What will influence the future of the convenience store?
The convenience store has undergone some significant changes in the last few years. It didn’t even exist 40 years ago. Back then service stations normally had four functions:
- Provide fuel – normally with a person filling your tank for you
- Selling a few cans of drink and some lollies and cigarettes.
- A mechanical workshop (with hoists)
- Experts in changing, replacing and fixing tyres.
In 1975, the Australian Institute of Petroleum reported that we had around 20,000 service stations across Australia. By 2003 this was reported at just over 8,000.
Now we are looking at about 6,500 mini supermarkets (convenience stores) across Australia – selling a huge range of consumables, and selling petrol at prices that rise and fall like the tide. The sites are now run 24/7 normally, with one person on the controlling cash register (mission control) running the site, and someone else restocking.
The convenience store has killed the milk bar like Bunning’s has killed the small hardware store.
So what will the convenience store future look like?
In my view there are many factors that will direct the future of the convenience store.
- While gasoline and diesel remains the major method of energy for our vehicles, people will have to go to the service station, and we are used to the C-Store format.
- It is interesting that while the major supermarkets have a big investment in C-Stores – Woolworths with Caltex, and Coles with Shell (Viva), the supermarkets are rolling out a small format store with the aim of a far larger range than a C-Store, and operating long hours. The recent openings of The Local by Coles and Metro by Woolworths shows they do not see the market as mature at this stage.
- As we move to electric vehicles over the next 20 + years, we will have less need to visit a C-Store as you will charge your vehicle at home. Other energy sources such as hydrogen are talked about, and whatever comes to fruition, I cannot see the need for large forecourts on 3,000 – 4,000 sq m blocks. The value of the land will create a further economic rationalization over the next 50 years.
- The internet and the drive from the major supermarkets to on line shopping and delivery direct to your home. The need for small convenience purchases will be further reduced, or will be delivered more by an Uber concept (or drones).
I believe we are seeing the power of the supermarket chains, who control around 40 per cent of the convenience stores looking at moving into the space between a traditional C-Store and a full size supermarket.
These companies have the buying power and operational efficiency to fill this market with smaller supermarkets/large C-Stores with all the marketing prowess they currently use.
Convenience chains with buying power
I feel the future may not be all that rosy for an independent service station/convenience store, as the buying power of the majors will make life very difficult.
A large buying group or a 7-Eleven franchise, the other major player, may be able to be competitive. However the fuel discounts and rewards points that Coles and Woolworths offer are extremely attractive to the buyer, and often hard to beat.
The least efficient companies cannot match the more efficient companies. While a business may sustain a loss position for a short time, eventually the owner has to decide if it can survive.
There is a litany of oil companies in Australia who decided they could not survive as retailers in Australia and either, sold, merged or left the country. Brands include Golden Fleece, Total, Amoco, Esso, Mobil and Ampol. Four of these were huge international companies – who still felt that retailing in Australia was not sustainable for the longer term.
The convenience store business in Australia is very tied to the oil industry and the major supermarket chains. The industry will continue to evolve. As our mode of transport changes. As we become less reliant on having to visit service stations. And as we become more accustomed to having our groceries and smaller impulse items delivered to us.
Read more about what industry analysts predict for convenience stores.
Find out what the 7-Eleven store of the future looks like.
Check out the NightOwl options here.