‘Maybe’ argues TWC’s Tom Fender….but yet again, industry commentators seem to be missing a key point.
Over the last few years, we have seen the Retail Multiples reverse engineer themselves into Convenience retail, either by Tesco acquiring Booker or One Stop, Sainsbury’s buying Jacksons and Bells, Co-Op acquiring Nisa or Morrisons agreeing wholesale partnerships. It should not be a huge surprise, therefore, when one of the “faces” of the glory days of the Retail Multiples, Justin King, also decides to get involved. He probably understands convenience retailing pretty well, having opened hundreds of Sainsbury’s Local convenience stores under his stewardship!
Here are two of his comments from the various press releases: “Fundamentally these [independent convenience] shops are located in brilliant locations to serve their local communities.” And; “They are fantastic distribution assets but they don’t have the wherewithal to go online.”
Having observed convenience retail for more years than I care to remember, here are my thoughts:
Consumers quite literally flocked to c-stores during the pandemic. TWC research in June 2020 showed that 45% of the population used a c-store more during the first lockdown. And c-stores’ share of total grocery sales grew from about 21% to about 28% within weeks. C-stores suddenly had more shoppers but the challenge was how to retain them once the worst of the pandemic had passed.
And while the growth in online retailing is well documented during the last year (33% of all retail sales are now conducted online), it’s still a relatively small percentage in grocery retailing (c15%) – even the multiples struggle to get more than 15% of their sales online and/or make money from it. So should independent retailers park online retailing for a few years until more consumers actually do it?
I would argue that it isn’t a ‘no brainer’ for every c-store owner to offer online retailing. It very much depends on the local demographics – remember, most c-store shoppers live/work less than half a mile away from the store they use (quite often a quarter mile or less) – and the sales mix of the store.
For me, it’s about looking to the future, not just the past, which helps give a glimpse of things to come.
Latest TWC research (Spring 2021) posed the question ‘do you envisage a time when you won’t use supermarkets, you will only use small retailers and/or foodservice outlets?’ 38% of consumers agreed with that statement – but importantly it was over 50% for millennials and ‘Gen Z’ consumers – the shoppers of tomorrow.
These younger shoppers are shopping online all the time. 75% of Gen Z shoppers have bought something off Amazon vs only 51% who have visited a supermarket. Online shopping is increasingly ‘the norm’ to Millennials and Gen-Z shoppers. We can see where we’re heading….but we can also see why online grocery shopping hasn’t exploded over the last decade like we see in other parts of retail – certain generations of consumers like to shop for groceries in physical stores. But like a lot of generational trends, the shift from old ways of shopping to new ways of shopping can appear like a super-tanker…when the reality is you need to look at certain segments of the population instead of the distorted figures for the UK ‘average’.
But many c-stores do not think that they have the capability to develop their own online ordering solution. What we are seeing is the potential merging of two trends – consumers wanting to support (and shop at) local independent retailers, and the prevalence of online ordering. Snappy Shopper, Jisp and other platforms provide a solution that meets these two consumer needs.
So, Justin King’s involvement makes sense, the online platform concept is a great solution – it removes the barriers to entry many c-stores face to getting online and it is meeting clear consumer needs. But, what of those retailers? Is it the best option, or is it the easiest option, and how will it impact the sector long term?
For a retailer that signs up to Snappy Shopper, the website says that there is a £500 initial fee and then they take 4% of any transactions, which is charged to the consumer, not the retailer. They do not physically deliver – that’s down to the retailer who must decide how to fulfil any orders received. All monies from online transactions are bundled and passed to the retailer weekly.
A notional c-store basket would be about £7.50 but it is reasonable to expect that an online order would merit a higher basket spend. Conservatively, let’s assume £12.00 (Snappy Shopper says £26). If a store received 100 orders per day 6 days per week – the transaction fee payable over a year to Snappy Shopper would be £14,976 (+ the initial £500). There are other “out of the box” solutions – JISP says that retailers can get online with its solution for as little as £2.50 per week and there are no transaction charges whilst Deliveroo can take as much as 37% in commission. As with anything, it pays to shop around and most of the more expensive platforms would, no doubt, argue that they can justify their costs because they are increasing reach and driving footfall, which means that overall turnover and profitability increases in their customers’ stores.
So, as well as considering cost, what else should a retailer be thinking about? The most important consideration should be about brand and who owns the customer. If a retailer uses an online platform – whose brand is foremost in the customers’ mind? Is it the platform or is it the store? Who is the customer going to be loyal to, the platform or the store? And, down the line, if the retailer chooses to change platforms, who owns that customer? In the case of Deliveroo, they would certainly argue that the customer belongs to them, which gives them a powerful vendor lock-in mechanism.
And, this matters not just commercially but also for the health of the convenience sector. At the start of this piece, I pointed out that one of the reasons c-stores have been so successful is because consumers wanted to shop local and support independents. If c-stores become a homogenous collection of faceless delivery platforms, then surely their point of difference is lost?
Will the platform ultimately decide which store gets to fulfil each order based on certain criteria in the same way uber gets to allocate rides to drivers? ‘Who owns the relationship with the shopper?’ suddenly becomes quite important….and the concept of ‘dark convenience’ becomes very real: ‘dark kitchens’ are arguably more costly and complex to set up, but this has been achieved relatively easily because long term profitability is greater than a mixed restaurant/take away model so ‘dark convenience’ would be a walk in the park for entrepreneurs familiar with convenience retailing.
Another key consideration is, ironically, convenience. What these platforms are offering is an out of the box solution that enables a retailer to get their products online quickly and in an aesthetically pleasing way. Things like product images will be managed in the App – maintaining a library of pack shots is surprisingly onerous! And how many SKUs should a retailer sell online through a platform? Should it be core grocery / impulse convenience lines? Or foodservice lines? Local demographics will dictate.
But what of integration into existing EPOS? This seems to vary according to the platform but is an important consideration. If the platform works separately to the store’s tilling system, then the retailer is, in effect, maintaining two product files, two stock and order systems and they will not talk to each other. In the early stages of going online, this is probably fine. A retailer can put a small inventory online and orders will be slow enough that stock management can be controlled. But if online engagement grows or the store has high footfall, the retailer cannot control stock “real time” so it is entirely feasible that a store could run out of something, but it is still listed as a live sku on the App. Equally, if the store serves food to go, the kitchen could be handling two systems for orders rather than one ticket-based system.
So, what is the alternative? Ironically, as with most commercial opportunities, this is where c-stores are disadvantaged. Because the convenience retail channel is highly fragmented and operates on low margins, it is not the most attractive vertical for IT companies to target. Big ecommerce platforms like Shopify exist but they can make revenues more quickly in verticals like clothes retailing. A quick review of the main EPOS providers to the convenience sector suggests that most of them do not have an App that works with their EPOS system, so it does not seem to be straightforward for a retailer to extend their existing EPOS online. Which means that, now, retailers seem to have very limited choice. Choose one of the existing platforms or fund your own App build. This would suggest that there is a real danger that c-stores are going to be left behind in the online explosion given there are restricted options for how they can get online effectively. It does also highlight why Amazon has seen such a huge opportunity in the UK grocery sector.
At TWC, we think it is vital that the shop / retailer retains the relationship with the shopper. This data is critical. But it is also imperative that the retailer can change platforms within the terms of the contract and not lose customer data in the transition. As data platform providers ourselves, we are passionate about data ownership – for our clients, their data always belongs to them; TWC does not impose exclusivity, instead we aim to build such a great relationship and offer such good service that our clients don’t need to work with anyone else in our space. We would advise that retailers seek the same in a platform vendor.
We also believe that convenience retailers need to ensure they are famous for something (or multiple things) in their community. Their offer needs to be compelling. Foodservice trends are not new….but how many c-retailers are fully embracing them? Fresh foods, great service, food-to-go can all help independent c-stores stand out from the crowd. The danger – otherwise – is that c-stores simply become fulfilment hubs for online platforms. As always, the devil is in the detail, and that detail is found in data. Data is an organisation’s most under used asset, we often find.