boosting impulse sales at the checkout counter

Higher operating costs and lower margins are forcing marketers to boost profitability in other areas of the store.

The convenience industry is under constant pressure from an ever-changing retail environment. This requires the constant need for marketers to refine store practices for driving new business, and to expand the consumer purchase of products beyond cigarettes and gasoline.

Among the complex challenges faced by convenience store and petroleum marketersare:

  1. Declining tobacco sales. While the sales dollars generated by tobaccoproducts remains relatively high, accounting for 34.7% of overall in-storesales, it’s misleading because the inflated price has been driven by stateand federal taxes. The fact is, the number of smokers and the average profitmargin per pack, are down.
  2. Lower gasoline profits.

    On average, gas accounts for 66% of totaldollar sales, but only 34% of store profits. Plus, with higher prices, morecustomers are paying by credit card, nearly 85% the National Association ofConvenience Stores (NACS) recently estimated. This means chains are beingforced to bear the brunt of higher processing fees or they’re forced to passthe increase onto consumers. According to the 2005 State of the Industry report,only labor costs and rent exceeded credit card fee expenditures in 2004 withsome high-volume marketers reportedly paying up to $1 million a month in creditcard fees.

  3. Drug stores targeting the convenience trip. Like c-stores, drug storeshave strong locations. They offer front-door parking with good ingress andegress, they carry convenience items like cigarettes, single-serve snacksand beverages at competitive prices, and major chains like Walgreens havestrong debt ratios. Just how strong? Walgreens reported in 2005 that it wasopening a new store every 17 hours. By 2010, the chain expects to open morethan 1,300 new units, all with virtually no debt.

So how can marketers fight back? Experts say the answer lies in the convenience store.

Dechert-Hampe’s Convenience Store Front-End Focus study concluded that while fuel, beverages and tobacco are the leading destinations, a key opportunity exists for retailers to boost the average sales ticket with the high-impulse items already in their stores, most notably with single-serve snacking products such as candy, gum and mints.

The research firm conducted a comprehensive one-year study of more than 200c-store chains and tracked the buying habits of 4,000 in-store and gasolinecustomers. Here’s what the study found:

  • Single-serve snacks generate almost $14 billion annually in the c-storechannel and represent 7.3% of in-store sales. By breakdown, confectionerygenerates 37% of the single-serve snacks dollar sales, followed by salty snacksat 21.8%. The study showed that while confectionery generated 37% of the sales,it contributed 42.8% of the profits.
  • The average consumer made 1.9 stops during their visit to the c-store. Whilethe 80-20 rule usually applies, the more successful retailers were runningmarket basket software to identify shopping patterns in order to space outpopular destinations getting customers more looks at higher margin items.
  • Of the consumers that purchased a carbonated beverage, 39% also purchasedcandy or gum. If it’s 39% at your store, shoot for 50% by locating additionalcandy displays near the cooler. Or push King-Size packages so at least ifthe number stays at 39% the store margin is increased.
  • Confectionery represents 37% of single-serve sales dollar, but the averagec-store that had confectionery at the checkout counter had an out-of-stockrate of 9.4%. In some stores the rate was as high as 20% resulting in a significantloss of sales.

Bill Duseck, who authored the study for Dechert-Hampe, said companies reportedthousands of dollars in sales growth just by reducing out-of-stocks. “Some wereso amazed at the net profit that they began reprimanding managers in storeswith out of stocks were a problem,” he added.

  • Of the 37% of customers who buy gas at the pump, only about half also goin the store. Stores that have boosted that number by 5-7% are adding thousandsof dollars in new sales annually. Strategies like pumptoppers, interactivepump displays or couponing have all been shown to be effective. “Do whateverit takes to drive in-store business especially since the hard part of gettingthe customer on the lot has already been accomplished,” Duseck said.

Single-serve snack strategies
While the checkout counter is the highestconsumer traffic area within the store, it’s also the last opportunity to influenceconsumers to make one more purchase. Yet Decert-Hampe’s retail audits showedthat 40% of stores do not carry gum or mints at the checkout counter and 30%of stores do not carry candy at the checkout.

Among the study’s recommendations for building sales were:

  • Understand the value of single-serve snacks. These impulse itemsshould be measured by the potential they have to draw people into spendingmoney and not simply a single item purchase.
  • Merchandise candy and gum in multiple locations. According to Duseck,this is area where convenience retailers had the most room to improve. Lessthan half of the chains participating in the study followed this strategy,he says.

Since the average c-store shopper makes less than two stops within the store during their shopping trip, it is imperative to merchandise target items in as many locations as possible. The study showed that the best practice is to carry candy and gum in four or more sections of the store.

  • Leverage foodservice. Since many consumers target foodservice theyoften do not shop the rest of the store. Having candy and gum in close proximityto the food counter is an effective marketing approach. Candy and gum saleswere significantly higher in stores that merchandised them in foodserviceareas, the report concluded.
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