Independent dealers are now ‘catching up’ with oil companies in terms of the quality of their store operations, according to the latest report from the Institute of Grocery Distribution – Convenience on the Forecourt 2004. The report shows that most forecourt sites now have some form of shop, with almost 90% of forecourt stores qualifying as ‘true’ c-stores – that is, according to grocery industry definition, a store of less than 3,000sq ft, which sells food and grocery, including at least half of a list of 15 specific grocery categories.

The average size of a forecourt store has increased significantly from 570sq ft in 1999 to 743sq ft in 2003, but on average they are the smallest among the five convenience segments. However, the average sales density is £16.20/sq ft/week, which is the highest in the entire convenience sector. But the number of forecourt c-stores has shown a sharp decrease in recent times because of site closures – down 5.1% to 9,401, which is slightly less than the contraction of forecourt numbers over the same period which was 7.8%. The report says this suggests that the prescence of a c-store offer provides protection for a forecourt.

One encouraging element of the site closures is the fact that more of them are oil company-owned sites, rather than dealer sites, showing that the pendulum has swung in favour of independent operation. The number of c-stores on company-owned forecourts fell sharply by 14%, while the number of dealer-owned stores grew by 5.7% during the period of the report – the figures refer to the year up to the end of December 2003.

“Clearly some oil companies have gone cool on the idea of owning and managing sites, and there is evidence of a change in strategic direction in the past year or two, where oil companies have been divesting sites, or moving away from direct management,” says James Walton, co-author of the report. “This is happening in other parts of the convenience sector where companies have moved from central control to a franchised operation, such as Musgrave with its Budgens franchise. The fallout from the oil company divestments has given real opportunities to independents who have snapped up multiple sites. This has led to a growing number of independent forecourt chains. It’s all a very positive store for independents. The sale of the Kuwait operation makes the point exactly. It’s a good move for Malthurst because Kuwait had invested heavily in its sites to develop both grocery and fuel sales. It had explored opportunities with both Spar and Budgens.”

Walton believes, however, that oil companies such as BP, Total and Esso still seem dedicated to UK operation, with the investment they have made in store design: “BP’s Connect is one of the leading formats, but we are seeing equivalent developments from Esso with On the Run and Total with Bonjour. These formats look good, they have confidence and style, but there seems to be little attempt to make them available to dealers. I think this would be a good way of rolling them out to a broader market, and a good opportunity for the dealer.

“The symbol groups are keen to exploit any forecourt opportunity and oil companies should be wondering if it’s right to surrender all these grocery opportunities to the symbols, or make their own format more available to dealers and fight the symbols at their

own game.”

On the question of falling site numbers, the report suggests that there must be some end to this, although where that end point lies is open to debate, with estimates varying from 7,000-10,000. The IGD has taken the middle ground and states that within the next four years numbers will fall to around 8,250 forecourt sites.

“With all the forces driving contraction, such as static market, falling fuel margins, and pressure from supermarkets, there is still some way to go, but the introduction of a c-store strategy has been successful in helping many

forecourts resist these pressures,” asserts Walton.

While forecourt stores are fast becoming more than a match for the traditional c-store, there is still a key difference in terms of customer breakdown. Compared to the average customer of the c-store sector, forecourts have more men – 62% vs 42%; more people under 45 years old – 67% vs 45%; more in socio economic groups A, B and C1 – 51% vs 49%; and more in full-time work – 71% vs 49%.

The average c-store has a 50/50 split between men and women, but Walton explains the anomaly by saying that while forecourts have come a long way in attracting the female buyer, there’s no getting away from the fact that men tend to be in jobs that involve more driving than women – such as delivery drivers, and sales reps.

The report warns that retailers should be aware of a number of strategic issues that could affect their businesses. Congestion charging, for example, is emerging as a mainstream policy. “Forecourt retailers everywhere have to consider the possible impacts, especially in urban areas. Schemes are active in London and Durham and are under consideration in Birmingham, Bristol, Cambridge, Chester, Derby, Edinburgh, Leeds, Milton Keynes, Nottingham and Reading.”

Another strategic consideration is the government’s increasing willingness to regulate in areas of health and wellbeing such as

obesity, advertising, smoking and drinking. “The political culture currently prevailing tends to favour a very proactive approach,” says the report. “Also note the use of emotive language by government and pressure groups. There is also a readiness to use legislation to oblige businesses to assist in pursuing social objectives such as modifying product specifications to improve ‘healthiness’; reducing portion sizes to reduce the risk of obesity; and proscribing certain methods of advertising/marketing.

“This new approach fundamentally changes the relationship between government and business, and forces business to take responsibility for protecting individuals from their own decisions.”

Walton stresses that the convenience retail industry is particularly vulnerable to this new trend because it is heavily reliant on the sale of products which have been targeted as ‘undesirable’.

Retailers should also be thinking about the economic situation which is more favourable now than in 2003 – although “somewhat fragile and may deteriorate quickly”. IGD does not anticipate a ‘true’ recession, but there’s likely to be a slowdown in growth.