business news in context, analysis with attitude

The critical juncture at which the convenience store industry finds itself was a subject that was front and center at the annual convention of the National Association of Convenience Stores (NACS), which commenced this weekend in Orlando, Florida. Despite the location, this is no Fantasyland for beleaguered c-store operators; for many of them, Tomorrowland is a place of shadows and questions and unsure footing.

Today, convenience stores are competing with supermarkets, drug stores, supercenters, hypermarkets, and warehouse clubs…and this is a challenge that will require imagination, innovation, and old-fashioned elbow grease if it is to be met and conquered.

Some examples of what we found on this stop of our ongoing road trip:

  • In his State of the Industry address, NACS Chairman Hank Armour noted that the convenience store business is under attack from numerous quarters. “It is a gratifying thing that Wal-Mart and other inconvenient retailing giants covet what we have,” he said. “What greater affirmation of our industry’s business opportunities than having Bentonville make a bee-line for it?”

    What remains positive about convenience retailing, Armour said, is that it “isn’t dependent on size. It isn’t dependent on geography. But it is dependent on the ability to change… to change old ways of doing business, to change old approaches that are outpaced by new competitors, and more often than not, to change our mind from believing we can’t do it… to believing that we can.”

    Armour said, “I hope my message is obvious. I am a passionate believer in the market value of convenience… and I am also a passionate believer in the convenience store industry’s ability to hold our convenience edge and win consumers’ loyalty in spite of attempts by big-box retailers to steal it away with not much more than a few cents.”

  • One current source of competitive headaches for the convenience store industry is the chain drug business. In fact, when we spoke with one retailer, Wade Quinn, during our Orlando sojourn, he told us, “I think that Walgreen is going to be a significant factor in how we do business. It used to be just us and Wal-Mart, but now Walgreen is coming in, putting an entirely different concept on the corner that has more merchandise as we do, a much better assortment, is just as convenient, and only is missing the gas station part.”

    That perspective was confirmed at a Sunday morning workshop entitled “Know Your Competition: Chain Drug Stores,” in which two experts offered NACS attendees an overview of the many strengths that chain drug companies bring to the competitive wars.

    “Walgreen calls itself ‘7-Eleven on steroids,” Jay Forbes, vice president of customer development for Drug Store News, told the largely retailer audience attending the session. He noted that chain drug retailers -- especially the top two, Walgreen and CVS, which each have sales more than -- are highly focused on co-opting the consumer looking for a convenient shopping experience. In addition, he noted, chain drug stores are relying on “front end sales” -- or anything not pharmacy related -- to drive profits.

    Forbes and his co-presenter, Steve Perlowski, director of industry affairs for the National Association of Chain Drug Stores (NACDS), also noted that 75 percent of sales growth at chain drug stores comes from increased customer count, not an increased market basket -- which means that virtually everybody’s shoppers are in play.

    (Of course, we believe that perhaps some of the folks in the room might have benefited had the workshop explored some of the possible competitive antidotes that are available to c-store operators. Should they all put in pharmacies? Drive-up windows? What is the best way to compete with Walgreen? Walgreen reportedly has the ability to tailor the merchandise mix in its stores to specific demographics, creating a lift of as much as 30 percent in sales when it works. That’s tough to compete with, but there must be answers.

    Unfortunately, this wasn’t explored – and Forbes used some of the time that might have been devoted to the subject to try and sell a $500 CD-ROM that contained the presentation he was giving. Too bad, because this was a valuable opportunity lost, and no fault of NACS.)

  • One of the high points of the weekend for us was the store tours program that NACS ran on Saturday, especially because it brought into sharp relief the various foodservice options that c-store retailers are using to do battle with supermarkets and fast food restaurants.

    A Hess Express unit that we visited was a shrine to the power of branding: it had Blimpie sandwiches, Godfather’s pizza, TCBY yogurt, and Krispy Kreme doughnuts crammed onto the perimeter of the 3,700-sq.-ft. unit. Bright and colorful, and brimming with energy, Hess Express was abundant with options and the reassurance that comes from brand-name fast food operations.

    A BP Connect flagship store, on the other hand, created its own branded environment -- the Wild Bean Café, offering specialty sandwiches and wraps, soups and salads and meal combos; bakery items and hot sandwiches are available for breakfast; and a self-service gourmet coffee bar.

    The decision that has to be made by c-store retailers seems vivid when it comes to creating an attractive and viable foodservice environment; certainly there is a middle ground, with less known brands that offer less equity and excitement, but to us that seems like a mediocre answer to a question that requires commitment and energy.

    Our inclination would be to choose the BP Connect solution, simply because it is proprietary, and harder to compete with. But it is also harder to create and harder to achieve excellence with, and longer to become profitable. So, we understand why retailers move in that direction.

    The bottom line is, it may not matter. Regardless of which choice is made, supermarkets and fast food restaurants need to be on alert, because the c-store industry clearly is serious about this part of the business.

  • However, there is a sense that the industry has a way to go in order to get consumers to think of c-stores as meal solutions providers. A recent study from Technomic Inc. suggests that even as c-store operators focus on foodservice as a source of revenue and traffic, almost 80 percent of consumers say that they buy food or beverages at c-stores as a “snack,” rather than as a “meal.” The study suggests that issues of freshness and value are at the core of this mindset.

    The study quotes Ron Paul, Technomic’s president, as saying, “We see this as a major opportunity. C-stores have a need and a desire to work in partnership with foodservice manufacturers and branded operators. While not always recognized, they offer manufacturers a highly visible means to promote their brands.”

  • Anyone who wants to know how to give a motivational speech should look no farther than Duke basketball coach Mike Krzyzewski, who gave a wonderful presentation on the subject of teamwork. “Coach K,” as he is known, said that both basketball teams and businesses need to focus on five critical elements: Communication, Trust, Care, Collective Responsibility, and Pride. And, he said, as the competitive climate and demands change on an ongoing basis, it is important for the industry to continue to develop its “continuing tradition of excellence.”

    But the best thing about Coach K’s speech, aside from his self-effacing, deadpan humor, was the way he wove brief stories about his local c-store operator into his narrative, making the speech relevant to the audience.

    (There’s one political figure who has been working the food industry circuit for years and who starts off his speech saying that he is a great customer of the industry – apparently because he seems to weigh well over 300 pounds. From then on, he launches into his standard speech…and he’s capable of better than that.)

    “Bob,” who Coach K said owns the convenience store that that he patronizes back in North Carolina, “has helped me survive,” saying that for him, the convenience store is more of a “survival store.”

    Music to the audience’s ears.

  • Finally, in a whirlwind tour of the NACS exhibit floor, we tasted everything we could.

    Our first reaction was that any obesity litigator walking the NACS Show floor would think that he’d died and gone to heaven…because there seemed to be very few products that mentioned nutritional benefits, and few that seemed to be particularly healthy.

    Among the products that we did like:

    • V8’s offered a new line of drinks, which included a wonderful line of “Splash Smoothies” in three flavors -- Peach Mango, Strawberry Banana, and Citrus Blend -- that include vitamins, minerals and soy protein, and was just delicious. V8 also has a new Vegetable Juice drink with a lemon twist that was yummy, and has reformulated its Splash line to be lighter in taste and carried in plastic bottles.

    • Snapple is launching a “Snapple A Day” product that comes in three flavors -- Tropical Blend, Strawberry Banana, and peach -- that contains 24 “essential vitamins and minerals,” and is being pitched as a “meal replacement.” Good stuff!

    • “Fuze” is a line of drinks that contain vitamins and minerals and are targeted at varying consumer needs – there are products to help consumers slenderize, replenish, give a vitamin boost, increase stamina, and help improve focus. (Can’t we get one that does it all???) Has a pleasing taste, and the company is aiming at a national rollout soon.

    • The Jones Soda Co. has two main lines that it is pitching, one carbonated soft drinks in 24 flavors (ranging from bubble gum to green apple), and “naturals,” non-carbonated and coming in eight flavors (we particularly liked the “Bada Bing!” cherry flavor. Nice innovation from a minor player in the soft drink biz.

    • We really liked minute Maid’s Fruit and Cream Swirl , which mixes Orange Sorbet and Vanilla ice Cream in a squeeze tube. Perfect for quick snacks.

    • And, of course, there was Diet Vanilla Coke…which, we have to admit, tasted really good. (The non-diet version was way too sweet for us, but this seemed to have a perfect balance.)

    Today, we diet.
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