The c-store sector is thriving in the hands of multiples and symbols, but other operators are facing harder times. Liz Hamson reports

Despite a torrid retail climate and falling store numbers, the UK convenience sector has once again outperformed the overall grocery market, according to the latest IGD Convenience Retailing report.

The market has grown 4% to £24.9bn since 2005 against a 3.4% increase in the wider UK grocery market. It now accounts for 20% of the total market, which IGD estimates is worth £123.9bn. Convenience multiples have achieved the strongest sales growth at 16%, but the symbol groups have also performed well, generating a 10.2% uplift. Although there has been a 1.1% decline in the overall number of stores to 51,526, the rate of contraction has slowed from the previous year's 2.9%.

However, the number of non-affiliated independents has fallen 3.6% to 25,893, taking their market share to below 50% (49.2%) for the first time. They have also under-traded relative to their market share, only accounting for 29.2% of sales.

David Gordon, business manager at IGD, says that although market growth has not quite matched the 4.9% achieved last time, it is impressive given the wider economic factors that are at play. "This is set against a tough year in which consumer spending was reined in. High street spending was under the cosh."

The convenience sector has been fairly immune, however, and shows every sign of remaining resilient. Indeed, IGD is predicting the sector will grow to between £30.7bn and £33.9bn by 2011, in line with a medium to high growth scenario.

The multiples have enjoyed by far the strongest sales growth, thanks to increased store numbers, strong year-on-year trading and conversions of stores to higher-performing formats. However, says Gordon, these results should be kept in perspective as they still only have 4.6% of the market in terms of store numbers and 12.4% in terms of market share.

He says: "Clearly they've had a good period in terms of growth. But we shouldn't overlook the performance of the symbol group stores. They've seen good recruitment and their overall performance in terms of store numbers is up just over 5%. The segment is also up in terms of sales, taking their market share to 33%."

The 5.1% increase in symbol store numbers offset some of the decline in unaffiliated independent numbers, he adds, playing down the significance of the latter's fall to below 50%.

"There has been a gradual decline in independent convenience stores. Wisdom would suggest that this will continue to be the case in the future."

Forecourt convenience retailers are another group under pressure, largely as a result of rationalisation. Yet the decline in forecourt convenience store numbers has not been as sharp as that of the forecourt sector as a whole, reinforcing how important a good convenience offer now is to forecourt operators.

Other positives are that sales per store have increased and more operators have moved away from the traditional image of forecourt retailing to develop their foodservice and food to go options.

As for the co-operatives, they have had a muted year following an intense period of mergers and acquisitions. Despite the formation of the Midcounties Co-operative Society and the East of England Co-operative Society in September and October respectively, 2005 was largely a period of integration and stabilisation, says Gordon, highlighting the challenges faced by the biggest society by far, The Co-operative Group.

The group accounts for more than half of all stores within the segment and its relatively poor performance has had a significant effect on that of the overall segment, although other societies delivered strong results, including United Co-operatives.

Even so, the co-ops, like the multiples, have successfully tapped into a number of key trends driving convenience. Fresh remains a major focus and now accounts for 24.4% of sales. Operators also stepped up their response to consumer demand for healthy eating and premium lines.

Gordon believes that operators will follow the multiples' lead on ranging (see left) to create a more balanced template for the future, one that is less reliant on tobacco, confectionery and newsagent lines. Non food, too, will begin to figure more prominently in the symbol groups as they seek a point of difference from the fresh food-based offers of the convenience multiples and co-op stores.

There are still further opportunities to be tapped in fresh, though an IGD poll reveals that suppliers are concerned that this will come at the expense of traditional impulse categories such as soft drinks, confectionery and snacking.

While range and quality may have improved, prices have become more competitive and this has hit suppliers, according to the poll. It shows that 78% of suppliers think their retail customers have become more demanding over the past 12 months; two thirds say they are devoting more resources to the convenience sector but complain that it is not being fully recognised by retailers; and only 20% believe that in-store compliance has improved. Meanwhile, 63% of retailers admit they have adopted more aggressive negotiating stances.

Price competition has intensified and more than 80% of retailers and suppliers expect it to become fiercer over the next year. Yet Gordon does not believe there will be a price war: "I don't think it is in anyone's interest. At the end of the day, operating costs are higher and operators will always be considerate of that."

There are plenty of challenges ahead, not least the smoking ban that comes into force across the UK next year. Tobacco accounts for 20% to 30% of convenience store sales and could be hit hard by the ban, though the impact is likely to be felt more in licensed and vending operations.

Even so, Gordon believes the conditions are still strong for market growth and that the success of the multiples does not preclude other operators from doing well. "There is nothing to suggest this will slip. There are plenty of opportunities for operators. Ownership does not dictate ability to seize those opportunities."

Facts about the UK convenience market

- The market is worth £24.9bn - up 4%
- The market is expected to grow to up to £33.9bn by 2011
- There are 51,526 dedicated convenience stores - down 1.1% from 2005
- Numbers were up in symbol groups (5.1%), convenience multiples (2%) and co-ops (0.6%) 
- Number of non-affiliated independents fell 3.6%
- Convenience multiples' sales grew 16%
- Average sales per symbol group store are 125% higher than at non-affiliated independents
- The average store size has grown by 5% since 1999 Stores stock 3,100 lines on average.

Convenience retail sector sales 2005-2006

                                                                   2006                       2005                      Change %  
                                                            £m      share %        £m     share %        sales      share 
Non-affiliated independents       7,251     29.2           7,461    31.2               -2.8            -2
Total symbols                                8,222     33.1           7,459    31.2            +10.2       +1.9
Total forecourts                              3,741    15.1           3,811    15.9               +1.8        -0.8
Convenience multiples                3,079    12.4           2,655     11.1               +16        +1.3
Co-operatives                                 2,561    10.3          2,508     10.5               +2.1        -0.2
Total convenience stores          24,854     100          23,893    100                  +4 

Convenience store numbers

                                                                  2006                          2005                            Change %  
                                                             No    share %            No    share %        stores      share
Non-affiliated independents     25,893     49.2           26,873    50.4                -3.6           -1.2
Total symbols                              13,035     24.8           12,400    23.3                +5.1        + 1.5
Total forecourts                             8,964     17.0              9,301    17.5                -3.6           -0.5
Convenience multiples                2,427       4.6             2,379       4.5                  +2           +0.1
Co-operatives                                2,334       4.4              2,321      4.4                +0.6 
Sub total                                        52,653     100            53,274    100                 -1.2
Joint ventures*                               1,127                           1,189                            -5.2
Total convenience stores          51,526                         52,085                            -1.1

SOURCE: IGD RESEARCH 2006 * Joint ventures are operated jointly between an oil company and a retailer and are petrol filling station based