How The Convenience Industry Can Boost Its Resiliency And Thrive In The Face Of Headwinds In 2024

For the third straight year, AlixPartners presented to attendees at the National Association of Convenience Stores (NACS) State of the Industry Summit, held in April outside Chicago.

In 2022, disruption was the theme of our presentation. Rampant inflation—coupled with a labor shortage, interest rate fluctuations, and geopolitical tension—left retailers and consumers struggling to adjust to ever-changing business conditions. In 2023, the overarching theme was uncertainty. While the economy calmed down a bit from 2022 chaos, 40-year-high inflation led many to ask whether a recession stood on the horizon.

This year, our theme is resilience. We believe much of the fog has lifted, but a clearer picture doesn't mean clear sailing. We are left with a complex, rapidly changing, and highly competitive industry. The winners will be those that are agile, adaptable, and resilient—by effectively overcoming challenges in this environment, they will be well-positioned to compete in 2024 and beyond.

Skepticism pervades despite improving business conditions

At a macro level, many have pointed to a Goldilocks economy. Decent growth coupled with decreasing inflation and strong employment numbers lead to a well-balanced financial climate that isn't too hot or too cold. But despite an apparently rosy macro-economic outlook, convenience retailers and consumers appear unconvinced.

Troubles with margins and consumer financial anxiety appear to be the culprits of the skepticism. While retailers believe they can grow sales and topline in 2024, they also believe they'll face compressed margins due to labor costs, stubbornly high material costs, and a value-focused consumer—thusly, they do not believe profits will rise. Meanwhile, consumer sentiment remains on the low end compared to pre-pandemic highs. The pressure of persistently high prices and interest rates leave 39% of consumers very or extremely concerned about their financial health as of March—an 11% increase over September.

At least from a labor perspective, managing efficiency and effectiveness is not a new challenge. Rising labor costs necessitate a near-term solution and there are proven strategies the convenience industry can employ:

• Field-level organization and operating models: Ensure you have the right structure in place—everything from defined positions to optimal operating hours—and standardize it across stores.
• Reduce labor need: Think through the changes and investments (e.g., automation) that can reduce overall labor need.
• Forecasting demand: Understand what drives labor costs—can you forecast these drivers?
• Labor model: Do you have the right model to turn your forecast into a forecasted labor need?
• Reporting and analytics: Implement a robust reporting and analytics framework to measure the most relevant metrics and reward performance.
• Leadership and change management: Effective leadership helps drive adoption, compliance, and tangible results while minimizing turnover.
  

The path to success

On top of the above stressors, convenience stores operate in a highly competitive industry. They battle against competitors including grocery stores, dollar stores, and restaurants for share of wallet, and these competitors continue to innovate through major investments. For example, Aldi is launching Aldi Express, a "virtual convenience store" providing 30-minute deliveries of nearly 2,000 items.

Navigating this complex, rapidly changing environment will require convenience stores to strategically shift operations. To do so, we believe convenience industry executives should focus on the following six priorities in 2024:

1. Get back to basics: After years of heavy uncertainty, stores must merchandise and operate as efficiently as they can. To start, focus on the basics of forecasting, ordering, stocking, managing stock outs, and shrink.
2. Invest in your teams: Companies that win in this environment will be those that develop high-performing teams. Invest in upskilling and training to ensure growth over the next 3-5 years.
3. Embrace digital: From AI to analytics, digital transformation has the potential to disrupt the industry more than any other factor. Find opportunities to leverage digital advances to transform entrenched ways of doing business.
4. Break the tradeoff between profits and growth: Efficiency and growth are not enemies—especially not in the convenience industry. Successful companies will effectively grow both their top and bottom lines.
5. Make data-driven decisions: Agile, adaptable, and resilient companies will leverage data to drive advantages across sales, merchandising, customer experience, operations, and supply chains.
6. Act now: Companies that achieve both growth and profit cite execution and follow-through as the most critical factors when responding to disruptions.

This final factor—acting now—will perhaps be most crucial to determine the winners and losers. Resiliency is predicated on taking action in the face of challenges, rather than waiting for the time to be right. Convenience stores and operators that face these economic, competitive, and labor challenges head-on won't just position themselves for present-day success—they will also be better positioned to meet the next wave of disruptions in this ever-evolving landscape.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.