What makes a successful independent convenience store and how are they able to compete with national chains?
The non-affiliated independent store represents a large proportion (43.8%) of the UK convenience store market. With prospected increases in turnover up to £39.7 billion in 2014 (from £29.1 billion in 2009) there is still substantial growth available to the sector. This said the number of non-affiliated independent stores is in decline, especially with the emergence of multiples such as Tesco and Sainsbury's appearing in the convenience market. This research aims to find out what factors make a successful non-affiliated independent store and how they can adequately compete with the larger nationwide chains.
There are 48,751 convenience store within the UK (IGD, 2009). The convenience store sector (CVS) represents 20% of the UK grocery foods turnover (Food and Drink Economics branch, Defra, 2006), with a turnover of £ 29.1 billion in 2009 (IGD, 2009) up 6.1% from the previous year due to the expansion of the supermarkets, Tesco, Sainsbury and others into the sector. With expectations that the annual turnover will hit £39.7 billion in 2014, this shows that there is still substantial growth within this market area. There are many different types of convenience store; Co-operative, Forecourts, Multiples, Symbols, Franchise and Fascias, and Non-affiliated independents (IGD, 2009). ‘A symbol group retailer is an independent retailer that is effectively a member of a larger organisation known as a “symbol group operator” (such as SPAR)' (IGD, 2009). ‘IGD's definition of “Symbol Groups” also incorporates “Franchise” and “Fascia Groups”, related but distinct concepts.' (IGD, 2009). The idea behind a symbol group is that the brand displayed on the outside of the shop will provide a ‘common trading identity' which the consumer will readily recognise (IGD, 2009). There are also added benefits which come with membership to a large organisation such as improved buying terms, branding, option to sell own branded products and improved access to technology such as checkout equipment (IGD, 2009). Non-affiliated independents dominate this sector with a market share of 43.8% (IGD, 2009), in terms of number of stores (Figure 1 - appendices). However, the symbol independents have the largest market share by value at 35.9% of the convenience sector (figure 2 - appendices) with a symbol groups turnover of £10.4 bn, while non-affiliated independent stores turnover is £6.6 bn. This shows that on average a store operating under a symbol group has a turnover of £713,000 per annum on average compared to that of a non-affiliated independent store which has an annual turnover of about £315,000. This compares with the average turnover of a multiple convenience store of £1,543,000 per annum. One presumes that the larger turnover by store of multiples and symbol groups must give them some economies of scale. It will be interesting to see whether successful non-affiliated independents have to have much higher turnover per store than their sector average. It is also possible that in order to afford membership fees or to meet symbol group terms these stores were already turning over more than other non-affiliated independents. With the levels of competition from national chains such as Tesco or Sainsbury's ever increasing it would be interesting to discover the methods by which non-affiliated independent stores overcome this.
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This research will be focusing on the non-affiliated independent stores and how they compete with national chains, so this section is to provide a background specifically on non-affiliated independent stores. The number of non-affiliated independent stores is in decline (IGD, 2009), reducing from 24,000 in 1996 to 22,000 by 1998 (Gordon & Wilson, 1999). It is possible that the rate of decline has slowed, because the latest IGD data for 2009 (IGD, 2009) shows there to be 21,950 stores. This has largely been attributed to the non-affiliated independent stores being unable to compete with the low prices and economies of scale enjoyed by the large supermarket chains such as Tesco and ASDA (Coca-Stefaniak, Hallsworth, Parker, Bainbridge, & Yuste, 2005). ‘The convenience store sector has also become more challenging in recent years due to supermarkets muscling in on the market. Between 2000 and April 2006, the number of convenience stores in the UK owned by Sainsbury's, Asda, Tesco and Morrison's rose from 54 to 1,306 (Neale, 2008).However the non-affiliated independent stores are said to have a secret weapon in the shape of better a better understanding of individual customers and their needs (Baron, Harris, Leaver, & Oldfield, 2001). There is evidence that this rate of decline is fairly constant (IGD, 2009). The largest growth in the convenience market sector is in the multiples sector (convenience stores run by Tesco etc), a 12.7% increase in sales have been reported in 2009 (IGD, 2009).
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There has been a lot of research into the UK grocery market as a whole, mainly focusing on either the convenience or main stream grocery market. There has not however been sufficient research into how small independent stores may compete with the large nationwide multiples. This research hopes to fill a gap in current knowledge by researching to understand the factors which make a small independent store successful in the hope that the decline currently seen in the sector can be reduced.
Academic research into the non-affiliated independent stores began between the 1930s (Baron, Harris, Leaver, & Oldfield, 2001) and the 1950s (Kirby, 1986), and generally focused around the US non-affiliated independent stores sector. A high number of independent failures are reported (Baron, Harris, Leaver, & Oldfield, 2001) (Kirby, 1986), which were attributed to ease of entry into the market sector without the necessary financial support or knowledge (Baron, Harris, Leaver, & Oldfield, 2001). The social role of the non-affiliated independent stores was also examined at this time, (Dixon & McLaughlin, 1968)
In the UK a typical convenience store is a self-service store between 1000 and 3000 square feet (Kirby, 1986), offering a range of goods and services including ‘grocery and CTN products (Tobacconist and News agency), chemist sundries, alcohol and possibly other lines including video hire, fast foods or petrol, opening long hours, including Sundays' (Kirby, 1986). Traditionally referred to as corner shops, the UK convenience food sector is clearly being seen as an area of growth for Tesco (Metro), Sainsbury's (Local) and Marks & Spencer (Simply Food) (Coca-Stefaniak, Hallsworth, Parker, Bainbridge, & Yuste, 2005) all opening smaller stores aimed at targeting this largely independent sector. Traditionally non-affiliated independent stores relied on their longer opening hours to compete with the national chains but this has diminished in recent years with the introduction of 24h opening hours (Baron, Harris, Leaver, & Oldfield, 2001). In addition to this their location, friendly and personal service and existence of informal credit services are all sighted as traditional advantages of the independent retailer (Dawson & Kirby, 1979). The number of different trading formats, which supplied the grocery and food market increased from 1000 in 1996 to 24000 in 1998 (Gordon & Wilson, 1999) this shows that there is a massive increase in other convenience store formats other than non-affiliated independent stores. Convenience shopping via the internet is also becoming increasingly popular and is now available to most of the UK (Baron, Harris, Leaver, & Oldfield, 2001).
Identifying why consumers go to any individual non-affiliated independent store is key; many stores have specific draws to attract customers such as a post-office or community specific food (eg Polish). It is also said that location, and proximity to homes may be key to a successful ‘corner shop' (Baron, Harris, Leaver, & Oldfield, 2001). It is generally accepted that the non-affiliated independent stores provide a lifeline for forgotten, or ‘emergency items' and products which were out-of-stock when the consumer visited the larger supermarket (Kirby, 1986). The rise in single person households is said to reduce the need for a big weekly shop, and a more regular ‘topping up' type shopping experience is more commonly seen (Baron, Harris, Leaver, & Oldfield, 2001).
In terms of future trends the IGD sees food-to-go emerging as an important growth area for the convenience sector (IGD, 2009). IGD expects this ‘food-to-go' segment to have potentially stronger margins and increase consumer traffic to the store. I used to live in Japan and the ‘food-to-go' segment was very important to the convenience store sector. It is something I will look for in my study.
To provide a broader picture of the UK grocery market as a whole here is some useful information; in 2009 the turnover was £146.3bn(IGD, 2009), this was an increase of 4.8% on 2008 figures. Multiples have an annual grocery turnover of £92.8billion (IGD, 2009), this turnover comes from 3713 stores, an average of £25m per store per annum, clearly many times larger than the convenience store sector. As already mentioned, the convenience store sector is valued at £29.1bn in 2009 (IGD, 2009) and this comes from 50,449 stores (IGD, 2009), giving an annual turnover per store of £577,000. This shows that many more people buy their groceries through these large multiples. A typical UK supermarket is between 3000 - 25000 square feet, with some hypermarkets with up to 60,000square feet of space (IGD, 2009). Many more products can be stocked in a ‘hypermarket' and the larger supermarkets than can be sold within a smaller independent store. This alone could prove to be a reason that the number of independent stores is falling, in that they simply do not provide the range of products needed for the average weekly shop.
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The question underpinning this research is ‘What makes a successful independent convenience store and how are they able to compete with national chains?', using this question as a backbone for my investigations I will investigate different independent convenience stores across Newcastle upon Tyne and investigate how multiples are having an effect on sales or number of customers entering the shop, and see how/if these independents are taking steps to compete against these large multiple run convenience stores. The results should show the factors which allow a non-affiliated independent store to survive under tough completion. This could prove invaluable to struggling convenience stores in the area.
Target non-affiliated independent and Umbrella group stores
To carry-out the proposed research a selection of 12 independent retail stores across Newcastle will be selected, this will largely be down to finding stores willing to co-operate with the research, and as such the number may increase once the research commences. Initial contact with a selection of non-affiliated independent stores has been promising. The non-affiliated independent & umbrella stores will be split into the following categories; 4 in Jesmond, 4 in Heaton, 4 in the City centre of Newcastle, within each area 2 non-affiliated independent and 2 umbrella group stores will be researched. These areas have been chosen because they cover a large proportion of different social demographics within Newcastle, as well as allowing data collection from a large number of different people. As said in research by (Kirby, 1986), the standard UK convenience store is less than 3000 square feet, and this definition will be followed during this research. Only standard non-affiliated independent and independently owned umbrella group stores will be researched, ie just the corner shop variety usually close to people's homes, forecourt shops and kiosk type convenience stores will not be included.
Initially, to address location which is one of the most important aspects for any independent store- ‘three planks for a thriving independent retail business [are] product specialization, service and location' (Baron, Harris, Leaver, & Oldfield, 2001), the location of all convenience stores (excluding forecourts and kiosks) will be mapped out across the target areas (Jesmond, Heaton, and Newcastle City centre). There will be clear distinction between non affiliated-independent stores, the nationwide retailers and those operating under an umbrella group. The purpose of this is to allow comparison of where the non-affiliated independent stores and umbrella group stores are located in relation to national retailers and centres of local populations.
A detailed breakdown of each store will be carried out and will include the following information:
Opening hours- this is to see if the non-affiliated independent stores are filling a gap in opening hours not currently serviced by a nearby national retailer.
Presentation in store- as presented in research (Baron, Harris, Leaver, & Oldfield, 2001), there may be a less concentrated presentation of products in a non-affiliated independent store, which might present a more organic feel. This would particularly appeal to consumers who question the ethics of large nation-wide chains.
Focus of stores- The store may have a service that attracts more customers, post office, DVD rental or even a fast food counter.
Overall pricing- the pricing of a non-affiliated independent store versus its nearest competitors, a price check of a selection of well known household products will be used to compare this.
Number and type of promotions- the total number and type of promotions will be counted from each store.
Tailoring to its local community- the number of speciality products (not seen elsewhere) will be recorded. This data will be tabulated so that comparisons and trends can be seen.
In addition to this, a survey will be undertaken at each store questioning adult shoppers about their shopping habits; types of stores visited, frequency of store visits, and how the non-affiliated independent store fits into their repertoire of shops. It will also investigate their socio economic and demographic background to establish whether non-affiliated independent stores target specific groups. Finally if possible, the owner manager of each independent store will be questioned to see what they view as their concerns, personal threats and any competitive advantage they believe they have. The disadvantage to this questionnaire based investigation is the fixed questions and inability to explore answers, however for the type of investigation under taken this is not viewed as a problem.
This research will use data gathering techniques see in (Baron, Harris, Leaver, & Oldfield, 2001) research to provide a ‘snapshot' view of non-affiliated independent stores and the issues facing their declining sector. Each area (Jesmond, Heaton, and Newcastle city centre) will not be treated separately except for geographical location, every other part of the survey will remain constant and comparisons will be made between the non-affiliated independent stores in the different areas.
There are not perceived to be issues regarding access, the majority of the data will be collected independently inside and surveying consumers outside the store. The only issue of access may appear when questioning the non-affiliated independent store owner or manager, who may not have time or wish to participate in this research. This said, it is hoped that once the nature of the research is explained and the general nature of the questions (no personally identifiable questions will be asked) seen that the majority of store owners will finish the survey.
The non-affiliated and umbrella group independent stores will be chosen in the different areas based upon an evenly spaced geographical location and willingness to participate in this research. The adult consumers will be chosen at random from outside the store, since all surveys will be undertaken within a short space of time, other factors such as the changing financial environment can be discounted. Questionnaires will be taken at differing points in the day such as morning, noon evening and night (one weekday and one weekend day) in order to target different consumer groups. Survey research has its limits, (Bryman & Bell, 2007) say that it is extremely unlikely that one will end up with a representative sample. Given the steps being taken (multiple surveys per day) and the time constraints in this research it is felt that it is the most appropriate means of data collection.
Proposed work plan
It is proposed that this research will commence at the beginning of June, since 9 non-affiliated independent stores will be sampled on a week day and a weekend, it is not envisaged that the data collection part of this research will take more than a month total.
It is not envisaged that there will be large ethical issues associated with this research. As (Bryman & Bell, 2007) list ethical considerations as ‘harm to participants, lack of informed consent, invasion of privacy and whether deception is involved'. The research will not take the participants out of their everyday schedule so their harm can be discounted. Each participant will be present with a ‘receipt' telling them exactly what their answers will be used for and since no personally identifiable information will be taken, their written consent will not be needed. Clearly deception will not be used in any part of the research.
The largest limitation in this research will be the time period available to carry it out. This research is only being carried out in the North East there is a limit to its applicability across the country. While most consumers will apply its principles and finding, academics who specialise in this area of research will question its validity in areas other than Newcastle upon Tyne.
To produce more accurate results the study should be conducted across the UK over a longer period of time - this would produce a report which would be far more accurate and would bypass the problems of application in other regions. However the costs and time period involved in this sort of undertaking would be large and it is unfeasible to assume that it is possible under the current constraints.