Petrol station shops are becoming a progressively more important outlet within a growing and increasingly consolidated convenience retail market, according to the latest report from Datamonitor.
The market research company forecasts that the convenience food and drinks market will grow by an average of 4.1 per cent a year to 2007, compared with 2.0 per cent for the overall retail food and drinks market. Meanwhile, the forecourt shop, as a convenience channel is growing even faster, with realised sales expected to rise an average 4.5 per cent a year in the same period.
However, the report also warns that fuel retailers must keep abreast of market developments and anticipate trends within the sector if they are to compete effectively with the grocery multiples, who have recently been expanding in the convenience sector.
Convenience drives sales
The growth of the convenience market is a reflection of the changing times: socio-demographic shifts, changes in household structures and eating patterns as well as people leading increasingly busy lives and valuing their leisure time more, which have all led to a growing demand for convenience shopping. C-store visits are becoming more frequent and spend per visit is also on the rise. According to Datamonitor forecasts, the trend is set to continue, with the forecourt claiming an ever-greater share of the market in most countries, as oil companies extend their shop networks and product range.
Fuel retailers invest more in forecourts
The rise of the forecourt as a convenience channel is driven both by consumer demand and by investment on the part of fuel retailers. On the one hand, there is growth in use of c-stores for distress and on-the-go purchases as well as top-up shopping. Meanwhile, on the other hand, due to declining margins on fuel, fuel retailers have an ever-greater need to supplement their income from fuel sales by selling higher margin, non-fuel goods.
Retail margins have fallen significantly in the past two decades, as rising oil prices and taxation levels of 60 - 80 per cent have led to increased price-sensitivity among motorists and more aggressive price competition between retailers, spurring a complete transformation of the forecourt. Where once their sole business was the retail of fuel and car-related products, it has now become imperative for service stations to sell other goods and services in order to survive.
Increasing non-fuel sales has become a strategic priority and oil companies have been investing especially heavily in the forecourt shop in recent years, extending these to cover a greater proportion of the network, whilst expanding existing shops and increasing the range of products to attract 'on-the-go' consumers and top-up shoppers as well as motorists.
Nowadays, close to 60 per cent of forecourts in the region have non-fuel activities, with this rising to 98 per cent in the UK, and an ever-growing number of sites offering meal solutions and non-traditional products and services, such as Internet access, in addition to convenience goods. In Sweden, the most developed market, the shop now represents 37 per cent of forecourt turnover, once taxes on fuel and tobacco have been removed.
Retail partnerships push sales
Although market conditions vary from country to country, on the whole fuel retailers have a tremendous opportunity to gain an increasing share of the convenience retailing sector across the region. Acceptance of the forecourt as a channel for convenience shopping has been growing, and service stations already account for one-fifth or more of convenience sales in all markets except for France and Italy, rising to 83 per cent of convenience sales in Sweden. The creation of successful retail partnerships on forecourts has helped to change the image of the forecourt shop and increase average spend per visit.
New retail partnerships continue to be formed, following several proven successes, such as Shell and Sainsbury's recent alliance, whereby Sainsbury's Local store format was trialed at six Shell sites in the UK since October 2000, and the supermarket giant is to open 100 new outlets within the next three years. As a result of successes such as these, service stations are expected to take a growing share of the convenience market in the next five years, with growth in Belgium expected to be the greatest, rising from 25.6 per cent of c-store sales in 2002, to 35.1 per cent in 2007. Average forecourt shop turnover is expected to rise even faster, as average shop size increases and the number of sites across the region declines due to rationalisation.
Fuel retailers must still compete
However, while the extended opening hours, easy availability of parking on forecourts and cross-selling opportunities combine to give service station operators a significant advantage over their rivals, fuel retailers should not be complacent.
Grocery retailers have recently been focusing on developing their own c-stores, opening smaller-format outlets in city centres and residential areas. With the wealth of experience they have and their strong brands, these could pose the greatest threat to the strengthened forecourt c-store's position.
Nevertheless, oil companies have realised the potential of creating partnerships with grocery majors, to develop forecourt shops. Furthermore, such partnerships allow fuel retailers to benefit from their partners' brands to attract a greater number and diversity of shopper to the forecourt. In addition, oil companies can learn from their partners as to how to implement best practices in their own forecourt shops.