Promotions, Innovation Key to continued Convenience Store Success. [REPORT]

When it comes to retail, no channel has more than convenience – and the U.S. convenience industry remains on a roll. More than 8,100 convenience stores (C-stores) have been added nationwide since 2005, bringing the total to 148,764. In fact, there are more C-stores than warehouse clubs, supercenters, dollar stores, supermarkets and drug stores combined.

In addition to store count, revenue is up for C-stores as well. Year-over-year sales in the U.S. grew 4.9 percent in the 52-week period ending August 4, 2012, compared to 3.7 percent growth for the marketplace overall. C-store drive-thrus are also on the rise, making most store items including grocery staples such as bread, eggs and cereal available through the window of the car.

What Shoppers are Buying

Traditionally, C-stores lead all retail formats in the U.S., with 85 percent of all tobacco product and accessory sales and 53 percent of all beer sales. Consumers also buy a considerable amount of carbonated beverages, snacks and candy at convenience stores.

C-stores have increasingly emerged as places to purchase quick, on-the-go meals. Within the past year, grocery items like yogurt and fresh produce have increased sales in C-stores by 57 and 38 percent, respectively.

Promotions Work

Promotions are a key factor in the growth of C-stores. Success demands collaboration with brands to utilize smarter, more effective promotions and business partnerships. Items sold with more common, low-effort temporary price reduction (TPR) promotions drove 8.1 and 11 percent growth for similar time periods in 2011 and 2012. However, product displays, which typically enable a higher level of shopper engagement, grew by 30 and 27 percent over the same timeframe. Consumers respond strongly to promotions, as seen by a 14 percent growth in promoted unit sales, a rate more than four times greater than non-promoted sales. Innovative collaborations between C-stores and other retailers and manufacturers have shown to foster growth.

Speed Bumps Ahead for C-Stores

C-stores claim the most locations nationwide, but over the past five years other small-box formats, namely dollar and drug stores, increased store count at a faster clip. This trend is likely to continue as competition persists from other retail formats, but two leading drivers of C-Store foot traffic are also under pressure. Increased fuel efficiency for cars is going up, which means trips to the pump are going down. Also, the steady climb of cigarette health education and taxes is eroding tobacco demand. If fewer consumers need fuel and tobacco, C-stores will need new ways to attract consumers into stores.

While challenges abound, a focus on innovation and ever-more granular analytics about what really works to drive in-store sales, American C-stores have the opportunity to accelerate growth and continue their winning ways. Taking a cue from Asia Pacific retailers, in countries such as Indonesia and Thailand, North American retailers could look for new revenue opportunities by considering in-store technology that pays utility bills, buys movie tickets and receives money transfers. Strategies like these boosted C-store growth in the Asia Pacific region by 29 percent over the past two years.

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