While private label products are improving, quality and value remain critical components for all snacking options.
By Howard Riell, Associate Editor
That’s the all-too-common answer to the question of whether or not price promotions can drive snack sales in convenience stores. Yes, in a lousy economy people look for and respond to savings. But, snacks can be a pretty personal item, meaning that a host of factors, such as overall quality and brand names in particular, can generate very real passion, and hence loyalty.
C-store operators struggle to keep prices down, but they also need to make promotions special and, as with private label products, stress quality to the point where consumers come to expect quality and value. Granted, easier said than done.
Susan Viamari, an analyst for SymphonyIRI Group, noted that recent research has helped illuminate exactly what role price plays in consumers’ choices of snacks:
• Nearly 76% of consumers actively look for the best value when buying snacks.
• Despite a prolonged down economy, consumers do, in fact, show an affinity for their favorite brands.
• Approximately 43% of consumers will compromise on nutritional value to save money.
What Moves Snackers
Is cheaper necessarily better when it comes to snacks?
“No,” said Jim Monroe, director of foodservice for Handee Marts Inc., a 7-Eleven licensee that operates 63 stores in Gibsonia, Pa. “The snack market is maturing, but quality is always paramount. There is a place for private label, which we are doing very successfully with 7-Eleven’s 7-Select line, but it isn’t necessarily about price. It’s quality. Some of these things are selling pretty well, and we’re not doing any promotions on them because they are top quality.”
Manufacturers are providing incentives for retailers to run a variety of promotions with lower-cost items, Monroe confirmed, but he is looking for more retail promotions that reward customers for their loyalty, such as buy-one, get one specials.
As far as growth areas, private-label bagged candy has emerged as a solid growth segment. “It is absolutely selling because of the price, but it’s also driven by quality,” Monroe said.
When it comes to traditional candy bars the lure of private label is less effective. “Customers are pretty particular when it comes to the chocolate that they buy,” Monroe said. “Price is not the determinant.”
While the profit margin on the private label snack items is strong, operators must remember that they also carry a substantially lower retail price than national brands. As volume improves, sales may appear to be dipping. “But in actuality, profitability is increasing,” Monroe said. “You have to pay close attention to margin contributions in addition to sales.”
7-Eleven’s 7-Select private label line includes a variety of bakery options, including doughnuts, cupcakes, apple pies, honey buns and Danishes that Handee Marts is positioning to sell in the morning and throughout the day.
“Customers who turn to private label are looking for better values and ways to save money,” said Joe Hermes, 7-Eleven’s senior product director for bakery and produce. “But just saving money isn’t enough to keep them as repeat purchasers. Our goal was to match or improve on the taste and quality of the baked goods by the national brands. If you can do that and save customers money they’re more likely to become loyal to that product.”
Driving New Business
Just how much cheaper prices drive snack sales at convenience stores is open for some debate.
“One of the things about convenience stores is that they are largely recession-resistant. Nobody wants to be in a recession if you’re in retail, but c-stores might be able to weather it better than other channels,” said Jeff Lenard, vice president of communications for NACS. “When you’re hungry you don’t look at the latest job numbers. If you have an income and you’re hungry, you’re going to eat. You don’t look at your stock portfolio before deciding to get something to drink. That’s an advantage for our industry.”
Indeed, as Lenard pointed out, c-stores sell immediate consumption. Research shows that fully 80% of the products convenience stores sell are consumed within an hour of the purchase.
“You’re appealing to immediate gratification, so price is one factor. But I don’t think anyone’s going to seek out your store because your candy bars are two cents cheaper. They will seek out your store if your gas is two cents cheaper or if your cigarettes are a nickel cheaper,” Lenard said. “But with snacks it’s about making customers feel good about their purchases.”
Private label can be a solid complement to national brands, according to Lenard. “Look at the model of Trader Joe’s. Some 90% of their items are private label, so when they nail it with a product, you can’t go to the competition to get it,” he said. “As a retailer, if you have a proprietary product that people crave they have to come back to you. That’s an enormous competitive advantage. All of a sudden customers don’t care as much about your gas prices. They care about getting that product from you.”
To do private label effectively, chains must have the resources necessary to craft a product that differentiates itself in one or more ways. Whether that point of difference is taste, quality, price or even a promotion, this uniqueness is what will ultimately inspire loyalty and repeat sales.
Lenard pointed to 7-Eleven’s recent promotion for the Steven Spielberg movie Super 8. The grand prize winner will receive a zero-gravity suborbital space flight. The flight is offered through Space Adventures and has an estimated value of more than $100,000.
“This is what promotions are all about—giving somebody something that they can’t get by themselves,” Lenard said. “If the grand prize is a hundred bucks, well, that’s great, but you can get a hundred bucks a lot of ways, but who can go on a sub-orbital launch by themselves? So the really interesting promotions are where you show the customers what you can do for them that they can’t do for
Strong Gains for Snacks
The weak economy has not taken much of a bite out of meat snack sales.
Americans are loathe to sacrifice edible indulgences, even in times of financial crisis. All three NACS snacks categories—salty, packaged sweet and alternative—showed increases in average sales per store from 2008 to 2009, and showed gross-margin percentage and average gross-margin-dollar-per-store gains.
The Snack Food Association of America (SFA) reported that meat snacks were among the handful of winners in an environment of conservative shoppers. Along with refrigerated appetizers and salty snacks, meat snacks price per volume rose 7%, behind only chocolate candy (11%) and microwave popcorn (13%). The industry average was a 4% bump in sales.
One curious finding in SFA’s industry report was that grocery stores’ sales of the top five snack categories (salty snacks, ice cream/sherbet, yogurt, crackers, cookies) surged while Wal-Mart’s fell. The convenience channel’s snack sales grew 1.7% in dollar sales, but fell 6.7% in volume sales.
Other shopping behavior findings from the SFA report include:
• More than 80% of consumers actively look for the best value when buying snacks.
• Approximately 26% are trying to make household snacks last longer.
• 31% are snacking less frequently.
• 42% are cutting back on money spent on snacks.
• Nearly 22% are cutting back on unplanned snack purchases.