2011 convenience retail outlook

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FeatureFoodservice Retail Outlook: Coutiousy Optimistic Balvor survey highlights the concerns, focus and sentiments held by convenience store operators heading into 2011. By David Bishop, Contributing Editor T HE OUTLOOK FOR THE retail landscape in the year ahead can best be described as cautiously optimisic. Cautious, because anumber ofexternal factors, rang- ing from continued high unemployment, constrained consumer spending, and weak construction and housing markets are creating especially stiff headwinds for their core shopper base. Optimistic, because over the last couple of years conve- nience retailers have demonstrated an ability to thrive when other retailers have struggled, leading some to describe the convenience store and petroleum retailing industry as being recession resistant. To better understand what 2011 may have in store for the convenience retail industry as it relates to the in- store business, Balvor, with the assistance of Convenience Store Decisions, conducted on online survey with retailers. A total of 113convenience retailers shared their views in November 2010 on a variety of topics, including compet- itivethreats, likely business activities and outlook for the coming year related primarily to the in-store business. Chart 1: % Concerned About Competitive Threats Other ccnvenlence stcres ••••••••••••••• offering fuel discounts Grocerystorespartnering ••••••••••••••• with specific c-store chains on fuel discounts Foodserviceoperators •••••••••••• expanding into morning daypart Drug stores selling beer in ••••••••••• more locations Source: Balvor 20II Convenience Refail Out/oak Survey COMPETITIVE THREATS Fuel discounts top the list of concerns that retailers have about competitive threats in 20ll-whether it's other convenience stores offering their own discounts or part- nerships with grocery chains in the market. (Chart 1).This is understandable given the critical role that fuel plays at driving site traffic and sensitivity that consumers have rel- ative to fuel pricing. Increased competition for the morning foodservice busi- ness is not far behind with over 60% expressing concern about this growing threat. Larger store operators are more concerned, possibly given their broader market coverage and likelihood that they're located in closer proximity to these competitors. BUSINESS ACTIVITIES What activities are retailers most likely to focus resources onin2011? Out of20areas that cross foodservice and mer- chandise (Chart 2), here are the top five we're likely to see the most activity across the industry this year: Chart 2: % Likely to Test/Implement in 2011 Raise retail prices on hot ••••••••••••••• dispensed beverages Addnewproduct ••••••••••••• categories leverage multi-vendor ••••••••••••• displays Expand range ofproducts •••••••••••• available on roller grill Upgrade hot dispensed •••••••••••• beverage equipment Source: Balvor 20 II Convenience Retail Outlook Survey 52 Convenience Store Decisions I January 2011 CSDecisionso

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Balvor survey highlights the concerns, focus and sentiments held by convenience store operators heading into 2011.

Transcript of 2011 convenience retail outlook

Page 1: 2011 convenience retail outlook

FeatureFoodservice

Retail Outlook:CoutiousyOptimisticBalvor survey highlights the concerns, focus andsentiments held by convenience store operatorsheading into 2011.

By David Bishop, Contributing Editor

THE OUTLOOK FOR THE retail landscape in the yearahead can best be described as cautiously optimisic.Cautious, because a number of external factors, rang-ing from continued high unemployment, constrained

consumer spending, and weak construction and housingmarkets are creating especially stiff headwinds for theircore shopper base.Optimistic, because over the last couple of years conve-

nience retailers have demonstrated an ability to thrive whenother retailers have struggled, leading some to describethe convenience store and petroleum retailing industry asbeing recession resistant.To better understand what 2011 may have in store

for the convenience retail industry as it relates to the in-store business, Balvor, with the assistance of ConvenienceStore Decisions, conducted on online survey with retailers.A total of 113 convenience retailers shared their views inNovember 2010 on a variety of topics, including compet-itivethreats, likely business activities and outlook for thecoming year related primarily to the in-store business.

Chart 1: % Concerned About Competitive Threats

Other ccnvenlence stcres •••••••••••••••offering fuel discounts

Grocerystorespartnering •••••••••••••••with specific c-store chains

on fuel discounts

Foodserviceoperators ••••••••••••expanding into morning

daypart

Drug stores selling beer in •••••••••••more locations

Source: Balvor 20 II Convenience Refail Out/oak Survey

COMPETITIVE THREATSFuel discounts top the list of concerns that retailers

have about competitive threats in 20ll-whether it's otherconvenience stores offering their own discounts or part-nerships with grocery chains in the market. (Chart 1). Thisis understandable given the critical role that fuel plays atdriving site traffic and sensitivity that consumers have rel-ative to fuel pricing.Increased competition for the morning foodservice busi-

ness is not far behind with over 60% expressing concernabout this growing threat. Larger store operators are moreconcerned, possibly given their broader market coverageand likelihood that they're located in closer proximity tothese competitors.

BUSINESS ACTIVITIESWhat activities are retailers most likely to focus resources

on in 2011? Out of 20 areas that cross foodservice and mer-chandise (Chart 2), here are the top five we're likely to seethe most activity across the industry this year:

Chart 2: % Likely to Test/Implement in 2011

Raise retail prices on hot •••••••••••••••dispensed beverages

Addnewproduct •••••••••••••categories

leverage multi-vendor •••••••••••••displays

Expand range of products ••••••••••••available on roller grill

Upgrade hot dispensed ••••••••••••beverage equipment

Source: Balvor 20 II Convenience Retail Outlook Survey

52 Convenience Store Decisions I January 2011 CSDecisionso

Page 2: 2011 convenience retail outlook

FeatureFoodservice

• Coffee. Increasing commodity costs are creating pres-sure to raise prices while fierce competition is forcing athoughtful response so as to protect volume. So, it's not sur-prising that while 52% of the retailers indicate they'll likelyraise prices in 2011, only a quarter of these are extremelycertain prices will go up. Other retailers may not be con-sidering an increase-11 % according to the survey-as theyalready executed price increases during 2010.• New Categories. Finding new items that are a good fit

for the store has long been a goal of many retailers. Whilethese products may not satisfy the industry's definition of acategory, they create new usage occasions and attract moreconsumers, leading to stronger foot traffic. Although thisstrategy involves additional risk, the reward is motivating45% of the retailers to possibly test and/ or implement newsegments not previously available in their stores in 2010.• Multi-Vendor Displays. C-store retailers continue to

improve space productivities and clean up the store by con-solidating manufacturer product lines in one display tobetter serve the hurried shopper. Growing awareness of thebenefits of such programs-whether in refrigerated freshfoods, candy or snacks-led 45% of the retailers surveyedto say they'll likely install them in 2011.• Roller Grill. Food prepared onsite is the largest cat-

egory in foodservice and the roller grill plays an integralrole in this area. As such, 41% of the retailers are likely toevaluate adding new items that extend the utility of thegrill across the various day-parts, as well as appeal to moreshoppers in the store.• Coffee Equipment. Starting in 2010, many leading

chains had upgraded their delivery systems and Balvorfound that 16% of the retailers surveyed may have alreadydone so as well. Given the importance of this category to themorning daypart, another 40% of the retailers are likely tomake the investment upgrades in 2011.What are top performers-based on reported year-to-

date sales growth in 2010-going to focus on in 2011 acrossthese areas? They're 34% more likely to upgrade the coffeeequipment and 19%more likely to install multi-vendor dis-plays in the store. However, they are 18% less likely to raiseprices on hot coffee this year.

BUSINESS SENTIMENTThe strength and resiliency of convenience retailers is

evident in their business outlook in 2011 even though thesame can't be said for the broader economy. For instance,although only 28% of the retailers are optimistic about theLl.S.economy in the coming 12months, 72%share a positiveview for the convenience industry and even more-84%-are optimistic about their own prospects.Some convenience retailers don't share this positive

sentiment. Interestingly, nearly all of the retailers that are pes-simistic about their company's prospects in 2011also indicatethat year-to-date sales trends in 2010 were down versus theprevious year. What's also intriguing is that all of these retail-ers are single-store operators, underscoring the challenges ofsurviving in this industry with just one location.

Now, comparing the current results to those capturedin January 2010-the last time Balvor surveyed retailers onthese indicators-shows retailer sentiment is moving in dif-ferent directions depending on the level of the question.Optimism for the overall economy is down three percent-

age points; whereas, it's up six points relative to the retailer'sown prospects. Also, the degree of optimism is much stron-ger for the retailer's business today as 44% of the retailers areextremely optimistic versus just 25% a year ago.

SALES FORECASTContinued growth is expected in 2011 with more

than 90% of the retailers anticipating stronger in-storedollar sales versus the prior year in both the food service andmerchandise businesses.Most retailers also believe foodservice will grow at a

faster rate than merchandise. This may be in part be dueto an increased investment in food, as well as the absenceof any planned events-like the federal excise tax increasethat occurred in 2009 with tobacco-that could acceleratetop-line dollar sales.In terms of the forecast range, foodservice is expected to

increase 2.6-5.9% while merchandise is anticipated to grow2-5% in 2011. Larger retailers believe they'll enjoy morerobust growth this year compared to smaller companies.(Chart 3).

Chart 3: 2011 Sales Growth Forecast vs. Prior Year .•

1-10Stores 11 - 50 Stores 51- 200 Stores 201+ Stores

• Foodservice • Merchandise

Source: Balvor 20 7 7 Convenience Retail Outlook Survey

LESSONS LEARNEDConvenience retailers are well aware of the threats their

traditional business models face. Many are making the nec-essary investments to enhance customer services, expandproduct offering, and engage consumers in more relevantways to improve their competitive position in 2011.These findings reveal more convenience retailers are

becoming pessimistic about the broader economy while atthe same time recognizing that they can take advantage of themany opportunities created during challenging times.The outlook, although cautiously optimistic, is

promising, especially considering the state of theeconomy. And, it appears that retailers who have suc-cessfully grown during the recession to-date arewell prepared to win even more market share in thecoming year. CSD

CSDecisionse January 2011 I Convenience Store Decisions 53