Supermarkets entering convenience sector to ride new wave of convenience store growth

Posted by AFN Staff Writers on 6th October 2014
Supermarkets entering convenience sector to ride new wave of convenience store growth
Supermarkets entering convenience sector to ride new wave of convenience store growth

Australia’s two biggest supermarket groups Coles and Woolworths are set to move into the convenience sector, taking on smaller corner stores in capital cities around the country.

According to Fairfax Media, the trigger has been the increase in city-based population and the conversion of office blocks to apartments where space is not available for traditional supermarkets.

In Sydney, for example, it has been reported that Woolworths is trying to find sites of 200-400 square metres. This format would see the smaller format stores in direct competition with convenience businesses 7-Eleven and City Convenience. Woolworths confirmed to Fairfax Media that it had a small number of smaller format supermarkets.

The initial branding for Woolworths’ corner store push is “Woolworths Small Format” and it will start in Sydney and Melbourne. The stores will offer a limited range of products, and will be feeder stores to the medium-line Woolies Metro stores, such as the one in Melbourne’s Southern Cross Station.

It has been reported that Coles is also looking at a business model that would allow it to offer smaller format supermarkets.

Convenience sector growth

The news that Coles and Woolworths are looking to move into the convenience format comes as the sector shows signs of growth.

According to a report from convenience sector industry representative body the Australiasian Association of Convenience Stores (AACS), the convenience sector has recorded growth of four per cent in the first half of 2014, following on from growth of 3.7 per cent for the full year in 2013.

Australia’s largest convenience store operator 7-Eleven recently announced the opening of its 600th store at Gumdale in Queensland, continuing what it said was “strong, sustainable growth”.

7-Eleven CEO Warren Wilmot said “this milestone for 7-Eleven comes at an exciting time, only weeks before the Company’s first store opens in Western Australia, our first new market entry in more than 30 years.” The first Western Australia store at 100 High Street in Fremantle is scheduled to open its doors on 30 October 2014.

7-Eleven is the largest convenience retailer in Australia. The company is privately owned by the Withers and Barlow families.  7-Eleven is one of the largest private companies in Australia, second only to Visy Industries 2. The company has a license to operate and franchise 7-Eleven stores in Australia from the US based 7-Eleven Inc.

The first Australian store was opened in August 1977. Today 7-Eleven Stores Pty Ltd. operates approximately 600 stores in Queensland, New South Wales, Victoria and the Australian Capital Territory, with 10 stores expected to open in Western Australia by the end of 2015. Through its store network, 7-Eleven Stores Pty Ltd. conducts more than 180 million transactions a year, serving an average six customers per second, generating sales of approximately $3.4 billion.

ACCC ‘should not’ have divestment powers, chairman

The move by Coles and Woolworths into the convenience sector comes amid increasing concerns about the market power of the two major supermarket groups. However, Australian Competition and Consumer Commission (ACCC) chairman Rod Sims told Fairfax Media the regulator did not and should not have the power to push the supermarkets to divest assets.

Earlier in October 2014, Australian Food News reported that Mr Sims had welcomed the Harper Competition Review Draft Report, which included a consideration of Australia’s competition law. Mr Sims said the recommendations “reinforced the important principle that competition laws should have economy-wide application”.

“Competition law only involves a small number of things companies should not do,” Mr Sims said. “Broadly it says do not engage in cartels; do not have mergers or agreements which substantially lessen competition; and do not misuse your market power,” he said.

Mr Sims said a misuse of market power essentially involved behaviour that sought to exclude others from the competition playing field.

“This can be via refusal to supply, buying up all available land or other essential inputs, predatory pricing, and anti-competitive rebates or bundling of goods,” Mr Sims said.