AACS executive director Jeff Rogut considers the findings of an interesting research project.

The convenience channel faces challenges not experienced in recent years. We have to some degree been fortunate in the past as some companies have been buoyant and the major oil companies in particular have invested heavily in store and new format development, which kept store numbers and sales growing.

Suddenly though, businesses began reporting that times were getting tougher. Sales were flat. Less discretionary income amongst customers, very aggressive pricing positions by major supermarkets on core convenience products such as bread and milk, and new legislative pressures by governments on another core category for our industry – cigarettes and tobacco.

And things are not getting any easier.

Where are we now and what does this hold for the future?

Australasian Association of Convenience Stores (AACS) commissioned the Australian Centre for Retail Studies at Monash University to complete a research project called ‘Convenience 2020’ – what do retail and supplier leaders across a range of countries believe the future will hold for the convenience industry and how do our customers see their future needs? Some of the findings follow.

• The convenience industry is faced with several threats: The major grocery chains are increasingly developing their store designs and product offerings to target the convenience shopper.

• It is also hindered by several weaknesses: Convenience retailing is challenged by relatively premium prices, low margins, inefficient distribution, and an over-reliance on cigarettes and other ‘unhealthy’ products, as compared to competing retail formats.

• Key advantages for convenience retailing lie in the frequent demand for fuel and hence visitation frequency, as well as vast store footprints across many retail brands (= leverage opportunities).

• The industry requires change: The current convenience retailing proposition is not sustainable for future growth, with a number of changes identified as necessary so as to compete successfully in the lead up to 2020.

Need for change

Australian convenience retailing will require significant change over the next decade, which is absolutely critical to future industry success and sustainability.

Australian convenience retailing is primarily focused on petrol and there are invaluable lessons to be learned from global best practice in extending the convenience retailing offer beyond fuel.

In NZ, further convenience industry consolidation was deemed necessary in the short to medium term due to the number of major oil companies in operation and the current state and size of the local economy and market.

Response to change has been slow, especially in Australia and NZ as compared to international markets – this is particularly true in relation to the services and foodservice opportunities.

In very simple terms we require a greater level of:

1. Collaboration – both convenience retailing suppliers and retailers require greater horizontal and vertical collaboration to successfully compete with the economies of scale and supply chain power of the major grocery chains.

2. Innovation: A number of convenience retailing innovations can be seen globally across a number of facets, such as new (and tailored) product offers, store design elements, as well as leveraging available technology.

3. Differentiation: Differentiation is required in convenience retailing, with specific relevance to the product offering, store environment and technologies utilised. Essentially, a refreshed and differentiated convenience proposition needs to be developed and communicated in the market to encourage shoppers to frequent convenience outlets as a shopping destination of choice.

In more general terms, the future focus will be on:

• Consumers: Tastes and preferences, demand for local offerings, a convenience retail experience, loyalty programmes, store promotions, and shopper intelligence.

• Operations: Market consolidation, ownership, capital investment, regulations, environmental sustainability, margin and competitive pressures, supply chain, industry collaboration, and threat of foreign entrants.

• Products and services: Decline in tobacco, product expansions (fresh and healthy food and drinks, food service, coffee, alcohol, OTC pharmaceuticals), product branding and differentiation, service expansion (click-and-collect, home delivery, postal and banking).

• Stores: Role in community, people, merchandising and mission management, and store experience.

• Technology: Industry uptake, pay-at-the-pump, WiFi, contactless payment, cashless stored value cards, multichannel retailing such as online, mobile (coupons, proximity SMS, apps), social, and iPads.

There is no doubt that the convenience industry is resilient but the thinking of old will need to change for future success. Look to what is successful in other markets and tailor this for your local market – there are great examples from all around the world, particularly the UK, Europe and Japan.

Importantly, there is a great need for shopper data and insights to understand their needs and behaviour and offer a more informed and tailored shopping experience.

For a complete copy of the 280 page ‘Convenience 2020’ research report, contact Jeff Rogut (email jeff@aacs.org.au). The cost is A$2900. As a special bonus, FMCG readers will also receive a CD with copies of the very insightful presentations from the November Convenience Leaders Summit in Adelaide at no cost. This features presentations from: him! research and consulting, Nielsen, PayPoint UK, IGD UK,

Monash University. Great insights and examples of convenience best practice from around the world.