Convenience on a budget: Will grocers follow Tesco’s lead and make c-stores better value?

With inflation soaring and the cost-of-living crisis still raging, UK shoppers continue to seek out as much value as they can from their local shops and supermarkets. However, convenience store shoppers were getting a raw deal.

Earlier this year, Which? found that those who shop at c-stores rather than bigger supermarkets were likely to pay more than £800 extra over the course of a year, as the consumer champion also found that supermarket-branded convenience stores were not offering budget grocery lines.

This month Tesco announced a major overhaul to the range of products it stocks in Express stores that would see it replace 50 everyday items with cheaper alternatives. Many of the replacements come from the grocery giant’s own-brand range, with some items less than a third of the price of the original products.

This was met with a positive response, and reinforced its position as the UK’s best value convenience store chain.

Tesco said the move came in response to the supermarket’s shopping data, which shows that price-conscious customers are increasingly turning to own-brand products to get great value, without compromising on quality.

Tesco isn’t alone. Morrisons also introduced a range of entry-level products from its Savers budget range to over 500 Morrisons Daily stores last month, including cupboard essentials such as eggs, ham and butter as well as washing up liquid and toilet rolls.

But why, 18 months into the cost-of-living crisis, are supermarkets finally taking action? And will other grocers follow suit?

Subscribe to Grocery Gazette for free

Sign up here to get the latest grocery and food news each morning

The problem with convenience stores

Consumer champion Which? has long been campaigning for supermarkets to stock more value lines after it found that the vast majority of their c-stores did not stock any budget range products.

Having visited 35 Morrisons Daily, Sainsbury’s Local and Tesco Express stores in April with a list of 29 basic budget grocery items, Which? found that 30 shops did not have any of the listed products.

In the five remaining, only one item from the list was able to be found.

Which? head of food policy, Sue Davies believes supermarkets can do better.

“At a time when families and people on low incomes are struggling to feed themselves because the cost of food has gone up so much, as consumer-facing businesses we think supermarkets can do more to help their customers,” she says.

So, why haven’t the grocers brought their value lines – many of which are notching up soaring sales right now – into these stores?

The simple answer is that the numbers don’t stack up.

Morrisons chief executive David Potts is frank. “Speaking plainly, the reason that convenience stores don’t stock entry price point products is because they make very little, if any, money and do not fit with the significantly higher cost structure of convenience stores.”

Shore Capital director Dr Clive Black concurs.”The costs of servicing convenience outlets is higher than supermarkets, with scope for higher chilled and wastage costs too. Hence, understandably, prices have tended to be single digit percentage higher than larger outlets.”

He says switching the assortment to value branges can “eat into sales values and gross margins”.

However, Black says that pressure has been growing for retailers to lower prices, particuarly from political quarters.

“A temporary source of noise has been some of the quite unbalanced and crazy thoughts of British politicians who engage in megaphone stances, using their mouths before their brains on small versus large store pricing,” he says.

Morrisons, however, says it has introduced Savers to convenience stores because of overwhelming demand.

“Customers – especially those living in areas without easy access to a supermarket – have told us how much they would appreciate it at this difficult time and so we are doing it,” explains Potts.

The demand is most definitely there. A recent survey from Which? found that 45% of consumers struggle to find affordable food in convenience stores and 57% agree that more budget ranges in these stores would help them, as trust in supermarkets begins to fall.

Not far enough?

Although Which? believes Tesco’s move is a signficant step that will save customers money, it has pointed out that the product examples the retailer has given are not actually the cheaper options that it stocks.

To put this into context, Tesco said it would replace expensive branded packets of dried pasta £1.70 with its own-brand alternative at 85p. But the budget range version on the same pasta at Tesco is 41p – meaning these changes could go a bit further to help those in need.

Tesco convenience managing director Sarah Lawler, says: “We know customers are watching every penny at the moment, so we hope these helpful product swaps will bring down food bills for even more families.

“And while our convenience stores don’t have the shelf space to carry the full range of our larger shops, by swapping these products, we’ve been able to make way for even more of our great-value own brand ranges.”

A Sainsbury’s spokesperson comments: “We are acutely aware of the pressures facing millions of households right now and our number one priority continues to be doing all we can to keep prices low for our customers.

“431 of our convenience stores stock our best value own brand ranges. The range of products in our convenience stores is carefully chosen to meet local customer demand.”

Will others follow suit?

Now that Tesco and Morrisons have made the move, pressure is mounting for other grocers to follow.

Which?’s Davies says: “Recent moves by two supermarkets shows action is possible. Which? is calling for all supermarkets to provide budget range foods that support a healthy diet in convenience stores, as these are generally cheaper than standard or premium own-brand groceries.”

However, when Grocery Gazette asked Asda and The Co-op if they would follow suit and introduce budget ranges to their convenience network, they both declined to comment.

But grocery is a competitive industry where price matches are rife over fears that shoppers will jump ship to rivals. For prices at a significant part of their store estate to be out-of-kilter with their big competition, is a big risk.

The ball is now in motion to change the world of convenience retail, watch this space to see which other retailers make their offer more competitive.