Fresh food, decent coffee fuel convenience store sales

Sue Mitchell
May 28 2017
AFR
 

Australia’s $8.3 billion convenience sector is growing more than three times faster that the struggling grocery sector, fuelling a major investment push by the likes of 7-Eleven, Caltex, BP and Shell.

While discretionary retailers are under the pump, the convenience sector grew 4.5 per cent or $353 million in 2016, according to the Australasian Association of Convenience Stores, outperforming the meagre 1.2 per cent growth in the $90 billion grocery sector and most other retail sectors.

AACS chief executive Jeff Rogut said the strong growth reflected changing consumer shopping habits and investment in product innovation, supply chains and stores by the ASX-listed Caltex, global fuel giants BP and Shell, and controversial convenience chain 7-Eleven.

“In every country and every market convenience is the bright spot on the horizon,” Mr Rogut told The Australian Financial Review.

“People are tending to buy smaller baskets more often and people are on the go and looking for these quick and easy alternatives,” he said.

Major store upgrades 

A few years ago only the most desperate shopper would buy a cheap coffee or two day-old sandwich from a convenience store. Now fresh chilled meals and convenience foods are delivered at least daily and barista-style coffee machines have replaced the undrinkable brews of the past.

“There’s been a huge investment in terms of upgrading stores and making the experience for customers far more inviting and offering different products,” Mr Rogut said.

Sales of on-the-go food rose 18.3 per cent in 2016 and the category is now the fourth largest in stores, accounting for 5.6 per cent of turnover.

Sales of hot drinks rose 24 per cent, with strong demand for coffee offsetting weak demand for carbonated soft drinks, lifting sales of ready-to-drink beverages by 5.2 per cent to 18.8 per cent of turnover.

Bread and milk, which once accounted for 4 per cent and 7 per cent of sales, now account for 0.6 per cent and 2.2 per cent respectively, due mainly to cheap $1 a litre milk and bread sold in supermarkets.

Lower fuel prices also helped stimulate sales, encouraging consumers to spend their loose change in store.

“When (the fuel price) gets down to where it has been for the last couple of years people do tend to spend a little bit more,” Mr Rogut said.

BP, Caltex invest heavily 

The sector’s strong growth helps explain why BP and Caltex are spending big bucks to grab a larger share of the market, which is worth $20 billion including fuel.

BP is seeking clearance from the Australian Competition and Consumer Commission to buy Woolworths’ 527 petrol and convenience stores for $1.8 billion and plans to develop a new Metro at BP format based on Woolworths’ Metro store format. 

Mr Rogut said Woolworths – the first supermarket chain to move into fuel retailing – had underinvested in its fuel and convenience stores, which were in need of an overhaul.

“Woolies looked at the convenience side as a redemption outlet for shopper dockets, whereas Coles looked at it as a true business,” he said. “They’ve done all the right things from a convenience point of view whereas Woolworths have not. 

“Conversely Woolies has done a good job with their Metro stores – they’re a good model and if you could shrink that and add it to a (fuel) site they could have a good model,” he said.

Caltex is also investing heavily in convenience to fill a $100 million-plus hole in profits when its 13-year fuel partnership with Woolworths comes to an end if the BP deal is approved, outlaying $95 million for Melbourne-based Milemaker Petroleum and $324 million for Gull New Zealand.

As part of its Freedom of Convenience strategy, Caltex has also opened the first of at least 20 Foodary on-the-go food outlets.

Caltex chief executive Julian Segal told shareholders earlier this month that sales at converted Foodary stores had risen between 20 and 35 per cent.

“We used to rely on people coming in to fill up and hoped they’d buy something in-store,” said Mr Rogut. “Now the store itself has become a destination for many people.”

Read more: http://www.afr.com/business/retail/fresh-food-decent-coffee-fuel-convenience-store-sales-20170525-gwd11v#ixzz4iPIw1ZCt

Follow us: @FinancialReview on Twitter | financialreview on Facebook

 

Subscribe to our free mailing list and always be the first to receive the latest news and updates.