How The Pace Of Modern Australian Life Is Reinvigorating The Humble Convenience Store

A growing number of time-poor, city-dwelling Australians is driving a new golden age for the humble corner store.

Urban consolidation is seeing convenience stores spring up across Australia’s inner city areas – in apartment buildings and near public transport hubs, hotels and tourist attractions – with many stores being family-owned or run by private franchises.

These stores can secure enviable locations in high-density precincts, such as central business districts, where there is limited space available for large supermarkets, which have reigned supreme in the Australian consciousness for years amid the intense rivalry between Woolworths and Coles, which has driven down prices and improved the overall product.

Niche Marketing and Improved Distribution

But a key problem with big supermarkets remains: they are often hard to get to and can be time-consuming. In this environment, and with a 50-hour working week being not uncommon in Australia, convenience stores are also selling something else important: time.

The offering of convenience stores has dramatically expanded. Many of them, especially in heavily-populated areas, such as the CBD, are open 24 hours and provide Wi-Fi, ATMs, hot food, hardware, electronics and even sometimes DVD rental.

Industry outlook reports by IBISWorld on General Line Grocery Wholesaling and Convenience Stores outline growth in convenience stores not owned by supermarket giants Coles or Woolworths, will help to stimulate industry demand over the next five years.

The report reveals many distributors currently supplying major retailers are likely to switch their focus to local outlets. Basically this means that the great mix of stuff that you’ll find at a supermarket is increasingly likely to be available at your local corner store.

“The major supermarket chains are beginning to approach the peak of their dominance and are unlikely to continue to gain further significant market share, at least not without resistance from the Australian Competition and Consumer Commission and industry bodies that support independent retailers.

“In response, many wholesalers servicing food retailers are expected to shift their focus away from the shrinking supermarkets and grocery stores market in favour of convenience stores.”

Leon van Rensburg, managing director at IGA Lilyfield in Sydney, which opened its doors this month, told Business Insider that while he’s definitely in competition with the bigger chains – employing price-matching initiatives on key products – there are areas where the large supermarkets just can’t compete.

“What I realised while working for Woolworths as a regional manager was that distribution struggles to cope,” van Rensburg said.

“It’s too difficult, on a national basis, to cater specifically to the different demographics that exist within Australia’s diversifying communities.”

Van Rensburg says that despite the extra work required, his store benefits from having the ability to put together a niche market service range, concentrating on the needs of the people that shop in his area, instead of taking the “cookie cutter” approach.

“I cater to a variety of individuals and families in Lilyfield, especially small households… with this type of store I’m able to regularly touch base with customers, receiving invaluable feedback from the community on what they want, what’s missing and more,” he said.

While the trading environment for convenience stores is expected to encounter some turbulence over the coming years, IBISWorld reports suggest there will be growth opportunities.

Drivers of Growth

Further collaboration between retailers and suppliers, innovation through store and consumer offers and brand differentiation will be key drivers of growth. Tech developments, such as smartphone applications to boost sales, the implementation of self-checkouts with PayWave and new rewards systems are just some of the industry’s latest advancements.

Expanding the range of fresh and healthy food items on offer and providing family-essential products in bulk quantities could also help.

The IBISWorld industry performance report on Convenience Stores says the Lucky 7 network – which has the most stores of any group – has benefited from group marketing support. The rapid growth in Lucky 7 demonstrates the advantages convenience store owners can derive from being part of a common brand.

While IBISWorld considers the larger chains as secondary players in the convenience store market, their effect on the industry and its performance is significant. The two larger convenience store groups Metacash (who run the Lucky 7 network) and 7-Eleven Stores only account for 11.9% and 5.1% of the market share, respectively.

Major supermarket chains Woolworths and Wesfarmers (who own Coles and Coles Express), along with petrol giants Caltex and BP make up the other 83% of the market.

According to IBISWorld, operators in the convenience stores industry primarily sell convenience goods as opposed to fuel. As a result, businesses that operate primarily as service stations with add-on convenience store operations are excluded from industry analysis.

The Australasian Association of Convenience Stores (AACS) represents some of the bigger brands like 7 Eleven and Starmart.

Evolving Consumer Habits

AACS executive director Jeff Rogut spoke to Business Insider about the ever-changing shopping habits of consumers and the evolution of the convenience store in Australia and across the globe.

“The environment for convenience globally and in Australia is positive right now,” Rogut said.

“People are far more time-pressured and less likely to do the big weekly shop. At a conference I attended recently, it was revealed that Australian shopping habits are trending towards smaller purchases, more often.”

Rogut said that shopping in a supermarket is one of the worst experiences people can have.

“The actual experience is not great. The last point of contact at a supermarket is probably the worst in terms of getting past the checkout and parting with your money – there’s always a bottleneck,” he said.

“Self-checkouts are assisting with this problem but the largest lines now tend to be the express lanes. It’s clear people want to get in and out as quickly as they can.”

While Rogut admits the traditional convenience industry is unlikely to replace the supermarket any time soon, stores like Aldi – which the AACS does not represent – are adding value, with low prices in small spaces – not the cavernous spaces at a regular supermarket.

Rogut said one of the key things that convenience stores do is “sell people time… those looking for a quick top up.”

The industry is moving towards more enhanced food service, however, Rogut said the category was still hampered by the inability to sell beer and wine like many international operators.

“Despite bringing this to the government’s attention on many occasions, we see ourselves being denied the opportunity to compete in that category,” he said.

While convenience stores are constantly adapting to the ever-changing needs of consumers, marketing their services to niche city areas and suburban pockets and grouping together to compete against major players, there is still a long way to go before the majority of Australians will be skipping the line at the supermarket and grabbing their groceries on-the-go.

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.