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Download your ShopAbility Path to Purchase Summit Brochure here, and use the promotional code at the top when booking your seat to receive 10% discount.

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As part of the conference program, ShopAbility’s Norrelle Goldring will be speaking on:

Leveraging the growing amounts of shopper data for in-store activation:
• Differentiating information from insight and understanding the types
of insights to be gained from data
• Analysing the uses of insights across sales, category, trade marketing,
brand marketing and externally
• How to gain insight and leverage results for category strategy

As Gold Sponsors, ShopAbilitly will also have a stand at the conference so feel free to come and say hello!

With the launch of the Mix clothing range within selected Coles stores we thought it was worth visiting Coles Epping to see how they would incorporate the new category into their store layout.

The first thing you notice when entering is a lack of traditional security barriers and trolley bays clogging the front entrance. The trolley bay is neatly located outside the store and there are no obvious barriers directing traffic giving the store an open and expansive feel.

As usual you enter into the fresh food department with all of the offers you would expect to see. There is a baker onsite and the offer is extensive.  The meat, poultry and seafood offer is not as pronounced as it is in other new format stores but there is a reasonable specialty cheese selection available.

The fresh food offer is presented in the market style which both Coles and Woolworths have been rolling out across new format stores. With chalkboard style signage this section is nothing new. However, the main difference between the Coles offer and the recent Woolworths rollouts is the lighting. This store is well lit and feels much more open than the dark moody style Woolworths have been executing.

The next thing you notice in this store are the wide aisles. They give the store a feeling of space and make it very easy to shop and even browse. Multiple facings within a wide selection of categories helps shoppers navigate the shelf and find what they are looking for. There is also a store map attached to the fixture at both ends of each aisle helping shoppers find categories within the store.

The most obvious difference in this store is the Mix clothing offer which is located in the middle of the store offering predominately women’s clothing, some men’s and even some accessories. You feel like you are in a Big W store when you reach this section. The POS is even blue replicating the Big W offer. The clothes are basic as you would expect but there are people shopping the section so it is either appealing to them or they are just curious to see what is available.

There are two glaring omissions from this section. The first is children’s wear which is puzzling. I had definitely expected to find a children’s offer and would have thought it would be more popular than an adults range. The catalogue does not show any children’s wear but perhaps it is available in other stores. The second is a change room. While it is difficult to imagine someone pulling up their trolley full of groceries and heading into a change room within a supermarket to try something on it does seem strange not to have the option.

There are a number of new category executions in the store including extensive stationery, mobile phone and home entertainment offers as well as some exercise equipment not noticed previously in other stores.

The health and beauty aisle has interchangeable POS that feels like it belongs in a Priceline or Mass Merchant cosmetic section.

The freezer section at the far end of the store has signage to assist with navigation signposting the various frozen categories in shopper friendly segments (e.g. treats, entertaining and main meals).

Overall the store feels spacious with some great initiatives to help shoppers locate aisles, categories and products within the store. It is well lit and feels clean and pleasant to shop. There was however a lot of empty shelves for a Thursday morning indicating that there is either too much space allocated to some categories or poor shelf replenishment procedures in place. It’s a nice store and if you’re keen to see the Mix offer in store it is worth a visit.

It’s 6pm on a cold Canberra Monday evening, one week after Costco opened, and surprisingly the car park is relatively empty.

Plenty of people pushing trolleys within the store, but only 3 registers open, that says it all.

This format is the same as many of us have seen in Melbourne, Sydney and overseas with the normal mix of Food, General Merchandise  and outstanding stunt lines – same layout, same merchandising, same POD. You know what you expect to find in a Costco and they deliver.

The interesting element to this Canberra store is not the internal dynamics but what Costco’s arrival will cause in this conservative town of 330,000 people.

Apparently a full line Woolies, Big W and Dick Smith are all planned for an adjoining mini centre in January 2012, supposedly supporting a ‘Costco competitive’ range and pricing structure (apparently they outbid Coles for the privilege of opening there). Both of the majors have implemented competitive strategies in an attempt to counter the Costco effect (larger pack sizes, price reductions etc).

There is already a Jim Murphy liquor super store there so the expectation I would think is that the central car park will draw from a huge catchment – think Goulburn, Wagga and the coastal strip right up to Wollongong, around 200kms/ 2 hours, as well as from the existing neighbourhood and destination centres around Canberra. Costco would be looking at $75-100m pa, Woolies at least $50m and that type of turnover just does not happen. It is about changing current shopping habits away from the local retailers and drawing big country style baskets from a very wide catchment.

The quote “everything in Canberra is only 20 minutes away” certainly puts the above into perspective.

So what will be the long term impact of a combined offer such as this on the current offers servicing Canberra population and the ripple effect into the wider catchment?  Think about the WalMart effect on regional US A – possibly, but  it certainly has the potential.

Watch this space for further developments. If successful it could come to a town near you!

First impressions as you pass the multitude of signs at the front entrance challenging Woolies and Coles to their price/ value proposition was one of the vast size of the place, it’s just huge. At 9am it was a lonely shopping experience but you could imagine the hustle and bustle of the weekend traffic.

Standard layout, Meat and Fresh Produce on the left, in house bakery in the middle and Grocery and GM on the right with a Liquor barn at the far end, and we are talking a distance of over 100mtrs from start to finish which is one hell of a trip for older people or families with whinging kids. I’m now beginning to be thankful for an early morning visit.

Concrete floors, adequate lighting, quirky black and white signage and tickets make for a fairly plain shopping experience with little to no theatre, at that time of the day anyway. The store may come alive with tastings and demos in peak trading periods but outside of those times it felt pretty cold and uninviting.

The range of Grocery is OK but not wide, all of the bases are covered and you could do a shop with ease. Their price position appears to be EDLP supplementing the normal range of Weekly Specials, but no house brands or PL at all. Based on that offer alone La Mana will not be cheaper than Woolies or Coles, but Value in a Shoppers mind is delivered through more complex criteria than a one dimensional price offer.

The Fresh areas were certainly well ranged, stocked and merchandised and this is clearly the area that they see as an opportunity to differentiate. The range of cheese in particular was great. Produce was good, but it reminded you of the old WW and Coles offer on pine tables.

The coffee shop looked tempting with fresh cakes etc, and was the busiest of any of the depts., but you’d expect that at 9am.

Whilst standing just inside the checkouts and surveying this vast store, I could not help but ask “what is the key point of difference here that will make this store a destination vs others?” How will they draw from the Sunbury/ Craigieburn/ Essendon area and ask people to drive past quite a few of the majors to visit this offer, week in, week out.

No theatre a la Big Fresh, a cavernous shed, impossible to heat in winter, no huge width or depth in Grocery, not a sustainable price leadership offer that will stand up to intense scrutiny, good well signed Fresh and quality was impressive, but the complete package was nothing well out of the ordinary.

The La Mana name is an icon in Melbourne, but is this the serious threat that many of us would hope that it would be?

Be interested in your feedback.

There’s been a lot of media huff and puff lately about the growth of online shopping in Australia. But the larger revolution – albeit quieter from a media point of view – is the change in shopper behaviour before they purchase, brought about by the ability to search online for product information before they even get to a store.

This has implications for the ‘path to purchase’ and for impulse purchases. As the degree of prestore search increases, so does the degree of planning.

I thought it worthwhile having a look at this and its implications for what stores will need to do in order to retain a role broader than being a mere transaction zone. The game SHOULD be much bigger than just range and layout, which are hygiene, navigation and deselection (narrowing down) factors, they’re not strategy. Once you’ve got your range and layout right, then what are you going to do to increase your category sales in an environment where shoppers are getting harder to influence?

THE PATH TO PURCHASE IS BLURRING

Traditionally the path to purchase was thought to be prestore and instore.

Prestore was when shoppers were making lists and were the passive subjects of advertising and promotional stimulus. Prestore was about consideration.

Instore was where the shopper was influenced on which of their considered products in a category they would buy. Instore was where the conversion happened.

Now the model is blurred. We have conversion happening prestore, and consideration happening instore.

The advent of mobile search and compare is creating consideration at shelf, not just conversion. An example is a shopper standing in a shoe store looking at training shoes. The shopper can whip out their mobile phone and price compare the shoe in the store they are in versus somewhere else. And if the somewhere else is nearby they may change their store choice. You’re then relying on your store staff service and sales capabilities to keep the shopper in your store. Or they might be looking at a shoe on shelf and if a staff member isn’t available, look up the product information online using their smartphone.

This isn’t just for the ‘few’ who have smartphones, by the way. Australia has one of the highest smartphone penetrations in the world, currently nearing 40%, and set to hit 60% by the end of 2012.

THE ‘FIRST MOMENT OF TRUTH’ – JUST ONE OF A SERIES OF TRUTH MOMENTS

P&G are largely credited with coining the expression the ‘First Moment of Truth’ to describe the shopper experience at shelf, where theoretically all the prestore and instore marketing and category management efforts come together to create a purchase decision at the shelf (or offlocation display).

Now we have not only a First Moment of Truth, but a Zero Moment of Truth (prestore) and a Second Moment of Truth (post store, when the purchased product is actually trialled).

Google’s recent report (April 2011) on the Zero Moment of Truth (ZMOT), whilst not expressing a new idea, has probably been the first to articulate it clearly.

It identifies the shift in shopper behaviour by differentiating advertising and promotional stimulus (considered passive) from online and mobile search (proactive).

The ZMOT is when a shopper actively searches for product information online. This may be from a retailer’s website, manufacturer’s website, product reviews, social media such as Facebook, and blogs (which are a form of organized word of mouth), among other things a search engine may dig up. ZMOT is everywhere because it can be accessed whilst mobile, and it’s not just for high involvement purchase categories like cars and entertainment systems. Shoppers are actively searching prestore in product categories ranging from plasticware to pet food.

The Second Moment of Truth (SMOT) – product trial, usage and experience – has an impact on ZMOT. Users of a product when they get it home may post a comment about the product (and their purchase experience) on a social media website, or a product review on a blog or website. These reviews then contribute to the next shopper’s ZMOT findings.  In a recent report from IBM it was stated that a shopper is more likely to believe a review from a stranger than what a retailer or manufacturer says about a product. This demonstrates the need/role for informal product advocates and ambassadors (rather than paid celebrity sponsors).

Whilst marketers can’t control what shoppers post for SMOT, smart marketers in manufacturing can use ZMOT tools – including offers – to mitigate retailer clean store policies.

So now we have a model where advertising stimulus and promotions (Stimulus) may be prestore or instore. The ZMOT is everywhere (accessed prestore, instore, in transit) as is the SMOT. The First Moment of Truth may now be online, or in bricks and mortar stores, or multichannel (eg order online, pick up instore or order instore, have delivered to your home).

I haven’t figured out how to draw this yet in a pretty diagram. Stay tuned. It’ll probably look like one of those communication network diagrams like a cloud with lots of lines where everything connects to everything else.

THE DEGREE OF PLANNING IS INCREASING

The more ZMOT proactive product search that occurs, the greater the degree of pre-store product planning.

Depending on the channel, category and trip type, there may be a lot or a little impulse. On average in Australia across a number of shopper research projects in the past few years, we’ve found that most categories in grocery are planned down to product or brand level between 60% and 70%. That is within a specific category.

But this doesn’t mean you can’t get switch, upgrade or impulse instore, or that a shopper doesn’t buy other categories/products on impulse. We know that around 80% of shoppers deviate from (add to) their grocery shopping list once instore. That is, they come in for 4 things totaling $20 and wander out $50 and 8 items later.

What it does mean is that you need to work harder to interrupt them within a given category.

Interestingly, the recent Coles and Woolworths smartphone apps have a number of functions that will actually increase the degree of planning (My List, My Specials, where items are located in my store so I can find them faster etc) with fewer of the apps to increase browse time/impulse/engagement (recipe finders being the main one at this point).

In an environment where retailers have trained shoppers to expect low prices as the cost of entry and promotional strategies have simply shifted the majority of a category’s sales to on promotion (and deflated category value in the process), the crying need instore is for INTERRUPTION. Shoppers want to discover, be surprised, delighted, and informed … this requires engagement and theatre.

THE NEED TO PLAY TO EMOTIONAL, NOT JUST RATIONAL

In ‘The Buying Brain’, Dr AK Pradeep emphasizes that 95% of human decision making is unconscious and emotional not subconscious and rational. He outlines 7 shopper experience dimensions. In no particular order, these are Information, Interaction, Entertainment, Community, Education, Simplicity, and Self Worth. These serve as a useful ‘retail health’ scorecard for a brand or category.

It’s evident from this list that grocery retailing only really talks to simplicity (ease of shop) at the moment, with perhaps some bits of information and some Community (charity) activities. But supermarkets have work to do on the interaction, entertainment, education and self worth dimensions.

When you look at the traditional point of purchase drivers (range, space & layout, visibility & display, price, promotion and persuasion) there are 3 that are rational (range, space, price) and 3 that are more emotional (display/theatre, promotion, persuasion).

Clean store policies are effectively stripping the emotion out of a shopping trip that for many is already a grudge trip or considered a chore.

When we run shopper research typically the retailers want to understand what their range and layout should be, and most of what shoppers want is not just a layout that makes sense but typically category information, samples, tastings and demonstrations. They want things that will help them with solutions and keep them entertained.

Interruption and engagement – the levers to pull for impulse sales and category growth – will come from more theatre; better thought through relevant/tailored/interactive promotions that pull levers other than price, and from personalized service.

In the brave new world of shopper-controlled retailing, the retailers who retain relevance will be those who can interrupt, surprise and delight by playing to emotions.

I read with interest in the November issue of Retail Pharmacy my colleague Chris Cormack’s article on why pharmacies shouldn’t go too far down the ‘variety store’ route. What he’s ultimately talking about is channel blurring.

I agree with a number of Chris’ points around not losing pharmacy’s point of difference. Reasons that shoppers visit pharmacies are different to other retailer types (see Figure 1). But some of the trip types are also the same, and this is where the line gets blurred between pharmacy and other retail channels.

Figure 1: Main Trip Types by Retail Channel. © ShopAbility 2011

Back in June 2010 we discussed how pharmacies are retail stores and thus in competition with other retail types. Ultimately I think it’s a question of balance and degree. I’m not advocating that the Australian pharmacy channel go the blurred route of the USA, as Australian pharmacies have maintained a distinct channel difference for quite a long time.

This is illustrated when you look at what has happened over the past decade or so in the USA in the drugstore channel:

• Walmart is now one of the USA’ biggest pharmacists
• Target (mass merchant) in the USA has both a substantial pharmacy and grocery offer
• Walgreens, CVS and RiteAid drugstore chains range non-food centre store grocery categories and more recently grocery food categories, as well as photos, passports etc. Basically drugstore chains are now where you go when you don’t know where else to get it, particularly for services.

In Australia some pharmacies have been driving channel blur by loss-leading in tertiary/non-core products (for pharmacies) such as washing powder to compete for grocery (or ‘I forgot to get it in grocery’) traffic.

But as the value of scripts/dispensary decreases, the role of ‘front of store’ in profit generation becomes more important. And that’s where being a ‘retailer’ comes in. So how do you retain what you’re known for as a pharmacy but capitalise on retail opportunities?

Your range, as Chris pointed out, is the key indicator of what kind of retailer you are. The question then is around what retail categories you are going to range and why, based on your understanding of why shoppers visit you (trip types) and what for (occasions). And these vary by type of pharmacy and type of shopper.

We’ve talked about this a bit in previous articles but I think it’s worth reiterating here. There is a difference between local pharmacies (more likely to be empty nesters/elderly and young mums, where the pharmacist relationship is important) vs shopping centre pharmacies and discounters which are more about front of store categories (with script dropoff rather than hang-around-and-wait).

If you’re a local community pharmacy you can specialise in categories for the elderly (ie incontinence, arthritis) and mums (ie baby, nits).

If you’re a shopping centre pharmacy or discounter then it’s more about categories like cosmetics, skincare, vitamins.

But there are roles for other categories. Chris questioned hats and sunglasses in his article, but along with suncream and suntan lotions these are a seasonal opportunity for summer, and can be linked to skin cancer prevention messaging – slip slop slap. Shoppers expect to buy suncream from pharmacies.

If you want to be a Destination for something (eg gifting, photographics, jewellery) then you need to shout about the fact that you now range those categories (and have a think about whether they make sense for shoppers of your pharmacy type). It’s no good ordering in a whole bunch of inventory and not telling anyone it’s there, considering in most pharmacies front of store is 20-40% of sales and much of that is core categories like vitamins and skincare. It’s extra inventory that won’t move unless you’re prepared to shout about the fact it’s there and what its relevance to shoppers is. That’s not to say that gifts wouldn’t make sense in a community pharmacy where other retail gifting options are limited, but you would struggle with gifting items if you’re a shopping centre based pharmacy where there are  a whole bunch of other specialist and generalist retailers in close proximity.

Understanding trip types for your type of site is key to understanding not only what you should be ranging but what products and occasions you should be shouting about.

In a country where blokes parked on the couch watching sport – footy finals, boxing day test, test cricket et al – is virtually a national pastime, is surprises me that this behaviour doesn’t seem to extend to watching horse racing on TV outside of the Melbourne Cup.

Some occasions are off premise and retail driven, such as Christmas and Easter. Others are onpremise driven (such as football, which is a chance – or excuse – for guys to catch up in the pub over a beer or three).

Interestingly, horse racing as an occasion appears to be on-course (rather than onpremise or offpremise/retail) driven – and more about the women than the men, from what I can see (unless you’re a serious punter who rarely looks up from his form guide). I pity the guys, who have to get trussed up in suits (often against their will) and deal with a lot of primping and preening girls in hats, bubbly in hand, chattering about their dresses. It’s understandable that the guys’ form of escape is getting trashed as quickly as possible.

But there are only so many race courses, and so many people that fit in them or are interested in doing so. And aside from Melbourne Cup most people don’t go to the onpremise to watch horse races – horse racing doesn’t seem to the be the same level of ‘get together’ excuse (particularly for guys, unless they’re regular TAB punters) that the football is.

So how do you get people not actually on the race course involved, and join in the racing ‘carnival’? How do you leverage blokes’ natural sports couch potato behaviour?

THE ‘TAILGATE’ OPPORTUNITY

‘Tailgating’ is huge for football in the US, where traditionally the ute’s tailgate was dropped and a barbecue held out of the back of the car at or near the football stadium. Over time, tailgating has come to mean any bbq held at home (as well as near the stadium) used as an opportunity to watch the football game and celebrate or commiserate the result. And the tailgate bbqs are co-ed, not just for guys.

Obviously there’s an opportunity to replicate this for the various football codes here, but also for racing – not just Melbourne Cup day but Derby Day, Caulfield Cup Day, Cox Plate Day. The point is that it’s about all the races on the day, not just the major race which may only last 3 minutes.

Racing related bbqs provide opportunities for the girls to dress up a bit and catch up for a gossip (like they do at the pub) but the guys to stay casual, and for party bundle packs that include sparkling, a range of beers, some cocktail premixes and snacks.

However, creating a new occasion requires work and promotion across a number of touchpoints, not just in the store. In an ideal world one of the major liquor brands would actively promote these types of at home racing related occasions – both above the line and supported with instore activation – to underscore the synonymity of their brand with racing. This could work for either a sparkling wine brand, a domestic craft/premium beer or imported beer brand, or possibly a cocktail spirit base such as a vodka brand.

THE BLOKE OPPORTUNITY

Going to the races is synonymous with dressing up. Anecdotally though, whilst girls love the opportunity to get dressed up, most (straight) blokes do it under sufferance.

However the ‘dressing up’ can be translated to what they are drinking, a chance to ‘upgrade your beer’ in the way that McDonald’s promote the Angus burger as being ‘a little bit fancy’.

This is an opportunity for a premium or imported beer brand to promote themselves as the beer that blokes drink while watching the races, tied into the ‘watch the race at home (with your mates)’ occasion. The benefit for blokes is ‘the excitement of the races at home, without the hassle’.

Retailers have an opportunity to promote the ‘watch the race and be a little bit fancy at home’ occasion instore with displays and catalogue deals including import/craft beer pick’n’mix offers and 6 pack bundles.

Again this will take time as it’s an occasion that needs to be created, rather than leveraging an existing one. However it’s based on behaviour they’re already doing with other sports, so it’s not that much of a stretch.

THE CORPORATE OPPORTUNITY

Depending on store location, and Melbourne Cup being a weekday (where Derby Day, Cox Plate etc are weekends) there is an opportunity to put bundles together for office Melbourne Cup lunches. These could include everything from sparkling, beer and cocktail premixes through to glassware and a pickup/delivery service.

They are all opportunities that will take time to grow, but they are still valid opportunities.

Back in June/July we looked at the role of general merchandise in the convenience channel within the broader context of shopper trip types and occasions, and a month or so ago we looked at the role of alcohol in convenience stores.

Here we’re going to build on those to discuss what trips and occasions, and thus categories, the convenience channel can be known for versus where it will always compete with other channels based on blurred category ranging and shopper perceptions.

CHANNEL BLUR IS NOT NEW, AND NOT ONLY A P&C ISSUE

Channel blur is not new.  A cursory Google search yielded a number of articles as far back as 2002 on the topic. And it’s not an issue specific to the petrol/convenience channels.), Some American examples include:

• Walmart is one of the US’ biggest pharmacists
• Target (mass merchant) in the USA has food offer and pharmacy
• Walgreens, CVS and RiteAid drugstore chains ranging non-food centre store grocery categories and more recently grocery food categories, as well as photos, passports etc. Basically drugstore chains are now where you go when you don’t know where else to get it, particularly for services
• Dollar stores competing as value mass merchants, with crossover into grocery
• Costco – both food and general merchandise, as is Aldi
• Costco moving into fuel (at existing Costco sites, not separate convenience channel formats) as well as cars and motor insurance
• Walmart’s different formats ranging from small footprint neighbourhood formats (to compete with neighbourhood fresh food markets) through to superstores ranging general merchandise and hunting gear that compete with Target, Kmart, Outdoor World and Cabelas among others.

An article from 6 years ago in Drugstore News Retailing Today (“Channel Blurring becomes identity crisis”, 7 February 2005), suggests that channel blurring ultimately means harking back to the era of the ‘general store’.

And locally in Australia, here are just some examples:

• Pharmacy loss leading in tertiary/non-core products such as washing powder to compete for grocery traffic
• Coles new limited mass merchant offer (Berwick, Vic store) and apparel offers (eg Epping, NSW)
• Coles Local (Ashburton) … sort of like a Tesco Express (as I understand it)
• Liquor in grocery in Vic and soon Aldi for selected beers
• On the Run convenience formats that include bakeries such as Brumbys and cafes (South Australia).

Actually, until fairly recently Australia had ‘got away with’ fairly distinct channels – particularly pharmacy and liquor – for quite some time but the past decade has started to see this chipped away.

As retailers look for additional sources of revenue it can feel like channel blurring is inevitable. And it IS driven by retailers – viz the current discussions in P&C around general merchandise and liquor – not by shoppers. Shoppers are the beneficiaries as they ostensibly have more convenience from the same stuff being available in more locations.  Shoppers are winners, retailers are potentially losers with channel blur as retailers lose their point of difference (all of the no-name route stores in Asia carrying the same stuff come to mind, which are wholly reliant on their location to survive) unless they’re prepared to shout about their offer and its relevance.

The big question I have is: Is it a good idea to drive channel blur by changing your ranging offer and what your channel is known for (if it is known for anything)? How big is the opportunity really, particularly if you’re a smaller player with fewer dollars to spend communicating your new offer and positioning?

When you look at the list of retailers moving into other channels, what becomes evident is they are not shifting from A to B, but becoming A plus B. They are continuing what they are known for, but adding additional categories. Eg drugstores PLUS. Mass merchant PLUS.  So they have extended rather than changed their positionings. What is the P&C ‘plus’, if you’re going to go down this route?

Does P&C want to change its positioning from the anecdotal ‘fuel and junk food channel’ to something else? Or should P&C leverage its existing occasions and trip type strengths whilst extending into other categories? Or just shout louder about the categories and trips it is known for, to maintain its point of difference?

WHAT DOES P&C STAND FOR? UNDERSTANDING OCCASIONS AND TRIP TYPES IS KEY

Where you look is where you go. Ie, what you range is partially what you’ll be known for (if you shout about it loudly enough). Perceptions of P&C as the ‘sin channel’ are largely self-created by the channel’s historic focus on tobacco, confectionery, salty snacks and soft drinks.

But these categories have limited occasionality, and to only a certain portion of the available audience. To determine what you stand for you need to understand shoppers’ triggers and motivations for visiting you. Ie, their consumption occasions and shopping trip types.

I’d suggest that the existing occasions and trip types within P&C are yet to be exploited, even before you try to tap into trip types associated with other channels.  Table 1 illustrates the core trip types are across channels and how they differ.

Table 1:  Major trip types cross channel. ©   ShopAbility 2010

Aside from fuel, what differs Convenience from the other channels is services. This is something that could be leveraged harder. 7eleven are pursuing this route with their Moneygram service, among others.

You could argue that if you split Convenience into Fuel vs Non-Fuel (eg Arterial, Roadhouse vs Local and Minimart) that the Local and Minimart sites could act as a form up Top Up shop, in competition with IGA and mixed businesses/milk bars.  Ultimately the difference is that Fuel sites are generally in transit where non-fuel (or Local, with fuel) act more like a type of emergency or closest-to-home outlet.

Below is a table we published in the July issue of CW that suggests some of the categories applicable to the Convenience trip types.

The skew of these trip types is going to vary according to the type of site you are. Party/entertaining is underexploited for local and minimart sites, who have an opportunity to own bbq occasions as they already have ice and gas bottle refills. Why not capitalise on this with a bigger party/entertaining offer?

Fuel sites have an opportunity to leverage their travel and ‘on the way home’ needs offers harder, with particular understanding of inbound and outbound sites. A deal of success has been had in the US with DVD rental boxes at outbound sites, which talk to the shopper need for ‘what are we doing tonight’ whilst they are thinking about it on their way home.

Both fuel and non-fuel sites, and particularly local sites, could extend their suite of services with everything from dry-cleaning drop off to shoe repair drop-offs. (These wouldn’t have to be serviced on-site, the actual jobs would be performed by specialists in some sort of tie-up deal). Not only would the convenience store earn commission but this is a traffic driver that is an opportunity for an incremental sale.

If you want to be a Destination for something (eg general merchandise, liquor) then you need to shout about the fact that you now range those products. It’s no good ordering in a whole bunch of general merchandise inventory – when you’re a fuel site, by the way – and not telling anyone it’s there, considering only 3 in 10 shoppers break from the cashier queue to shop ‘rest of store’, and most of those 3 in 10 are destination beverage buyers anyway. It’s extra inventory that won’t move unless you’re prepared to shout about the fact it’s there and what its relevance to shoppers is. That’s not to say that general merchandise wouldn’t make sense in a local or minimart where you could compete with small supermarkets and mixed businesses for top up and emergency shopping trips, but again you would need to COMMUNICATE this.

Understanding trip types for your type of site is key to understanding not only what you should be ranging but what products and occasions you should be shouting about.

So if you’ve already got a bunch of categories that play to your existing trip types, and you’ve already exploited those fully (and most haven’t), what do you then do?

Do you:

a)     leverage your existing categories harder, or

b)    range new/different categories, ostensibly to ‘steal share’ of grocery and other channel shopping trips?

Point A is going to be easier and cheaper in the short term. Beverages is the obvious category to leverage harder (snacks would probably be the next one) as it’s the largest convenience merchandise category outside of tobacco and a destination for shoppers already. Again 7Eleven are doing a good job with this, creating destination traffic for beverages with their Slurpee frozen beverage offer. It’s targeting a specific shopper type (teens) and it’s communicated on all their external signage, and promoted heavily, so you know it’s there. (No I’m not being paid by 7Eleven to say nice things about them, I’m of the view they have too many promotions running at the same time which confuses shoppers, so they’re not perfect at everything).

An interesting article in Beverage Spectrum from September 2010 (“Polishing Convenience’s Strengths to Shine Through the Blur”) suggests leveraging strengths rather than trying to create loyalty (which is difficult in the convenience channel).

Point B – adding new categories – is where the ‘should we range general merchandise?’ and ‘can we range liquor?’ questions sit. As outlined earlier, this is a longer term strategy that requires significant investment in communication of the offer and its relevance, not just banging the stock out on floor (and in the case of alcohol, at not inconsiderable coldspace capex cost) and assuming it’ll move. Effectively you need to communicate to shoppers that you have a new reason (occasion, trip type) for them to shop with you. And if you range new categories to compete with other channels then you are adding to channel blur, rather than responding to it.

There are also ‘traditional’ retail positionings around Range (breadth, quality, innovation eg Bunnings for breadth),Service (excellence eg Nordstrom, speed eg McDonalds), Price (lowest cost, eg Costco or Aldi), and Experience (expertise, knowledgeability eg Apple Stores).

When you think about where Convenience stores sit in these traditional retail positions, it’s evident that none of them truly apply and this is the issue around what P&C stands for:

• P&C can’t truly compete on lowest price, and isn’t actually expected to by shoppers as they are prepared to pay a (small) premium for convenience. Supermarkets and discount department stores own price and you can’t compete with it in the long term as it requires being a lowest cost operator
• P&C can’t really compete on experience unless you target specific categories and services relevant to your occasions and trip types (automotive, travel etc)
• P&C can’t compete on range breadth overall, but can compete on range breadth within specific categories (eg single serve beverages, meals and snacks on the run). There is opportunity for product innovation here
• P&C CAN compete on service speed, and local sites could potentially on service excellence (knowledge of local shopper base, repeat business from local customers based on understanding of their needs).

My point in all of the above is around understanding the role of your site type in the eyes of your shoppers. If you are clear on why they visit you and range your products and plan your communications around that, then shoppers will have clarity on what to come to you for. Focus reduces blur.

Summer in this country is the busiest time of year for the onpremise. Not just pubs for Christmas drinks, but throughout the January school holidays as people catch up in restaurants and cafes for lunchtime or sunset meals in the sun.

But it’s also the biggest time of year for entertaining at home as people take advantage of the sunshine and use their patios, balconies and backyards to get together with family and friends.

Entertaining is one of the largest shopper trip types in offpremise (after ‘stock up’ for beer and ‘replace my regular’ for spirits).  So here we will have look at some of the multitude of types of entertaining occasions and how you can tap into them.

There are a number of variables within entertaining occasions that have a bearing on how much shoppers buy, of what (categories, brands, pack formats/sizes) and how much they spend:

• How many people are invited/attending
• Level of formality, which is impacted by relationships
• Relationship of the participants to the host (distance/closeness in intimacy terms, not geographical) – ie close family, distant family, close friends, acquaintances
• Whether the event is a meal based (eg bbq) or drinks based (with a few snacks)
• Energy level of event eg ‘go off’ vs relaxed
• Day or night time
• Theming (including themed drinks).

Some of the more obvious summer entertaining occasions include:

• Christmas Day lunch/dinner
• Pre-Christmas drinks
• Pre-Xmas get together
• Australia Day bbq
• Extended family get together (family that may only see around Xmas time)
• Blokes/mates on the couch watching the Boxing Day Test and other cricket
• ‘Orphans’ events over Xmas and January for those (temporarily) without family

General entertaining occasions that also happen to take place during the summer include:

• Event related party eg New Year’s Eve party, Halloween
• Other event related parties eg birthday milestones (30, 40, 50 years young)
• Casual meal eg bbq
• Family get together (regular event for close family eg some families have a regular Sunday meal together)
• Girlie brunch (likely to be weekend)
• Chicken and champagne breakfast (likely to be girls)
• Casual ‘pot luck’ lunch or dinner where everyone ‘brings a plate’
• Formal meal eg served ‘dinner party’ (although big in the 80s and 90s, these are going out of fashion and being replaced by more casual events and pot luck style meals).

Also, the shopper may be the guest (‘what do I bring?’) or the host (‘what do I give them?’). Both require solutions.

There are some interesting informal (unwritten and unspoken, but generally acknowledged) rules around the various types of occasions that inform what hosts serve and guests bring. Sydney Morning Herald columnist Richard Glover wrote a very funny article published in the Spectrum on Oct 1 dealing with barbecue etiquette

(Link: http://www.smh.com.au/opinion/society-and-culture/hits-and-near-misses-your-essential-summer-barbecue-survival-guide-20110929-1kxu3.html).

Two premises in this article relate to guests’ alcohol behaviour: “Don’t bring a bottle of cheap red wine when your intention is to drink the host’s beer”, and “Don’t try to hide the half-decent red you’ve brought for yourself”.

These talk to two different occasions from the guests’ point of view: a) gatherings with people you know, where it’s assumed everything gets shared because everyone knows what everybody else drinks (eg you bring the slab of VB in); and b) gatherings with people you don’t know (where you’re more likely to keep your better wine for yourself, or use it to impress, or bring your 6pack of special imported beer in and keep the rest of the case in the boot of the car).

Similar idea from the host’s point of view, with regard to who they’re hosting. If it’s an event with a lot of lesser-knowns then safe and likely well known brand choices at low-mid price points that are likely to appeal to the masses will apply (unless they’re trying to impress). If it’s an event with well known friends and family it’s a combination of forgiveness for pulling out what’s already in the fridge, and having some better stuff on hand because you’re happy to share it with them and you know their taste.

If it’s a smaller gathering the host is likely to spend more per head. For larger groups the host is likely to spend less per head and just stock the basics for the thronging hordes.

What all this means is that you have a number of opportunities to uptrade shoppers on their chosen categories based on the type of event they are attending or throwing (and who is attending), and to sell them more depending on the size of the gathering they are having.

Some of the key opportunities around occasions are thus to:

• Probe customers on their reasons for store visit, if for entertaining ask the how many, who are they, what do they like questions
• Provide cross category bundles of basics for different event types, including add-ons such as glassware
• Vary the bundles by level of formality eg casual bbq = VB and quaffing shiraz, upmarket bbq + Corona and a good NZ Sauvignon Blanc (or possibly Gin & Tonic/Martini)
• Create an event/party specific area of the store
• Communicate occasions eg ‘perfect gift for host’ (eg if someone taking a bottle of wine to a dinner party)
• Make your store an expert in social events and occasions. This is something the big boys can’t do (Dans and First Choice are more about pragmatic stocking up than expertise in events)
• Provide some drinks/food matching information and education eg best beers/wines for seafood bbqs vs steak bbqs.

These are all activities that will help you give your store a point of difference.

When your friendly neighbourhood Convenience World editor asked me to contribute some thoughts on the recent AACS submission to the Productivity Commission on alcohol, the key questions that came up for me were how big is the opportunity, and is it viable?

Leaving aside the anticipated moral outrage from the usual conservative pundits, and assuming convenience stores ably monitor and regulate 18+yo alcohol shoppers occurs as they do now for tobacco, would selling alcohol in convenience actually work here?

WHERE WILL THE SALES AND GROWTH COME FROM?

On the face of it you can see why it’s an opportunity, if you use the $8.1bn liquor retail sales figure from IBIS World’s Liquor Retailing in Australia report (2010).

However, Australian alcohol consumption, and thus volume, is pretty flat.  We’re actually drinking less litrage of alcohol per capita than we did 20 years ago. There are some changes in consumption at a category level too, as highlighted by Jessica Irvine in today’s Sydney Morning Herald (24 September 2011), in her opinion piece on the SABMiller purchase of Foster’s: “Australians consumed an average of 469 tinnies of beer each in 1979. Three decades on, this has slumped to the equivalent of 285 tinnies. We are quaffing an extra 10 bottles of wine a year and half a litre of spirits.”

This is because wine has become relatively cheaper with the wine glut and subsequent ranging of value cleanskins, and full strength bottle spirits sales increased when the RTD excise was introduced a couple of years ago resulting in a switch by RTD drinkers into bottle spirits (and to a lesser extent, beer). Beer volume is in decline, but value is increasing, as shoppers trade up in quality and down in volume. They are trading out of mainstream lagers and up to imports and microbrews/craft beers.

In the USA, it’s predominantly mainstream beers ranged in convenience. Mainstream heavy lagers here (VB, Tooheys etc) are in decline albeit currently nearly 2/3 of total domestic beer production volume (Datamonitor, 2010).

So given that the offpremise alcohol market is flat, if convenience stores were to successfully range and sell alcohol, where would the sales come from?

Existing offpremise liquor outlets, and likely the independents rather than the chains.

Channel shift, rather than incremental category growth.

CREATING DEMAND BY UNDERSTANDING CHANNEL ROLE

Ranging alcohol in convenience stores requires an understanding of alcohol based shopping trips.

Contrary to the IBIS World Liquor Retailing premise that much of offpremise liquor sales are on impulse (as quoted in the AACS submission), various liquor industry shopper studies we have conducted over the past 10 years consistently show that around 70% of offpremise alcohol shoppers know what category they are buying before they walk into the store. Not many people walk into a bottleshop without a clue of what category they are there to buy.

And for beer and RTD, within the 70% who have planned the category, 65% know the brand and/or individual product they will buy. Wine is less planned at a brand/product level due to the sheer breadth of range.

This is because bottleshop trips are destination alcohol shopping trips. The trip types themselves vary a bit by category, but generally fall into one of: stock up (beer, dark spirits); entertaining (formal and informal); take to an event (dinner/party); or ‘replace my regular’.

The question, then, is whether convenience can become known as a destination alcohol channel (given that range would be limited), and/or if convenience can pick up ‘impulse’ alcohol sales. Any impulse alcohol sales are potentially more likely in fuel than non-fuel sites, given that we know from various cross-channel shopper studies we have conducted over the past few years that impulse items need to be worth considerably less – ie under 50% – than the value of the planned basket of items. Ie, if a shopper is spending $50 on fuel the impulse items would probably need to be under $20, which rules out beer cases and most full strength bottle spirits.

Convenience could potentially act more like a drivethru or a pub attached bottleshop, with a limited convenience offer for ‘on the way’ trips. Or leverage the existing convenience store ‘party’ trip (particularly ‘local’ convenience stores) for ice, gas bottle top ups, softdrink mixers etc.

WHAT’S REQUIRED TO RANGE IT VS WHAT IT’S WORTH

To range alcohol in convenience, it’s going to come down to floorspace and coldspace (both fridges and coolrooms). Mainstream beer is mostly sold in cases, and predominantly cold. This would involve investment in coolroom unless you were going to break cases up and sell them as 6 packs (and a low percentage of mainstream beers like VB are sold in 6 packs as they are a stock up/replace my regular item). Shoppers are less likely to buy ambient cases off pallet floorstock.

Likewise, 80%+ of white wine and rtds are sold cold, requiring fridge space. You wouldn’t want it to cut into your existing cold NARTD beverages space, which is your merchandise bread and butter outside of tobacco, unless you’d done a space-to-sales analysis and figured out how many shelves/doors of overfaced beverage product you could actually give over to beer/wine/rtd.

So you’d need to invest in extra fridge doors and a coolroom. This will require capital expenditure for fitout , including any shelving near the counter for spirits. It is unlikely that independent outlets/individually owned stores will have the tens of $thousands required for fridge fitout unless it’s funded by the banner group. If you’re going to invest upwards of $20,000 in coldspace fitting an outlet (eg 3 fridge doors and a small coolroom), you’d need incremental sales revenue of $26,000 (ie $500/week or at least 2 cases of VB a day) at a 30% margin (and the actual margins are substantially lower than that) just to break even in Year 1 on your capex outlay.

Thus there’s capital investment required, and the available floorspace (particularly in smaller independent outlets) is limited which will restrict the range you can sell. So you would be limited to mainstream and ‘beacon’ brands. And the mainstream product margins aren’t all that high. So you’d be relying on your limited alcohol range to drive trips and purchase of additional items.

The available space would also dictate not only which categories are ranged (beer only, and/or wine, rtd and spirits) but also which types of convenience sites, as not all would have the space. The USA convenience channel skews to arterial and roadhouse site types, which have larger store footprints (within the context that most US retail store footprints are larger than Australian ones anyway).  Local convenience stores, mini marts and transit sites may well not have the space to range alcohol.

Cost considerations additional to coldspace/shelving fitout also come in the form of:

• Stock inventory costs
• Staff training for product knowledge, unless only the largest brands and most mainstream products are ranged
• Security, which may need to be ramped up, particularly for full strength bottle spirits
• Self funded promotions to create demand. Convenience stores are unlikely to get a sales rep in-person call from alcohol suppliers, because they’re  not big enough/wouldn’t drive enough volume to justify a call, let alone tailored promotional programs and consumer promotions to pull stock through (unless these were negotiated with alcohol suppliers at the banner group level). So stores would be left to their own devices to create demand.

THE US MARKET IS NOT AN ACCURATE BASE FOR COMPARISON

OK, I get that you have to start somewhere in sizing the opportunity, and that the US is an obvious market to look to as it has been ranging alcohol in convenience for a number of years.

But whilst alcohol, and primarily beer, is a convenience store staple in the US, the state based differences are huge due to the morass of state based liquor laws resulting from Prohibition. Some states aren’t allowed to range alcohol at all in convenience (eg Pennsylvania, New Jersey, Alaska). Convenience stores in some states are able to sell all alcohol categories (eg California, Nevada, Mew Mexico), while stores in many states can sell beer and/or wine but not spirits (eg Virginia, Washington, Oregon). Some states can sell beer only but not wine or spirits (eg New York, Mississippi).

In other words, it’s a mess. And in many of the states where beer and wine are ranged in convenience stores, it is INSTEAD OF, not as well as, ranging in offpremise bottleshops. So the numbers you would get by pulling % of offpremise alcohol sales in convenience stores would be extremely skewed.

In addition, where alcohol is ranged in convenience in the US it is likely to be limited in either pack size or more commonly by ABV (alcohol percentage). This explains why you see beer doors in US convenience ranging 6 packs, where in Australia the dominant mainstream beer format is the case (and for some products, the longneck 750ml for ‘roadies’, which are often sold in multibuy format eg 3/$10).

As mentioned, US convenience (with merchandise, rather than cash booth only) skews to arterial roads and roadhouse/travel plazas – stores with the floorspace and coldspace to carry the extra stock.

THE SUPERMARKET CHAINS WOULD GET IN ON THE ACTION ANYWAY

Even if convenience stores were granted offpremise licences in Australia (and getting the Community Impact Statements through in some states for liquor licence applications will be interesting, to say the least), it is hard to see how selling alcohol would be limited to the independents. The licence applications would be extended to the supermarket chains (who already have them, by the way, for their existing liquor operations across Dan Murphy, First Choice, BWS, Liquorland, Vintage Cellars and Woolworths Liquor). And you can bet that they’ll use them – Fly Buys, Everyday Rewards, fuel discount voucher programs et al would be incorporated.

The independents in offpremise liquor are under very similar stresses to those of independent convenience stores. The supermarket chains have around 60% of offpremise liquor, and the independent liquor stores can’t compete with the supermarket chains’ pricing due to the chains’ buying power. The independents are losing market share and traffic, and this is changing rapidly (the chains had less than 45% of offpremise liquor 5 years ago).

This begs the question, How would you price? Mainstream beer shoppers have 3-5 brands they rotate amongst depending what’s on special. RTD shoppers are also price sensitive, having less disposable income, which is why there was a shift to full strength bottle spirits (ie get drunker, quicker on freepour) and beer (cheaper per unit) when the RTD excise was introduced.

You can’t compete with the buying power of Coles and WW and thus their retail prices so in order to range alcohol profitably, you’d need to be priced higher. This then requires shoppers on either impulse (only around 30% at a category level for alcohol) or on convenience/emergency trips – a fewer % of trip types – when price sensitivity is less of an issue.

Chains would likely not only range alcohol in Coles Express and WW Caltex if the Productivity Commission approved it, they can do it cheaper AND tie it into their existing loyalty programs (Fly Buys, EDR) and fuel discount programs. So you still wind up with the same power imbalance problem.

Ranging alcohol in convenience isn’t going to make the power of the chains go away.

Counter to what you may think having trawled through the above, I’m not trying to scare convenience stores away from ranging alcohol.

Rather, the point was to make you aware that whilst the numbers may appear attractive on the face of it, much thought needs to be given to the execution as it may well transpire that the cost of ranging alcohol in stock, capex and fitout outweighs the returns, and the issue of chain dominance will remain the same.