Convenience industry continues to outpace the majors

Australian convenience stores have done it again. For the third year running, the convenience channel outpaced the growth of the grocery channel over the course of 2014, recording sales growth of 4.5% compared to the 2.6% recorded by the country’s major grocers.

The figures were unveiled today with the launch of the annual State of the Industry Report from the Australasian Association of Convenience Stores (AACS).

In 2012, convenience stores grew at a faster rate than the grocery channel for the first time since 2008. It is encouraging to see this trend maintained in the years since, said AACS CEO Jeff Rogut. “This is another outstanding result from our industry against the background of challenging retail conditions. The emphasis that retailers and suppliers are placing on innovation and store execution to meet shifting consumer needs and shopping behaviours is clearly paying dividends and gives us all reason to be confident in the future of this vital sector of the small business economy,” Mr Rogut said.

AACS SOI convenience shopping chart

Interestingly, the growth in Non-Food again outperformed growth in the Food category, as was the case in 2013. A major contributor to the Non-Food result was Tobacco, with excise increases helping to add $232 million in additional sales value to the category.

Turning to fuel, volumes were up 3.6% over the course of 2014 in measured independent stores as customers responded to cheaper fuel prices and the benefits of the cap on discount vouchers offered by the major supermarkets flowed back to independent retailers. There has been a trend towards customers not filling up as frequently, but merchandise transactions were slightly up again as was the average transaction value.

Convenience channel performance: a snapshot

The Convenience channel value increased by 4.5% in 2014, up from 3.7% in 2013.

Mr Rogut said the fluctuations in the Food and Non-Food results reinforce the importance for convenience stores to maintain their focus on anticipating customer needs and adapting their offer.

“As the need to continually innovate becomes ever clearer, the industry must focus on customer service and optimise the performance of key categories to cement a strong and sustainable future over the long term,” Mr Rogut said.

Fuel financial metrics … and counting the cost of petrol theft

Fuel volumes increased by 3.6% in 2014 as cheaper fuel pricing proved a winner for consumers. The average price of fuel in 2014 was $1.49, which was 1 cent per litre higher than 2013.

Mr Rogut said the ACCC had played a significant role in levelling the playing field where fuel was concerned.

AACS SOI fuel metrics chart

“The AACS applauds the ACCC for the proactive and productive role it has adopted in relation to supermarket discount fuel dockets, as this has been an important support for independent retailers and small businesses like convenience stores,” Mr Rogut said.

We continue to work towards securing decisive action on another issue of crucial significance to small businesses – petrol theft. Petrol theft was up 6.8% for calendar year 2014 in a sign that existing efforts by police and state governments to deter and punish petrol thieves are totally insufficient and weak.

This crime on average now costs each convenience store in the country $220.58 per week, equating to approximately $66 million nationally. This dramatically affects the bottom line for franchisees and store operators.

Tobacco surges ahead

The AACS State of the Industry Report reaffirmed the importance of Tobacco to convenience stores, accounting for 37.34% of a typical convenience store’s sales.

Tobacco was the main contributor to growth in the Non-Food category, as it was in 2013, despite the volume sold only increasing 0.3%. The additional sales generated in Tobacco contributed more than 100% of the Non-Food growth, the price increases from excise tax being the main driver.

This result was in spite of plain packaging, the merits of which remain the subject of intense debate, as well as shoppers continuing to trade down to more value offers.

The Tobacco category grew 8.9% over the course of the year, adding $232 million in value to the category, perhaps the most striking figure to dispel the claims by the health lobby that plain packaging has worked. The actual sales data suggests that, if anything, it has had the opposite effect.

AACS SOI tobacco chart

Around 10% of smokers use the Convenience channel as their main place of purchase. Consumer preference to use convenience is growing especially in the Roll Your Own tobacco category.

Meanwhile, the growth of the illegal tobacco market in Australia continues to astound. The Illicit Tobacco in Australia Full Year 2014 Report prepared by KPMG and released just this week shows that illegal tobacco represented 14.5% of total consumption, with nearly 2.6 million kilograms of illicit tobacco consumed last year.

This equates to an estimated $1.35 billion loss of tax revenue to the Government. Plain packaging and excise increases continue to contribute to the huge spike in illicit tobacco trade.

Bottoms up: beverages going down well

The AACS State of the Industry Report shows that the Beverages category grew by 3.5%, although this was down from 4.9% growth in 2013. Take Home Beverages sales were up 8.7%, while Ready To Drink sales increased 2.5%, which combined added more than $62 million in category sales.

The major contributors to Beverages growth have been Hot Drinks (mostly coffee) and Dedicated Ice Coffee, while shoppers are purchasing fewer traditional beverages such as Soft Drinks and Frozen Carbonated Beverages, which have been impacted by stronger competition from fast-food outlets.

Hot Drink sales increased 31%, equating to $29 million of additional sales, with coffee clearly a key product for stores to focus on in the future. Consumers are increasingly visiting convenience stores to satisfy their coffee needs.

Dedicated Ice Coffee has continued to grow strongly, with sales up 10.3% in 2014. Dare Iced Coffee is responsible for much of this growth, as a result of more promotional activity. Today, there is stronger competition in this category due to the launches of Barista Bros and V Iced Coffee, which accelerated sales growth in this segment to 16% in the last quarter of 2014.

Finally, Energy Drinks recorded growth of 4.1% with the main contributors being V and Red Bull multipacks. As a result, growth of all Energy Drinks multipacks increased from 5% in 2013 to 34% in 2014. While the growth in singles has slowed recently, shoppers are consuming more (and spending more on) Energy Drinks.

Confident in convenience

AACS CEO Jeff Rogut said the channel’s highly credible performance in 2014 generates confidence in the future of the industry as increasingly time poor consumers recognise and respond to the value proposition that convenience stores offer.

“Convenience stores have proven their capacity to evolve and innovate their offer to better meet their customers’ needs. While this is ongoing process, the industry is awash with talented professionals operating in stable, long term businesses with strong brands, systems and proven managers unwilling to rest on their laurels,” he said.

The complete AACS State of the Industry Report 2014 is available to AACS members or for purchase by non AACS members through the AACS.


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