The Raison d’être of Convenience Stores (and What Retail Innovation Should Be About)

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Decline of unmanned convenience stores

There’s a marked decline in the fortunes of unmanned convenience stores.

This reversal follows their boom only a few years ago, when unmanned conveniences stores – touted as the gamechangers of retail – were the darlings of investors. In late 2016, the announcement of Amazon Go, a cashierless store concept, was followed by a sprouting of unmanned stores in China. Nearly 200 opened in the country by 2017, and the estimated market size was US$5.8 million that year.

The sector started witnessing closures at the beginning of 2018, with funding said to have fallen sharply. Interestingly, and imaginably a telling sign, media and research companies also stopped collecting data.

The market was ready, but is that enough?

The fall came after assessment showed that the market was ready – both for greater digitization and convenience.

There was high smartphone penetration and pervasive mobile payment services. Coupled with high urban density and increasing numbers of commuters who value efficiency, China looked set to be the place of growth for cashierless convenience stores.

So, what went wrong? And for unmanned stores that are still surviving, what needs to change?

 

The convenience store’s raison d’être

Perhaps, the most important question to ask is whether these convenience stores have satisfied their core purpose. One might ask, what that is in today’s shifting retail landscape driven by digitally empowered consumers. Surprisingly, or maybe it shouldn’t be, it appears that the raison d’être of convenience stores is, well, convenience.

But what does that mean exactly? Is it proximity, accessibility, or store efficiency? Or is it the availability of diverse products, value-added services, or innovative offerings under one roof?

  • Proximity, Operating Hours. A survey conducted by Deloitte shows that 80% of consumers who shop in convenience stores – manned and unmanned – shop in nearby stores, while 59% shop in those offering longer operating hours. And they mainly satisfy the consumption needs of consumers who can arrive within 10 minutes during their work breaks or commuting hours. Another study by iResearch shows similar results for unmanned stores. 35% of consumers chose unmanned shops for the first time because of their 24-hour service. And 84% of them return as customers because it is nearby, convenient and saves time.

 

  • The Right Categories. Consumers also appear to be more interested in fresh or fast food items in convenience stores, such as in-store food, sushi and packed lunches. According to iResearch’s report, goods/services consumers want most from unmanned stores are fruits and fresh food (42%) compared to processed foods such as snacks (35%) or drinks (33%). This corresponds with 7-Eleven’s statistics in China. Most of its sales and gross profits come from such fresh or fast food commodities – which contribute 43% of sales and 47% of gross profits.

So, manned or unmanned, convenience – associated with proximity, accessibility and availability of items customers want – remains the most important reason consumers choose convenience stores.

 

Innovating for the sake of innovation?

Bearing that in mind, several burning questions beg to be asked: Have we – in retail – been so swept up by the whirlwinds of digital technologies we’ve been innovating for the sake of innovation? Did the unmanned stores that have fallen out of favor sought to offer convenience as their key value proposition, or did technology wag the dog?

These store operators leveraged technology to remove the need for workers. Unfortunately, a humanless store format is not the driving consumption factor for convenience stores. So much was put into areas such as facial and behavioral recognition for customers or RFID for goods that other elements of the equation were overlooked.

  • Unexploited product categories. One of the major issues was a greater focus on snacks and drinks than fresh or fast food items. The fact that the latter is consumers’ most desired category in convenience stores already meant that these cashierless convenience stores were missing out in revenue opportunities. Worse, processed foods also have much lower margins: Around 25% compared to fresh or fast food which stand at 40% to 50%.

By focusing on products with long shelf lives, the unmanned convenience store bore more similarities to a giant vending machine than the corner shop whose proprietor knows what you want when you step in.

  • Missing the potential of data.

Could things have turned out differently had these unsuccessful operators stocked up items that customers want? Or had the unsuccessful operators turned to “lateral data sources” earlier to discover why things hadn’t worked? One could only ask.

 

Raising more questions, but that’s not a bad thing

In innovating for the future of retail, where do we draw the line? That’s a question I’ve been asked. Today we have the unmanned convenience store. Is it sensible for us to imagine a seamlessly omnichannel one where a consumer clicks for a pack of cigarettes and then pick it up in-store? Is there value in that type of convenience (unless of course the product always stocks out)? Do we want AI and machine learning-powered robotics serving us? Or is that too much like a sci-fi horror movie? Does the future convenience store need a differentiated human touch, as opposed to ultra-digitized convenience? How are retailers approaching the future of convenience stores, and importantly, how is the essence of convenience – its raison d’être – preserved and magnified with innovations?

And what happens when super apps (such as Grab and GoJek) offering ride-hailing food ordering, digital payments, and courier services come into play? Consumers can use these services to courier non-time critical items – making them effectively competitors to convenience stores. What happens then?

We seem to be raising more questions than we are answering. But really, that’s not a bad thing. It’s through such fundamental, soul-searching questions that we come to realize that digital transformation is often a human transformation journey too.

And in those, we often need look in and ask: What’s our core purpose?

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