Lockdowns create marriage of convenience

Hyper-local convenience retail has been preferred by thousands of people now working from home in Northern Ireland and the big weekly shop has been increasingly eschewed in favour of several small trips.

It has sparked a boom for convenience stores in the suburbs and for many franchise owners of outlets such as Spar and Mace, business has never been better.

In this Q&A, Stephen McConnell, Business Services Partner at Baker Tilly Mooney Moore, explores the behavioural changes among consumers and whether the boom is sustainable.

Communities have been locked down for some time now. What has been the impact on convenience retail outlets?

Stephen McConnell: “For convenience stores in Belfast city centre, with the sudden move to working from home, trade was decimated overnight, with many shutting down because there was just no footfall.

“I act for several Spar and Mace shops and they really have boomed.

“Some of them doubled their turnover during the first lockdown and one of them is still up 40 per cent from this time last year, with a real increase to their bottom line. Due to demand, outlets close by housing are trading very strongly.

“Good margins are being achieved on groceries and takeaway coffees, and that was before the VAT was discounted.  As a temporary government COVID-19 intervention, the VAT rate on food, drink and takeaways fell to 5 per cent from 20 per cent.

“Takeaway coffee and tea has turned into a really, really big market in Northern Ireland. With local restrictions, people are having to walk close to home rather than go to gyms or sports clubs and they are often grabbing a coffee on the go. Everywhere you see people walking around with coffee.

“Most convenience retailers now do takeaway food. Some will have a small selection – coffees and basic options. Others have extensive delis and really do offer excellent options to cater for three meals a day with all the snack options in between.

“The outlets that have performed less well are the ones in the city centres, although a few that have off-sales (liquor stores) have survived because there is still the demand. With bars and restaurants closed, alcohol purchases for home consumption have increased.

“In addition, retailers linked to petrol stations also haven’t enjoyed the boom of some other outlets, because there is less car travel.”

As lockdown restrictions ease in coming months, will it lead to a sharp decline in purchases at convenience stores or are we seeing a permanent behaviour change?

Stephen: “Last year, everywhere opened up around July after the first lockdown and we were expecting at that stage for shop sales to decline in convenience stores.

“But that didn’t happen. The model was still work from home and the city centres just haven’t reopened, we ourselves are running a skeleton staff within the office.

“So for the convenience stores, we probably won’t know how it will play out until everyone is back at work full-time. But where we see it going is maybe something of a hybrid for a while, where you work from the office three days and work from home two days.

“That will prolong the effect on the local shops and city centre shops.

“We don’t think there will be a proper return to full-time work at premises even when the pandemic is over. There will always be people working from home going forward.

“This type of retailing is attracting both new investors and those wanting to expand outlet numbers. People are looking at buying this type of retail now because they know that profitability is there, that people are coming to them.

“Even without the boom, before the pandemic, there had been a gradual increase in this market for the last three or four years. We are seeing more of an investment in stores and business owners putting more into them.

“Now there are off-sales, a post office, take away food all under one roof, you can practically do everything within a convenience store now.

“Some of those being launched at the moment have got everything so that you just go and do your weekly shop in them.

“It won’t stay at the levels it is but it certainly won’t fall back to the way it was before.”

Have business owners been hit by delays or product shortages due to Brexit or delays due to the pandemic affecting suppliers?

Stephen: “We didn’t experience real shortages in the first lockdown but after Brexit from January, we’re starting to see fewer brands coming in.

“So, if you had seven or eight different types of pasta, you’re not getting that now, you’re getting maybe four different types so there’s not the variety there was.

“But among neighbourhood retailers there’s massive competition between brands for listings. There may be seven or eight different bakeries wanting to get in, you’ve got two or three different produce wholesalers.

“In this market, people are willing to pay that few extra pence or pounds to buy products that are premium branded, such as high-quality bakery products.

“We’ve seen the major supermarket Sainsbury’s subcontract many of their purchases to Henderson, which is a SPAR brand, for the first three months of the year because they couldn’t get products here.

“In our online family shop from Sainsbury’s I’ll order ham or milk and it will be a SPAR-branded ham, a SPAR-branded milk.

“You would never have thought a Henderson SPAR brand would ever have been selling into a Sainsbury’s. But Sainsbury’s is using the local market to make sure their shelves are full, and they don’t run out of the main product that they need.

“But long term, Sainsbury’s will want their own brands, so I can’t see that being a lasting relationship.

“Some of the Chinese retail shops that we act for are struggling to get some of their goods across and into their shops. So, it is becoming that bit more difficult to get goods to Northern Ireland, especially when it’s food related.”

With so much competition in the market, what are you advising clients to ensure they stay ahead?

Stephen: “The main thing that our clients are focused on is making sure that their shop is modern looking, aesthetics are everything.

“If you walk into a convenience store that’s maybe 15 or 20 years old, it looks shabby and is unlikely to inspire consumers to buy the higher margin takeaway food and drinks.  

“Compare that to the new EuroSPAR and SPARs that are being built, they’ve got high ceilings, they’ve got great lighting, and everything looks good.

“Another thing in SPARs is electronic price tags on the shelves and they can now go and change the prices of their products on the computer.

“SPAR has invested a lot of money in their platform called Edgepos and the results have been really good. It tells you exactly what your margin is on every single item and where your low margins or your high margins are, they can continually see where they are making money.

“The model is, you’ve got to keep your shop fresh, especially the petrol stations. Customers want to see the deli, want to see the hot food, they want to see a clean environment.

“We’ve got a client, who is spending over £1 million just on refurbishing the shop and new petrol tanks just to keep up with the game.

“It’s matter of keeping your store looking fresh and up to date.”