A guy walks into a convenience store…It’s no joke — Canadians visit convenience stores every three seconds. It’s not difficult to do, with approximately 27,000 of them across the country — more than a third of which are located in rural areas. That adds up to 10 million visits a day and total sales of $51.7 billion in 2014.
The numbers are courtesy of the Canadian Convenience Store Association (CCSA), a national umbrella organization, based in Oakville, Ont. that advocates on behalf of retailers, manufacturers and distributors. The association has regional affiliates in the West, Ontario, Quebec, and the Atlantic provinces, as well as its affiliate, the National Association of Convenience Distributors. C-stores, as they are known in the industry, purchased $26.6 billion from suppliers such as Campbell Company of Canada, Canada Dry, Mott’s, Clover Leaf, Coca-Cola, Dare, Hershey, Mars, Nestle Canada, PepsiCo, Weston Foods and Wrigley in 2014.
According to Technomic’s 2015 Canadian Convenience-Store Foodservice Consumer Trend Report, 67 per cent of Canadians visit a convenience store at least once a month — mostly for snacks and beverages, not meals. The report shows beverage-only occasions made up 51 per cent of c-store foodservice while snacks accounted for 26 per cent. Breakfast, lunch and dinner combined only amounted to 24 per cent of purchases. And while a fair share of c-store foodservice purchases are impulse buys such as doughnuts, chips and hot dogs, a new generation of customer is looking for something more. “Consumers are seeking healthier options from convenience stores,” says Donna Hood Crecca, associate principal at Chicago-based Technomic Inc., who notes an increase in snacking is opening the doors to products on c-store shelves. “Just about any item in a smaller portion can be considered a snack and consumers’ on-the-go lifestyles are making portable, satisfying snacks more important in the c-store setting,” she says.
According to U.S.-based IBIS World’s report, Convenience Stores in Canada, released in July 2016, industry revenue for the c-store segment is expected to increase at an annualized rate of 0.4 per cent to $7 billion over the next five years, which includes an increase of 0.5 per cent in 2016.
But intense competition has developed between QSRs and c-stores for the on-the-go dining occasion, driven by consumer demand for quick, portable food and drink items. “C-stores have the advantage of also offering various categories in addition to prepared food and beverages (retail items such as candy, gum, groceries, tobacco products and fuel), which creates a one-stop option for consumers,” says Crecca. “But they need to compete with QSRs on menu and product innovation and deliver craveable, tasty, quality food-and-beverage items, while still hitting the mark on convenience via speedy service.” With the foodservice industry facing overall growth of only one per cent over the next five years, according to research by Toronto-based NPD Group, c-stores need to focus on stealing share from the QSR competition. “We call that ‘category creep,’” says Andrew Klukas, president of the Western Convenience Store Association based in Vancouver. “We are very nimble. The industry is constantly evolving.”
Klukas says competition has increased since chains such as Shopper’s Drug Mart began staying open 24 hours a day. “We roll with it,” he says. He reels off a list of franchises that share locations with c-stores: Tim Hortons, Seattle’s Best Coffee and Chicken on the Run. “There has been a focus on quality service and healthier options,” says Klukas, echoing a position that has become unanimous in the industry. But Crecca says c-store shoppers also want to indulge when it comes to food selections. The iconic 7-Eleven — the world’s largest c-store chain with approximately 10,800 of its 59,500 stores located in North America — now offers fried chicken made on premise at 200 of its Canadian locations. Although it may not qualify as part of the healthier food trend, it is hormone- and steroid-free and grain-fed.
The chain, which currently boasts a 7.5 per cent market share, dates back to 1927, when someone had the clever idea to sell milk, bread and eggs along with blocks of ice for ice boxes. Since then, 7-Eleven has always been able to identify trends — using counter-top microwave ovens, self-serve soda fountains and roller grills as early as the 1970s. By the 1990s, 7-Eleven predicted the move towards healthier foods and built the infrastructure to support fresh-food products delivered daily.
Couche-Tard, which also owns the Mac’s brand, is a huge player in the world of c-stores. Its organic Simply Great Coffee is experiencing continuous double-digit growth and its new, purpose-built “foodvenience” stores, featuring food prepared on-site is an industry first. In its 2016 annual report, the tone is upbeat. The fiscal year is described as “outstanding” — the eighth consecutive year of record-setting earnings. Couche-Tard has more than 12,000 sites globally with 7,888 c-stores in North America, 6,490 of which offer road transportation fuel.
In fiscal 2016, the company launched its new global Circle K brand. In Canada, it will come to Mac’s starting in May 2017.
Because of the specifics of the market in Quebec, the Couche-Tard retail brand will be retained there. Couche-Tard also acquired the Esso-branded network in Ontario and parts of Quebec that had belonged to Imperial Oil. The deal brings together not just Couche-Tard and Esso, but also Tim Hortons which is a partner at many of Imperial Oil’s Esso sites.
FILL ‘ER UP
A corner store a short stroll down the street is a star player in the c-store world, but so is one where vehicles are fed along with people.
Suzanne Gray, a senior analyst with the Kent Group in London, Ont., says data shows an increasing number of gas stations feature a c-store component. The research is based on nearly 7,000 stations, representing approximately 60 per cent of all retail sites in Canada. In 2013, the number of gas stations with a c-store was 84.2 per cent. By 2016, that number had climbed to 86.1 per cent, with half the year still to go.
The c-store footprint has also increased with many boasting up to 1,500 sq. ft. of retail space. So what’s fuelling the trend? “One reason might be to supplement the relatively low margins of fuel retailing,” explains Gray. “We may be seeing an increase in the involvement of convenience retailers in the fuels business for the purpose of increasing traffic to stores and thereby increasing store sales. Many gas stations are located on prime properties with large traffic counts — perfect for the addition of a convenience store.”
Canada’s changing population is also impacting growth. The Canadian Foodservice Industry Report 2015 says almost a third of the population is forecast to be part of a visible minority by 2031. The report notes the youngest generations will drive growth for the Canadian foodservice industry for years to come, making ethnic foods increasingly popular across all categories.
As Canadian c-stores evolve to meet customer demands, they can look to their American counterparts such as the Sheetz chain, which offers barista stations, and Wawa with its more than 650 counters offering custom-made sandwiches. Small but mighty
According to Klukas, “The smaller independent [c-stores] are doing quite well,” he says, noting these are often the only businesses within walking distance of residential areas. “They can raise property values and transform a community.”
That’s something Elias Monsour and his wife Jeannette know a thing or two about. They have owned and operated 5th Street Grocery in Ottawa’s Glebe section for more than 40 years. It’s the quintessential “mom-and-pop” store, open seven days a week from 8 a.m. until 9 p.m. The shop is densely packed with everything from jelly beans to binoculars — the polar opposite of the sleek, modern c-store with open-front refrigerated cases full of salads.
Despite their deep roots, the Monsours have put their business up for sale, in part due to competition from stores with expanded hours. “In the old days,” says Monsour, “there was more business, more people. Not many stores were open on Sunday.”
Volume 49, Number 7
Written by Carol Snell