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UK Neighbourhood & Convenience Retail sample pages

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Neighbourhood and convenience retail remain fast growth markets, especially when compared to the rest of the physical retail sector. Over the next five years, the structure of the market will shift as …

Neighbourhood and convenience retail remain fast growth markets, especially when compared to the rest of the physical retail sector. Over the next five years, the structure of the market will shift as multiple retailers continue to take advantage of growth and expand quickly. Learn more with sample pages to our UK Neighbourhood & Convenience Retail report

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  • 1. April 2014 Verdict sample pages | UK Neighbourhood & Convenience Retail page 2 Is there an opportunity for convenience online? Opportunities for smaller retailers are limited They lack the range to support online Most convenience retailers are not used for whole weekly shops and therefore providing an online service with either home delivery or click & collect is not necessary. These smaller stores lack the ranges of the larger supermarkets and therefore the average transaction value would be too low to justify the investment in an online service. Even if these smaller stores were to expand their ranges, they would still not offer the breadth of products that the supermarkets can provide, and with higher prices most people would continue to use the online service that the large multiples offer. The cost of a delivery infrastructure is too high… Another restriction on providing an online service is the high cost of setting up and running this operation. A retailer would need to invest in vehicles and staff to provide a home delivery service, and even if it was just a click & collect operation it would still require additional staff to ensure orders were picked in time for collection. As smaller retailers are less able to absorb these high start-up costs, they would deter them from offering the service unless they could guarantee a significant return on their investment. …but third parties make online retail more accessible However, there are an increasing number of companies that can help smaller retailers get online and promote their business. Amazon allows companies to sell their products through its marketplace, which helps them reach a much wider audience and benefit from its delivery service and trusted security. There are also companies such as Bigcommerce in the US that will help design and run your website as well as improving its functionality. Local delivery solutions for small independent stores also exist, such as Hubbub in London, which manages customer orders, collects the goods from the relevant store and delivers them to the customers. Figure 1: A Hubbub delivery van, 2014 Source: Hubbub, Verdict V E R D I C T
  • 2. April 2014 Verdict sample pages | UK Neighbourhood & Convenience Retail page 3 Tobacco legislation to have the greatest impact on convenience retailers Smaller stores disproportionately affected by tobacco display ban Tobacco firms will support their more valuable clients… Figure 2: Landmark Wholesale tobacco display, 2014 Source: Landmark Wholesale, Verdict V E R D I C T The tobacco display ban, which is already in force in stores over 3,000 sq ft, will be extended to smaller stores on 6 April 2015. It is in the interest of the tobacco firms to support retailers in preparing for these changes by providing information on the changes, and paying for the necessary work to be carried out, so that retailers continue to demand the same volumes of tobacco products. However, with so many small retailers to convert, the tobacco companies will prioritise the retailers with higher sales, as they are their more valuable clients and so they will want to encourage them to stock and sell their products despite the new legislation. …leaving smaller retailers unsupported to implement the necessary changes The greatest burden of the tobacco display ban will fall on the retailers with the lowest tobacco sales, as many will see their gantry agreements terminated, forcing them to pay for the necessary instore changes themselves. Proportionally, the cost of the changes is much greater compared to convenience multiples as well, because total sales are lower while the cost of the display solutions will remain roughly the same. These stores also rely more heavily on these products to drive footfall and so cannot afford to stop selling them. It is therefore down to the suppliers and wholesalers to offer greater support to the smaller retailers to help offset these additional costs.
  • 3. April 2014 Verdict sample pages | UK Neighbourhood & Convenience Retail page 4 Footfall and impulse purchases would be reduced in convenience stores Tobacco is an important product for convenience stores because as well as making up a significant proportion of sales it is also a key driver of footfall to stores, which then supports further impulse purchases. While if someone wants to smoke this ban will not prevent them from purchasing tobacco products, some impulse purchases will be lost as there is no product visibility. To maintain sales, retailers must therefore ensure that they have adequate POS so that customers are aware that tobacco products are sold instore.
  • 4. April 2014 Verdict sample pages | UK Neighbourhood & Convenience Retail page 5 What is the future for co-operatives? The Co-op group must re-connect with members Current strategy starting to address issues The Co-op group’s food business has started to turn around its fortunes and Steve Murrells appears to be taking an aggressive tack in turning the business around, focussing on convenience stores and targeting a significant number of new openings. On top of this, the retailer is looking to refit its existing portfolio with the aim of developing stores that better suit shopper missions. We feel this will have a positive impact on the retailer’s performance in the long term; however, it still has issues in terms of pricing, quality and availability that must be addressed also in order to stage a full turnaround. Regional retailer struggling nationally One issue for the food arm of The Co-op group is its attempts to act as a regional player in a world dominated by national giants with far greater scale. Its attempts to develop tailored offers to individual stores have been poor so far, especially with the integration of Somerfield sites, and there must be more regional and local adaptation and flexibility. While the likes of Sainsbury’s and Tesco offer little in the way of local variation in terms of their convenience offer, they have clearly tailored convenience ranges, and more competitive prices, furthermore they do not try to be a regional grocery chain and shoppers fully understand it. The Co-op must look to devolve power from central teams in Manchester to regional ones and allow stores to set their convenience agenda depending on who the shoppers are.
  • 5. April 2014 Verdict sample pages | UK Neighbourhood & Convenience Retail page 6 Member engagement will be the key However, the biggest issue for The Co-op group across all of its businesses, but especially in food, is the lack of member engagement. The group boasts an impressive 7.6 million members in 2012 (the latest figures available at the time of writing) yet only 18.4% of these shop across multiple businesses. Figure 3: The Co-operative group grocery shoppers versus group membership (million), 2009– 13 6.2 6.4 7.3 7.5 7.0 5.1 5.8 7.2 7.6 1.1 1.2 1.4 1.4 1.3 2009 2010 2011 2012 2013 Shoppers, million Members, million Main users, million Note: shoppers are those who use The Co-op for some of their grocery shopping. Main users are those who use The Co-op for all of their grocery shopping. Source: Verdict, The Co-operative Group V E R D I C T While the shopper numbers for the food business are close to the number of members for the group as a whole, many of these shoppers use the retailer not for the membership, but for the convenience and location of The Co-op's stores. However, this advantage is diminishing; while The Co-op group has not released member numbers for 2013, Verdict’s How Britain Shops survey has identified that food shopper numbers have declined over the past year as competition in the convenience sector has intensified.
  • 6. April 2014 Verdict sample pages | UK Neighbourhood & Convenience Retail page 7 Loyalty driven by convenience rather than ethics or reputation While The Co-op has high levels of loyalty compared to other grocery retailers, this is linked too closely to convenience, with 70.0% of grocery main users in 2013 stating that they are loyal to The Co-op because of this factor, the highest in the sector. As mentioned previously, this is at risk owing to the aggressive expansion of The Co-op's rivals, which can be as convenient but at lower prices. The Co-op outperforms the rest of the grocery market in two other measures – honesty and fairness, and environmental and ethical – at 6.0% and 7.0%, respectively. However, for two of the most significant pillars of its business, The Co-op needs to be attracting more shoppers for these reasons for its membership to be meaningful. While The Co-op does not provide statistics for those shoppers that use individual parts of its business, there is a pool of over 7 million potential customers with an interest in ethics, fair trading and the environment that should be actively targeted by the food business. The full report is available to purchase in our store. To find out more about the current opportunities in the neighbourhood & convenience retail market, please contact enquiries@verdictretail.com Some of our channel reports: UK TOWN CENTRE RETAILING | VERDICT CHANNEL REPORT UK OUT OF TOWN RETAILING | VERDICT CHANNEL REPORT

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