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How Disruptive Innovation and Fresh Thinking are Set to Revolutionize Convenience

We’re often told there isn’t space for both “big convenience” and small independent operators in Australia and New Zealand – but is that really the case?

Convenience is anything but convenient for operators in the industry right now.

A blurring of the lines between traditional convenience and other food and beverage service segments has seen both small and large operators bump up against offerings from grocery chains and even quick service restaurants (QSRs).

But that doesn’t necessarily provide a clear narrative for anyone looking to predict the demise of small local owner/operator milk bars and convenience stores, or equally over-reach from large non-convenience brands that have entered the field since the Global Financial Crisis.

In its Convenience 2020 report (2016), the Australian Centre for Retail Studies at Monash University described convenience retailing as facing major threats from large brands and hindered by weaknesses, but at the same time benefiting from key advantages. Yet in the same year, the Australian Association of Convenience Stores was describing the short and long-term outlook as “undeniably positive” based on convenience outpacing the growth of pharmacy, liquor and grocery sectors.

2018 saw Australian convenience’s first growth slowdown in more than five years. But fast forward to May this year and Coles is announcing the fast-tracking of its convenience strategy, underlining the opportunities to be had as consumers trend towards convenience offerings.

Perhaps only one thing is for certain. Competition is heating up.

Thinking beyond petrol and cigarettes

When it comes to the subject of how both new market entrants and small owner/operators can carve out their positions, it’s difficult to look past the persistent influence of petrol sales.

For a long time the “traditional” image of convenience, especially in Australia, has been tied to petrol stations and cigarettes. But without looking past petrol – and even the EV charging stations that will replace them – many convenience brands will struggle to differentiate. Meanwhile demand for cigarettes continues to decline.

Yet, if you look overseas, you can see a hyper-successful convenience industry that doesn’t rely on these two traditional pillars.

Japan is considered at the cutting edge of convenience in Asia, a nimble market that embraces change. It offers plenty of inspiration for how to carve out a niche beyond convention, especially if you want to leverage the local community advantages of the traditional convenience store owner/operator.

Part post shop, part travel centre, the Japanese Konbini convenience store can offer a very strong and competitive offering as a local community hub. Consumers pay bills, send packages, and even book bus and concert tickets while they pick up food items like onigiri and obento.

Could Australian convenience stores differentiate by embracing the Japanese philosophy of convenience, fittingly described in The Japan Times as a “way of life” by Hokkaido-based writer Michael Hoffman?

“It’s a way of life. We expect it, demand it, shop elsewhere if it’s lacking. It has two aspects: You can buy anything anytime; and you can do anything anytime. Konbini, Japan’s ubiquitous convenience stores, symbolize the first; technology, the second.”

Japanese convenience store

Maintaining the human element

But there is one problem that comes with embracing the concept of convenience in the way Japan has. The industry in Japan has expanded so much that they’re running out of labor, threatening the 24-7 model they pioneered.

Compounded by population shrinkage, Japan is now planning to automate its convenience stores. The country’s Ministry of Economy, Trade and Industry (METI) has struck an agreement with major industry players like 7-Eleven Japan to introduce electronic RIFD tags by 2025 for purchasing all the 100 billion products available in their stores.

Amazon – often the elephant in the room of Australian retail – is pursuing similar innovations with its Amazon Go bricks and mortar convenience concept. Using surveillance camera technology, Amazon tracks the people entering the store and what they pick from the shelves, before automatically invoicing their Amazon accounts as they pass through a turn-style checkout. However, some commentators have been unnerved by the lack of a human element to the experience.

This supports consumer sentiment towards local convenience stores.

In the US, the 2019 National Association of Convenience Stores (NACS)Consumer Fuels Survey found that more than three-quarters of consumers thought that convenience stores shared their values. This reflects the human touch – the close ties convenience store owner/operators have to their communities, which is a competitive advantage.

Whether its local sports sponsorship, supporting good causes, or simply being a vocal and visible advocate for the community at town meetings, the local convenience store owner/operator has plenty of opportunities to stay on the same page as their customers. According to the NACS, four in every five convenience store companies in the US have donated to local emergency/crisis causes in the community, while more than three in four donate produce, drinks or food to local food banks and support groups.

And for once this is a generational trend going in the right direction. 85% of the 18-34 year-olds surveyed said they shared values with their local convenience stores compared to 63% in the 50+ age bracket.

Fresh perspectives

But if there was one opportunity to pick out of these kind of surveys, it might be fresh produce.

Consumer trends point to people wanting to keep less food in their pantry, with millennials especially open to buying more prepared fresh food. In the US, fresh fruit and vegetables have become an increasingly important part of the average convenience store’s product mix, accounting for about US $242 million in sales every year and contributing to the industry’s 16-year run of record-breaking sales.

Consider also the US Food Market Outlook 2019 report from market research firm Packaged Facts. It examined innovation across 14 food categories to define the top trends shaping the future.

One of these trends was the popularity of local organic fresh produce driven, in part, by the fact that much of the US’s vegetables come from just two states. In short, food offerings like locally grown organic fresh packaged salads are fresher and have a longer shelf life.

Despite local convenience’s petrol and smoke-tinged past, the future to carving out a place in this ultra-competitive market could hinge on how local and fresh you can become.

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