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Convenience Store Industry

Strategy is the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a changing environment and to fulfil stakeholder expectations (G. Johnson & K. Scholes 2002). According to a recent poll released by Yankelovich Partners Inc. , the availability of 24-hour convenience stores was one of the highest-ranked items that Americans want to see continue into the new millennium.

By providing immediate access to food products, beverages, cash, petroleum, and any necessary item, convenience stores have become the gas station, quick service restaurant, bank, and water-cooler of a mobile, time-hungry society. This assignment will use Porter’s ‘5 Forces’, PESTEL analysis, Structural drivers and Life cycle model to map and analyze the strategies of convenience retailing industry. Then scenarios analysis will be given in order to identify the long term futures of industry. Background

A convenience store is a retail business with primary emphasis placed on providing the public a convenient location to quickly purchase from a wide variety of consumable products (predominantly food or food and gasoline) and services (NACS of US). The Southland Ice Company is credited with the birth of the convenience store in 1927 in Dallas,

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selling items such as milk, bread, and eggs at one of its neighborhood stores 16 hours a day-long after the local grocery stores were closed for the day. The first 24-hour convenience store was opened in 1964.

Since then, the number of convenience stores has increased dramatically. Today, convenience stores provide immediate access to household staples and emergency items, ATMs, foodservice, and even office services-24 hours a day. Porter’s five forces Using Michael Porter’s analytical model of industrial structure based on the theory of industrial organization, we will clarify and comment on the structure of the convenience industry. (Appendix 1) 1. Threat from new entrants The economies of scale of the convenience industry clearly affect all purchases of materials, production, distribution, and sales.

The information system with its central core function of POS plays an important role in the management of products and the collection of customer’s information. The building up of a large-scale distribution system together with vendors can obviously not be realized in a day. From the viewpoint of the accumulation of experience, existing chains are in an advantageous position compared to newcomers. Therefore, it could be concluded that convenience industry is not exposed to a big threat from new entrants. 2. Hostile relationship with the existing rival chains is growing stronger

The convenience industry had been cultivating the market with its offer of ‘convenience’ rather than being forced to use price competition in 1980s. However, in the 1990s, the population per store became less and the time of ruthless competition begun. Affected by a long-term recession, the hostile relationships between rivals are becoming even stronger and this is symbolized by the competition of price reduction in the industry. 3. Threat from substitute merchandise After the collapse of the bubble economy, the inclinations of consumers seemed to be split into two.

Convenience chains face intensified competition with department stores in the domain of ‘value-added’ products and with discount shop on ‘low-priced’ merchandise. In addition, large-scale retail stores have extended their business hours. As a result of this, the advantages which the convenience industry one possessed over the other retail sectors have started to be eroded. Therefore, the pressure from substitute products is becoming much more prevalent. 4. Bargaining power of shoppers For the convenience industry which handles mainly products related to personal effects, the differentiation of products from those of rival is not easy.

Since the collapse of the bubble economy, the purchasing patterns are becoming more diversified, symbolized by consumers’ attachment to both value and quality of merchandise and also the lower price merchandise available. Therefore, the bargaining power of shoppers with these variable options is getting stronger. Each chain is trying to produce their own merchandise with the goal of getting into an advantageous position in the drive to attract shopper. 5. Bargaining power of manufacturers The bargaining power of manufacturers in the convenience industry is weak.

Conventionally, most producers are medium-sized to small-sized companies with insufficient production facilities, technology, and quality control. Therefore many convenience dealers have been giving various guidance and assistance to producers in order to upgrade their abilities. In the process, the convenience industry had enhanced its dominant power over the producers. Therefore, the convenience industry is even starting to take control of major makers by using joint development of products and its sales network. PESTEL Analysis

Environment influences is particularly important for the organisation not only in the past but for the future. There are 6 key forces in the macro-environment, sometimes known as a PESTEL analysis, involves identifying the political, economic, social, technological, environment and legal influences on an organisation. Political The direction and stability of political factors is a major consideration for industry. Some of the laws and regulations are most commonly restrictive, they tend to reduce the potential profits of industry. However, some political actions are designed to benefit protect industry.

For example, in 1974, Japan enacted the ‘Large Scale Retail Store Law’ regulating the set-up of large-scale retail stores and new rules on business hours. Large-scale market retail stores were forced to set up stores in less favourable locations. However the small- to medium-sized retail stores despite being under the protection of this law, began to lose their competitiveness due to inefficiency, lack of effort and other reasons. At this time, Ito Yokado Co. , looked at the possibility of setting up small-sized stores which be located in the prime shopping districts.

This legal loophole was also the reason why many small-sized chain stores by the name of convenience stores were born. Economic Economic factors concern the nature and direction of the economy in which a firm operates. Because consumption patterns are affected by the relative affluence of various market segments, in its strategic planning each industry must consider economic trends in the segments that affect its industry. Over the period of 1987-1997, the grocery trade had grown steadily attribute to the global economic growth and the rise in population.

It also reflected convenience retailing industry in a boom. But stepped into 21 century, global economic slow down and population decrease. It affected the farther development of convenience retailing industry. Social Social factors involve the beliefs, values, attitudes, opinions and lifestyles of persons in the industry environment, as developed from cultural ecological, demographic, religious, educational and ethnic conditioning. From 1990s, the tastes of consumers started to change and they begin to place more importance on value of money as consumers’ interest of quality-of-life issues.

Consumers started to shop more carefully and selected products based on value and quality rather than merely the selling price. The strategy of bargain sales which were popular during the bubble economy isn’t suitable anymore. The other most profound social changes in recent years has been the entry of large numbers of women into the labor market. It has created or greatly expanded the demand for a wide range of products and services necessitated by the absence from the home. More prefer to shop in supermarkets or convenience store, which offer convenience, better atmosphere and value for money with their numerous special product promotions.

Technological Stepped into the 1990s, with the development of information technology, client-server system and data analysis become the most essentials in the grocery industry. By using the information service, a service of payment acceptance of public utility bills among others, also has been rapidly expanding. By using the integrated information system, the rapid transmission of POS information became possible. It contributes not only higher efficiency in order placement and in the development of new products. It also helps to create a ‘service business’ such as payment acceptance of bills, mail order, catalogue shopping and so on.

An effective distribution system with vendors is also hook up via its information system. Convenience store industry was previously simply a ‘place to sell merchandise’ but now it becomes a ‘place to offer services’ as well. A ‘manpower shortage’ became a serious problem after 1980s, convenience store have to hire many part-time workers. Therefore, its immediate task is to make them into productive employees despite their lack of experience. Industry should design its information system base on the concept that ‘anybody can use it’.

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