Henry Armour, NACS president and CEO pinpoints global strategic industry issues

Henry Armour, NACS president and CEO, highlighted the global strategic industry issues at the 2023 NACS Convenience Summit Europe, held in Dublin, Ireland.

Presenting to an international audience, Armour revealed the results of the NACS Global Issues Lifecycle Survey, which polled 250+ respondents in 43 countries. The survey sought to understand which strategic issues were high on the agenda of senior convenience sector executives and the extent to which they rated the maturity of their own countries on these issues versus other global markets.

Top issues for global convenience leaders include supply chain, labour, technology, ESG, last-mile, O2O, electric vehicles, alternative fuels, technology, digital, finance, competition and the regulatory environment.

European issues

In Europe, executives are focused on own label and private label offerings and they are reengineering their supply chains following the impact of the Covid pandemic but also the war between Russia and the Ukraine.

ESG is beginning to regain momentum in Europe and especially electric vehicles but there is a broad perspective among European leaders on how fast adoption is going to be, Armour said.

Asian viewpoint

In Asia, meanwhile, the big strategic issue is the complex relationship between the USA and China, which is hugely disruptive to Asian markets.

“This whole geopolitical and geo-economic instability is big in Asia”.

While historically Asia has had surplus labour, now there is a shortage of the labour the markets need, Armour told delegates.

There is tonnes of low skilled labour but businesses need higher skilled employees. As such, there is now a strong focus on upskilling with one Thai business now running schools in order to educate people so that when they graduate they have enough skills to work in a convenience store.

Asian executives are also concerned about the fall out of free money, due to zero interest rates and tremendous financial liquidity, which is now driving consolidation in technology and delivery.

Proximity formats are also evolving, adding take home staple items in the core of the store because population densities are so large and there is a great usage of these stores.

US perspective

In North America, the predominant theme among executives was negative growth. The average convenience store customer was already in a recession.

The product supply chain situation in North America has settled down but the building materials and equipment supply chain is still very problematic and has significantly reduced new store construction and growth plans. Companies planning 200-300 new stores a year are now scaling back to 100.

Labour shortages seem to be improving in North America but swipe fees continue to be totally outrageous.

Last year’s State of the Industry report showed operating profit for the industry was $11 billion but swipe fees were $14 billion. “It’s ridiculous”.

Violent retail crime is increasing and is a concern in inner cities, where there are store closures as a result.

Increasing levels of crime, particularly shoplifting, was also a topic of discussion on the Dublin market store tours.

“In the States, if it was shoplifting, people would be happy if that was the type of crime that was increasing. We are seeing robberies, mobbing and looting on stores”.

On the subject of EVs, US executives believe the penetration is going to be slower than all the publicity suggests.

It’s going to be a long time before EVs are going to be a viable form of mobility, due to the country’s size and scale, Armour opined.

There is a recognition that EVs are coming but nobody really knows how to play that game yet.

Latin American challenges

In Latin America there are two key themes: political instability, with countries throughout South America swinging between the far left and far right; and high inflation rates – over 100% in Argentina, for example.

As such, affordability is a big concern in Latin America, where 117% of disposable income is going to 94% of the products people need to buy. “That’s an affordability issue”.

Drum beat issues

Armour went on to pinpoint the two drum beat issues all executives are really focused on: climate change and last mile and delivery.

Attention got super focused on last mile and delivery during the pandemic because people needed to get products and interest rates were zero.

Many new delivery businesses were founded, as a result, but they were built on story telling, Armour suggested.

Pre-pandemic, climate change was only top of mind for educated elitists. But when the pandemic happened, people saw the impact that manufacturing and transportation etc had on the environment.

“This is a big change because the common person is now really aware of the impact of it”.

On delivery, there has been an explosion of brands like DoorDash, Grubhub, Rappi, Gorillas, Food Panda, Deliveroo etc who all rushed into the market to offer quick commerce.

But none of them questioned who had been doing delivery for the last 40 or 50 years profitably. “No one approached this new consumer opportunity with that mindset.

The answer is pizza, Armour told his audience. “Pizza has been doing this for almost forever and doing it profitably”.

“It’s not rocket science, it’s really quite simple”.

Key pizza market ‘takeaways’

The number one ‘takeway’ from the pizza market is that you have to have margin in the basket to be viable.

Number two is understanding when your customers really want to buy stuff. With pizza, it’s five o’clock in the afternoon to midnight – you can’t order a pizza for delivery at 9am, for example.

“The pizza guys understood 85%-90% of their potential business are in these hours and it’s way too costly to chase the remaining 10 – so they offer delivery in limited hours, when people really want it.”

Number three is a limited delivery radius. Any future, enduring delivery offer or model has to embrace these three things.

Armour revealed how 7-Eleven in Singapore has recently launched food delivery in partnership with Food Panda and has partially modelled on the pizza market. In order to build basket size, customers order on 7-Eleven’s portal, not Food Panda’s. The first menu customers view is all high margin food. Customers do not get to view a secondary menu of packaged products and beverages unless they have already ordered from the first menu, which builds basket size.

Going forward, the industry is going to see further consolidation in delivery and what the use case is.

“I think there is great profitability and opportunity but in New York City, Sydney and Dublin etc”.

New fulfilment solutions

Mobile order and pay is something that every convenience retailer that has prepared food should offer, Armour advised; and he highlighted Starbucks as a retailer that has nailed this concept.

Before Starbucks had mobile order and pay it was the least convenient place to buy a cup of coffee. Today, it is the most convenient place to buy a cup of coffee and has hugely expanded its business with a whole new customer segment.

Click and collect is another delivery option but one with challenges for small format stores, due to insufficient parking, product assortment and real time inventory.

Armour also touched on drones but suggested they are unviable in densely populated areas.

Economic aberration

Touching on other key themes from the NACS survey, Armour suggested what’s happened in the last 13 years was an aberration in economic history.

“So many technological startups and innovations were based on story telling and weren’t based at all on business plans”.

As interest rates increase, as liquidity has been drained out of the system, as cash burn has eliminated the financial reserves, there’s a lot of shut downs and consolidations.

While peopled focused on proof of product during this period, nobody really thought through proof of commercialisation and whether you can really make money from a new concept or idea.

Armour recommended businesses started with the problem they are trying to solve versus new tech solutions. This has proven to be a more successful strategy, he claimed.

Supply chains are being reimagined. The pandemic provided both short term and long term learnings in this respect. Short term learnings, such as inventory buffers, will be dropped. Long term learnings, like agility, are important and will be retained moving forward.

‘Sophisticated retailers are looking at far more agility in their supply chain”.

On the future of work, nobody knows what that looks like. However, Armour was concerned about central business districts (CBDs) since hybrid work would reduce footfall in those locations.

C-store competitive edge

Armour suggested the industry has two enduring competitive advantages:

• Real estate – it has the best footprint in virtually every country for convenience stores and that real estate could be used differently in 20 years
• Personal relationship with customers – the same people being served by the same people, who actually know each other as human beings

“It’s a unique advantage our industry has and we need to protect it and leverage it”.

Armour urged delegates to consider whether product or people will move.

In certain categories products are going to move but in other situations, people will move.

Closing, Armour quoted the Canadian futurist, William Gibson: “The future is here, it’s just unevenly distributed” and said delegates could learn a huge amount but not just from visiting sophisticated countries.

“Have a global perspective,” he concluded.