Premium focus driving forecourt growth
choice of outlet for premium food and drink products, but growing
consumer demand for healthy, tasty and above all convenient
products – not to mention increased competition from traditional
food retailers - has prompted fuel retailers to swap road maps,
engine oil and travel sweets for ready meals, adult soft drinks and
even alcohol over the last few years, writes Chris Jones.
Petrol station forecourt stores have traditionally catered for consumers on the move, offering snacks, sandwiches and sweets alongside a range of travel-related non-food merchandise. But with planning restrictions hampering the development of supermarkets and hypermarkets in many European countries, food retailers have begun to take a closer interest in the convenience store sector in recent years, including the possibilities on the forecourt.
A recent report from market analysts Datamonitor shows that 30 per cent of Europeans visiting a forecourt convenience store now purchase food and drinks without buying petrol, reflecting the massive changes which have taken place in this market over the last few years. In short, the c-store is becoming more important than the petrol in many cases, and there are significant profits to be made by offering the right mix of products in the right surroundings.
Christina See, Datamonitor fuel analyst and author of the Opportunities in Offering Premium Food and Drink on the Forecourt report, told FoodandDrinkEurope.com that the number of forecourt convenience store outlets had grown by 77 per cent over the last two years as supermarket groups moved into the sector, but stressed that the growth was not coming entirely from the new market entrants.
“Faced with declining margins in the fuel sector, the big oil groups have been looking for a means of increasing their profits for some time, and they have been developing their own convenience store operations alongside those of the supermarket groups,” See said. “The arrival of the supermarkets in this sector in 2000 raised the stakes, but they have by no means taken over the market.”
In fact, fuel retailers have an advantage over the supermarket groups in one major respect, she said.
“A Tesco convenience store on a petrol station forecourt is obliged to sell a much broader range of products than an outlet run by a fuel retailer, because Tesco shoppers expect to find a certain type of product in its stores – food and non-food, branded and own-label alike. Fuel retailers do not have to cope with the same pre-conceived image and can choose what to stock much more freely.
“As a result, around 80 per cent of the products on sale in fuel retailer-owned outlets are premium products, compared to just 20 per cent for food retail branded sites,” said See.
“Fuel retailers – or at least the ones like BP Connect who are doing it well – have decided not to try and compete head on with the supermarket operators, but have generally opted instead for their own unique look. And it is working: there were 88 BP Connect forecourt c-stores in the UK in mid-2003; by the end of 2004, there will be more than 150.”
This focus on premium, high-margin products clearly has its advantages, but even staple products such as coffee and bread can help boost margin growth, if presented in the right fashion and given a premium gloss.
“Bread and coffee are by far the best-selling products in forecourt c-stores, and some companies have been particularly good at promoting sales of these products. BP, for example, has introduced a coffee bar into its c-stores, and is also starting to sell bread and other products which are baked on the premises.”
The share of sales from bread and coffee is likely to reach 10-15 per cent by 2007, See added.
Europe growing at different pace
The UK forecourt convenience retailing market is the most developed in Europe, and has benefited from the growing interest of the major multiples in the convenience sector as a whole.
Convenience stores accounted for 19.8 per cent of total grocery sales in 2002, according to Datamonitor, putting sales at some £29.1 billion. Forecourt c-stores usually achieve sales in excess of general convenience stores, with a marked price differential (forecourt process can be up to 8 per cent higher than regular convenience outlets) and the tighter focus on premium products the main driver of this growth.
But in other countries the forecourt c-store format is still in its infancy, while in yet others it is all but non-existent.
In France, for example, the biggest threat to the fuel retailers is not convenience stores but hypermarkets, most of which have 24-hour petrol stations offering fuel at a fraction of the cost. These petrol stations rarely have any kind of outlet at all, and are either unmanned or run by a single operator who simply accepts payment.
Fuel retailers in France, therefore, need to either undercut the major hypermarket groups or offer a convenience shopping experience which is truly different – neither of which is practical, according to See.
“The oil groups cannot sell their fuel for less than the major multiples as they are already having to cope with minimal margins, but very few are willing to take the risk of developing c-store outlets on their forecourts in a market where this kind of outlet is rare. In the UK, consumers are happy to buy coffee and bread at a petrol station – this is extremely unlikely to be the case in France, where culinary traditions are more deep-seated.”
But with groups such as Carrefour stressing the growing importance of the convenience store sector for their French business, there could be some ray of light. “If Carrefour and the other food retail groups decide to added petrol station c-stores to their convenience portfolio, it will be good for the sector as a whole,” said See.
In the Benelux, the vast majority of petrol stations are unmanned, primarily because of the transitory nature of the traffic – many road users are passing through Belgium and the Netherlands en route for the rest of Europe – while the German market is also much less developed, mainly because of restrictions on store opening hours – petrol station outlets tend to have fewer ‘after hours’ competitors, meaning that they do not need to be as sophisticated as their counterparts in the UK.
One of the least developed forecourt c-store markets is Sweden, but a recent partnership between petrol station operator Statoil and food retailer ICA is likely to change all that, rolling out a network of jointly operated forecourt stores across the country.
And this partnership route is seen as the best way forward for forecourt c-store operations, according to See. “Partnerships work best, but there are certainly some which work better than others. Tesco’s link up with Esso has been particularly successful in the UK, but Safeway’s BP venture and Sainsbury’s Shell partnership have been less so.
“In fact, they can give added sales to the fuel retailers. Exxon runs its own c-store format called On the Run, but these tend to be in more remote locations – by the side of busy roads. But the Tesco Express venture allows Exxon/Esso to add value to its petrol stations in more urban areas, with the minimum of fuss. The c-stores are pre-fabricated off site, and once put in place can be stocked and ready to do business in a matter of days, with almost no disruption of business.”
With the c-store market underdeveloped in most of western Europe, there is still significant growth potential there. According to Datamonitor, c-stores accounted for only 12.7 per cent of total food and drink sales in Europe in 2002, but this is set to grow to 13.5 per cent by 2007, and while forecourt stores still stock more non-food products, this is also expected to change.
“Non-food and drink sales still account for a large share of forecourt shop sales,” said See. “Over time, however, the food and drink share is expected to rise, extending to 58 per cent by 2007 as retailers offer a wider range of premium on-the-go, on-the-move and top-up shopping food and drink.”
And with the expansion of the EU later this year, there are huge opportunities further east, not least because of the rapid development of the supermarket groups there. Tesco, for example, is already a major player in many parts of central and eastern Europe, and while it is currently rolling out petrol stations adjacent to its hypermarkets there, the stand-alone c-store format cannot be ruled out in the longer term, especially as incomes rise and consumption patterns become more westernised.
For details of how to order your copy of the Datamonitor report Opportunities in Offering Premium Food and Drink on the Forecourt click here.
