(COVID-19): Impact on Global Convenience Trends

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Post-coronavirus (COVID-19): impact on global convenience trends

May 2020

At the start of 2020, we highlighted five global trends we believed would shape the development of convenience stores globally in the short term. While our trends remain relevant, the retail landscape has, with Coronavirus (COVID- 19), undergone major changes. The pandemic has impacted consumer behaviour and the strategies of suppliers and retailers. Our own data for the UK, US and China presents a mixed picture for growth through 2020 as a result of COVID-19. Therefore convenience operators have implemented measures to ensure shoppers can safely access food and consumer goods to ensure the channel remains relevant. This report highlights how COVID-19 has evolved or accelerated our global convenience trends, using case studies for inspiration and providing insight on how you can respond.

1 Executive Summary

2 Convenience channel forecasts

3 Five global convenience trends

4 Areas to watch: North America, Europe and Asia

5 Key short to medium term implications

Redefining Tech enabling Going beyond c- Stronger health Better minimart product range convenience store retailing focus and local stores

• Convenient • Automated • New innovative • Fresh-focused • Urban local stores shopper-led payment solutions tailored formats store concepts merchandising • Community- • “Just walk-out” • Targeting new • Expanding health focused initiatives • Stronger frozen, technology and missions and and wellness prepared dishes • Serving wider frictionless stores offering new ranges and food for later community needs solutions • Delivering on- • Responding to new • Non-food demand and the • Modular health trends categories last mile convenience stores emerging

Acceleration Adaptation Adaptation Adaptation Acceleration • Increased • Practical formats • Greater focus on • Changes to • A preference to adoption of tech over experiential core ranges packaging, support and shop to enable in the short to especially fresh at local stores contact-free medium term • Rise in meal and bakery, and • Stronger support shopping solutions and • Reallocating frozen products how these are to the community • More operators space in-store, served. • Urban stores partnering but some • Snacking • Temporary pivot most adversely delivery temporary store opportunities in towards health- impacted by providers closures the home related services lockdown in many markets

2020 convenience shares: values in local currency

21.6% 21.6% 21.7% 21.7%

16.0% 15.4% 15.3% 15.1%

10.3% 9.6% 9.4% 9.3%

-4.8bn -4.6bn -3.9bn -84.4bn -106.9bn -123.8bn +1.5bn +1.8bn +2.1bn

USA China UK pre-COVID-19 Low Medium High

This forecast builds on IGD’s pre-COVID market and channel estimates and provides a point-in-time view on the potential shifts in context of three scenarios for the US, China and the UK. More data and insight on other grocery channels can be found here.

Convenience appears in different forms around the world. In USA, a large proportion of convenience stores are at gas stations, which has seen a significant decline in footfall, driven by the lack of travel. In China, convenience chains are seeing bigger basket sizes, but this has been offset by some temporary store closures and shoppers’ preference to shop online. In the UK, more trips and larger top ups, along with new main shop missions will drive growth.

Just in these 3 markets you can see the mixed picture for the future of convenience, post COVID-19. Hence the need to respond.

Technology enabling convenience

Going beyond c-store retailing

Redefining product range

Stronger health focus

Better minimart and local stores

© IGD 2020 Source: IGD Research Page 6 Technology enabling convenience Partnering with service providers Shopper use of apps soaring On-demand restaurant delivery Convenience store ordering platform, Snappy Shopper revealed that stores Speed and efficiency of service has company, DoorDash, is evolving its selling through its app increased by a always been particularly important in the business model to offer delivery from factor of five. The number of convenience channel. convenience stores, e.g. 7-Eleven, Wawa, Casey’s General Store, and customers using the app increased Following the outbreak of COVID-19, the Circle K. by 360% and the value of sales need to make shopping frictionless has through it jumped by 520%. become even more important. We have seen retailers use technology and digital commerce to encourage contact-free and cashless shopping and contactless delivery. To reach shoppers unable to physically visit stores, we have seen many retailers partner with service and on-demand fulfilment platforms to deliver their goods. Strengthening fulfilment capability Contact-free shopping With many consumers staying at Loyalty marketing platform, Liquid home and using online shopping, Barcodes, launched a “pre-order and Columbia’s market leader, D1 has pre-pay” technology solution. It partnered with two third party last enables shoppers to order products mile delivery services Mi Aguila and from their smartphone or computer, Picap, to offer home delivery. choose a (partner) store location and pickup time, and pay for the order.

Combined store formats Improving accessibility JD opened its first JD Convenience FamilyMart introduced two new Store with an in-store bakery in We expect the development of experiential models to improve accessibility. Beijing. Products like doughnuts and convenience formats to slow down FamilyMart Corner is a colourful food bread are baked onsite. The aim is to because of COVID-19. and drinks container mart while offer combined store formats to meet automatic vending machines installed However, retailers will remain committed the diversified needs of shoppers in outside selected stores offer to delivering products and services that the ‘new normal’. convenience to consumers on the go. extend into areas beyond conventional shopping missions associated with convenience. Retailers are reallocating space and adjusting how they trade. Practical stores that can be rolled out quickly, targeting specific missions have also arisen, while so have formats and initiatives that keep both staff and shoppers safe. Elements like leisure, restaurants, seating, Alternative dine-in options Pop-up stores dining areas have been removed / 7-Eleven’s Night Market On-Line Tesco opened pop-up stores at NHS temporarily stopped. allows consumers to stay at home and Nightingale sites across the UK to give conveniently order Taiwanese snacks healthcare workers easy access to and meals. The retailer is promoting food and essential household items. the service on social media and using The first store opened at the ExCel ‘online big sale(s)’ to engage new Centre in London. customers.

Foodservice partnerships Dine at home experiences Alfamart partnered with famous Fresh the Good Food Market COVID-19 has reshaped, although Filipino fast food chain Jollibee to partnered with two Dublin probably only temporarily, what products offer marinated frozen chicken cut- restaurants to bring customers a are available in convenience stores ups, enabling shoppers to recreate cook at home dining experience. The globally. the Jollibee experience at home. two BBQ meal kit boxes were prepared by ASADOR and PRADO. ‘Top up’ missions have increased, plus there are more regular shopping trips. While daily visits to convenience stores for ready-to-eat and beverages in many markets in Asia, for example, have shifted towards products that can be consumed in the home. Retailers have also partnered with foodservice brands to bring dining out experiences inside the home. Focusing on core essentials Limiting items per shopper Lawson is expanding its readymade Around the world convenience side dishes for evening meals. It is retailers introduced limits to the strengthening its range of long-life number of products shoppers can buy staple goods, geared towards the trend to maintain supply. These limits are of remaining at home for long periods, on staple items, or across the entire e.g. frozen foods, instant noodles, range depending on the retailer. retort packaged food and tins.

Precautionary measures for fresh Health-related products 7-Eleven implemented measures for 7-Eleven worked with startup Historically, shoppers have often its fresh food offer. All self-serve fresh NGOHub to provide supplies to the prioritised convenience and time food items are now clerk-served, fresh elderly, e.g. supplements and hand optimisation at the expense of health or bakes goods are sold pre-packaged, sanitisers. It also partnered Lucence price in convenience retailing. and fresh condiment bars are replaced to donate 2,000 saliva collection test with pre-packaged condiments. kits to the Health Ministry. This notion, however, has been gradually changing in recent years, with better fresh food and lifestyle products emerging. COVID-19 has increased demand for health-related products and services that support the general public. However, these are likely to subside in the longer term. Products that can restore the feeling of normalcy will become more important. Social distancing in-store Investing in health and safety Many retailers have introduced Co-op invested £3m on thousands practical social distancing measures to of protective Perspex screens at help prevent the spread of COVID-19. checkouts in its 2,600 stores, along Initiatives include stringent cleaning with providing more gloves and measures, introducing floor markers to hand sanitiser for colleagues. guide shoppers, and increased hygiene around food and beverages.

© IGD 2020 Source: IGD Research Image sources: 7-Eleven, Lawson Page 10 Better minimart and local stores Supporting the most vulnerable Working with not-for-profit Franprix launched a dedicated phone organisations Convenience operators around the world line for elderly customers in France. It 7-Eleven donated 70,000 food meals have launched initiatives to support enables them to order a food basket to families through its ‘one heart communities during the COVID-19 and get it delivered for free. Three support’ campaign. The public can pandemic. types of basket are available; donate one rice voucher at a price of standard, organic, and premium. HKD15 (US$2) and select the A preference for consumers to support organisation to donate. and shop at local stores is expected to last, with the connection between communities and neighbourhood convenience stores strengthened. Furthermore, with restrictions being introduced into many stores (opening hours and access), more people are choosing to shop at local convenience stores for a quicker and easier in-store experience. Supporting families Using local stores to distribute high demand products Co-op provided lunch for 6,500 students who normally receive 7-Eleven, FamilyMart, Hi-Life and OK government-funded free school meals mart, used their stores as pick-up at its 25 Academies. This will be in the points for the government’s online form of a gift voucher for every week of mask-rationing system. unplanned school closures.

What to keep an eye on Where? • 7-Eleven (Texas) • Several tests are underway of cashier-less solutions, mainly in • QuikTrip “On-Lot Pickup” Technology response to the continued roll-out of Amazon Go service • Enhancing convenience status • Liquid Barcodes “pre-order and pre-pay” solution • Delivery has become a major focus for the industry with several • Sheetz and Grubhub retailers extending their partnerships with third-party, on-demand • DoorDash partnering 7- companies Eleven, Wawa, Casey’s Partnerships • New ways to meet shopper needs are being developed through General Store, Circle K partnerships. With around 90% of convenience stores at gas stations in • 7-Eleven and delivery North America, traffic to convenience stores following Coronavirus partnerships outbreak has been down significantly, driven by the lack of travel

• Circle K is expanding its • Retailers continue to pivot to a fresh-focused foodservice model, food at scale pilot, aiming to offering a wider variety of products be at 1,500 stores by 2021 • Electric vehicle charging points at stores to respond to fuel disruption • 7-Eleven Evolution pilot Format now and in the future. This can help attract shoppers that might not • Alltown Fresh development necessarily have a reason to visit. With customers waiting for vehicles • QuickChek ‘Fresh to Go’ to charge, retailers will make changes to store layout and product offer format • Development of food-only (no fuel) store formats to meet the needs of • Kum & Go the neighbourhood (e.g. Kum & Go and Casey’s in West Des Moines) • OnCue

What to keep an eye on Where?

• The development of faster payment solutions, e.g. scan and go or Albert Heijn, M&S, Monoprix, Technology checkout-free stores, will accelerate Sainsbury, SPAR (CH), • Ecommerce and digital solutions for independent stores may grow Tesco, Vkusvill, Zabka • Partnerships with local businesses, restaurant chains and even other Albert Heijn, BP Poland with Partnerships retailers (mainly non-grocery) are areas retailers will investigate to UberEats, Franprix, Jumbo maintain profit margins and attract shoppers to store • Savvier shopping behaviour could create a challenge for convenience Most convenience store stores, pricing is expected to be reviewed operators in Europe will need Ranging and • Convenience stores’ focus on food-to-go and food-for-later solutions will to review their ranging, pricing be reviewed due to coronavirus, with new solutions being needed in the especially from a profit point medium term given need to limit products’ exposure to shoppers of view. • Some stores were switched to act as fulfilment centres for online orders during specific hours, this could be here to stay to support wider Format Albert Heijn, Franprix, ecommerce demands development Monop, PLUS • Evolution of stores to prepackaged meal solutions could support longer term trend towards the development of ‘grocerant’ style stores • Our latest ShopperVista insight reveals that we are seeing more top-up Changing and main shop missions in Great Britain from convenience stores shopper Carrefour, Coop Italia • Recent results from retailers across Europe suggests a greater use of profile convenience and proximity stores by a wider range of shoppers

What to keep an eye on Where? • 7-Eleven • A key region for inspiration on how to implement useful technology • FamilyMart • Contact-free shopping, e.g. unstaffed stores, solutions to open • Lawson refrigerator doors and general navigation Technology • GS25 • Increased investment in self-checkouts and cashless payment • CU is allowing customers • Increased development of retailer mobile applications and accelerated pay using the Paycoin user adoption cryptocurrency

• Convenience operators • Growing number of new partnerships with on-demand fulfillment partnering, e.g. GrabFood, platforms and foodservice providers, while existing ones will be foodpanda, Uber Eats, Partnerships strengthened / rolled out further JDDJ, Meituan, Ele.me, • More retailers using their stores as ecommerce pick up locations or even Yogiyo fulfilling orders for some websites • Dairy Queen at Tesco Express in Thailand

• Rise in meal solutions and frozen products that drive in-home • All convenience operators, Ranging and consumption especially Japanese pricing • Sales promotions to boost ready-to-eat private label products convenience chains

• Central Food Retail Format • Practical stores that can be rolled out quickly, targeting specific missions • 7-Eleven development • Expansion of minimarts and local stores that can serve communities • Alfamart

© IGD 2020 Source: IGD Research Page 14 Key short to COVID-19 has accelerated shoppers’ familiarity with 1 technology. Suppliers need to consider new paths to purchase medium term and be flexible to meeting changes in demand. implications Long-life items are currently prioritised over fresh and food-to- go, but there will be a shift back towards these categories, supported by innovation. Ready-to-eat food need to be adapted 2 and made available for delivery and takeout. While packaging is also a growing consideration for consumer purchasing decisions, e.g. prolong storage and hygiene concerns.

Some shopping habits may last, e.g. purchasing frozen and 3 meal solutions from convenience stores, increasing average basket size.

Create experiences inside the home. The close proximity of 4 convenience stores may offer snacking opportunities within the home.

© IGD 2020 Source: IGD Research, short to medium term implications for up to 12 months Key short to Invest in initiatives that keep both staff and customers safe. In Japan, the leading convenience chains have implemented a medium term 5 series of precautionary measures, including protective shields at checkouts, temporarily closing toilets and ventilating stores implications by regularly leaving the store door open.

There will be new learned capability in delivering health services, but only some will take up longer term, e.g. 6 businesses operating in markets, e.g. older population or greater familiarity with health in convenience like in Japan.

Accessibility has always been important in convenience retailing. Stores located in urban areas, transport hubs and 7 office buildings face a major challenge due to a reduction in footfall. While this will slowly recover, there may be a reduction in the supply and diversion to where demand is high.

New loyalties and a greater appreciation of local stores is 8 creating new marketing opportunities in convenience, e.g. hyperlocal campaigns via social media.

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