Part 1 of 3
It’s well-accepted that the pandemic accelerated many trends to levels not expected for years. Consider remote work. The number of Americans working from home at least half of the time grew 159% from 2005 to 2017, according to a report by Global Workplace Analytics—but the arrangement only applied to 3.4% of the workforce. In contrast, two recent reports predict that between 1 in 6 and 1 in 5 workers might continue working remotely after the pandemic.
“The idea that workers are going to go back to the grind of a commute into the city—or a campus for a company—that doesn’t hold true,” said Neil Saunders, managing director of GlobalData. “Many people are saying ‘No, that’s not happening.’ I don’t see this reverting to anywhere near normal this year, and it will continue to be very disruptive in 2021.”
Now that the dust is settling, it’s important to examine the outlook of various “weak signals” that had the potential to make an impact on fuel and convenience in years to come. Where are they now, and what should retailers expect in the coming years now that these trends have been fast-tracked, and in some cases, derailed?
In a recent episode of the NACS Convenience Matters podcast, Andrew Thornton recounts the first time he watched the 2016 film “A Plastic Ocean.” “The most vivid part I remember of that film was sending cameras down way below the depth of what human beings should go, the very deepest part of the ocean, and right down there the whole thing was lined with plastic bottles.”
As the founder of North London grocer Thornton’s Budgens, he decided to be part of the solution. His company famously created a plastic-free zone where nearly 1,700 SKUs were offered without plastic packaging for shoppers who wanted to avoid the material. It also was an attempt to show that plastic-free can be profitable.
Thornton wasn’t alone. Significant efforts were being made around the world at both the corporate and legislative levels to reduce waste from single-use plastics such as bags, straws, lids, utensils, beverage bottles and coffee cups. The first state to ban plastic bags in retail was California in 2014. By January 2020, seven additional states had enacted bans, despite efforts by plastic industry lobbyists.
The problem is easy to understand. One estimate suggests that while the global output for plastic is around 450 million tons per year—with nearly half of all plastic ever manufactured having been made since 2000—about 40% is used for single-use packaging. Less than one-fifth of all plastic is recycled globally, and many single-use items are not accepted by local recycling centers. It’s a particular concern in the U.S. where, according to one study, shoppers use one plastic bag per resident per day.
But attention was rapidly diverted as the COVID-19 pandemic began spreading in mid-March. Due to safety concerns, many retailers banned reusable bags out of fears that the virus may linger on their surfaces. “Using billions of plastic bags a year is a bad thing for our environment,” said Yale School of Medicine professor Joseph Vinetz, in a March interview with Minnesota Public Radio. “But right now, it’s even worse for our environment to have an ongoing pandemic.”
There also was an issue of practicality amid more immediate concerns.
“We were looking for brand building, guest-facing supplies before the pandemic, but we had to press the pause button,” explains Brian Scantland, vice president of fresh food operations at Thorntons, a Kentucky-based convenience store chain. “During COVID we were operating on the very bottom tier of Maslow’s hierarchy. The supply chain was so shocked that we had to find alternative suppliers on many normal goods just to stay in business. COVID drove the necessity of securing the most basic essentials just to open your store.”
Now it appears that concerns regarding single-use plastics have returned. Starbucks announced on August 7 that stores in the U.K. would once again accept reusable cups after a four-month break. In Cincinnati, a new bill would completely ban single-use plastic from all businesses that sell food, while requiring reusable bags to be free for an initial period of six months. Kroger supports the move, even though the company previously announced in 2018 that it would phase out single-use plastic bags by 2025.
Despite these moves, it’s apparent that COVID-19 caused a temporary loss of momentum, but the same cannot be said of last-mile delivery and cashless payments.
The War for Last Mile
It’s often assumed that Amazon or Google made the first commercial drone delivery, but that honor belongs to 7-Eleven. The retailer partnered with startup Flirtey in 2016 to fly an assortment of food to private homes in Nevada. Altogether, the duo completed 77 flights from one store to a dozen customers, with a wait time averaging less than 10 minutes.
Figuring out how to do small deliveries in a profitable way is a big issue.
Although drone delivery has yet to take off, last-mile delivery has become a magnet for investment. A May 2020 report from McKinsey & Company claims the focus is venture capital’s favorite segment of the transport and logistics sector.
In London, tech startup Weezy recently launched a 15-minute grocery delivery service that relies on electric scooters and bicycles. In the U.S., startup Bond recently partnered with Softbank-funded REEF Technologies to deliver products from trailers in empty parking lots. And since 2013, goPuff has expanded a similar model across America’s college towns. Now in 500 cities with 200 distribution centers, the company offers more than 2,000 items in 30 minutes or less—all for a flat fee of $1.95 with no service charges. Early marketing played off the idea of convenience stores being an inconvenient—and even dirty—alternative.
Indeed, this may be the most troubling aspect of last mile: It’s apparent that innovation is being driven from outside the convenience channel. Are c-store retailers falling behind and at risk of being out-convenienced?
The pandemic drove many reluctant shoppers to try e-commerce solutions for the first time. Online grocery delivery and pickup sales rose from $4 billion in March 2020 to $7.2 billion in June, according to Brick Meets Click. A May 2020 blog post from Instacart’s CTO reveals that the company experienced a 500% increase in year-over-year order volume.
According to Bain & Company, 35% to 45% of this COVID-19 surge is likely to survive. The company forecasts online grocery penetration potentially doubling in select markets during the next five years.
“The big guys—the Walmarts of the world—are battling to win the bigger shopping occasions,” said Saunders. “This means there’s a whole range of smaller shopping missions that are still up for grabs.”
Convenience retail as a whole had previously taken a “wait and see” approach to delivery, but the pandemic forced retailers’ hands and resulted in third-party partnerships as a quick solution. But why can’t those aggregators leverage their marketplace data and deploy competing offers?
Indeed, DoorDash has done exactly that. The company quietly deployed its own network of competing dark stores to eight cities, leasing warehouse space and selling more than 2,000 SKUs through a virtual brand on the DoorDash platform called “The Convenience Store.” In each market, the company also boosts its product offer by partnering with local merchants—a big distinction from the convenience retailers that sell through DoorDash.
Perhaps most concerning, convenience retailers using DoorDash for delivery are rarely competitive on price. When comparing the price of a basket containing four energy drinks in a market that had goPuff and DoorDash’s dark stores, it was 29.08% more expensive before tip to acquire those items from a major convenience store brand that partnered with DoorDash.
“Delivery used to be a novelty, but now consumers are starting to become price sensitive,” said John Nelson, CEO of Vroom Delivery, a platform that enables fuel and convenience retailers to operate their own delivery services. “The challenge is that retailers have to raise the price of their products to offset the 25%-30% fees charged by third-party platforms,” explains Nelson. “Consumers are then hit with an additional ‘service charge’ of 10% to 15% on top of those now-inflated prices, plus a fixed delivery fee of anywhere from $1 to $5. It’s also common for state laws to restrict the delivery of age-restricted products through third-party platforms, which is troubling for an industry that relies heavily on alcohol and tobacco sales.”
Retailers will figure out delivery in time, but they do have distinct advantages—such as hyperlocality. Saunders points out that 2020 also has witnessed increased consumer interest in local retailers. As people are on the move less and work from home more often, local stores are positioned to meet their demands. That could be good news for retailers who offer foodservice and pickup.
“Figuring out how to do small deliveries in a profitable way is a big issue,” said Greg Sterling, vice president of market insights at Uberall. “Consolidation in delivery platforms is happening because you need scale to make it work, but consumers aren’t ever going to completely abandon stores even as they transact more online.”
A Cashless Future
The early months of the pandemic also witnessed a leap forward in consumer adoption of cashless payments—largely due to safety concerns. Visa reports that the usage of tap and go payments rose 150% in the U.S. during March. A Mastercard survey from April 10–12 found that more than half (51%) of U.S. consumers said they’re using cash less often, or not at all, since the pandemic began.
The pandemic forced a lockdown long enough to reset habits.
But it’s become clear that health concerns are not shared by all. A particularly concerning Gallup poll conducted in late July found that 35% of Americans say they would not get a free COVID-19 vaccine. So, as with delivery, it’s likely that long-term adoption of mobile payments will be driven by its ability to provide convenience.
“On our platform, the volume of order-ahead has gone up by 400%,” said Sashiko Dias, managing partner of Incentivio, a company that creates digital platforms for many restaurant brands. “People are using apps more because they’re more convenient. Once you start to build a pattern of recurring transactions, it’s easier to keep your customers using them.”
It’s instructive to remember that the pandemic forced a lockdown long enough to reset habits. Consumers who now use scan and go technology inside stores, order curbside pickup from a mobile app or tap and go with Apple Pay may even start to look at the idea of queuing in a line to pay with cash and credit as somewhat antiquated—like the credit card imprinter.
This has implications as checkout-free technology continues to become more common. In July, Aramark opened a fully autonomous convenience store inside a luxury apartment building in California—a convenient alternative to walking 10 minutes in each direction to the nearby 7-Eleven or Shell station. Aldi has plans to develop checkout-free technology for its locations, Amazon Go is launching stores in the U.K., and the new Amazon Fresh grocery stores are rumored to be powered by their smart Dash Carts.
“People vote with their wallets,” said Evan Shiue, vice president of strategy, finance and ops at Standard Cognition, a developer of autonomous checkout solutions. “What’s going to drive autonomous checkout is shopper demand. Two-day shipping wasn’t normal until Amazon set the standard, and now it’s the table stakes. It starts with a basket a week, two baskets a week, but then you suddenly start asking, ‘Why am I standing in line anymore?’ That’s disruptive. Once there’s a critical mass, it’s no longer a CapEx and ROI question.”
In a recent survey from Forrester Consumer Technographics, 19% of respondents said they made a digital payment in a store for the first time this May. Of those, 62% used a phone and 56% used a contactless card. Perhaps most telling is that 67% said they were satisfied with the experience, and 57% would likely continue after the pandemic.
“When we look at the data, we see that there’s strong demand because of COVID-19,” said Colin Mayer, director of client solutions at Omega ATC, a provider of retail data security solutions. “It’s up to the industry to meet this demand. What we need is cross-collaboration between retailers, oil companies and POS providers. Sometimes people go to a store because it’s their local store, but what if they go to other brands that each have their own apps? That’s why they need one app that’s accepted everywhere.”
At the same time, a growing tech stack also raises additional security concerns—especially as retailers have access to more consumer data.
“We worked with a retailer that ran a voice phishing campaign across their network of around 80 locations, and they found that nearly 40% of employees provided sensitive data over the phone,” said Ashwin Swamy, director of cyber resilience at Omega ATC. “This is a massive blind spot. When visiting stores, you wouldn’t believe how many times we see systems exposed next to products on shelves. Access to physical hardware needs to be restricted.”
This article is the first in a three-part series that examines 10 key trends fast-tracked or sidetracked by COVID-19.