Channel blurring. What is it, how does it impact P&C and what can, or should, you do about it? ShopAbility takes a helicopter view of channels and categories, for Convenience World Magazine.
Back in June/July we looked at the role of general merchandise in the convenience channel within the broader context of shopper trip types and occasions, and a month or so ago we looked at the role of alcohol in convenience stores.
Here we’re going to build on those to discuss what trips and occasions, and thus categories, the convenience channel can be known for versus where it will always compete with other channels based on blurred category ranging and shopper perceptions.
CHANNEL BLUR IS NOT NEW, AND NOT ONLY A P&C ISSUE
Channel blur is not new. A cursory Google search yielded a number of articles as far back as 2002 on the topic. And it’s not an issue specific to the petrol/convenience channels.), Some American examples include:
- Walmart is one of the US’ biggest pharmacists
- Target (mass merchant) in the USA has food offer and pharmacy
- Walgreens, CVS and RiteAid drugstore chains ranging non-food centre store grocery categories and more recently grocery food categories, as well as photos, passports etc. Basically drugstore chains are now where you go when you don’t know where else to get it, particularly for services
- Dollar stores competing as value mass merchants, with crossover into grocery
- Costco – both food and general merchandise, as is Aldi
- Costco moving into fuel (at existing Costco sites, not separate convenience channel formats) as well as cars and motor insurance
- Walmart’s different formats ranging from small footprint neighbourhood formats (to compete with neighbourhood fresh food markets) through to superstores ranging general merchandise and hunting gear that compete with Target, Kmart, Outdoor World and Cabelas among others.
An article from 6 years ago in Drugstore News Retailing Today (“Channel Blurring becomes identity crisis”, 7 February 2005), suggests that channel blurring ultimately means harking back to the era of the ‘general store’.
And locally in Australia, here are just some examples:
- Pharmacy loss leading in tertiary/non-core products such as washing powder to compete for grocery traffic
- Coles new limited mass merchant offer (Berwick, Vic store) and apparel offers (eg Epping, NSW)
- Coles Local (Ashburton) … sort of like a Tesco Express (as I understand it)
- Liquor in grocery in Vic and soon Aldi for selected beers
- On the Run convenience formats that include bakeries such as Brumbys and cafes (South Australia).
Actually, until fairly recently Australia had ‘got away with’ fairly distinct channels – particularly pharmacy and liquor – for quite some time but the past decade has started to see this chipped away.
As retailers look for additional sources of revenue it can feel like channel blurring is inevitable. And it IS driven by retailers – viz the current discussions in P&C around general merchandise and liquor – not by shoppers. Shoppers are the beneficiaries as they ostensibly have more convenience from the same stuff being available in more locations. Shoppers are winners, retailers are potentially losers with channel blur as retailers lose their point of difference (all of the no-name route stores in Asia carrying the same stuff come to mind, which are wholly reliant on their location to survive) unless they’re prepared to shout about their offer and its relevance.
The big question I have is: Is it a good idea to drive channel blur by changing your ranging offer and what your channel is known for (if it is known for anything)? How big is the opportunity really, particularly if you’re a smaller player with fewer dollars to spend communicating your new offer and positioning?
When you look at the list of retailers moving into other channels, what becomes evident is they are not shifting from A to B, but becoming A plus B. They are continuing what they are known for, but adding additional categories. Eg drugstores PLUS. Mass merchant PLUS. So they have extended rather than changed their positionings. What is the P&C ‘plus’, if you’re going to go down this route?
Does P&C want to change its positioning from the anecdotal ‘fuel and junk food channel’ to something else? Or should P&C leverage its existing occasions and trip type strengths whilst extending into other categories? Or just shout louder about the categories and trips it is known for, to maintain its point of difference?
WHAT DOES P&C STAND FOR? UNDERSTANDING OCCASIONS AND TRIP TYPES IS KEY
Where you look is where you go. Ie, what you range is partially what you’ll be known for (if you shout about it loudly enough). Perceptions of P&C as the ‘sin channel’ are largely self-created by the channel’s historic focus on tobacco, confectionery, salty snacks and soft drinks.
But these categories have limited occasionality, and to only a certain portion of the available audience. To determine what you stand for you need to understand shoppers’ triggers and motivations for visiting you. Ie, their consumption occasions and shopping trip types.
I’d suggest that the existing occasions and trip types within P&C are yet to be exploited, even before you try to tap into trip types associated with other channels. Table 1 illustrates the core trip types are across channels and how they differ.
Table 1: Major trip types cross channel. © ShopAbility 2010
Aside from fuel, what differs Convenience from the other channels is services. This is something that could be leveraged harder. 7eleven are pursuing this route with their Moneygram service, among others.
You could argue that if you split Convenience into Fuel vs Non-Fuel (eg Arterial, Roadhouse vs Local and Minimart) that the Local and Minimart sites could act as a form up Top Up shop, in competition with IGA and mixed businesses/milk bars. Ultimately the difference is that Fuel sites are generally in transit where non-fuel (or Local, with fuel) act more like a type of emergency or closest-to-home outlet.
Below is a table we published in the July issue of CW that suggests some of the categories applicable to the Convenience trip types.
|Entertaining||Having people over – BBQ, party, dinnerGoing to someone else’s house
Elsewhere, eg picnic
Gas bottle refills
Partyware, eg plastic plates, cups, cutlery
Paperware, eg napkins, paper towel
BBQ needs – cleaners, tongs, sauces
Drink accoutrements eg bottle openers
|Fuel||On the way – particularly on holidayTravelling (hot/cold, distractions for kids)||MapsSunglasses
Hats (straw for summer, beanies for winter)
Music & games
|Destination||Emergency/distress/run out||Milk & BreadFeminine hygiene
Shampoo and conditioner
|Services||ATMTrailer hire (moving house, going to the tip)||Trailer associated items eg ropes, fasteners, covers/tarps|
|Quick Meal||MunchiesOn way home||NoodlesHeat and eat meals|
The skew of these trip types is going to vary according to the type of site you are. Party/entertaining is underexploited for local and minimart sites, who have an opportunity to own bbq occasions as they already have ice and gas bottle refills. Why not capitalise on this with a bigger party/entertaining offer?
Fuel sites have an opportunity to leverage their travel and ‘on the way home’ needs offers harder, with particular understanding of inbound and outbound sites. A deal of success has been had in the US with DVD rental boxes at outbound sites, which talk to the shopper need for ‘what are we doing tonight’ whilst they are thinking about it on their way home.
Both fuel and non-fuel sites, and particularly local sites, could extend their suite of services with everything from dry-cleaning drop off to shoe repair drop-offs. (These wouldn’t have to be serviced on-site, the actual jobs would be performed by specialists in some sort of tie-up deal). Not only would the convenience store earn commission but this is a traffic driver that is an opportunity for an incremental sale.
If you want to be a Destination for something (eg general merchandise, liquor) then you need to shout about the fact that you now range those products. It’s no good ordering in a whole bunch of general merchandise inventory – when you’re a fuel site, by the way – and not telling anyone it’s there, considering only 3 in 10 shoppers break from the cashier queue to shop ‘rest of store’, and most of those 3 in 10 are destination beverage buyers anyway. It’s extra inventory that won’t move unless you’re prepared to shout about the fact it’s there and what its relevance to shoppers is. That’s not to say that general merchandise wouldn’t make sense in a local or minimart where you could compete with small supermarkets and mixed businesses for top up and emergency shopping trips, but again you would need to COMMUNICATE this.
Understanding trip types for your type of site is key to understanding not only what you should be ranging but what products and occasions you should be shouting about.
So if you’ve already got a bunch of categories that play to your existing trip types, and you’ve already exploited those fully (and most haven’t), what do you then do?
a) leverage your existing categories harder, or
b) range new/different categories, ostensibly to ‘steal share’ of grocery and other channel shopping trips?
Point A is going to be easier and cheaper in the short term. Beverages is the obvious category to leverage harder (snacks would probably be the next one) as it’s the largest convenience merchandise category outside of tobacco and a destination for shoppers already. Again 7Eleven are doing a good job with this, creating destination traffic for beverages with their Slurpee frozen beverage offer. It’s targeting a specific shopper type (teens) and it’s communicated on all their external signage, and promoted heavily, so you know it’s there. (No I’m not being paid by 7Eleven to say nice things about them, I’m of the view they have too many promotions running at the same time which confuses shoppers, so they’re not perfect at everything).
An interesting article in Beverage Spectrum from September 2010 (“Polishing Convenience’s Strengths to Shine Through the Blur”) suggests leveraging strengths rather than trying to create loyalty (which is difficult in the convenience channel).
Point B – adding new categories – is where the ‘should we range general merchandise?’ and ‘can we range liquor?’ questions sit. As outlined earlier, this is a longer term strategy that requires significant investment in communication of the offer and its relevance, not just banging the stock out on floor (and in the case of alcohol, at not inconsiderable coldspace capex cost) and assuming it’ll move. Effectively you need to communicate to shoppers that you have a new reason (occasion, trip type) for them to shop with you. And if you range new categories to compete with other channels then you are adding to channel blur, rather than responding to it.
There are also ‘traditional’ retail positionings around Range (breadth, quality, innovation eg Bunnings for breadth),Service (excellence eg Nordstrom, speed eg McDonalds), Price (lowest cost, eg Costco or Aldi), and Experience (expertise, knowledgeability eg Apple Stores).
When you think about where Convenience stores sit in these traditional retail positions, it’s evident that none of them truly apply and this is the issue around what P&C stands for:
- P&C can’t truly compete on lowest price, and isn’t actually expected to by shoppers as they are prepared to pay a (small) premium for convenience. Supermarkets and discount department stores own price and you can’t compete with it in the long term as it requires being a lowest cost operator
- P&C can’t really compete on experience unless you target specific categories and services relevant to your occasions and trip types (automotive, travel etc)
- P&C can’t compete on range breadth overall, but can compete on range breadth within specific categories (eg single serve beverages, meals and snacks on the run). There is opportunity for product innovation here
- P&C CAN compete on service speed, and local sites could potentially on service excellence (knowledge of local shopper base, repeat business from local customers based on understanding of their needs).
My point in all of the above is around understanding the role of your site type in the eyes of your shoppers. If you are clear on why they visit you and range your products and plan your communications around that, then shoppers will have clarity on what to come to you for. Focus reduces blur.