Major Trends in Grocery and

Convenience Stores

Grocery Retail Trends

Mark Dunson

President, Emerson Retail Solutions

Operations: From Bricks to Clicks, It’s All in the Mix

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Rise of marketplaces Delivery raceStore reinvention

Mobile commerce Social commerce

Competition: Convergence of Concepts Creates New Challenges

• Grocery

• Brand is Fresh

RestaurantsConvenience stores

C-store

Food

is the

future

Restaurant

Efficient

food

factory

26 billion square feet under roof | Circling the globe three times

Grocery and retail

Grocery

Fresh is our brand

National regulation: U.S. lawmakers instructed the FDA to

forbid the sale of genetically

engineered salmon until the agency puts

in place labeling guidelines to disclose

whether a fish has been genetically

altered — a victory for advocates who

have long opposed such foods from

reaching Americans' dinner plates.

Global trade: The WTO ruled

that Canada and Mexico may

impose retaliatory tariffs of more

than $1 billion because COOL does

not comply with U.S. trade

commitments. COOL was repealed

by Congress. Now, senators are

pushing the Voluntary Country of

Origin Labeling Act of 2015 as a

solution.

Food safety: More than five

years after President Obama signed

the Food Safety Modernization Act

into law in January 2011, food

companies and retailers will finally

start having to comply with some of

its most significant rules. The FDA

published the final rules in fall 2015,

giving large companies one year to

come into compliance.

Regulation: More Regulation Requiring Sharper Focus on Many Fronts

Plus oversight in:

Energy savings

Refrigerant management

Sustainability

Workforce management

Wages

Health and welfare benefits

OSHA regulation

And more . . .

Profit: “Fresh” Remains at the Forefront, and Growing in Importance

Fresh food sales are increasing,

along with consumer buzz and interest

in eating and living well. In the U.S., 99% of

grocery shoppers buy fresh products, and

fresh perimeter aisles have become places

where grocers establish their identities.

Whether it’s sophisticated restaurant-style

foodservice offerings in deli or a wide variety

of fresh produce, retailers can use fresh to

win consumers within an increasingly

crowded retail market.

— AC Nielsen report“Supermarkets and the food retail industry have put renewed focused on

perishables departments . . . as consumers seek out food that is fresh,

healthy and minimally processed . . . products with attributes that

consumers are seeking, such as organic, natural, local and better-for-you.

Our customers are looking for more convenience but also want quality.”

-- Supermarket News, May 2016

Solutions: Technology, Regulation, Opportunity Create Fresh Approaches

What do these connected solutions enable?

End-to-end food quality

Shrink reduction

Regulation compliance

Shelf life strategies

More robust supply

Predictive equipment alerts

The Surging C-Store

Market: Transforming

How America Shops

John Lofstock

Editor-in-Chief, Convenience Store Decisions

Session Overview

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• Convenience store industry facts and figures

– Store count up

– In-store sales surge nearly 6% (thanks, CVS!)

– Fuel sales dollars dropped 27.7%, driven by the drop in oil prices

– While fuel prices were down, margins are strong

• Focus on foodservice

– Foodservice drove in-store traffic

• Employer of choice

– Salaries well above minimum wage; excellent training

– Advancement opportunities (ESOPs like Wawa, KT, Huck’s) give employees an ownership stake

State of the Industry

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• The industry is strong and growing. Store count up 1% to 154,195 in 2015 and 30,000 stores since 2001 (better stores, grumblings of market oversaturation)

• In-store dollar sales increased 5.8% in 2015 to $225.8 billion

• Pretax profit increased 1.6% to $10.6 billion

State of the Industry

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• Disparity between the haves and have-nots. Top quartile chains outsell other chains by wide margin. Food a major contributing factor.

• Tobacco is not dead. Sales in 2015 were up slightly to 35.9% of total in-store sales.

State of the Industry

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• Packaged beverages crucial (15.1% of in-store sales)

• Design matters. Facilities emphasize convenience for all demographics (IE, drive-throughs, upscale restrooms)

• Underappreciated early adopter to retail technology (foodservice touch-screens that upsell, self-checkout, loyalty programs, mobile apps)

• Brand equity is paramount. Less big oil. It’s QuikTrip, Wawa, Sheetz, RaceTrac, and customers are accepting.

Foodservice

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• Foodservice accounted for 20.8% of total in-store sales and 33.7% of gross profit dollars

• Cultivating a new generation of consumers who are growing up on c-store meals

• Study what time-pressed customers want and act quickly on trends and LTOs

• Hunted has become the hunter. QSRs mimicking c-store pricing.

Fueling Cars and Stomachs

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• No one thing has done more for the c-store industry than the demand for foodservice

• No longer a punchline. Sales at top quartile chains for foodservice much higher than bottom quartile.

• Coffee boom — Starbucks effect

• Impact of Whole Foods and Wegmans. C-stores don’t want to copy other c-stores; they want to be Wegmans

The Fuel Factor

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• The industry’s wild card continues to be location and consumer needs. If you have a car, you need a c-store. If you smoke, you need a c-store.

• Convert fuel customers to buy more stuff. Using technology to track customer movement to drive sales.

• Loyalty cards offer fuel discounts and reward repeat visits with free coffee, beverages, etc.

• Wages are increasing

• Employer of choice

• Training has consistently improved, allowing employees to take on new responsibilities

• Opportunities for advancement, familial industry

People Matter

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Tracking Customer Trends: What Do C-Store Consumers Want?

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• Wellness claims: products featuring a wellness claim are outpacing retail growth

• Menu transparency: nutritional information/product ingredients

• Click and collect: as e-commerce grows, watch for Whole Foods’ Instacart and Peapod to gain traction

• Mobile apps: mobile payments, QR codes and mobile coupons are all highly desirable with Millennials

Conclusion and Outlook

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• Industry will look to further the convenience proposition. Online ordering through mobile apps, drive-throughs, delivery, elegant in-store seating are now the rule, rather than the exception.

• Foodservice will continue to be king. Proprietary brand development and refinement are the new norm, with an emphasis on a quality dining experience at a good price.

• Loyalty programs will retain and attract customers. Fuel discounts and free coffee help sustain this popular trend.

• Employee migration to c-stores. Smaller teams where their input is valued and there is room for advancement is an appealing proposition.

Questions?

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Thank You!

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