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Small businesses under threat from delivery services

Small businesses in regional Queensland are under serious threat from grocery delivery services operated by the major supermarket chains, demonstrating the principle that ‘convenience is king’.

An independent grocery manager in the Bowen Basin told the ABC that their store had seen a decrease in takings of $20,000 per week, coinciding with the introduction of two-day per week home delivery services by Coles and Woolworths.

The response from Woolworths went straight to the heart of the competition issue: “Our customers tell us that the home delivery service has improved their shopping experience by providing greater choice and convenience”.

How should the industry respond?

This sentiment about the success of convenience strategy was echoed by chief executive of British-based grocery institute IGD Joanne Denney-Finch, speaking at the Australian Food and Grocery Council’s annual conference in Brisbane on Wednesday.

Ms Denney-Finch told Fairfax that there was a lot of experimentation being seen in the UK in terms of store layout.

“Some of the retailers have started to break the store up so you have not just fresh products at the front of the store to drive the traffic but sections which are handy for people if they just want to come in and grab and go,” she said.

“Other things you’ll see in the UK and beyond the UK is there is a huge play now on health.”

It was also suggested that food retailers were slow to recognise the needs of millennials.

“Millennials are different in terms of their expectations, they’ve grown up with Facebook and the internet and mobile phones … and they’re much more likely to go for a convenience shop,” she said.

“They adore convenience and fresh foods, they’re hugely experimental and they like to co-create on innovation.

“They are looking for excitement but also instant gratification – I’m not sure I see it yet in shops.”

Exploiting the Millennial market

New research from the US has suggested that while legacy snack food brands favoured by baby boomers are the strongest area of the market, they are faltering in the face of new preferences and trends for healthy snacking.

The research was conducted by the Center for Generational Kinetics, with president Jason Dorsey saying: “A lot of those legacy brands are struggling, so we’re seeing these newer, hipper, more on-trend brands really being able to find a great place in the market.”

Dorsey said Millennials were unwilling to sacrifice taste in their snacking choices.

“They believe better-for-you snacks should taste good, because there was a time when there was a trade-off: If it’s healthy then it tasted bad,” he said.

Good industry advice

“Why has the ‘corner store’ been in decline for a number of years?” asks Jeff Rogut, CEO of the Australasian Association of Convenience Stores. “Other than a few exceptions, they failed to reinvent their business model. “Stores, in the main, are not bright or modern, windows are generally plastered with discount phone card offers, they do not offer a good variety of on-the-go foods and beverages and importantly, many are closed when consumers most need them, such as early morning, late evening or even weekends and holidays.”

“The convenience channel has continued to evolve and innovate since the first 7-Eleven Store opened in Australia way back in 1977. Many sell petrol, owners have continually invested in upgrading the look, fixtures and importantly the offer. Customer service has been a strong focus. We are becoming even now a strong competitor to Quick Service Restaurants (QSRs) with our coffee and food on the go. We are open in the main 24 hours a day, 365 days a year.”

Quoting from a recent Neilsen report that tackled some of the contemporary issues faced by the convenience industry, Mr Rogut spoke in favour of the following as good advice:

Convenience stores will need to continue to innovate to remain competitive. At their core, convenience stores have three key strengths: speed, experience and personalization. These are the foundation blocks that they can build on as competition rises and channel lines blur. To execute, convenience stores need to get the product mix right (evolving when needed), emphasize health and wellness, and think beyond RTE.

For inspiration, convenience store operators have myriad examples to draw from. In the QSR realm, speed has become an essential service element. Convenience stores need to follow suit, ensuring that customers looking for a quick meal can get in and out swiftly. Positioning the deli at the front of the store, possibly with separate check-outs, will be big customer pleasers. For a slightly elevated experience, retailers can enhance their offerings by offering restaurant-style seating and broadening their menus for in-store service.

When it comes to food offerings, convenience stores can no longer afford to stick to the basics. Leading on fresh, natural food trends will be essential going forward, particularly as other channels have diversified into everything from sushi to gourmet sandwiches—offerings a step above from what they can make easily at home. Being transparent and health conscious—and displaying these attributes—will also be critical.

Aside from food and store layout, convenience retailers need to be continually innovative. The includes marketing more intelligently and across digital platforms, developing personalized offers and rewards that are determined directly by individualized consumer shopping and purchase habits.

Tackling delivery head-on

“In Japan, 7-Eleven is one example that offers home delivery in some areas, particularly where there are aging customers,” Mr Rogut told C&I Week this morning.

“But our range is different to the major supermarkets, and generally customers don’t do a ‘big shop’ with us.

“Delivery will be useful for some, while loyalty programs will be for others, and using technology for coupons and promotions and communication to customers will grow in importance.”

Mr Rogut also stressed the importance of collaboration with suppliers, and continually innovating new products and offers that will have appeal to the customer base that the store is targeting: “It’s not one solution for all,” he said.

“Major supermarkets are not known for their customer-friendly service. Smaller stores certainly have an edge in this area. Some busy convenience stores may wish to introduce self checkouts as an additional service to provide greater efficiency for their customers, but we do have an edge when it comes to serving customers in the areas in which we trade.

“So there’s no simple solution, but looking at the gaps that ‘big’ stores don’t do well (and there many),  looking at new services like being a collection point for online orders, looking at offering ‘healthier’ and fresher choices that customers are looking for,  and looking at providing  new products that will catch customer’s attention, and their dollars.”

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