Convenience is king! How evolving consumer habits are impacting the supply chain

Compared to even twenty years ago, today’s average consumer has an unparalleled amount of choice in front of them. Yes, the internet has played a major part in giving people what they want, when they want. However, the modern shopping landscape has changed in many more ways than this. As members of the Retail Think Tank have noted, ‘Brand loyalty to specific supermarkets is now a thing of the past, it doesn’t exist in the mind of the next generation of consumer’. Customers shop based on their own criteria, and if they aren’t satisfied, they’ll simply go somewhere else. In today’s world, they have the luxury of choice. Retailers, and the wholesalers that supply them, need to do two things if they want to stay competitive in this new environment. First, they need to consider the ways that today’s consumers shop, and what they expect. Second, they need to be able to implement the changes required and offer people exactly what they expect.

For some idea of the changes that have taken place in buyer habits, and how to successfully adapt to them, you just need to look at some of the major supermarket chains. For years, UK supermarkets were engaged in a straightforward attempt to expand as far as possible replacing independent stores by offering a huge range of products in one place. However, in recent years they have had to adapt to two big changes in buyer habits: cost expectations and convenience expectations.

The first of these changes can be seen in the rise of two main discount supermarket chains: Aldi and Lidl. These two companies have exploded in the UK in recent years, stealing a large share of the market from the major names that dominated for a long time. Their cost-cutting model has benefited from current economic uncertainty, and a demand for cheaper products. But there’s more to their strategy than simply low overheads and low prices.

KPMG’s Disruptive Influences paper points out that ‘While value discounters seek scale efficiencies in areas such as purchasing, supply chain and back office operations, the most successful have a clear understanding of the delineation between global and local perspectives. The reality is that many decisions need to be made close to the customer to ensure that businesses remain relevant to the needs of local consumers and minimize waste’. Aldi, Lidl and other discount retailers may have based their models on minimising costs, both for themselves and for their customers. But they also understand that they need to respond to consumer demand on an ongoing basis. Whether that means changing available products depending on location, adjusting stock replenishment, or tailoring promotions, decisions need to be made at a local level, answering the needs of actual customers. Efficiency and cost-cutting can only take you so far.

In terms of convenience expectations, today’s average customer is a long way from what was considered the norm for decades. The idea of carrying out a major shop on a single day of the week is a thing of the past for many people. At the same time, no one wants to navigate a large, crowded supermarket to pick up an evening’s meal. Today’s time-poor consumers are looking for maximum convenience, with a minimum detour from their daily routine. Hence the rise of convenience stores, with predicted growth of 16.6% in the next five years, from ￡41.4bn to ￡48.2bn - a total market share of 22.2% by 2024.

Everyone from Asda, to Waitrose has rolled out a range of convenience stores throughout the UK. By adapting to buying habits, they’ve managed to offer something that most discount stores still avoid: increased costs for the business, but a reliable customer base drawn by convenience and reliability. The dynamics of convenience stores are different to those of full-sized supermarkets. They need quicker replenishment, especially for perishable goods - something that can have a major effect on the distribution supply chain. They also tend to stay open longer hours. They focus on providing a smaller range of products than full-size stores, but also need to ensure that they offer enough variety to bring in business. And by their very nature, convenience stores tend to cater to a small, local demographic. According to the Association of Convenience Stores (ACS) 2019 report,

57% of people who shop at convenience stores arrive on foot, and 80% live less than a mile away from their nearest convenience store. That means that convenience stores could be responding to very different customer needs, depending on where they are located.

All these things require serious planning, and they don’t come for free. Convenience stores charge slightly higher prices because they need to operate much more efficiently. They can’t afford to stock products that won’t sell quickly, so they need to make the most out of their limited space. Key to this is a reliable supply chain, and a thorough understanding of it. Convenience stores operate on narrow margins, and lack storage and shelf space. The only way they can turn a profit is to quickly respond to changes. Tesco and Sainsbury have gone so far as to trial micro-stores of around 1000 square feet, that change their stock throughout the day - the ultimate in providing customers with exactly what they want, when they want.

So how can convenience stores maintain that crucial balance between offering a selection of products, with limited space, that can be relied on to sell? The answer is effective supply chains, and a thorough understanding of them. Reliable supply chain planning, using tools that can respond in real-time with detailed data, lets them ensure that they make the most effective use of their limited space. Only worthwhile products are put into the supply chain, and always at the right moment, when they are guaranteed to be purchased. Supply chain planning isn’t just a way of ensuring products end up on shelves. It’s also a way of analysing the behaviour of your customers, learning from consumer habits to create reliable models for accurate forecasts. In the short term, that means quickly responding to spikes in purchases, monitoring promotions, and any number of other key variables. But in the long term, it means providing business owners with a detailed profile of customer habits, monitoring supply chain efficiency, and ensuring your store functions as effectively as possible.

Convenience store supply chain dynamics need to be considered by any business looking to move into this sector. But they’re of equal importance to the wholesalers and distributors that supply them. A shift to the convenience model will only be taken up if business owners know they can rely on supply chains to adapt to their needs. As a distributor, it’s essential that you understand what sets convenience stores apart from the other businesses you supply to. You need a flexible approach that can quickly respond to demands. The high turnover and limited space in convenience stores sets them apart from other retailers, and often requires a rethink of your distribution supply chain. As the KPMG Disruptive Influences paper points out, ‘Getting your product in the right place, at the right time, requires businesses to explore new strategies to meet ever-increasing expectations. While ‘hub and spoke’ remains the dominant distribution model, other point-to-point strategies offering more flexibility are being deployed’. Supplying a convenience store requires fast responses that may not be provided by your current distribution model. If you can develop point-to-point strategies, you can provide your clients with the fast response times they need to function as convenience stores. Statistics show that convenience stores are on the rise. Wholesalers can stay a step ahead of the trend by developing a convenience-ready distribution supply chain, giving them the best chance to profit from this growing sector.

The rise of discounters and convenience stores show how supermarkets are adapting to changing consumer habits. But the lessons they have learnt are applicable to just about any business, and to the wholesalers that supply them. The bottom line is that consumer habits are changing. As the KPMG report states, ‘The discounters tapped into what the customer of today valued in their grocer, and now we are seeing the big four consolidate and diversify to catch-up with themselves.’ By responding to customer needs for value, the discounters stole enough of a market share from major supermarkets that they were forced to fulfill a different customer need - convenience.

In both cases, supply chain management was key to success. On the one hand, it made it possible to minimise overheads and offer heavily discounted products. On the other, it gave stores an agility and responsiveness that let them offer everything a customer needs, within the space of an average small business. In each case, and especially regarding convenience, wholesalers were able to adapt their distribution supply chains to meet new challenges. Both dynamics can offer huge rewards to businesses that implement them effectively. And both are testament to how today’s supply chain planning tools can let you define how your business operates, while ensuring you provide your customers and clients with exactly what they are looking for.