At TWC we read the article “The Cost of Convenience Shopping” in the February edition of Which? Magazine with great interest – we love it when our sector gets featured in the wider media and Which? is a respected authority on consumer research, trusted by consumers seeking reassurance and advice.
Whilst the article has a compelling headline: “Supermarket convenience stores charge up to 7% more”, the team at TWC thought it would be worth unpacking the topic a little bit more in the interest of creating a more nuanced piece about the convenience sector with the aim of providing a broader analysis of this vital route to market.
The Which? article focusses on supermarkets when, in fact, Sainsbury and Tesco comprise just 10% of all Convenience outlets. There are approximately 47,000 Convenience stores in the UK, (Association of Convenience Stores) of which Tesco Express and Sainsbury’s Local account for c. 2,600 (and Tesco does own the 900 One Stop fascias as well) and, overall, the Association of Convenience Stores reports that Multiple Convenience is just 21% in its 2020 Local Shop report.
This means that the section of the Convenience market focussed on by Which? magazine is relatively small and consumers’ experience of Convenience retailing will be far broader than the stores covered by Which?
Food…The Most Competitive Retail Sector
Looking to the main subject of the article, price. Food is, arguably, the most competitive retail sector in the UK. The Big 5 retail multiples and the 45,000 Convenience stores had to make room for more competition in the ‘90s when Aldi and Lidl took aim at gaining share of food retail in the UK. They have taken a 10% market share in the last 20 years and have driven an even greater focus on “price” in the mind of the consumer and their competitors.
Since the 90s, further competition has been added by the arrival of B&M, Poundland and the online supermarket, Ocado. That is before any mention of the looming presence of Amazon Fresh, which now commits to deliver same day in London and has an eye on UK-wide expansion. In any highly competitive space, operators understand that they must demonstrate value and have a point of difference.
Consumers are savvy – 65% of consumers refer to price comparison sites when they are shopping in a physical store (Oberlo) and seek fair value before they buy, Convenience retailers understand this and the fact that they have not only survived but thrived (£45bn sales 72% via independents – Local Shop Report ACS) shows that they are getting it right.
We deliberately use the word “value” in this article. Interestingly, Sainsbury and Tesco have never made a secret of their premium price policy in Convenience. The Sainsbury’s website makes this very clear – location, cost of service and convenience drive pricing. Time-poor consumers will pay more in some areas for the ability to get in and out of a shop quickly with the one or two items they need fast.
Catering To The Local Community
However, many independent retailers are located in lower socio-demographic areas where their core customer base may be on benefits, or be pensioners, and both cohorts are unlikely to own a car and are living far more “hand to mouth” than a Sainsbury’s Local customer. Go into the majority of independent convenience stores and you will find a good range of products priced competitively for its local community. All convenience retailers know the price of products at their nearest multiple and will price accordingly.
Furthermore, the suppliers and wholesalers who service these retailers put a lot of investment into range and price advice to support independents to get their offer right. Finally, there are price marks. Again, these became prevalent during the 2007 recession and were intended to give the consumer confidence that whether they shopped in a convenience store or a multiple retailer – the price of the product they were purchasing was similar.
A price stamped tin of beans – put on by the manufacturer – increased consumer confidence and convenience retailing’s ability to compete head-to-head. In many Categories, price mark packs will account for more than 80% of lines stocked. This is clear evidence that convenience is providing fair value – it is endorsed by the manufacturers!
Operators Are Getting It Right
Recent TWC research proves the independent retailers and symbol store convenience operators are getting it right, 84% of consumers said that they would be using a Convenience store in the run up to Christmas 2020 and 28% said that they intended to shop more locally for food for Christmas 2020 and 74% of respondents said that Convenience store were “there for them”.
Finally, as a company that unequivocally supports the wholesale operators who serve convenience retail it would be remiss of us not to mention the “elephant in the room”. Sainsbury, Tesco and the other retail multiples who all have a convenience offering buy centrally on one price and then disseminate product across their group and create a retail price based on the store selling it, which means they can flex margin on product from one base cost price (that is generally low due to the strength of their buying power).
Independent retailers do not have this advantage. They rely on the buying ‘might’ of their local wholesaler to get the same products at the best price and pass that low price on so that the retailer can compete on RSP with its retail multiple neighbours. Remember, these wholesalers and retailers are working on a shared margin whilst the likes of Sainsbury and Tesco keep it all!
Independent and symbol retailers, and their wholesalers really should be applauded for what they achieve in the face of the very mightiest of competitors and the toughest of trading conditions.