‘Little and local’ back in fashion

Popping to the corner shop to pick up a pint of milk, a bottle of wine or a six-pack of crisps is something that most of us now do two or three times a week, and it is this back-pocket cash that is helping the convenience shopping market grow quickly. The sector will be worth £42.2bn by 2016, up from £33.6bn in 2011, according to recent IGD research.

“The trends indicate that people are shopping little and often,” says Richard Hayhoe, marketing director at wholesaler Palmer & Harvey, which owns convenience chain Mace. “The massive increases in fuel prices mean people are more inclined to walk round the corner to a convenience store rather than take the car to a supermarket,” he claims.

Research supports what Hayhoe says. As many as 50% of people say they will shop closer to home if fuel prices carry on rising, according to IGD.

On average, convenience store shoppers go to their local outlet three times a week, helping to make the likes of Spar, Londis and Costcutter familiar names in towns and villages all over the UK (see Convenience Truths, right).

And such store fronts stand to become an even more common sight because growing numbers of independent shopkeepers are signing up to use convenience store operators’ branding – known as symbol retailing – rather than run their own outlets.

Hayhoe claims Mace was the fastest growing symbol retailer last year and that part of the reason for this is that independent retailers are seeking the help of branded groups to keep trading. “We have range and merchandising specialists, as well as brand and retail marketers, for example. Being in a symbol group allows shopkeepers to maintain their independence but also get a bit of support,” he points out.

Stock provision

Mace invests an average of £11,500 in each store that carries its branding. In return, the shopkeepers buy their stock from Palmer & Harvey. It is beneficial for the wholesaler to help the retailer sell its products by providing support – so the retailer will keep buying from it.

The boom in the convenience store sector is not limited to Mace. Earlier this month, Londis announced that 2011 was its most successful year yet, with 65 new stores opening, while Spar UK has appointed ex-Co-operative Group marketer Debbie Robinson as its managing director to oversee its growth plans (see Spar below).

The major multiples are also hoping to cash in on the convenience trend. Morrisons has opened M-Local pilot shops in Ilkley, Wilmslow and Manchester in recent months and Waitrose wants to have 20 Little Waitrose shops around London by the end of the year.

Ian Bishop, marketing director at Costcutter, says overall standards in the convenience market will be improved by bigger chains entering the market. “It has driven up standards in the independent sector, which was long overdue and absolutely needed in a lot of areas,” he says.

However, he admits that people perceive supermarkets to be cheaper than smaller shops because of the less expensive overheads per square foot in larger stores.

Even so, Costcutter manages to hold its own, he claims. “I have one Costcutter that is next to quite a large Tesco Express and our shop still turns over £30,000 a week.”

Bishop adds: “The best way to compete with the major multiples is to act like one – but then differentiate. Our stores can do all the things that Tesco Express or Sainsbury’s Local do, but might also do fresh coffee and food to go.”

Hayhoe says that Palmer & Harvey will offer its Mace retailers price promotions on wholesale goods, but these have not always been passed on to the consumer at shop level.

But this is changing. “We give the retailers point-of-sale material to support the promotions and they are now passing [the deals] on to consumers. You are now seeing buy one get one free promotions in the symbol retailers, whereas traditionally you’d only see that in the multiple grocers.”

New formats are also opening up in the sector. Costcutter now owns Kwik Save, which fell into administration in 2007. It will shortly launch a new Kwik Save store as well as an upmarket convenience shop MyCostcutter.

Good, better and best

There is room for a range of stores to cater for different needs, argues Costcutter’s Bishop. “The way we see the convenience market is that there are three strands – good, better and best. At the good end, there are Best-one and Premier, then you have the core range such as Londis, Spar and Nisa, and at the upper end there is Marks & Spencer Simply Food and Little Waitrose.”

He won’t confirm the location of the first MyCostcutter shop, but says that it will be more strictly managed than the mainstream Costcutter brand. “We didn’t want to create a product that allowed a retailer to have the name of the brand above the door but then do what he likes inside because that goes away from trying to execute perfect store standards.”

While he does not expect the standard Costcutter retailers to use all the collateral provided by brands, such as uniforms, Bishop says that MyCostcutter will be expected to behave in a certain way to reflect its upmarket status.

And these smaller shops will soon have a reason to be different from the major retailers. The ban on displaying cigarettes comes into force on 6 April, where the major retailers will have to hide packets under the counter. However, corner shops will have another three years to comply with the law, meaning that people might buy cigarettes from them on impulse, because they are more easily seen.

James Hall, business development controller for Bestway, which owns Best-one’s 900 UK stores, says: “2012 presents a really big opportunity for retailers, the like of which has not been seen for years with extra turnover and income all there for the taking. I would expect retailers to be able to increase their income by at least 25%.

“There will be good sales opportunities for all the independent retail trade not only from increased tobacco sales, but throughout the impulse sector when the ‘go dark’ rule for the multiples starts in April.”