As Kroger Sells Convenience Stores, Retailers Face a Shifting Market

Kroger’s announcement Monday that it had agreed to sell its convenience store business to U.K.-based EG Group is the latest shift in the convenience retail space – a fast-growing market segment that’s also at the forefront of changing consumer habits and formidable competition.

According to Marketwatch, Kroger will sell its convenience stores in 18 U.S. states to EG Group for $2.15 billion. The business – which operates stores under banners including Turkey Hill, Loaf ‘N Jug, Kwik Shop and Tom Thumb – generated $4 billion in revenue in 2016.

Kroger’s supermarket fuel centers aren’t included in the sale.

In a statement, EG Group founder and co-CEO Mohsin Issa said that EG Group’s entry into the U.S. market “presents a fantastic opportunity to deliver a successful retail offer to consumers across the various states.”

And it comes at a time when shoppers crave immediacy more than ever, and when retail is moving at a faster pace than previous years.

The Outlook for Convenience

Convenience retail is expected to remain one of the fastest-growing channels globally, with Planet Retail estimating that convenience would grow at 5.5 percent CAGR over the five years ending in 2020 – a faster rate than supermarkets, hypermarkets and superstores are expected to see.

And consumer behavior trends are shifting in ways that give convenience retailers an advantage. Across the global grocery segment, discount and convenience formats are outpacing other channels because people are busier than ever. Longer, full-basket trips to supermarkets are no longer the norm for many people. From working professionals to parents and families, and from hourly-wage workers to road warriors, many shoppers are more likely to make quick trips to neighborhood stores for what they need right now.

Those shifts in channel preference show in the statistics: In 2015, convenience captured 7.8 percent of the share of grocery and projections see that share rising to 13.3 percent by 2020.

Changing Channels & Fulfillment Options

Traditional grocers are working hard to deliver on customers’ desire for right-here, right-now fulfillment. New click & collect options allow customers to place orders and pick them up at stores without having to touch a cart or wait in line. Other grocers are exploring same-day home delivery.

Rapid fulfillment options and seamless shopping experiences enabled by technology will continue to change shoppers’ habits and expectations. Brick-and-mortar retailers now face the challenge of differentiating themselves on quality and availability. For convenience retailers, this means being the best choice at the right time – offering impulse buys that are also a good fit for shoppers’ lifestyles.

We know that today’s shoppers are focused not only on value, but on price. Their choices are driving broader assortment options in fresh foods and healthy prepared foods so that “eating on the go” doesn’t necessarily mean “cheating on my diet” or “doubling up on spin class” to make up for lunch.

Across the retail industry, expect to see these changing habits continuing to move share from large-box supermarkets to small-box convenience retailers, especially as more shopping journeys start at e-commerce entry points.

As shoppers make fewer big trips to supermarkets while still demanding fresh and healthy foods, convenience stores are well-positioned to meet those changing needs.

The Challenge for Retailers

But despite industry growth and changing shopping habits that favor convenience, there are still challenges ahead.

Small-format discount grocers, particularly European chains like Aldi and Lidl, could challenge not only established grocery retailers, but convenience retailers as well. Because they offer smaller stores designed for quicker trips, and because they can compete on price, discount grocers have the potential to poach some of those shopping trips.

The challenge for convenience retailers will be to continue to grow their fresh categories and increase the variety and quality of in-store prepared snacks and meals. And as more shoppers come to rely on their phones and tablets to find the items they need, quickly, convenience retailers will want to consider investing in digital channels and technologies that can help customers find the item they want at the store that’s closest to them.

And for traditional grocers, the challenge ahead is to continue providing faster service and the fulfillment options customers expect. With their larger product assortments and greater inventory, supermarkets and hypermarkets might be the retailer of choice if they can meet the growing demand for immediacy among today’s buying public.

Eager for more insights? Read our new JDA white paper on the future of retail and learn how technology can help you to evolve to meet changing customer needs.

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