by Dr. Rob Nelson -
A cornerstone of American retail, about 3% of the total purchases a consumer makes each year comes through the C-Store industry. There are 153,000 convenience stores (C-stores), in the United States alone. They account for $653B in sales of fuel and another $692M general merchandise. Most Americans pass by at least one every time they leave their home or workplace. Yet, many of us simply pass right by without stopping to buy anything.
Convenience stores sell 80% of the gas purchased in the country and more than 40% of all packaged drinks—especially bottled water and sports drinks. Today’s convenience store offers so much more than just gas and beverages. Half of America is, with convenience stores, conducting 160 million transactions a day—and you now see these neighborhood retailers offering fresh meals, healthy options, and cool new products. According to the National Association of Convenience Stores, above all, C-stores sell time. They are where you are, open when you need them, and you can get in and out in minutes. And these neighborhood stores have everything busy consumers need, from soup to nuts—literally. Yet, when we do stop, it is probably only to fuel our cars. 65% of us leave without ever going into the store itself.
There is a real problem percolating in this sector
In a dramatic period of disruptive innovation, sales volumes growing at only 1.8%, while labor costs are accelerating at 8-10% per year. Driven by fuel-efficient and electric vehicles, new on-demand delivery from Amazon.com, and delivery models like Go Puff and Post Mates, sales dollars have already begun to drop. And, it is going to get a lot worst as predictions are that 10% of all vehicles on the road within the next five years will be electric (EVs).
EV charging presents both a threat and an opportunity for sales. The threat being that drivers may no longer stop at a C-store pump for gas but investments in rapid charging stations could present an opportunity to sell your C-store branded home charging unit.
If you can lure these EV customers to your chargers and keep a relationship with the brand, you have them captive for 15-20 minutes and maybe longer in mindshare. Not only that, once they plugin, you know who they are. They could sit in their car, or with the right incentive, walk into your large format store.
However, these charging stations are a significant investment, and where do you place them? Certainly not in all of your stations. To start, you can use analytics to help identify the optimal locations for your initial investments.
Mid to Large C-Store chains are investing significant sums of money to drive innovation
Investments drive innovation like new store formats, higher quality fresh foods, and beverage selections. And this will be followed by substantial investments in advertising to re-position their brands. Will this be enough? Consider that the highest-grossing sales are those unplanned in-store merchandise purchases when fueling and that the margin lives in the store, not at the pump.
Given that purchases at C-Stores are more often impulse buy, there is a missing component in optimizing potential sales. What is increasingly important is reaching an individual customer at the right moment to spur the desired action. That desired action is to enter the store to purchase something more than a lottery ticket or use the ATM or restroom (22% visit to use the bathroom).
Collecting new types of customer data and gleaning actionable insights will deliver a higher return on these investments by providing revenue increases in top-line as well as an increase in the margin on items and “per basket.”
Research shows that firms that are using behavioral insights outperform their peers by 85% in sales growth.
Performance can be enhanced by addressing:
- Which categories will make a difference in the future?
- What will build/rebuild customer count?
- How are promotions/marketing (including social media and loyalty programs) working?
- Are our new product introductions and programs affecting and driving higher sales and customer count?
- How are stores performing, and how can we optimize operations?
Take, for example, how customer behavior insight with location data can be used to execute more effective loyalty programs. Today’s loyalty programs can’t be the sandwich card reward program of old – buy nine get one free. These were passive programs. Today’s applications using modern technology coupled with insight on the customer segment of one needs to be personal, intelligent and proactive to meet customer needs and incent behavior at the right time and place.
Imagine knowing that Tom is at your gas pump, and he likes Carmel Macchiatos, and it is 10 am and 32 degrees outside. What if you sent him a text with an offer of a $1 Carmel Macchiato with a breakfast sandwich purchase? Now that is incenting behavior, and the only thing better is if you could pump the smell of a fresh brew out to the pump.
Consider a growth rate of 1.8% and the fact that a good percentage of C-stores have fuel pumps that drive significant sales volumes for these stores. Industry-wide only 35% of customers go from pump to store. The average consumer in the United States spends about $22 each time they visit a convenience store when fuel costs are included when they did go inside.
And, when fuel sales increased by 68% for convenience stores in 2016, there was a 63% increase in food sales at the same location. Consider also that 30% of customers say that they visit their local store about two or three times per week. There is a much-untapped opportunity just waiting to be captured. So how do you get started?
The first step is significantly improving your data collection infrastructure similar to other consumer-oriented venues such as department stores, malls, entertainment, and airports. Augmenting current cameras and counting devices with technology that detects and collects anonymous data from smartphones and pushing that data into their cloud environment — then applying advanced algorithms to create unique IDs, transforming the raw data into actionable intelligence. When paired with new or existing loyalty programs, those programs are transformed into engagement programs.
At the aggregate level, operational dashboards are created to monitor performance across the enterprise as well as drill down to store specific metrics. Metrics include data on by-pass traffic, bounced traffic, visit duration, and in-store traffic patterns. This approach also enables you to capture unique customer behavior, including recency, frequency, visit duration to optimize staffing and identifying sales performance and possible employee training interventions. It is clear that when paired with other merchandising data, it creates a wealth of knowledge that can be acted on.
Optimizing operations by pushing customized promotions
Ultimately, when paired with Point of Sale, Loyalty, and other customer engagement program data, you can push customized promotions based on that unique customer’s preferences and buying patterns while they are on the property. You can also promote offers to customers that haven’t visited recently, timed to when they are most likely on the road.
To optimize operations, you can also benchmark and compare store performance against established KPIs such as service level/wait times at food counters or cash registers and other operations measures such as actual real-time metrics on gas-pump-to-store traffic). This data comparison allows you to identify high-performance stores and managers to determine what these managers are doing differently, then leverage that behavior across similarly situated stores.
Creating these new insights will drive:
- Optimized staffing levels/times to take advantage of “power hours.”
- Modification of store hours
- Change/optimize store layouts
- Address Performance variations between stores
- Segmentation strategy for personalized marketing resulting in
- More traffic from the pump to store
- Convert ATM only customers to larger baskets
- Optimize merchandise mix
- Greater engagement and frequency
- Higher sales per visit
Sound tantalizing? It must be complicated and expensive. Maybe not!
New data (such as customer location intelligence) delivers insight and actionability that moves the needle. Yes, investment is a need, but data, insight, and action flow fast to drive value quickly. This solution is scalable; it does not require a colossal enterprise size infrastructure to start.
We advocate starting small with a pilot program with a small number of well thought out target stores. If you are like other chains we have spoken with, you already have a transformational program. This approach and solution using patented technology is a good overlay that helps you make data-driven decisions and get real-time data insights as to how those changes are altering behavior and results.
RCG has a proven record in strategy and executing. Agile is in our DNA, and we combine this approach with our Data Science, Intelligent Innovation, Application Development/Integration, and Quality Engineering to Pilot; Plan; Implement; Scale; and Sustain Digitally Driven impact.