The UK’s convenience grocery market is bucking the trend in performance, achieving growth far in excess of the five major supermarkets. But the real success story in this sector is the near double digit growth demonstrated by the fascia groups over the past 12 months.
Whilst expanded product ranges and changes to consumer behaviour have had a part to play, much of the divergence between the performance of groups and the independent stores can be attributed to the quality and quantity of sales performance information now available at an individual store level.
With in-depth insight into product performance by range and by brand; by geography and outlet type, retailers are making far more effective and relevant stock choices; while brand managers are exploiting the lower cost of entry and greater control to create innovative new and market specific promotions, further improving the customer proposition.
For wholesalers looking to build on the success of the fascia model and continue the strong growth, this insight is key not only to attract new independents into the group but also to continually refine the offer and assess the profitability of new areas such as fresh and chilled.
Is the retail tide turning? Certainly, after a decade of consistent growth and expansion, the major supermarkets did not enjoy 2011 with sales growth in the low single digits at best. In contrast the convenience grocery market is having a good recession, achieving nearly 5% increase in revenue over the same period according to figures from the Institute of Grocery Distribution (IGD).
Growth figures are, however, even more compelling for fascia groups such as Spar, Londis and Premier. These groups now account for 39% of total convenience sales and achieved an impressive increase of 9.2% in the last 12 months. This growth can be contributed to many factors, including the changing buying patterns associated with a recession and the ability of smaller retailers to respond quickly to customer behaviour. Adding a more compelling value proposition with the expansion of fresh and chilled and the addition of bakery goods has also contributed to growth.
However, the clear divergence in performance between fascia groups and the rest of the market is not simply due to buying power and expanded ranges. These organisations are now also providing retailers with an unprecedented depth of information to improve stock management and ranging. With store level insight based on local demographics and trends in customer buying habits, store owners can now begin to attain a level of business insight that has, until recently, been the preserve of the multiples.
With easy access to an online portal that provides not only purchasing history but also ranging recommendations, independent stores are able to quickly and easily improve core performance whilst also leveraging their expertise to achieve local differentiation.
They can explore this insight to manage their purchases from wholesaler fascias, enabling them to both satisfy contractual demands for buying upwards of 80% of goods from the group and exploit opportunities for additional discounts through savvy buying strategies.
For wholesalers this local insight is key to building upon the success of the fascia model. As these organisations continue to expand and encourage more independents to become part of the group, the ability to add value through local information is paramount. Furthermore, with this granular insight into performance by category, range and brand, there is now a real opportunity to refine the offer and build upon the traditional and successful deal-based model to improve promotional activity and drive stronger customer loyalty throughout both the convenience store and food services sectors.
This increasingly professional model, backed up with marketing and growing fascia recognition, is also providing a compelling offer for food manufacturers. The convenience market offers brand managers a fantastic chance to test new products. The cost of entry for promotional activity is far lower than with any of the major supermarkets; and brands have more control over promotions and merchandising and far more flexibility in approach. Critically, the depth of sales-out information now delivers the in depth performance analysis, by store, required to gain rapid insight into promotional success.
As a result there are clear signs of a change in attitude from the major food manufacturers; companies are beginning to increase investment and the convenience market is now seeing bespoke promotional brand activity, from new product variants to pack sizes, before the multiples. This is further fuelling growth and reinforcing the customer value proposition. With the growing success of fresh and chilled goods in this market, there is an even wider group of product providers that could and should be exploiting this sector’s promotional opportunity.
Over the next five years, IGD expects the convenience market to grow to £42.3bn, representing compound annual growth of 5.5%, compared to 3.7% expected in the overall grocery market. Trends in consumer purchasing behaviour are set to continue; indeed activity will be fuelled by the growth in tobacco sales as the supermarkets are forced to remove tobacco from display. This market has a clear window of opportunity to boost sales until the full ban on tobacco display comes into force.
With improved insight into local buying patterns and access to new brand promotions, this sector looks set to enjoy growth that far outstrips other parts of the market. Retailers, wholesalers and brand managers now have a real chance to gain an even stronger grasp on the market and exploit this significant opportunity.