departments.

Other contributors included Imperial Tobacco Australia (ITA), Australian Centre for Retail Studies at Monash University, Nielsen and The Advantage Group, with the report capturing the 52 week period to January 3, 2016.

AACS CEO, Jeff Rogut, said the convenience channel’s performance was highly credible against the backdrop of tough retail conditions.

“Our operators and their many employees have every reason to have confidence in convenience as the industry’s focus on innovation in recent times pays dividends in terms of sales performance and customer service outcomes,” Mr Rogut said.

“The drive to innovate continues to gather momentum, underlined by the performance of emerging categories like coffee and on the go good, and the need for operators to maintain a focus on the customer and optimise the performance of key categories has never been greater,” he said.

Convenience vs grocery

According to the SOI, IRI data shows the P&C value growth of 3.7 per cent in 2015 outpaced inflation and the grocery channel (1.1 per cent), proving that P&C stores continue to satisfy shopping missions driven by a need for an accessible (close location), compact (easy to navigate), efficient (fast in and out) and simple (minimal thinking required) shopping experience.

The report said P&C retail is in deeper competition with Australia’s vibrant foodservice operators and convenience orientated grocery stores. According to the report, as P&C retailers elevate the quantity and quality of grab and go food and drink offerings, competition with fast food, quick service restaurants, cafés and eateries will intensify and more aggressive channel comparisons in marketing messaging are likely.

The grocery channel is also challenging P&C as the primary source of convenience shopping, evident by the proliferation of convenient grab and go front of store sections, and immediately accessible in store cafes, which are now commonplace in modern grocery retailing. Within P&C, Coles and Woolworths continued to enhance their convenience offerings through their retail fuel chains, something which not only heightens competition, but also helps drive the overall size and relevance of the channel.

Category breakdown

Excluding tobacco, on the go food was one of the largest contributors to value sales growth in the convenience channel in 2015, recording growth of 13 per cent. The segment’s double digital sales increase was led by three main categories: fresh cakes (28 per cent), hot pastry (39.8 per cent) and sandwiches (21.5 per cent).

“The continued growth in on the go food suggests that, as convenience stores evolve their model to reflect consumer preferences for fresh food offerings, as well as healthier options, shoppers become more comfortable buying food in stores, which is a great outcome,” Mr Rogut said.

“The growth our operators have experienced in sandwich sales is evidence that this format is establishing its rightful place in the convenience channel. By investing in a more enticing fresh sandwich offering, with fresh daily deliveries in some cases, retailers can ensure that grabbing a sandwich extends beyond restaurants, cafes, and fast food outlets.”

In the beverages segment, take home beverages (THBs) outperformed ready to drink (RTD) with THBs recording value growth of 9.7 per cent, while RTDs declined by 0.5 per cent. The SOI report also showed coffee’s popularity in P&C continues to gain momentum, recording gains of 26 per cent in 2015, while iced coffee saw mid-single digital growth of 7.9 per cent, offsetting declines in energy drinks, Cola, sports, water and frozen carbonated beverages.

“The double digit volume and value growth for hot drinks demonstrates that convenience stores are a credible option for affordable coffee in a broader market that is expanding, but is fiercely competitive,” Mr Rogut said.

Snackfoods and confectionery also continued to perform solidly in 2015. Snackfoods growth of 5.7 per cent in 2015 was up from 3.7 per cent in 2014, while confectionery, which has recorded a continued turnaround since 2013, grew 3.1 per cent in 2015, up from 1 per cent in 2014 and negative growth in 2013.

Communications was the worst performing area of merchandise, followed by printed materials. Communications merchandise recorded a double – digit decline in 2015 of 10.1 per cent, having been in growth in 2014 of 1.8 per cent. The decrease in sales growth was driven by accelerated declines in recharge cards, which account for more than 80 per cent of the category.

Tobacco

Despite continued government regulations and excise pressure, tobacco remains the industry’s largest product segment and continues to be the main contributor to channel growth, comprising around 37.6 per cent of all P&C sales in 2015.

According to the report, the segment reported value growth of 5.2 per cent in 2015, totalling $2.98 million in overall value. In 2015, the additional sales value generated from tobacco’s growth in P&C outlets amounted to nearly 100 per cent of total non food growth. On a global scale, Australia continues to be a strong performer within the tobacco market, the report found, ranking 15th based on dollar sales values.

Prices increases from the excise tax have driven value growth, which has been most pronounced in the sub value segment. The share of sub value tobacco has grown by 145 per cent in two years (from 11.6 per cent in 2013 to 28.4 per cent in 2015). In 2015, sub value cigarettes accounted for more than 60 per cent of actual sales value gains among the tobacco formats in growth within P&C. Roll your own (RYO) continues to entice smokers as another affordable option. RYO now accounts for 7.5 per cent of all Tobacco sales value within P&C – up from 5.4 per cent in 2015.

The SOI highlighted the ongoing challenges faced by the tobacco market and the convenience industry including the continuing decline in smokers, further tax excises and the growing illicit tobacco trade.  Illegal tobacco in Australia now represents 14.3 per cent of total consumption.

Fuel

During 2015 fuel sales volumes grew against a backdrop of fluctuating prices, with petrol prices rising during the first half of the year and falling through to December. Declining fuel prices underpin the growth in litres per transaction of 7.9 per cent and fuel sales volumes grew 1.8 per cent in 2015.

Fuel theft declined, but remains a major concern for the industry. Although fuel theft costs fell in 2015 (because theft is typically linked to higher prices), the average $186 dollars of petrol theft per store per week still cost P&C retailers approximately $55 million forcing some service station owners to take preventive measures.

In 2015, some petrol stations implemented newly developed number-plate recognition technology in order to deter drive-offs by automatically scanning license plates, in addition to being a deterrent to theft it is hoped the technology will enable loyalty schemes for stations where it is installed. However, ideally a national solution to this problem is required.

“The efforts undertaken by retailers themselves – at their own expense – has seen the average cost of petrol theft drop from approximately $220 in lost profit per store per week to around $186. Regardless, the issue remains a focus for the industry as it is unacceptable for authorities to refuse to view petrol theft as a crime and commit to tackling it appropriately,” Mr Rogut said.

Australians are accumulating more kilometres, fuelled by more vehicles rather than longer trips. In the 12 months ended 31 October 2014, registered motor vehicles in Australia consumed an estimated 32,402 million litres of fuel (54.0 per cent petrol and 40.5 per cent diesel).

Ethanol blended petrol (EBP) sales by volume, and as a proportion of total petrol sales, fell to a six year low in 2015. The fuel format has generated considerable debate in recent years because of legislative changes that require fuel operators in NSW (and Queensland in 2017) to meet sales quotas of ethanol blends despite ongoing consumer resistance.

The AACS SOI identifies fuel as a leading sales generator which provides a frequent footfall driver unique to the convenience channel. Lower fuel prices have freed up disposable income for other channel merchandise such as snacks and drinks.

Confident outlook for 2016

Mr Rogut said the industry’s strong 2015 performance as detailed in the AACS State of the Industry report reinforces the value proposition of the convenience channel and the investment leading operators have made in innovation.

“By maintaining a firm focus on customer needs and the customer experience, the retailers and suppliers in the industry continue to evolve and innovate their offer for a bright future,” Mr Rogut said.

“Looking ahead, there is an ongoing need to further develop a culture of compliance within the industry for store owners, franchisees, staff and customers, and the AACS will sharpen its focus on education, training and development for members.

“The AACS will also continue to advocate on behalf of our operators across all areas and issues that impact their business and ability to compete, from tobacco regulation, food regulation and new taxes, penalty rates, alcohol sales regulations, container deposit legislation and petrol theft.”

Read more about the AACS State of the Industry Report in the upcoming June/July issue of C&I Retailing Magazine.

To obtain a copy of the report or for more detail contact Jeff Rogut at AACS on 0467 873 789 or email jeff@aacs.org.au

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