Predicting the speed of change in global convenience retailing

Retail this week, wk 3

When the owner of the global Circle K franchise made a failed takeover bid for Carrefour, our industry sat up and took notice. This was not the start to 2021 that most of us were expecting. Here we were, thinking that we would be talking about supply-chain shortages of hand sanitizer or about products not making their way back and forth between the UK and the European Union. Even worse, we thought we would be talking about the final mile challenges home delivery specialists are facing during lockdown. Silly us. 

It is important to reflect for a moment on the reasons behind our surprise - really dig in and reflect. Let’s be honest when we do so – some of these were downright retail nationalist snobbery. My message: Stop being a retail snob.

I’ve come up with my ‘best guess’ list as to why we were fundamentally surprised by one of the world’s largest convenience store chain’s attempted takeover of the world’s fastest retreating global hypermarket chain. Carrefour ended the previous decade with directly owned hypermarkets in close to 40 countries and ended it with less than 10. Canada’s Alimentation Couche-Tard (ACT), a retailer that’s not talked about frequently in A-brands’ boardrooms, started the decade with a presence in two countries and is now indirectly in over 25 countries. ACT taking over Carrefour, a retailer that gets more than its fair share of our head space, just felt strange, didn’t it? 

So here’s my list – feel free to add to it in the comments or send me your supplements:

1.      We thought Carrefour is worth more than it is

2.      We thought ACT is worth less than it is

3.      We thought Carrefour was performing more strongly than it is

4.      We thought ACT is performing less strongly than is

5.      We still want to believe that consumers love hypermarkets

6.      We still want to believe that convenience stores are just cigarette retailers located at oily roadside fuel pumps

7.      We didn’t really remember that Canadians speak French fluently, particularly those that have their headquarters in Quebec, the second-largest French speaking region in the world

8.      We thought Canada is a small country and France is a big country

9.      We thought that January is a bad time to do global M&A

10.  We thought that ‘nationalist’ sentiment would block the deal

It turns out that we were right on some of these topics and wrong on others. Importantly, Canada continues to grow much faster in total population and in economic performance than most people realize. That also means Canadian retailers are going to be more important in the future, should they wish to globalize. Sidenote apology to my Canadian friends about Tim Horton's. I know you thought the world was ready for that. Turns out not so much.

Weirdly, we were wrong on the business rational but right on the nationalist rational. On Saturday, France’s government officials announced they would reject the acquisition on the grounds of food security. This leaves the door open for ACT and Carrefour to create a buying alliance and engage in best-practice sharing. However, Carrefour’s been doing that with Tesco and it did not change the business realities for the group.

So what comes next, and how do we avoid surprise the next time a deal like this appears on the horizon?

Predicting the speed of change in global convenience retailing

We have a difficult job in front of us. We need to reset our understanding of what’s working in retail. The biggest retailers have spent the past five years finding creative ways to hide poor performance or divert investors into looking at other aspects of their businesses. 

We also continue to exhibit ‘retail snobbery’ by under investing in solid insights on the three physical channels of retail that are growing – and until 2020 – were growing in dollar terms at higher volumes than ecommerce. Those are convenience, grocery discount, and variety discount (sometimes called bargain stores or designer bargain stores). 

To compound the challenge, many companies, facing net zero headcount challenges, have over-reacted and pulled many of their resources out of physical retail analysis and poured huge investments into ecommerce analysis.

Let’s talk about what a retail reset would look like. Ask the question, what will be the speed of change – from 2021 to 2026 – in global convenience retailing? Then invest in getting insights to traffic light these changes for your organization.

To answer the speed of change question, we need to do some myth busting and fact-checking. Let me give you a sample.

Myth 1: The USA is the world’s largest convenience store market.

1 Busted: China is the world’s largest convenience store market (by traditional trade or unmeasured retail). Japan is the world’s largest convenience store market by modern trade. By 2026, India’s small informal convenience stores will dominate as China modernizes and India remains a hybrid traditional-modern trade market. Keep an eye on Indonesia, the Philippines, Pakistan, Nigeria, Brazil, and South Africa while you're imagining 2026.

Myth 2: The largest segment of convenience is fuel-station stores also called forecourts.

2 Busted: Proximity stores – a blend of supermarket, foodservice stop, and classic convenience store – is now the biggest segment of convenience and is growing faster than any other segment in retail due to channel blurring. Starbucks is adding groceries, Carrefour Express is adding fresh coffee, and food delivery agents like Rappi or Glovo are adding groceries and coffee. They all have several things in common – limited floor space, high levels of service and low levels of self service, and low capital investment meaning they can innovate at rapid rates.

Myth 3: Convenience has been devastated by Covid-19.

3 Busted: This myth is the hardest one to illustrate as being incomplete or incorrect. The reason for this is North America. North America is the only region of the world where official government statistics report fuel and non-fuel retail in the same roll-up. As a result, the retailers in these regions also report the blended numbers (total store sales of fuel and nonfuel). At fuel selling convenience stores this creates some difficulty in understanding performance in non-fuel since fuel can be the biggest segment of revenue by an overwhelming amount. However, when you dig in, you see that convenience has been performing extremely well. In the USA - according to the Census bureau – Beer, Wine, and Liquor stores have grown 17.9% year-on-year through eleven months of 2020 compared to 2019. If you isolate a 12-month performance for the Covid-19 period they are up 19.8%. Similarly, if you look at detailed reports from 7-Eleven, Circle K, and Speedway, the top 3 chains in the USA, you see that nonfuel sales are performing at extraordinary levels. 7-Eleven indicated that instore sales in the USA are soaring with sales of frozen up 13% and non-food essentials like paper products up 26%. In Canada, official statistics show convenience stores up 12% year-on-year just in the last month reported, October. That's the best performing physical channel selling food, just to make the point clear.

Myth 4: Convenience is not innovative.

4 Busted: This is the myth that is easiest to bust. Have you heard of Amazon Go? What about Alibaba’s Hema/Happy Hippo? How about Auchan Minute? Aldi Express? Leclerc Drive Pieton? Should I continue? Micro-retailing, the ability to connect 5g insights to instore retail, is the hottest innovation in our industry. If you don’t have a microretail team you should get one. If you don’t know what I’m talking about schedule a free session with me or one of Retail Cities’ experts.

Lessons learned

The surprise announcement of ACT to acquire Carrefour was probably the wake-up call our industry needed. Some important lessons come out and are worth repeating:

·        Stop being a retail snob – convenience and discount are changing retail and understanding them will require a fresh set of eyes

·        Start investing in global data that prioritizes growth channels and not legacy channels

·        Dig in to the numbers beyond the headline stats

·        Get ready for more “small country retailers” acquiring “big country retailers”

We now know the price that Carrefour’s investors will accept in a takeover. If a European Union-based retailer makes an attempt at acquiring Carrefour and the French government refuses, the political side of retail might grow more and more interesting. For the rest of the world, we can now see that the special relationship between France and Quebec does not extend into food retailing.

Wishing you success this week – later this week Retail Cities will publish our findings on British Festive Trading as well as some new insights on our recent store visits in Bangkok’s International airport coming from the work of our travel retail team. We have exciting webinars scheduled this month where we will talk about these findings in more detail so why not visit www.RetailCities.com and review our webinar calendar for 2021? 

With regards – Ray Gaul – [email protected]