August 2009: NACS Insight - ''Irish C-Store Sector in State of Flux''

NACS Online - International Newsletter - August 4, 2009 Issue

Andrew Bradley, partner at Dublin-based brand and retail design consultants, Bradley McGurk, says value is ruling the roost in Ireland’s convenience store market.

The Irish convenience store sector is in a state of flux. The more mature retailers have the where with all and resources to batten down the hatches.

However, the new players on the block, who have big borrowings, and have recently refurbished their outlets, are struggling. Some have closed and many may soon follow.

Locations in urban areas, where footfall and spend is down, are being hardest hit.

Some reports put the decline in sales in urban locations as high as -20%. Rurally, the decline is anywhere between 5% and 10%.

Everybody is chasing value. Consumers are driving, or walking, out of their way to find value.

In the convenience store arena, every retailer is now promoting a ‘bundle’ offer such as sandwiches and coffee for €5. Prior to the downturn, sandwiches retailed at €3.75 minimum and coffee was at least €2.45. It was not unusual to spend €7 plus just on lunch.

In terms of key retail players, Applegreen appears to be holding its own. In fact, the time is right for this forecourt and c-store operation. Its pitch of ‘low fuel prices, always’ is securing good traction. Coffee and food-to-go sales may be down slightly, but not surprisingly in the current market. The company’s own label water is selling well and, retailing at €1 for 1 litre, is ideal in the present climate. Such has been the success of the 1-litre campaign that a new 500ml bottle for 85 cents is now on sale. Expect more own label product from all convenience stores.

Centra is excellent at driving product promotions and its wholesaler/supermarket credentials are being but to good use in this field. Its predominantly rural base is serving it well, as it is urban locations, which have seen the biggest decline in sales.

Spar has always symbolised the mood of the Irish economy. There is a view the shops are too expensive-looking. This was fine in the roaring Celtic Tiger years but now the economy has cooled down. The Spar offer is quite complicated and the Tree House juice smoothie bar concept does not appear not to be performing well in most locations. However, Spar has just launched a significant extension to its own label range in Ireland, which should help to boost its margin. Eurospar, in contrast, appears to be thriving, with sales up on last year. The new own label initiative will make the Eurospar offer even more compelling.

Elsewhere, Gala has launched a new interior design but there is no evidence to show if it has had a positive impact on sales and Texaco’s retailer in Lucan has taken down its U Save brand. I am not sure what is being planned next. Mace doesn’t appear to be particularly active at present, while Topaz is planning to open a prototype c-store in September.

As for the discounters – Aldi and Lidl – they are enjoying their time in the sun. Discount retail sales rose by a whacking 32% in 2008 and 2009 figures are yet to be released. They expect to have about 12% of the market by the end of 2009. They are definitely taking share from c-stores and this is because they are all about value.

The cigarette display ban has arrived. The tobacco manufacturers have taken down their in-store graphics. Some retailers have tried to offer the gantry space to media buyers but there has been little interest.

Most stores will replace with black panels or lifestyle images. In the short term, most convenience store retailers are covering up the existing tobacco displays and there is little evidence of any innovative thinking behind the counter.

In conclusion, retailers need to manage their stores proactively. Owners who continue to delegate the running of the shop are, or will be, in trouble. The key is to keep the offer simple and to do the basics well. Stores need to operate an ongoing rotation of value offers, demonstrating real innovative thinking and commitment to value. Offering a private label range is critical too and, remember, nothing is sacred in this area.