What will Ireland’s c-store sector look like in 2010?

January 1, 2010

Andrew Bradley, partner at the Dublin-based brand and retail design consultants, Bradley McGurk, considers what the future holds for Ireland’s trend-setting convenience store retailers.

There’s no question about it, value offers are hear to stay. The €5 lunch offer of a sandwich, packet of crisps and soft drink is everywhere and is now a standard part of the convenience offer. Some bolder retailers have dropped the deal to €3.95. My local Griffin Londis offers the semi-baguette for €1.85, with a different filling every month. Eighteen months ago the same baguette was €3.75. It will be a while achieving that price again.

Applegreen: seizing site opportunities in Ireland

There has been sustained negative growth experienced by all grocery and food operators in recent months of approximately 9-11%, with the worst affected experiencing 15% declines.

Food price deflation is the key contributor to the decline, with deflation currently running at approximately 8%.

There has been a significant move by customers to value in recent months and average transaction values are down significantly. Customer responsiveness to promotions and their willingness to shop around is at an all-time high.

Many Irish shoppers shopped in their local convenience store this Christmas. Mind you, the weather helped. The snowiest and coldest Christmas in living memory drove families to keep their journeys short and shop in their local convenience store instead of making the trek to the local discounter or supermarket. There was not much loyalty to the retail brand, but rather to shop in the stores nearest to their homes.

While own brand products have enjoyed significant growth in 2009, it is likely customers will have reverted to branded items for the important Christmas holiday period. However, with the barriers to entry reducing, it is likely more independent retailers will introduce their own food brands in 2010.

The recent budget amendment to excise duty on alcohol proved the scheduling of a budget so close to Christmas was a grave error. The retailers, who have not been financially able to reduce prices, have witnessed a significant reduction in alcohol sales and are dealing with many disgruntled customers. Those who have reduced prices are experiencing increased alcohol sales but at a significant loss.

Stores located near to the border with Northern Ireland continue to suffer. For these operators there is nothing more they can do but put 2009 behind them and hope the Irish Government assists in the realignment of business costs south of the border. But don’t hold your breath...

Petrol station sites for development sold a few years ago for millions of Euros. They were never actually developed and are now worth 60% to 70% of their original sale price. Ouch. These sites are now being either refreshed or rebuilt as clean, new forecourts. Applegreen has been good at spotting such opportunities.

The first six months of 2010 will see more convenience stores close. Many younger retailers who borrowed heavily three to four years ago are struggling to make the repayments. Their turnover is likely to be down anything from 15% to 30% down in three years. This is compounded by the reduced margins and it means the original business model just does not stack up.

It is rumoured some of the symbol groups are stepping in to take over the running of the shops rather than see them close. But how long appearances can be kept up is anybody’s guess. I forecast we shall see a 3% to 5% shrink in the number of convenience stores around the country.

While convenience retailing has had a respectable Christmas period, the sector is well back on last year’s numbers and will continue to struggle in early 2010.

One retailer to adopt a more progressive approach in the New Year may be Dunnes Stores. Surprisingly, it has yet to develop a network of convenience stores. Its ‘better value’ brand proposition would, in my view, have traction with convenience shoppers. And, with property prices so low, it is an ideal time for a retailer to ‘land grab’.

Bradley McGurk has had a strong end to 2009 as many independent retailers focused on developing new retail initiatives for 2010 and beyond.

Standing still is not an option though. We forecast that innovative retail design and own-label brand building can deliver double-digit growth for many retailers. Yes, value-for-money is on everybody’s mind, but price isn’t.

Bring on 2010 and let the creative retailers do what they do best. For those who are spectators, it’s time to shut up shop.