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NATIONAL REPORT — It may be a time of momentum for the milk aisle at grocery stores, but in convenience store cold vaults, fluid milk sales continue to struggle. If c-store retailers want to turn the tides in this category, they will need to up the ante by listening to what their customers are looking for and capitalizing on profitable opportunities.
A recent webcast hosted by Convenience Store News sister publication Progressive Grocer and sponsored by MilkPEP highlighted the ways in which milk can make positive strides for c-store operators, as opposed to spoiled profits.
Over the last eight years, the convenience channel — which represents 7 percent of total milk industry sales — has been responsible for 27 percent of the industry's decline, according to webcast presenter Doug Adams, president of Prime Consulting Group. Citing IRI research, he added that aggressive pricing has offset more severe unit volume loss (35-percent loss in units vs. 23-percent loss in sales).
Conversely, in the grocery channel, the dairy department delivers 20 percent of store profit from only 3 percent of store space.
With the grocery channel outpacing the convenience channel in milk sales, it is vital for c-store retailers to understand what consumers are looking for. Five key c-store milk shopper insights are:
1. Shoppers have new expectations for food choices. Similar to grocery store shoppers, c-store shoppers are looking for fresh, healthier options and more prepared foods. C-store operators have listened to this demand as their focus has shifted to variety in merchandise for healthy, fresh items, Adams noted.
2. Milk variety is important to shoppers. “If I’m someone who regularly buys a value-added product in a grocery store and I can’t find it in a c-store, then the c-store can’t serve me for a fill-in or a quick trip,” Adams said. With c-stores carrying 13 line items of milk, there is a lot of missing innovation and value added to that offering when shoppers are looking for that fill-in trip.
3. Shoppers see c-stores as a “quick trip” opportunity. In line with variety, if c-store operators don’t provide fill-in shoppers with what they need, they’ll struggle to be in business with them, Adams noted.
4. Protein is powerful. However, it not the focus of current c-store efforts.
5. Shoppers who choose chocolate milk for recovery are a valuable c-store audience. Not only does chocolate milk appeal to the core c-store shopper, but it also appeals to athletes looking for a beverage when they’re on the go. This is a product that serves the needs of two shoppers, so it’s important to have it in stock.
With knowledge of these key shopper insights, the question becomes: What opportunities can c-store operators take advantage of today to make them successful tomorrow?
The first opportunity centers on variety. Milk is not one size fits all, Adams advised, and c-stores are not leveraging their natural proposition. Store operators should consider providing options including: brands (national and local); value-added protein or calcium for athletes; sizes (single-serve and larger formats); innovations like organic or lactose-free; and fat levels (whole milk, 2 percent, 1 percent and fat-free).
One way in which retailers have successfully engaged in the variety opportunity is with flavored milk. While total milk sales fell 5 percent, flavored milk sales increased 6 percent in 2015, Adams noted, citing IRI data. Meanwhile, value-added milk and recovery benefits products saw a 65-percent increase in sales. This is not only tremendous growth, Adams said, but also incremental growth.
Variety heightens customer appeal and proves the c-store can meet their needs, he emphasized.
The second opportunity is for c-store operators to recognize they are missing the target. In 2015, 7 percent of the population bought milk at c-stores, a decline of 1.2 percent vs. 2014. The largest contributing factor to this decline was the loss of millennial purchasers.
“Millennials don’t see you as having a credible offering of milk products and therefore, because you’re not providing [milk products with] added benefits, they don’t come,” Adams explained. “In most cases, it’s not that you’ve lost the one item, it’s that you’ve lost the item in the other hand as well. So, you’ve lost the whole basket because you don’t have what they’re looking for, so they go elsewhere.”
The third opportunity is to optimize the space for milk. Research has shown milk delivers the highest profit per linear foot. In both neighborhood c-stores (defined as stores in/near residential neighborhoods with locals as the primary customer) and on-the-go c-stores (defined as stores on major roads with transient traffic as the primary customer), fluid milk sales outshine packaged beverages, beer, and other dairy and deli products sales.
However, fluid milk products in neighborhood and on-the-go c-stores is only allocated 7 to 8 linear feet vs. packaged beverages, the largest category with 178 to 183 linear feet. Despite the lack of space, fluid milk sales surpass packaged beverage sales in neighborhood c-stores ($21 to $14) and on-the-go c-stores ($19 to $15).
The fourth and final opportunity lies in in-store merchandising. Approaches may include tying in milk with fresh offerings like sandwiches and meals, or appealing to athletes with added-benefit milk like chocolate milk and tying that into MilkPEP’s “Built with Chocolate Milk” campaign, according to Adams. Promotions can be supported with point-of-sale merchandising in the window and at the cooler.
“Milk can deliver lift from appropriate merchandising,” Adams concluded. “It not only contributes to the image of how the c-store is perceived, but also delivers incremental volume.”
A replay of the webcast is available by clicking here.