Of Lab Stores And Beer Vaults

BY MICHAEL JORGENSEN, EXECUTIVE VICE CHAIRMAN, NCASEF

Many of you have seen the photos or read the press releases and coverage on 7-Eleven’s new “lab store” in Oak Cliff, Texas. The idea behind the “lab store” is to test new and different ideas and to identify what resonates with our customers.

This is not the first time that 7-Eleven has experimented like this. Back in 2013, the Next Gen store opened up in New York City. At the time there was a lot of media coverage regarding this store as well. You may even remember a rumor about 7-Eleven was changing the logo, replacing the first “e” in Eleven to a lower case “e.” These innovative stores and concepts garner a lot of attention and build excitement, but we have been conditioned over time to view these programs as a long way off. Until these programs are realized in your average everyday store, to franchisees the lab store will be just a marketing campaign.

Although there are many really cool concepts we would like to have and which we believe would drive traffic, we should have a much more practical approach. Some of these programs being tested may be effective to drive sales and gross profits for a majority of stores, but what about our bottom lines? We are experiencing significant labor issues. A major labor shortage in the U.S. is creating competition for talent, resulting in retention issues and driving up wages. While 7-Eleven is working on store simplification, with input from the NBLC, we have heard the “lab store” employs 40 employees, more than twice the number of employees as the average 7-Eleven.

What is the realistic expectation of adoption and rollout to existing stores of many of these programs being tested? Franchisees have very real concerns about products tested in a corporate environment. The critical feedback and input necessary to make the proper decisions as to how to scale and implement these initiatives in a “real world” environment may very well be missed. With the labor shortage, all new programs must not only deliver on sales and gross profit, but should also be as simple as possible to execute and must increase bottom line profits for franchisees.

7-Eleven has a recent history of responding quickly to opportunity. At the end of 2017, 7-Eleven spent a significant amount of money and resources to expand the assortment (ETA) in the center of the store (COS). SEI acknowledged that their strategy was responsible for the reduced SKU count in our stores as the previous initiative had been to narrow the assortment to focus on top sellers. During this period, many items were narrowed by merchandising, made nonrecommended in the item master, and became difficult to source through the available 7-Eleven channels.

The ETA rollout followed a test that had been conducted in select areas of the country over a period of a few months. The investment into the shelving, logistics and labor for installation was significant, and the ETA roll out had the speed and scale the likes of which franchisees had not seen in quite some time. We have been told that the ETA results were a  esounding success. NACS 2017 State of the Industry (SOI) data indicated that across the c-store industry, center of the store accounted for approximately 15.8 percent of merchandise sales, and I found this to be consistent with my store results.

An opportunity that exists today and which I believe requires a mobilization similar to ETA surrounds our vaults. NACS 2017 SOI data indicate that approximately 30 percent of in-store sales across the convenience store industry come from the vault. Again this aligns almost identically with the data of the vault categories in my stores. SOI data also shows that packaged beverages and beer are responsible for 20.1 percent and 5.5 percent of total store GP dollars.

Our vaults are clearly a focus for SEI. We are provided plan-o-grams to execute in our stores tailored to the regional level with the best intentions to maximize opportunity. The Customer Evaluation Visit (CEV) shops include anchors for out-ofstocks and fronting and facing. Starting in June, the CEV will be included in the metrics to obtain Emerald status.

7-Eleven franchisees are experts at adapting and doing the best we can with what we have, but we need a much more significant response to the current challenges to protect and grow our beer and packaged beverage business. Changes for many stores will require capital investments that franchisees cannot trigger. Although vaults are periodically being upgraded across the enterprise, a large number of stores are still in need of upgrades.

We also need to consider the scope of the upgrades. While there was a major investment in COS with ETA, items like the ADCO adjustable roller glide shelving has been overlooked. This shelving serves two purposes, making the vault appearance much sleeker and at the same time simplifying store operation, making fronting and facing far easier. Having done an impromptu poll, it appears many stores still do not have this roller glide shelving.

The data suggests that the vaults are a significant source of revenue and gross profit, but they are also a big reason that customers decide to shop in 7-Eleven stores. Convenience stores have traditionally had the best assortment of cold, ready to consume, packaged beverages available anywhere. As the leader in the industry, 7-Eleven became THE destination to get a cold drink to consume on the spot and other c-stores followed.

Other channels, namely drug and dollar, have caught onto the c-store success and are expanding their assortment of cold packaged beverages and cold beer. Innovation and brand extensions within the non-alc categories continue to drive growth. For 7-Eleven franchisees we must also add our own private brand growth into the mix. With competition increasing and options coming from all directions there is little room for error. Attention to this extremely valuable space is crucial.

Convenience stores sell nearly one third of packaged beer in the U.S. and 98 percent of it is sold cold. After looking at three sources—the NACS SOI data, MillerCoors Building with Beer Industry Insights (2018 https://csnews.com/millercoors-building-beer-industry-insights-2018) and Anheuser-Busch Insight’s C-Store Explore (https://csnews.com/cstore-
explore-grow-alcohol-your-stores)— it is clear that we are experiencing even more difficult decisions regarding our alcoholic beverage assortment in our vaults. To understand why space is such an issue we need to understand what’s going on within the sub-categories and pack sizes.

Although Premium Beer has been losing share it still accounts for more than 45 precent of all beer sales. Imports and Super Premiums have had double-digit growth for three  consecutive years. Micro Brews, especially from local breweries, have proven successful and contribute to credibility in assortment, growing 22 percent in 2015 but slowing since, only growing 3.8 percent in 2017. Flavored Malt Beverages grew by 8.5 percent in 2015, but have also slowed, even though Hard Seltzers are on fire right now and are expected to drive performance in this sub category in 2019. Although the Budget Beer subcategory has been declining roughly 3 percent each year, it still represents 8.2 percent of the total beer category and budget customers are frequent and extremely loyal customers.

Singles continue to grow, accounting for 64 percent of c-store beer unit sales, and are high profit. AB Insights attributes 24 percent of beer sales to 12 packs and larger and the remaining 12 percent to 2 to 6 packs. Shoppers are very loyal to their preferred pack size, as having the right pack size is critical. MillerCoors Building with Beer notes that, “As the beer category expands space, revenue increases, more than any other beverage category in the cooler.”

We need solutions for our cold space to ensure we can continue to maintain the proper assortment, allowing us to remain extremely competitive in both Non-Alcoholic Beverages and Alcoholic Beverages. Many of our competitors are responding to this pressure by building larger vaults or in many cases “beer caves.” In Florida, beer caves are standard in RaceTracs and Wawas and more often than not are found in Circle Ks and Speedways. They are standard in new builds for all major competitors. Even outside of Florida other c-store retailers are expanding as well. A November 2017 Convenience Store Decisions article highlighted Rutter’s continuing to expand their beer business with addition of more beer caves. An article in the Beaver Falls Times in Pennsylvania from March 6, 2019 mentions that Sheetz is in the process of opening 30 beer caves in stores across the state.

Some benefits of beer caves:

• Allow stores to carry or expand the assortment of larger packages such as 18-pack bottles and 24 packs.
• Vendors handle the stocking and rotation of the large packages, eliminating the need to move beer from storage room or warm display to the vault. All products are delivered
  to the vault and displayed for sale, ensuring the beer is available cold at all times.
• Current shelving lacks pack out for larger packages causing opportunity for out of stocks during peak selling times and peak days
• Reduces pressure from staff to constantly run back to top off the cooler during peak times allowing for more focus on customers. Provides a potential solution for many of the quantity discount (QD) or post-off buying issues franchisees experience in many states. These QDs or Post offs make managing inventory inside the vault difficult. Beer Caves should facilitate stores in maximizing participation in QDs, increasing gross profit.

An alternate option already in use in some stores is the open-air beverage cooler. It would be interesting to see what the calculation of ROI in an ETA project for the vaults under various scenarios would look like. Along with finding solutions for customer facing issues we also need to put some resources behind simplification of maintaining the back of house functions in the vault, as this is extremely labor intense. I am confident that our vendor partners would willingly provide valuable industry insights and input as they do with the reports above. A question remains as to why new 7-Eleven stores are not being designed by SEI with the current merchandising opportunities and challengesin mind.

As always I learn as I write these Avanti articles. For this article I read both of the c-store industry beer reports available by Anheuser-Busch and MillerCoors, as well as the NACS SOI report and a handful of additional articles. If you want to find out about the beer category, read the two reports linked above. They have me thinking a bit differently about my assortment and the significance of so many different factors. At a minimum you can maximize the opportunity that exists with the space you currently have by paying very close attention to store data and what customers are telling you. Even executing at a very high level I fear we are leaving a lot on the table.