Can Convenience stores become Premium Food Stores?
Convenience stores have a very different feel to Farm Shops and Delicatessens. The differences can be small, but the impact is significant. When looking to expand into the premium food market
- Delis and Farm Shops often operate at 10% Gross Margin higher than Convenience Stores
- Convenience Stores carry almost entirely known national brands
- In Convenience Stores most items, especially chilled items, are usually lower value brands
- Convenience Store customers want their products at the moment of need: they are not prepared to wait or travel
Plus for Convenience Stores it’s a saturated market, with minimum wage staff and minimum margin low value goods.
From the Association of Convenience Stores – there are 46,388 convenience stores in mainland UK, responsible for £40.3bn in sales in 2019. This compares to 3-3,500 Delis and Farm Shops, a ratio of about 14:1, and probably a ratio of around 50:1 for sales.
So the two sectors are oil and water. But can convenience stores learn something from delis? The answer is yes. Convenience Stores want
- access to higher margin products
- higher basket spend
If 10% of a convenience store’s revenue had 40% gross margin, this would add a little over £10,000 in new profit for each convenience store. The question is how to get that better range in, and selling it.
Most convenience stores owners have a feel for their community, but they often don’t know where to start. Visiting the Speciality and Fine Food Fair is always good, or choosing a good partner wholesaler to take advice from: these work. But at the end of the day, those shop owners have hundreds or thousands of lines of stock. Where are the best opportunities for that better margin sell?
Here are some options:
- go local: local options are likely to be better sellers as local people will pay more for something they feel ownership towards and virtuous for buying
- go slowly: look at the stock areas where you have a higher balance of the more expensive choice selling well. Add a more premium line to the range and drop the cheapest. If your Bonne Maman is selling well, consider something more expensive and drop the Happy Shopper
- go seasonal: add a range of premium goods for one off promotional events.
- The lowest cost option is to go online. Through an online offer such as the free Hider Delishop, customers can order for click and collect into the shop. This cuts the wastage and risk to zero of stocking things that don’t sell. It also gives the store owner a clear steer on what their customer might buy if he stocked them. It costs nothing to set up and gives 100% margin.
Convenience stores in my opinion are the most secure part of the retail grocery landscape, and the clue is in the title, we all need and will always need convenience. But they are not the most profitable, so we need to build more profit into the sector.
In addition, if we can open up the convenience store sector to premium foods - good grocery shopping - the benefit to the whole speciality food sector will be immense. The brands the farm shops and delis sell every day will become more recognised and inevitably the average shopper will be more open and curious. We will build a bridge where there is currently a gulf between the multiples and specialists.
Why do we believe Convenience stores are the best place to build this bridge? Because of the one thing both sectors have in common: they are dominated by small family run owner managed business. The sectors dance to a different tune, but they move to the same beat.