December 2015 • Convenience stores are outperforming in each of the countries covered by this report—the UK, France and EUROPEAN Germany. CONVENIENCE • But there are major differences in scale: in the UK, convenience stores are estimated to account for fully 27% of grocery retail in 2015, while in France they account for STORE just under 4% and in Germany, only 0.3%. • A common theme across these countries is the RETAILING encroachment of major grocery retailers such as Carrefour and Tesco into the convenience sector. • But these retailers risk cannibalizing sales from their larger stores, as there is less justification for shoppers to make a trip to the chains’ bigger shops. • In those countries where e-commerce, including e-grocery, is gaining share of retail, we see convenience continuing to outperform due to the two channels’ complementary natures. DEBORAH WEINSWIG Executive Director – Head of Global Retail & Technology Fung Business Intelligence Centre [email protected] US: 646.839.7017 HK: 852.6119.1779 CHN: 86.186.1420.3016 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 1 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved. December 2015 Table of Contents EXECUTIVE SUMMARY ......................................................................................... 3 MARKET SNAPSHOT ............................................................................................. 5 EUROPEAN TRENDS .............................................................................................. 7 UK ...................................................................................................................... 12 FRANCE .............................................................................................................. 18 GERMANY .......................................................................................................... 24 KEY TAKEAWAYS ................................................................................................ 29 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 2 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved. December 2015 EUROPEAN CONVENIENCE STORE RETAILING EXECUTIVE SUMMARY Convenience stores are outperforming in each of the countries covered by this report—the UK, France and Germany. In each, the sector is registering growth above that of total grocery and above rates of food-price inflation. In the UK and France, convenience is a bright spot in a negative-growth grocery sector, which has been pulled down by price wars and consequent deflation. In Germany, the grocery sector is more stable. While all three markets are seeing strong performance from convenience, there are major differences in scale. In the UK, convenience stores are forecast to account for fully 27% of grocery retail in 2015, while in France they will account for just under 4% and in Germany, only 0.3% (excluding 27% filling station stores in France and Germany). Germany’s tiny sector size is mostly a result of its grocery sector being dominated by competing small- store formats, such as discounters and small, neighborhood supermarkets that take the place of convenience stores. In the UK, convenience A common theme across these countries is the encroachment of major stores Are forecast to grocery retailers into the convenience sector. Big retailers, including Tesco account for fully 27% of and Carrefour, are looking for alternative growth channels in the face of grocery retail in 2015, potential saturation of mature channels such as superstores. Moreover, in while in FrAnce they will the UK especially, there has been a noticeable downturn in demand for out- account for just under 4% of-town, big-store shopping as consumers have begun to split their and in Germany, only 0.3% shopping between different types of stores and the Internet. But there are some risks for the big-name grocers that are pushing into convenience. The most pressing of these is that retailers risk cannibalizing sales from their own larger stores: as chains bring fresh foods, their own brands and big-name products to consumers’ doorsteps, there is less justification for shoppers to make a trip to the chains’ larger shops. Another risk is the higher operating costs and lost sales that convenience entails. Small-basket shops are more expensive for retailers to service, small stores generate just a fraction of their larger counterparts’ sales and impulse purchases of the types of nongrocery items stocked in superstores can be lost. DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 3 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved. December 2015 Nevertheless, in those countries where e-commerce, including e-grocery, is gaining share of retail, we see convenience continuing to outperform due to the two channels’ complementary natures. First, convenience stores, particularly those with the fresh-heavy formats major chains offer, are a natural complement to occasional, bulk online grocery shops. Second, as For the more forwArd- general merchandise categories such as electronics migrate to online, thinKing convenience shoppers have less reason to make trips to large, out-of-town superstores retailers, convenience laden with nongrocery ranges. Third, for the more forward-thinking stores Are the lAtest convenience retailers, notably Tesco in the UK, convenience stores are the locAtions to serve as latest locations to serve as collection points for online, nongrocery click- collection points for online, and-collect orders. In time, we could see small shops function as grocery click-and-collect points, too. nongrocery clicK-and- collect orders. A number of grocery chains are tapping the urban consumer market through their convenience stores. They are serving these consumers with more meal solutions, which, for some retailers, includes building in food- service propositions. Especially in central and transit locations, convenience stores function as food-to-go outlets that can compete with specialist food- service outlets. DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 4 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved. December 2015 MARKET SNAPSHOT The convenience store sector is outperforming: in the UK, in France and in Germany, the convenience sector outpaced both total grocery growth and inflation in food prices last year. In the UK and France, this was in the context of intense price competition creating a deflationary grocery market. Figure 1. Convenience Store Sales Growth vs. Total Grocery Sales Growth and Food-Price Inflation, 2014 The UK has by far the biggest convenience store sector of the three countries. *In France and Germany, growth is for convenience stores excluding stores at filling stations. Source: AssociAtion of Convenience Stores/IGD/Office for NAtionAl Statistics/Euromonitor InternAtionAl/StAtistisches BundesAmt/INSEE/EurostAt/FBIC GlobAl RetAil & Technology The UK has by far the biggest convenience store sector of the three countries. The sector has long been a complement to the bigger supermarkets in the UK and it has been boosted by more lax Sunday trading restrictions for small stores. In France, out-of-town hypermarkets have traditionally been the leading grocery format. Convenience stores offer a natural complement to occasional, big-store shops, yet the convenience sector has remained minor. With the blossoming of online grocery shopping in France, this could change—and we are seeing major grocery chains push into convenience and other smaller-store formats. German grocery retailing is focused on small-store shopping, often close to home: discounters and small supermarkets dominate, so there is no niche for convenience stores to carve. Consequently, the convenience sector is tiny in Germany. DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 5 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved. December 2015 Figure 2. Estimated Convenience Store Sales (Left Axis) and Convenience Store Sales as % of Total Grocery Sector Sales (Right Axis), 2015 Note: In FrAnce and GermAny, data are for convenience stores excluding stores At filling stAtions. Source: AssociAtion of Convenience Stores/IGD/Office for NAtionAl Statistics/Euromonitor InternAtionAl/StAtistisches BundesAmt/INSEE/EurostAt/FBIC GlobAl RetAil & Technology SPAR, which is a Continent-wide player, remains Europe’s largest convenience store retailer, according to Euromonitor International. SPAR operates in most European countries, including the UK, France and Germany. In 2014, Tesco and Carrefour advanced as the second- and third- largest European convenience store retailers, respectively. Figure 3. Europe’s Biggest Convenience Store Retailers: Net Revenues (Excluding Sales Tax), 2014 and 2013 Source: Euromonitor InternAtionAl DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY 6 [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved. December 2015 EUROPEAN TRENDS Convenience store shopping is Different