Convenience outstrips general expenditure but model will be challenged

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Walton: assumptions will be challenged

Walton: assumptions will be challenged

Food businesses have lots of bullets to dodge in the current economic environment but convenience stores are still performing remarkably well.

That was the key message delivered by the IGD’s chief economist James Walton at the IGD’s Convenience Retailing 2011 event.

“It’s a gloomy picture but UK convenience is doing surprisingly well and outstrips consumer expenditure in general. It’s a proven and robust concept – no wonder other people are pouring money in.”

Walton referenced one new entrant, M-local, described by Morrisons’ ceo, Dalton Philips, at the IGD’s 2011 Convention as “the best convenience concept in the world”.

New entrants have to be special otherwise there’s no point entering, said Walton.

Walton presented three key challenges facing food businesses today.

“Uncertainty is the biggest thing,” he said. It’s impossible to plan for the long term.” 

Walton said companies need to be agile and speedy with decision making. However, he admitted it is harder for a small independent business to be flexible and advised they relied on wholesalers for support.

Access to credit, or lack of it, could be enough to smash a convenience business, said Walton. “Lack of investment now could compromise competitiveness later on,” he added. Walton said one reason why cash & carries have done well over the last couple of years is because they have enabled retailers to make small cash purchases and keep the wolf from the door.

Low growth is also an issue, he said, and left very little margin between expansion and contraction.

Walton said shoppers’ confidence was at a record low and reported the IGD’s latest ShopperTrack research:

  • 52% of people expect to be worse off in 2012
  • 33% expect to stay the same
  • 10% expect to be better off

Wealth, in real terms, is at a standstill, said Walton; and he warned retailers may find they have stores in locations, which have worked for years but may not in the future. 

“Convenience is an exciting growth opportunity but the assumptions you have built the model on will be challenged,” he said. 

Walton advised delegates to “expect more austerity” with a looming ageing population and more cuts and tax hikes on the horizon.

Walton said Wales, Northern Ireland and the north of England would be most vulnerable to cuts in government spending and young people would also be disproportionately affected, with those least educated hit hardest. 

“The true impact of austerity differences that already exist will become more pronounced,” he said. 

Community involvement will be critical for convenience businesses and the social impact of what businesses do will matter more, said Walton.

Walton said the sector could anticipate more regulation if, for example, government did not see improvements in health outcomes from its Health Responsibility Deal.

However, c-stores are uniquely vulnerable because half of their sales come from tobacco, BWS, soft drinks and snacks, said Walton.

“The proportion is declining but not all operators are equally advanced,” he said.

Moving into 2012, Walton said austerity will impact communications. There will be a big shift to data-led convenience and access to data would be an advantage in future, he said. Businesses also must be explicitly friendly, Walton advised.