It’s back to the core among C-store candy merchandisers; meanwhile, the channel continues to evolve while struggling with fuel and credit pressures.

2007 looks like a back-to-basics year for candy in convenience stores. That’s the assessment from convenience retailing specialist David Bishop, a partner with Willard Bishop, Barrington, Ill., a retail consulting company.
“It’s driven by the fact new [candy] products in 2006, weren’t connecting with the target consumer as well as manufacturers had hoped,” says Bishop. And when these products didn’t perform as well as anticipated, retailers were forced to turn their attention to liquidating them, thus sacrificing profits and losing their focus on managing the core candy business.
“There was a string of less-than-successful new product launches that started to clog the new product pipeline in retail and wholesale to a certain degree,” Bishop continues. “They spent more energy and focus on trying to unclog the pipeline.
“I think coming into ’07 there was that hesitancy on the buyer side to follow that same direction they started in ’06 — an aggressive focus on bringing in and promoting new products, and what you started to see was a pullback and a recognition that we [retailers] need to focus on the core,” says Bishop.
Convenience Store Performance in Confectionery
Convenience stores are quickly catching up to supermarkets as the leading channel in candy sales and share of the total market.
2006 Data
Convenience Store Candy Sales: $4.2 billion
Candy Sales Change (2006 vs. 2005): +9.4%  
Share of $28.9 Billion Confectionery Market: 14.5%

Source: Sales figures are compiled by National Confectioners Association (NCA) based on input from Information Resources Inc. NCA/CMA Monthly Shipment Reports and U.S. Department of Commerce

“And that is consistent with the mantra we picked up in trade research — that less is more,” the consultant continues. It’s something of a retailing mantra for 2007, i.e. “if we focus on fewer products, we’ll generate more profit,” he observes.
It’s also in sync with a new study on convenience-store candy merchandising sponsored by Masterfoods USA and conducted by Sorensen Associates. In the Masterfoods/ Sorensen research, nearly 50 percent of candy non-purchasers said there was too much variety on the candy shelf. (See sidebar, “C-Store Merchandising the Masterfoods Way,” for more of the study highlights.)
Bishop sees candy manufacturers switching gears on trade promotion and new product rollouts. For example, he notes that while a shipper last year might have featured four to six new products, this year it’s more likely to be two new products with several leading-brand SKUs rounding out the assortment.
Of course, that doesn’t mean that new products and limited edition offerings will not continue to play a key role in stimulating sales. “Limited editions bring a bit of fun and pizzazz to the game,” observes Jim Callahan, director of marketing for Fairburn, Ga.-based C-store operator Green Oil Co. “How can you not want to try a Reese’s Peanut Butter and Banana Limited Edition Elvis Presley tribute bar this August?” he asks.
The big picture
An examination of total industry convenience channel numbers definitely yields a good news/bad news scenario. Both the number of stores and overall sales climbed in 2006, according to the 2007 National Association of Convenience Stores State of the Industry report. Sales were up substantially — a 15 percent increase for a total of $569.4 billion. And with convenience in-store sales climbing 8.6 percent for the year, only the warehouse club/superstore channel performed better by that indicator (up 10.3 percent), according to the report.
SWOT Analysis

• Location, location, location
• Channel sales are strong

• Low traffic in inline candy aisle
• Many C-stores don’t effectively target women

• Great candy margins give retailers consistently strong sales incentives
• Increasing candy outposts translates to increased in-store sales

• The rise of drugstores as C-store alternatives
• Foodservice chains grabbing more a.m. coffee/breakfast sales

The profit picture was considerably less rosy. Pummeled by declining motor fuel margins and escalating credit card fees, industry profits dropped a substantial 23.5 percent to $4.8 billion in 2006.
Channel Leaders*
Chain 2006 Annual Sales (in billions)
1. 7-Eleven $15.0
2. Alimentation Couche-Tard $10.2
3. The Pantry $5.9
4. Casey's General Stores $4.0
5. Wawa $3.2
Source: Annual Company Reports & STORES Magazine estimates
Raising the creativity bar
Of course, when times are tough, the tough get more strategic. Green Oil Co.’s Callahan has been especially creative in coming up with ways to address the pocketbook pinch caused by skyrocketing fuel prices.
“The rapidly rising price of fuel is destined to make better marketers of all who survive,” observes Callahan. “Americans obviously have less disposable income to spend after filling their gas tanks; our job is to get them to spend it with us.
“We plan on doing two things,” says Callahan. “No. 1 is having brighter and more effective point-of-sale materials, pushing the savings that go hand-in-hand with multiple purchases.” Callahan’s position is that he’s willing to “sacrifice a bit of margin percentage for a larger ring.
“The other strategy that we are following,” Callahan continues, “is we are not waiting for the customer to come to us.” To that end, Green Oil Co. store staffers deliver coupons for free bags of ice to construction sites and coupons for fresh Krispy Kreme donuts to area business offices and manufacturing plants.
The chain has been rewarded with increased store traffic. “We are finding a grateful clientele coming back to redeem coupons and buying candy, chips, drinks, cigarettes and so on,” says Callahan.
More on candy in the C-store
New product issues notwithstanding, candy and convenience have long been a winning combination, and that continued to be the case last year, as NACS State of the Industry statistics attest. Candy came in at No. 6 on the list of Top 10 Gross Margin Dollar Contributors in Convenience Stores, accounting for 5.7 percent of gross margin dollars.
C-Store Merchandising the Masterfoods Way
A new study from Masterfoods USA concludes that reducing SKUs in the convenience-store candy set makes it easier for consumers to shop and thus fosters sales.
As its name suggests, the Masterfoods USA “Vertical Vantage Merchandising” study conducted by in-store research company Sorensen Associates advocates a vertically configured set. The following are some additional insights from the study.
• Eliminate SKUs with low sales/profit and focus on keeping top-sellers in stock for a more profitable candy category.
• Currently point-of-sale signage focuses on price, but price has minimal effect on the purchase decision.  
• Point-of-sale materials should stimulate craving through strong appetite appeal and be visible from the store entry to drive shoppers to the aisle.
• Have the candy aisle on the path to the beverage vault because impulse candy purchasers are usually coming to the store for a beverage.

According to the NACS report, candy category gross margin for the year was 45 percent, which is trending up nicely from 43.4 percent in 2004 and 44.8 percent in 2005, after reaching 45.5 percent in 2003.  
“The category is doing very well,” observes Derek Schmitt, director of merchandising for Town & Country Foods Stores, San Angelo, Texas. “It’s a nice margin-builder for the store.”
And convenience retailing expert Bishop sees the potential to further develop the category. Based on customer research for a national convenience store retailer, Willard Bishop discovered that only 30 percent of shoppers who entered a convenience store actively shopped the candy section. Of those who shopped, 61 percent were converted to purchasers.
“Candy…is probably underdeveloped,” says Bishop, “and could be leveraged more by improving the number of placements throughout the store.”
Certainly its healthy margin structure should provide incentive for convenience retailers to promote candy. “On a margin basis, if a retailer can sell one more candy bar vs. another salty snack, they generate a larger percent of profit which also can translate to a higher penny profit per unit sold,” says Bishop.
Because candy purchases are so highly impulsive (46 percent of candy purchases were unplanned or partially planned as compared to the store average of 29 percent, according to Willard Bishop statistics), the category responds well to strong merchandising and consumer promotion, both in-store and at the pump.  
The future
Just as convenience retailers develop their own distinctive approaches to candy merchandising, so the channel will continue to evolve with a variety of distinct convenience-store concepts emerging, experts predict.
“Retailers have told us they are looking at their business based on its position in the marketplace,” says Bishop. The ones who operate most effectively will identify their niche and build their business around it.
Retailing expert Thom Blischok, president, Global Retail, Information Resources Inc., expects to see two key format delineations within the channel — limited assortment, quick trip “express experience” stores and “convenience service centers,” which cater to consumers with options ranging from concierge service to floral shops to dry cleaners.
Convenience Store Number Cruncher*
$569.4 billion – Total Convenience Store Sales
145,119 – Number of Convenience Stores
42% – Household Penetration (down from 52% in 1997)
$13 – Average Dollars Spent per Trip (up from $7 in 1997)
15 – Average Number of Shopping Trips per Year: (up from 13 trips in 1997)
26 – Number of seconds the average consumer spends browsing the C-store candy section

*For 2006
Sources: The Nielsen Company’s “U.S. Consumer Dynamics
Across Channels & Categories,” April 2007/Homescan 2006, NACS “State of the Industry,”  “Vertical Vantage Merchandising” from Masterfoods USA and Sorensen Associates