Australia’s convenience market: the low down from down under

NACS’ 2010 Global Forum was hosted in Sydney, Australia last month (June). It combined presentations, case studies, panel discussions and round tables plus visits to the country’s leading convenience retail formats. Insight Research supported the Forum by providing an in-depth overview of the market and study tour planning. Here Insight gives its take on the Australian convenience store scene.

Facts and figures:

Australia is slightly smaller than the United States, with a total area of 7,686,850sq km (2,967,909sq miles)

Australia has approximately 22 million people compared to the US population of approximately 308 million people

The five largest cities in descending order are: Sydney, Melbourne, Brisbane, Perth, Adelaide

Australia is the world’s sixth largest country after Russia, Canada, China, the US and Brazil but is ranked 224th in terms of population density. Low population density and large distances between major urban centres create a unique landscape for retailers and a range of challenges for distributors

The Australian economy was somewhat shielded from the full impact of the global recession, due to the more fiscally-prudent nature of the Australian banking sector; although not entirely. Through the recession, the wider retail market felt the effects of the global economic downturn, while the Australian grocery industry remained robust. All four of the major players are in growth.

The Australian grocery market is dominated by two main players: Woolworths and Coles with approximately 40% and 28% of the total market respectively.

Woolworths, the market leader, has continued to grow both sales and share. In the past two years it has launched a new store format, which focuses on fresh foods and has reinvigorated the brand.

The Coles Group was taken over by Wesfarmers, a Perth-based conglomerate, in November 2007. Since then the group has undergone a phase of restructuring to become more competitive in the marketplace. Over the past few years Coles has focused on providing the consumer with a better value proposition through a greater emphasis on fresh, improved availability and an investment in store modernisation.

The third major supermarket player is IGA (Independent Grocers of Australia). It is owned by the wholesaler Metcash and has approximately 17.5% of the market. IGA has 1,200 stores across the country divided into three lifestyle-focused offers: Supa IGA, IGA and IGA X-press. IGA supermarkets are synonymous with being part of the communities they serve, providing a wide range of products at competitive prices and focusing on service and local convenience. Over the past eight years Aldi has expanded its operations in Australia and now has 200 stores, operating mostly on the eastern seaboard. The discounter’s aggressive expansion in the market has introduced some interesting competitive dynamics and forced the major players to become more price-focused, promising Australian consumers consistent pricing across the country. Aldi’s market share is now over 4% and, with strong expansion plans in both distribution and store numbers, it is set to continue its rapid growth.

Australia has over 15,000 convenience stores, operating in city centres, suburban locations and on petrol forecourts.

The major convenience brands are: Caltex Star Mart, Coles Express, 7 Eleven, IGA X-press, Woolworths (forecourt), BP Connect (forecourt) and a wide range of smaller convenience groups and independent retail operators.

Caltex Star Mart is the market leader in convenience retailing, followed by Coles Express, 7 Eleven and BP.

The growth of convenience at forecourt locations over the last decade has resulted in fundamental changes to the Australian convenience and fuel retail market. Change has been largely driven by the two major supermarkets. Coles purchased the retail business of Shell Australia in 2003 and Woolworths, having started building petrol stations at its supermarkets in 1996, now has an a forecourt network of 400+ locations across the country. The forecourts are branded as Caltex and the convenience store as Woolworths.

Both Woolworths and Coles offer a ‘docket redemption’ discount scheme for fuel sales. When a customer spends a qualifying amount in their supermarkets (typically $30) they receive a fuel discount at that supermarkets fuel retail outlet (typically 4c per litre). This has significantly changed the dynamics in the fuel retail market.

This strategy has been particularly successful for Woolworths, which uses fuel sales to drive supermarket brand loyalty. As a result, Woolworths has the highest average throughput for forecourts in Australia and has become the market leader in fuel with a simple convenience retail offer focused on operational efficiency.

As a consequence, the market has segmented. Woolworths and Coles are focused on the value-driven consumer while retailers including Caltex Star Mart, BP and 7 Eleven are focused on developing a convenience retail offer with premium fuels, targeted at the less price-conscious consumer.

Caltex has focused on a strong convenience delivery with its Star Mart stores, offering a one-stop shop in a modern environment and is the convenience market leader.

Thomas Dux

Thomas Dux is a division of Woolworths. Woolworths launched Thomas Dux, an upmarket grocery store, in 2008 and had 11 stores in operation by January 2010. Stores are based in Sydney and Melboure.

The first Thomas Dux opened in Paddington and the second in Lane Cove, both in Sydney.

Woolworths acquisition of Macro Wholefoods, one of Australia’s leading organic retailers, saw the continued roll out of its Thomas Dux format. The company plans to open 35-40 Thomas Dux stores.

Thomas Dux operates independently of the Woolworths business and the two brands are kept separate. Thomas Dux is positioned as a local, traditional grocer; serving the local community. It has a strong focus on fresh locally sourced foods and offers a variety of specialist products across the categories.

Thomas Dux Lane Cove

Thomas Dux opened in the upmarket Lane Cove suburb in April 2008. The store was previously a Food for Less outlet owned by Woolworths. It is located in the recently refurbished Lane Cove Market Square, which includes a Coles Supermarket and a newly opened Woolworths Supermarket.

The store experienced a sharp drop in turnover with the opening of the new Woolworths in late 2009 but started to see a recovery in early 2010.

Pricing is competitive in order to compete with Coles but the store does not lead the way on prices.

It has a strong fresh contribution with fruit and vegetables making up 42% of the turnover, the deli 11% and the bakery 6%.

Woolworths

Woolworths has extensive retail interest throughout Australia. It has retail outlets in food and grocery, alcohol, fuels, general merchandise, consumer electronics and home improvements, to name a few; and operates under a range of retail brands.

Woolworths, however, is the company’s premier supermarket chain and the one for which it is best known. The first store was opened in Sydney in 1924 and today Woolworths is Australia’s leading supermarket chain with stores across the country.

In the mid 80s Woolworths branded the business as ‘The fresh food people’ strengthening its position as a leader in fresh food retailing.

Woolworths has over 800 supermarkets stores nationally and over 400 forecourt sites.

Woolworths Lane Cove

Woolworths Lane Cove was opened in late 2009 as part of the redevelopment of the Lane Cove Market Square shopping complex.

In 2008 Woolworths announced plans to refresh its logo with a new brand image, a green tinted icon representing the ‘W’ in Woolworths and a stylised leaf to represent fresh produce. The company’s ‘The fresh food people’ slogan remains at the heart of the brand.

The brand renewal was part of a capital expenditure plan running through to 2010 designed to upgrade and modernise tired looking stores and place a greater emphasis on fresh foods.

The Lane Cove Woolworths embodies this new look, from the updated brand logo through to the modern store design, focusing heavily on fresh foods and the incorporation of new technologies like self checkout.

7Eleven

(1) 7Eleven: famous for Slurpees

7Eleven opened its first store in Melbourne, Australia in 1977. Today there are more than 385 7Eleven stores located in the states of Victoria, New South Wales and Queensland; all on the eastern side of the country.

The majority of stores are in metropolitan areas, particularly in city centre locations. Stores in suburban locations often operate as forecourt convenience stores. All of the stores are owned and operated as franchises with central administration.

7Eleven is a strong brand in the Australian marketplace, serving 96 million customers a year with a 20% share of the convenience market, despite being located on one side of the country.

Famous for its Slurpees (frozen flavoured drinks), which have become part of the 7Eleven brand and Australian culture. On 7 November each year, a free Slurpee is given away to each customer – becoming unofficially known as 7-11 day.

7Eleven Rozelle

7Eleven has continued to focus on its core business model. A simple, small and effective convenience store in the true sense of the word. A strong central business, meanwhile, operates as a support base for its franchisees.

This model has allowed Australians to get started in business easily and allows 7Eleven to grow and develop within the market.

7Eleven Rozelle is a prime example of this trend – a convenience store focused on the core categories. The latest format incorporates a fresh food and coffee concept, including own brand products, helping to build consumer trust.

The retailer has strong price messaging including an exceptional deal on milk, reinforcing the strength of this simple, yet effective, format and brand.

About Life

Aboutlife is an independent retailer with two stores, the original store in Rozelle and the more recently acquired store in Bondi Junction. Each store has a full sized café where customers can sit and sip on an organic soy chai latte or a free trade coffee made by skilled baristas.

While aboutlife is known for fine food, it is also committed to providing sensible, cost-friendly products the average family can afford.

Educating people to think beyond the stereotype is an important part of its ethos and aboutlife aims to deliver an option to purchase quality, organic and chemical free foods an average family can afford.

In the store the shelves are packed with a range of regular groceries, available in brands that are organic/chemical free/gluten free/environmentally friendly or have a healthy point of difference that makes the product special.

In both stores there is a naturopathic dispensary with a fully qualified naturopath on hand to help with any of the products or to mix up a herbal remedy if a customer needs one.

With over 15,000 product lines in the stores, the retailer has established a reputation in Sydney for being the perfect place to find all those difficult to find products.

Focusing on commitment to product knowledge, a passion for food and healthy living the aboutlife teams commitment to excellence has seen the business go from strength to strength.

Woolworths

Woolworths began fuel retailing in 1996, building 180 fuel sites at its supermarket sites. It was instrumental in bringing discounting to the Australian fuel retail market.

Woolworths uses one brand for both its supermarkets and forecourt convenience stores, while the forecourt canopy is branded Caltex through an exclusive supply agreement.

Wooworths has 420 sites and co-brands with another 120 sites operated by Caltex with the c-store carrying the Woolworths’ brand.

The c-stores are typically 80-120sq m kiosks with a strong focus on the basics of c-store retailing. Staff efficiencies are critical to the effectiveness of their operation.

Through the supermarket ‘docket redemption scheme’ of discounting fuel, Woolworths has used fuel retailing as part of its pricing strategy and to build customer loyalty for its supermarket brand.

As a result, Woolworths is the market leader of retail fuels in Australia and its average site through put is double the industry average. Putting the Woolworths brand on an existing forecourt dramatically increases fuel volumes, testament to the effectiveness of ‘docket redemption’ system.

Woolworths Burwood Forecourt

Woolworths Burwood is a new purpose built site, which opened in late 2008. The convenience store is 150sq m and is in line with Woolworths’ strategy of a simple yet effective c-store offer that requires minimal staff, while enabling high fuel volumes.

Woolworths invests in building new sites and re-developing sites to ensure the forecourt is modern and efficient with the focus on fuel backed up by a simple, basic yet comprehensive, c-store offer.

Burwood is the embodiment of this strategy.

BP Connect

BP’s retail network comprises approximately 1,400 service stations around Australia. Of these, 225 are company-owned and operated and the remainder are independently-owned and sell fuel under the BP brand.

Avoiding the fuel discounting of the supermarkets, BP focuses on serving the more discerning customer, whose primary requirement is convenience rather than price, with a wider range of services and offers at its sites.

Using BP’s international brand format, BP Connect, and with the introduction of Wild Bean Cafe to the market in 2004, BP’s customer promise, ‘Refresh yourself, refresh your car and live a little better’, delivers on an all-round value offer.

Wild Bean is central to this offer for BP Australia. ‘Real food, real coffee, real quick’ is the customer promise for the cafe and it takes quality seriously at Wild Bean Café with a comprehensive coffee training programme. It runs its own Wild Bean Café Barista of the Year competition in Australia to find and reward its best coffee makers.

In contrast to the discounters BP’s sites have a far higher complement of staff.

BP Connect Ashfield

BP Connect Ashfield is a 193sq m transient store, launched about 10 years ago. It is situated on one of Australia’s busiest roads and in a food hub surrounded by numerous food offers (McDonald’s, Subway, KFC etc).

It incorporates a Nandos Chicken fast food outlet and has BP’s full Wild Bean Cafe offer.

Ashfield experiences peaks in the morning, when tradesmen stopping in to fill up their tanks and have breakfast, and the afternoons as customers fill up and grab some last minute groceries on their way home from work

7Eleven

7Eleven George Street is a new city centre concept store. It has a distinctive and effective design, which uses strong colours to bring the store ‘out onto the street’.

A food-to-go and coffee offer is positioned at the store entrance to encourage passing trade to stop for coffee and to take advantage of the fresh offer.

7Eleven launched this concept with a quality coffee offer being used as a loss leader. Coffee for $1 is at least half the price of its competitors, driving foot fall and positioning the store as a modern, quality convenience store offer.

Caltex Star Mart

Caltex Star Mart: leading Australian convenience retailer

Caltex operates one of the largest fuel and convenience networks in Australia with over 600 sites trading predominantly under the Star Mart brand and the Caltex/Woolworths venture.

Caltex’s Star Mart is the market leading convenience retailer in Australia and Caltex is one of the largest franchisors in Australia with over 85% of the network operated by independent franchisees, the balance operated by company-owned Calstores.

Caltex’s Star Mart has allowed Caltex to position itself as a quality convenience forecourt and therefore has avoided the price discounting of the supermarkets.

Its new 21CC (21st Century Caltex) store concept was created to ensure it retains its number one position in the Australian convenience market.

At the heart of the new concept is a bright, clean and attractive modern c-store, with a comprehensive, yet concise, range that is easy to shop. The format is designed to ensure the shopping environment is comfortable for the consumer.

The 21CC format creates a destination for fresh and ready-to-go food, while providing healthier options displayed in an easy to shop environment.

Caltex Australia is leading the way for Caltex internationally and, in consultation with its US parent company, is refreshing and modernising the 10-year old brand logo.

Caltex Bondi

Star Mart Bondi is a company-operated site and is an example of the new 21CC concept. The store is modern and uncluttered with great natural light from the glass store front.

This 251sq m store was first converted to a 21CC store in 2007 and since then changes have been made to arrive at the final look and feel – including the brand logo update.

Spar

Spar Australia is an unlisted public company. The principal shareholders in the company are independent retail store owners.

Spar supplies grocery products, marketing and retail support services to approximately 300 independent retail supermarkets focusing predominantly on the Spar brand (105) and 5 Star (53) banner groups located in Queensland.

Spar is one of only two major suppliers to independent supermarket operators on the eastern seaboard of Australia and Spar operates a large distribution centre of some 40,000sq m from premises in Brisbane.

The Spar distribution centre carries approximately 14,000 dry grocery lines with a further 2,000 frozen/chilled product lines warehoused under contract through a third party distributor.

Spar Australia has shown good growth in store numbers, rising from 25 stores in 2006 to 75 stores in 2008 and reaching over 105 Spar retail stores by early 2010. Its current market share is 0.55%.

Spar Alexandria

Spar Alexandria is owned and operated by independent retailers who have existing IGA stores in Sydney. For their latest store, which they opened in March 2010 in the suburb of Alexandria, they choose to partner with Spar.

This store represents a significant step forward for Spar’s expansion into New South Wales since the majority of its stores are located in Queensland.

The suburb of Alexandria has seen considerable reinvestment and development in the renewal of residential property in the last few years. This has created an opportunity for the store to cater to a vibrant and affluent community who have begun to call this area home.

Strong convenience delivery in Australia

Fresh foods focus in Australian convenience sector