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How Convenient

Shoppers have firmly fixed ideas about food retailers' pricing models: Grocery stores offer a large variety of reasonably priced foods for stocking your pantry, but trips require an investment in the form of time. Convenience stores, on the other hand, are good for foods that can be consumed immediately, with the trade-off for on-the-go shopping being price. At a time when gas sales are trending down

Shoppers have firmly fixed ideas about food retailers' pricing models: Grocery stores offer a large variety of reasonably priced foods for stocking your pantry, but trips require an investment in the form of time. Convenience stores, on the other hand, are good for foods that can be consumed immediately, with the trade-off for on-the-go shopping being price.

At a time when gas sales are trending down and cigarette purchases are receding, c-stores hope to turn that perception on its head. Many are polishing their price image while improving profits with corporate brands.

“I think what's going through the c-store operator's mind is, ‘I've got to find ways to improve my price image and enhance my profit margins so that the dollars I do get will be more profitable to me,” said Jim Hertel, managing partner at Willard Bishop, Barrington, Ill. “That would lead you right to private label.”

Indeed, from exclusive value-priced wine to private-label snack lines designed especially for Hispanics, c-stores have become very strategic with the lines they get behind.

So much so that c-stores posted the most substantial private-label share growth in 2009 vs. the previous year. Private labels gained 2.3 unit share points to capture 7.9% of c-store unit share, according to Information Resources Inc., Chicago.

BP America's Ampm banner is responsible for some of the success. A subsidiary of La Palma, Calif.-based BP, Ampm is the third-largest convenience store chain in the U.S. with 1,200 locations.

To make room for corporate-brand offerings — such as Deluge water, Unbound energy drink, Essence ready-to-drink tea, and Shadow Hills nuts, seeds and meat snacks — Ampm has scaled back its national-brand SKUs. Since store brands carry profit margins that are about 10 percentage points higher than national brands, the strategy maximizes profits per square foot.

“We do cut down on some of the national brands that we carry,” said Jon Bratta, director of proprietary brands for Ampm. “In many instances, sales have been equal to or better than the national brands we still carry, and have been substantially better than the brands we discontinued.”

Ampm's new El Mero line is designed to meet the snacking needs of Hispanic consumers.

“Sometimes we offer better value, and sometimes we offer differential product to move consumers towards our products,” Bratta said.

Ampm modified its line of Chili Mango slices, Churritos and Garbanzos — presented in Spanish-language packaging — after gathering feedback from shoppers at locations serving a high percentage of Hispanic shoppers.

“Generally, consumers tell us that they consider our private brands' image and displays to be like national brands,” noted Bratta.

There is good reason for that. Products in the line are designed to mimic the look and feel of national brands since research indicates that that's the best way to gain trial and spur repeat purchases, he added.

Hertel explained that the strategy makes sense for c-stores who want to brand food with a name that shoppers won't associate with gasoline.

“Over time, we will incorporate ‘produced exclusively for Ampm’ on the packaging to cement the relationship with Ampm,” Bratta said.

The chain is hitting the mark by approaching its exclusive brands this way.

“What sets Ampm apart is the look and feel of the packaging,” noted Hertel. “They look like national brands.”

The popularity of the items comes as overall sales of snacks, drinks and other impulse items at c-stores are waning.

When polled about their most recent c-store trip, only 3% of consumers in Retail Forward's ShopperScape panel said they purchased some fill-in groceries, down from 4% in 2008. Nine percent bought candy/gum, down from 12%; 18% purchased immediate consumption food/snacks, down from 22%; and 19% purchased an immediate consumption non-alcoholic beverage item, down from 23%.

7-Eleven, the nation's largest c-store chain, aims not just to increase shoppers' basket size once in the store, but it's using its brand equity to get them there in the first place.

In addition to giving to charity, the Dallas-based chain's new “Coffee Cup With a Cause” program was created to draw new shoppers interested in giving back to their communities to its stores. So far it seems to be working, said Margaret Chabris, spokeswoman for the chain.

Throughout 2010, 7-Eleven will introduce limited-edition 20-ounce coffee cups designed by entertainment and sports celebrities. Proceeds from the cups — which can be filled with any 7-Eleven hot beverage, including coffee, tea or hot chocolate — will benefit the featured celebrity's chosen charity.

Nicole Richie, Joel Madden and Benji Madden's cup launched the program last month. It features a drawing representing their cause: Richie-Madden Children's Foundation.

7-Eleven is providing a guaranteed $250,000 donation. Depending on sales, monies contributed could reach as high as $300,000.

Coffee Cup With a Cause is building momentum.

“The media coverage, especially social media, has been phenomenal, and we are seeing week-over-week sales increases on a per-store average,” said Chabris.

Retailers are wise to court new shoppers this way, said Jennifer Halterman, senior consultant at Kantar Retail, Cambridge, Mass.

“Beverages like hot coffee drive shoppers in the door and it's an opportunity to get them to buy complementary breakfast items like doughnuts and pastries,” she said.

Enter 7-Eleven's recently expanded 7-Select line of snack cakes, pies, mini-doughnuts, breakfast pastries and other packaged bakery items. Ready-to-drink beverages, additional snacks and health & beauty care items will be added to the 281-item line later this year.

The retailer leverages scale to maximize margins while providing the lowest possible price for shoppers.

7-Eleven recently pooled resources with Seven-Eleven Japan to introduce two proprietary value-priced wines under the Yosemite Road label. The limited-edition California chardonnay and cabernet sauvignon that retail for $3.99 are its current best-sellers.

“Lower costs leads to better consumer value and higher profits for the stores,” noted Chabris. “Private labels allow a better margin for our franchisees, which is extremely important to us.”

Also under way are plans for 7-Select items that appeal to Hispanic consumers in both Seven-Eleven Mexico, which has 1,200 stores, and 7-Eleven's 2,400 locations the U.S.

“Our objective is to identify flavor profiles that Hispanics are particularly partial to and develop items that way,” noted Chabris.

Though still under development, the products could help improve the basket rings of a growing group: blue-collar Hispanic workers who treat 7-Eleven as a break room.

“A lot of [Hispanic] yard workers bring in meals from home and heat them in 7-Eleven microwaves,” said Irene Sibaja, senior director, Hispanic marketing, 7-Eleven during a roundtable discussion assembled by SN and ECRM last year. “I try to bring in products that will aggregate their meals, like yogurts and cheeses from Latin America. We want to be seen as a home-away-from-home for that consumer.”

7-Eleven is also actively working to bring in new members of the demographic who don't necessarily frequent its stores.

Last December, it posted billboards targeting both general-population and Hispanic consumers for a mobile marketing test pilot in San Diego. The signs invited consumers to text the word “FAST” to 72579 for free “stuff.” They received a reply text message explaining that they could choose one of four proprietary beverages for free, including a Slurpee frozen carbonated beverage, Big Gulp fountain drink, fresh-brewed hot coffee or 7-Eleven's new iced coffee.

Signs were positioned roadside and in bus stops, train stations and other places where people stand idle. Thirty-second spots were aired on English- and Spanish-speaking radio stations.

The test was a success, said Chabris, who couldn't elaborate.

“We are working with the company that constructed the program to determine what aspects worked best, consumer reaction to products offered this way, and how this kind of program might apply in other markets,” she said.

The exploration of traffic-driving strategies is a move in the right direction, considering that a relatively narrow base of shoppers is spending the bulk of dollars inside the c-store, noted Hertel.

Last year, the average shopper made just under one (0.9) trip per month to the convenience store, according to IRI. During the same time period, the average shopper made 4.8 trips to the grocery store.

“The heaviest users are in the store something on the order of 15 times a month,” noted Hertel. “The idea of being able to broaden that, especially if they haven't been to the store lately, is a good long-term move.”