Free Subscription

  • Access daily briefings and unlimited news articles


Only $34.95 per year
  • Quarterly magazine and digital
  • Indepth executive interviews
  • Unlimited news and insights
  • Expert opinion and analysis

Aus convenience industry remains strong

convenience storeThe Australian convenience industry is seen as one of strongest in the world. It grew at 4.5% in 2016 which outperformed supermarkets for the fifth consecutive year.

Currently, the convenience industry is valued at $8.3 billion (excluding petrol sales), according to the AACS State of the Industry Report 2016.

An additional $353 million in sales were generated over the course of the year. Value growth in the convenience channel outpaced that of pharmacy (4.4%), liquor (3.3%) and grocery (1.2%) in 2016, underlining the robustness of the convenience industry in Australia.

Australasian Association of Convenience Stores (AACS) CEO Jeff Rogut said the strong result is atestament to the focus on innovation from leading convenience operators.

“The short and long term outlook for the convenience industry in Australia is undeniably positive and the 2016 results underline the value proposition of convenience stores in the Australian retail landscape,” Rogut said.

“Ensuring a customer-first approach that optimises the performance of stand-out categories such as food, coffee and beverages will underpin a bright future for the convenience channel. Nevertheless, the continuing evolution of retail generally necessitates an unwavering focus from our retailers and suppliers to continue to evolve their offering to meet customers’ needs. The good news is that our operators are eager to embrace this challenge.

“And it’s clear for customers to see. Consumers who engage with convenience stores each day will have noticed the changes to the in-store environment that have taken place over the last five years.”

The AACS State of the Industry Report shows that food accounted for 44% of convenience stores sales in 2016, and 59% of value growth over the course of the year. Year-on-year dollar growth of food/Beverage (+6.1%) exceeded Non-food merchandise (+3.2%) for the second successive year, adding $209 million to the channel.

“A more progressive food offering represents the future for the convenience industry as Australians, particularly younger people, take a more flexible attitude to when and where they make food purchases,” Rogut said.

“Convenience stores are increasingly capitalising on important growth categories like On the Go food and fresh coffee, continuously elevating the quality, variety and freshness of the food offer. Some stores are even adopting a cafe aesthetic and ambience to drive further growth of non-fuel specific customer visits,” he said.

Highlighting the evolving offer, the $465 million On The Go food category in Australian convenience grew by 18.5% in 2016 – up from 13.0% in 2015 and from 3% in 2014. sandwiches further emerged as destination driving products in 2016, as the pre-packed offer slowly begins to resemble more developed markets overseas. Year-on-year dollar growth of sandwiches sold more than doubled (+28.2%), while units sold nearly tripled (+33.2%). It generated 42% of the category’s total growth.

Rogut said the recent recommendations from the Select Committee on Red Tape, which call for convenience stores to have the right to sell packaged alcohol, represent a key milestone in the AACS’s pursuit of a more level playing field in Australian retail.

“Convenience stores around the world are able to sell packaged alcohol and Australia is one of only a few countries where this is illegal. There’s no credible reason for this and the recent Select Committee recommendations have shined the spotlight on this inconsistency,” Rogut said.

“[They] are proven responsible retailers and we are willing to operate within an agreed framework in terms of trading hour restrictions, staff training and other compliance requirements. Our industry has a role to play in growing the packaged retail liquor market. The economic and employment opportunities associated with deregulation in this area would be significant, strengthening our industry, improving convenience for consumers and creating an improved environment for small businesses in their efforts to compete with the major grocery chains.”

Based on retailers contributing to the AACS State of the Industry Report, fuel sales volumes grew by 5.9% in 2016, up from 1.8% in 2015 and 3.5% in 2014. Fuel prices showed a -9.2% year-on-year drop, continuing the downward trajectory after a -12.5% reduction in 2015. Falling prices has been contributor to volume and in-store merchandise growth; the extra dollars saved at the pump may serve to boost revenues of discretionary purchases.

“Fuel is a category perhaps not seen as the most immediately suited to innovation, which actually makes it a clear target for new ideas and approaches,” Rogut said. “For instance, the 7-Eleven app launched last year, which allows customers to lock in a fuel price for up to seven days, reportedly saved motorists over $1 million on fuel purchases, while encouraging loyalty and driving additional in-store purchases.”

Australian convenience operators can take encouragement from the strong performance in the US convenience channel, with both industries reaping the rewards of a food service focus. AACS’s US counterpart, the National Association of Convenience Stores (NACS), shows in its State of the Industry Report that US convenience stores experienced record in-store sales of $233 billion in 2016, and the third straight year of $10 billion plus in pre-tax profits. The US performance speaks to the importance of getting food service right; in-store sales grew +3.2%, led by food service (+5.6%) and non-cigarette merchandise (+2.5%).

Tobacco grows as policy flaws are exposed. While the performance of the tobacco category remains robust against a backdrop of inhibitive legislation, growth has fallen for two consecutive years, down from 9.9% in 2014. Nevertheless, tobacco still contributes approximately 38% of a typical store’s sales. Price increases from excise tax were again the main dollar sales driver, despite shoppers continuing to trade down to cheaper value offers.

“Continued, albeit milder, growth in the value of tobacco sales again shines the spotlight on the ineffectiveness of policy around the sale of legal tobacco. Interestingly, while tobacco price board play an increasingly integral role, 85% of convenience shoppers still choose their preferred brand despite tax hikes and plain packaging legislation,” Rogut said.

“It is baffling that e-cigarettes – products shown globally to be highly effective in helping people quit smoking – should continue to be unable to be legally sold in Australia. While legal tobacco remains a key category for convenience stores, to be able to offer smokers a safer alternative makes considerable economic and health sense. Clearly, it’s time for Government to consider the unintended consequences of existing tobacco legislation.”

Regular excise increases on legal tobacco continues to fuel the market for illicit tobacco, with the most recent research from KPMG indicating that illicit tobacco accounts for approximately 13.9% of total national consumption of tobacco in Australia. If consumed legally this would have represented an excise value of $1.61 billion for the Australian Government.

You have 3 free articles.