Stories
Across the globe, neighborhood corner stores are largely immigrant-owned and the ultimate low-key symbol of retail. Often, they're small embodiments of a city's diversity; they stock important day-to-day provisions, generally at a small to medium markup.
Bodegas, corner shops and convenience stores – they have different names in different locations – are popular because of their personalities. It seems like most of them are oddly curated: magazines sit next to tools, which sit alongside boxes of organic fruit. No Silicon Valley algorithm could dream up anything similar, yet their value is undeniable. In the UK, the Association of Convenience Stores (ACS) found that these businesses generated more than £43.2 billion in sales in 2021 while, in the US, that figure was around $650 billion, according to the Association for Convenience & Fuel Retailing.
But keeping them afloat isn't easy. Many are open for long hours, with owners in a lot of cases paying themselves very little so that the business can break even, according to the ACS report. These unsustainable behaviors have led to the closure of many independently owned convenience stores. In the UK, for example, store numbers have fallen by around 5% over the past five years to just under 47,000, with retail consultant Gerard Rego predicting that a further 6,000 will close over the next five years.
Still, many owners of local neighborhood stores, like east London's Mohammed Al Mamunul Huq, will tell you that people will always need basic foods and essential products. He also says that, while it's maybe not so lucrative, there's still a positive future for the industry.
‘I had lots of knowledge of customer service and retail from 14 years of working in coffee-shop chains,’ says Mohammed, who bought his corner store, Parnell Mini Market, back in 2017. ‘But the coffee-shop industry is a bit risky. If it's not in a good location, then the business can fail.’
Instead, Mohammed wanted to translate his retail and product experience into a convenience-store format. And, during the pandemic, when shelves in large supermarkets were running empty, it paid off: convenience stores like his stepped up to meet consumer demand. Mohammed would often find himself driving around to multiple wholesalers to keep his own stock levels high. And it was worth it: he not only gained a lot of new customers in that time, but he also ended up hiring more full-time members of staff to keep the operation going.
Under pressure
Despite this growth during the pandemic, however, he warns that it won't be plain sailing for convenience stores. ‘There are still so many issues with stock because of the driver shortages and Brexit,’ he says, referring to the import delays across the UK-EU border. Fluctuating supplies of stock are only one of the barriers he and his team are grappling with. Traditional product areas like tobacco, newspapers and magazines are seeing declining sales. Profitability is also generally decreasing, as corner shops try to compete on price, says Patrick Mitchell-Fox, senior business analyst at the UK's Institute of Grocery Distribution.
On top of that, supermarket chains have recognized the financial value of the corner-shop format and are expanding their footprints into the sector. This is bad news for independently owned corner shops, which often can't compete with supermarkets on price. In 2021, German grocery chain Aldi revealed a convenience-shop format, named Corner Store, in Sydney for urban shoppers. And, following a trial period, UK supermarket giant Asda has launched On the Move convenience stores and aims to have 200 sites by the end of 2022.
While Mohammed is skeptical about supermarkets getting into the convenience retail industry, he's optimistic about the rise of the ultra-fast grocery-delivery space. The $14 billion industry ballooned during the pandemic: Turkish brand Getir pocketed a $550 million investment earlier this year, and Berlin-based Gorillas raised just under $1 billion. The business model is pretty straightforward: the delivery services have micro warehouses dotted around major cities, so orders can be fulfilled rapidly. Many say they're a serious threat to the long-standing neighborhood corner shop, but Mohammed thinks it's opening new doors.
‘The delivery companies are buying stock from us to deliver to their customers,’ he says, before adding that Parnell Mini Market isn't serving these sorts of delivery companies just yet, but it's on the cards. ‘Getting involved could be just another way to help us grow.’
Since this is such a new and developing industry, there's no way of knowing whether ultra-fast grocery delivery will end up being a blessing or a curse for the neighborhood convenience store. Although Mohammed is hopeful, there's a chance that the delivery companies could reduce their reliance on local corner shops in the medium to long run, and instead start competing with them directly.
Staying power
Despite these pressures, research by the ACS predicts that the convenience-store sector in the UK will grow to £47.1 billion by 2024. And many convenience store owners, like Mohammed, are keen to maintain the momentum that started as a result of Covid. The team at Parnell Mini Market, for instance, are doubling down on customer service and innovating with the store's product mix: ‘If someone new comes in, we always ask them what they want us to stock,’ he says. ‘It helps me, too, because I don't know everything. Maybe other customers will start picking up that item, too.’
Others are experimenting with alternative revenue sources instead of relying on revenue from essential products. C Jang Mart in Los Angeles has its usual offering of drinks, groceries and tobacco, along with a deli counter. The store also hosts barbecues and live music every evening to actively draw crowds in. In Wyoming, just outside the capital of Cheyenne, the Antelope Truck Stop Pronghorn is a family-owned and operated gas station that doubles up as a restaurant serving up Punjabi cuisine.
Wigston Fields News & Deli, near Leicester in the UK, started stocking locally produced goods and added a delivery service when the pandemic hit, like 21% of other rural convenience stores in the country, according to the ACS. And, not too far from Parnell Mini Market, The Shoreditch Shop in east London is an off-license that, at lunch time, offers a selection of home-cooked Indian curries, rice and sides for a set price.
The curation game
For most convenience stores, spending money on outward-facing marketing and branding hasn't always been a priority. It's unlikely that they'll have their own website, let alone accounts on social media platforms. And, while that might change as more retailers go digital, this is a gap in the convenience retail industry that a new wave of shop owners are now experimenting in.
Take Foxtrot, a convenience store brand that has locations in Chicago, Dallas and Washington DC. It raised $42 million in funding in early 2021 and is doing things differently when it comes to its product mix: alongside snacks and household items, it also offers pastries, charcuterie, lifestyle items and an in-house 30-minute delivery service.
There's also Depanneur in the Danish cities of Copenhagen and Aarhus, which takes its name from traditional small shops in Quebec. Depanneur has branded itself as a ‘design-driven convenience store, bagel bakery and beverage label’. The success of its physical stores has also allowed the Depanneur team to expand into launching own-brand products, like juices, coffee and alcoholic drinks.
It's unlikely that conglomerate-owned, household-brand name products will be stocked at these shops. Instead, it's more probable that niche nut butter or home-brewed kombucha brands will line the shelves. Products at these design-centric stores are also likely to cost more than those at typical corner shops – the focus is on innovating the customer experience of convenience shopping, turning them into brand discovery and social spots as well.
The rise of these stores goes hand in hand with the increase in online-first, design-centric pantry brands, most of which specialize in one type of product – be that farm-to-table spices or non-alcoholic drinks. However, that doesn't take into account the typical food shopping experience: people are more likely to be looking for a group of ingredients for a recipe, rather than a singular item. That's where these new-age convenience stores come into play. By curating a selection of online-first food and drink brands, they not only give the brands a physical retail space, but also elevate the experience of shopping for pantry items.
It's too early to say if these design-centric, tech-enabled stores will have an impact on the everyday operations of family-owned, independent corner shops. While they're both playing in the convenience retail space, they're probably serving different kinds of customers. The former targets the design-conscious person who likes a brand story, while the latter fulfills the need for essential products – which isn't going to budge any time soon.
The economics
‘Most stores run on a gross margin of between 20% and 30%, depending on the mix of products in their sales,‘ says Patrick Mitchell-Fox from the Institute of Grocery Distribution. ‘Average weekly sales for an independent convenience store would land somewhere between £15,000 and £30,000 in the UK.‘ Mohammed echoes this: ‘For this kind of business, you're generally looking at a 30% to 35% markup.’
But there are also a number of factors that can influence revenues in convenience stores.
Location. Convenience stores are usually at the whim of customers who come in for an impulse purchase so, the more footfall you're likely to get, the better. But it's also likely that busier locations will be more expensive to buy or rent retail space in.
Product mix. The selection of products that are stocked in a convenience store can impact pricing, as well. Pre-packaged foods and drinks from household-name brands, for instance, are likely to bring in lower margins while, on the other hand, high-value products, such as fresh flowers or craft alcohol, have the potential to open margins up slightly further.
Additional services. Selling services – like freshly made coffee, hot food, repairs or key cutting, for example – can obviously generate additional revenue. However, the cost of certain business licenses, like an alcohol license, will have to be factored in as well.
Floor size. This will most likely be determined by your location, but it's important because how much space you have will likely inform the mix of products you can stock. Floor size could also impact how many staff you're going to need at any given time.
Opening hours. This can end up being a very delicate balance, especially if you want to catch the rush from commuters and attract the late-night crowd. The downside of long opening hours is higher staffing costs, however – which is why owners will sometimes choose to work these unsociable hours themselves.
This article was first published in Courier issue 45, February/March 2022. To purchase the issue or become a subscriber, head to our webshop.
