A convenience truth

The convenience store sector has been growing strongly thanks to time-poor Australians. But as ROBERT BRYANT of IBISWorld explains, the industry needs to look at new strategies to combat increased competition and changing tastes.

By Robert Bryant

The convenience store sector has been growing strongly thanks to time-poor Australians. But the industry needs to look at new strategies to combat increased competition and changing tastes.

If you thought the humble corner store was dead, think again. While the mum-and-dad milk bar is all but gone, the convenience store sector has grown strongly during the last five years thanks to an increase in the number of convenience stores in Australia and an expansion of the services they offer to include things like dry cleaning, ATMs and film processing.

IBISWorld estimates that this industry grew at 5.8% over the five year period to 2007-08, thanks mainly to Australia’s stable economic conditions, with falling unemployment and rising consumer sentiment, household consumption and retail spending.

In 2007-08, industry revenue growth slowed due to a contraction in the consumer sentiment index. One factor that may affect the growth of the sector is the price of products sold at convenience stores, which is quite high compared to the price charged by supermarkets and other grocery stores.

In strong economic times, consumers are often willing to pay the higher prices as a trade off for the convenience, quick service and ease with which products may be purchased. But as the economy slows and retail spending falls, customers may retreat to cheaper supermarkets for their goods.

IBISWorld forecasts that this industry will grow by 4.3% over the five year period to 2012-13. Revenue growth in this period will be influenced by a number of factors including the unemployment rate, growth in real GDP, real household disposable income, household consumption expenditure and the consumer sentiment index.

In 2008-09, industry revenue is forecast to increase. However, the industry will be hindered by a decline in the consumer sentiment index. This will effectively reduce the level of consumer purchases at the retail level, and cause shoppers to rethink their buying habits.

Over the remaining years of the outlook period to 2011-12, industry revenue will grow at a similar rate. Industry revenue will slow slightly in 2012-13 due to a weaker rise in household income.

Independent convenience stores need to implement new strategies in a bid to compete with convenience outlets operated by Coles and Woolworths. Those operators, which continue to offer the same product range and methods of doing business, will effectively be crushed by larger players.

Comprehensive refits and store refurbishments are one means of providing a fresh approach for consumers. Research suggests that increased demand for freshly prepared food will lead to larger format stores with more comprehensive kitchen facilities, and enjoyable “dining-in” eating spaces.

Key success factors for operators in the industry

• Ability to control stock on hand. In order to minimise costs, convenience stores should have stock control process.
• Access to multiskilled and flexible workforce. Industry employees should be willing to work flexible hours, especially those employed by 24-hour operators.
• Experienced work force. Operators need well trained staff that are able to offer consumers efficient customer service.
• Attractive product presentation. Operators should ensure that stores offer consumers a clear layout and design. Products need to be presented in an attractive manner and be well stocked.
• Proximity to key markets. The location of convenience stores, which needs to be close to residential areas to provide ease of access.

Products and service segmentation

Major market segments

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au