AACS presents its ‘2014 State of the Industry Report’

AACS has launched its latest annual report card on the convenience channel and, again, it outperformed grocery stores.

David Burton.

Convenience World attended the launch of the ‘AACS State of the Industry Report’ in Sydney last month. A repeat version was held a day later in Melbourne to keep key stakeholders apprised of the latest opportunities to plug the strength of the convenience channel offer.

The audience was welcomed by AACS CEO Jeff Rogut and Chair Peri Hunter, General Manager Retail Operations for BP. The breakfast was sponsored by Metcash and Daryl Barry – General Manager National Sales and Merchandise for Metcash Convenience – presented an update on what the company is doing to address opportunities for servicing the channel through best practise supply chain initiatives.

Following this, Hugh Edwards-Neil, Channel Development Manager at IRI-Aztec presented the 2014 report highlights. He stressed that no one business had created it. It had, in fact, been a collaborative effort and others that had contributed in their own areas of expertise were Nielsen, him! research & consulting, the Australian Centre for Retail Studies and Pulse Plus, among others.

Mr Edwards-Neil went on to detail some of the more pertinent findings in the report, The details of which are available to AACS members and can be purchased by non-members. The good news for the segment is the continued growth and outperformance of grocery.

Sales performance in convenience is strong

After recording a strong growth rate of 3.7 per cent in 2013, the first six months of 2014 saw momentum continue within the channel with a four per cent increase versus CPI of 1.1 per cent for the same period.

Again non-food continues to grow at a faster rate, increasing by 4.6 per cent in the first half, while food has dropped slightly on the 2013 result at 3.2 per cent growth in the first half of 2014 versus 3.5 per cent last year.

After a strong result in 2013, the ice-cream category has maintained its momentum into the first half of 2014, once again having the strongest growth for the first half at 10.6 per cent.

Top 10 convenience category performers January-June 2014 versus 2013

  • Ice-cream: 10.6 per cent.
  • Medicinal: 8.6 per cent.
  • Tobacco: 7.3 per cent.
  • Take-home beverages: 5.5 per cent.
  • Food on the go: 4.5 per cent.
  • Communications: 3.9 per cent.
  • Snack food: 3.8 per cent.
  • Take-home food: 3.3 per cent.
  • Beverages: 3.2 per cent.
  • Grocery: 2.4 per cent.

Opportunities 

Commenting on the presentation from Mr Edwards-Neil, Mr Rogut told the audience that the details behind what was spoken of are available in the 73-page report.

He said a number of things strike home. One of which is value: the value of convenience – what value does it really offer? This was directed both at retailers and, importantly, suppliers to the chain.

“Certainly, we are convenient,” Mr Rogut said. “We are open 24 hours, 365 or 366 days a year, but there’s more than that. It’s the consumers’ perception, what value represents, and I think that that’s a critical issue going forward for us.

“I’d suggest that food is the future. I’ve used that sentence before, but if we look around in terms of what’s happening globally, if we look at the best performers in terms of convenience, it is all about food – it’s immediate consumption, it’s take-home, it’s meals, it’s almost planning to impulse shop when you go to a convenience store.

“In fact, when we do our overseas study tour in October this year – hopefully some of you will join us – we’ll be looking at some of the masters of food execution, people like Wawa and Sheetz and other similar stores in the east coast of the United States, where their stores almost resemble quick-serve restaurants with a very large forecourt selling traditional fuel products and a bit of convenience.

“The dynamics and the whole paradigm has changed in their industry, as it will in our industry over coming years. Absolutely no doubt about that, so we need to be prepared. If we were to be prepared for that, it sort of goes back to what Daryl Barry was talking about, and that’s supply chain and logistics.”

In relation to supply chain opportunities Mr Rogut said, “The south-east Asian countries are getting – in some very busy stores – up to five deliveries a day. The offer changes in the morning to what it does mid-morning to the lunch offer, to the afternoon break, to the evening take-home trading.

“So are we that sophisticated? No, not as yet, but the customer will get used to that. The customer will demand that, and we need to be really ahead of what our customers want.

“We talk about new products and innovations, but the communications category didn’t exist the early 1990s. Things like travel cards, mobile recharge, phone cards – they weren’t around. Yet now, 25 years later, it is the third-biggest category within convenience. Over $600 million per year out of those particular products.”

Even though they are low-margin items, Mr Rogut pointed out that they certainly generate an enormous amount of traffic to stores and provide the opportunity of selling something else.

So let’s not discard the foundations of what our industry has been built on, but actually now take it to the next stage with new products and services customers haven’t actually realised they want.

Petrol theft is still an unresolved issue for retailers

Mr Rogut pointed to the commentary in the 2014 ‘State of the Industry Report’ on petrol theft, saying that it is still an enormous issue for stores and operators. This year it will represent about $66 million in lost profit.

“It is huge,” he said. “State governments have a very different approach state by state: we are working with all of them to try and get more enforcement behind this criminal action, which they still refuse to actually see it as.

“The most success we’ve had so far in terms of getting awareness and support has been in Victoria. We will continue to pursue that and try and develop a model that we can transfer into other states, but it is a huge issue for the industry.

“As a percentage, it is not a huge percentage of total fuel volume, but for that individual store operator/owner/franchisee, it is straight-on fair bottom line, so it’s something that we certainly are working on.”

Lobbying for convenience liquor sales on limited range

Readers of Convenience World will be familiar with the ongoing lobbying from AACS, and Mr Rogut in particular, on the old perennial of alcohol in convenience.

“I recall back in 1990 we were talking about it then – 25 years later we are still talking about it,” he said.

“Individually, when we talk to regulators and politicians, every one of them says ’Fantastic idea‘. We go overseas, we buy it from the convenience store, we say to them, ‘Will you support us here?’ ‘Absolutely not’. ‘Why?’ ‘There’s no votes in it’.”

Mr Rogut said there is the start of some breakthroughs in terms of some of the thinking and the fact convenience is excluded from selling alcohol, but that’s not holding Coles and Woolworths back from selling that category and expanding. It’s a $17 billion category.

“It’s something we believe, if we can just get beer and wine into the stores, it’ll add about $600 million a year to our industry, and obviously satisfy customer needs and give another reason for shoppers to visit us,” he said.

“So, again, we’re working with all of the state governments, we’re working on a press release, talking to Bruce Billson (federal Minister for Small Business) who is pretty sympathetic, but we need to break through, so we certainly haven’t given up on that at all.”

New workshop with Institute of Management

Mr Rogut also announced initiatives in education, and AACS will be announcing a new workshop co-developed with the Institute of Management around collaboration between retailers and suppliers.

“The really critical issue in terms of looking at innovation, at category disruption, is that you can’t do it alone – retailers need suppliers, suppliers need retailers – so rather than working in different offices, let’s understand how collaboration actually happens,” he said.

“What are some of the drivers, and how do you make it happen? So we’ll get a one-day workshop for retailers and suppliers to get together in a non-threatening environment with excellent facilitators from the Institute of Management and work through the process, and come out with something you can actually transfer into your business the very next day you go back.”

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