Apr 4, 2019
Summary: In this special episode of COMMERCE NOW, we team up with Pymnts.com's Karen Webster and Diebold Nixdorf's Uli Seeman and discuss convenience stores (C-stores) and how consumers who only ever pause for gas, and never even set foot inside the store, are a major lost opportunity for additional sales.
Pymnts.com Feature Article:
Moving C-Stores from a Fuel-Plus to a Plus Fuel Model
Speaker 1: Some convenient stores are great when it comes to innovative experiences. But according to Diebold Nixdorf's head of service station and C-stores, the majority of them aren't. In this payment's original podcast, he tells Karen Webster that while the independent operators that dominate the industry want to innovate into the digital age, they are held back by the lack of off-the-shelf products that make that transition possible.
Karen Webster: [00:00:30] Uli, thanks so much for making the time to be with me today. I'm excited to have our conversation about innovation in a very exciting space in retail, the convenience store. Thanks again for making the time.
Uli Seeman: You're welcome. Looking forward to it.
Karen Webster: Okay. So let's take a trip down memory lane here, and talk about when convenience [00:01:00] stores first hit the scene. So actually two dates of note 1913, way long time ago when in Pittsburgh, there was a gas station, the Gulf gas station, which became the first gas station to sell food, so that technically checks the box. But from the standpoint of convenience stores that I think many people regard as the C-store experience, that was actually in 1927, when in Dallas, [00:01:30] the Southland Corporation, now 7-11, opened a store, small format store, to sell bread and milk and other things that consumers needed to buy, but couldn't buy because grocery stores had very different hours back in 1927. They weren't open on Sundays and closed very early.
Karen Webster: So the name, convenience stores, were open longer hours and seven [00:02:00] days a week to provide that convenience. So here we are today, and the environment's different. So there a lot of places that are open lots of different times, seven days a week, for consumers to buy things that were once only available to them at these smaller format stores.
Karen Webster: And I guess my question to you, Uli, to start things off is, how do you think convenience stores have evolved to keep pace with that change?
Uli Seeman: My view to it, [00:02:30] truly, yeah. You mentioned that they started very, very early, providing convenience, providing not only fuel to their customers, but past the implementation of paying at the pump, which is a kind of self-service, they lost a little bit of pace and did stop leveraging innovations and leveraging IT for the advantage. So yes. They are open in many cases 24 by seven, but it's still [00:03:00] the old-fashioned format: forecourt is selling gas, you can pay there, you cannot purchase anything from in store at the forecourt, you have to walk inside and you do your purchases.
Uli Seeman: No support of anything. Lately they are starting implementing mobile payments and loyalty schemes, and some kind of advanced technology but it's still far behind the rest of the retail industry.
Karen Webster: Yeah I would agree with you, and there are certainly some chains [00:03:30] that have done a good job of trying to integrate that experience and use mobile technology, to do that, and encourage through things like coffee and other convenience items, the loyalty and repeat purchasing by consumers. But why has this wave of innovation left this format behind? Is it that they got comfortable with being [00:04:00] convenient? Because people were stopping for fuel, and therefore they had an opportunity to convert some of the people into consumers in the store, and they didn't think they needed to do any more? Why stuck in the past?
Uli Seeman: I believe, we have a few very, very good examples of advanced C-stores, like Bucky's to name a few -
Karen Webster: Yep.
Uli Seeman: They have plenty of more. They are really advanced, [00:04:30] they provide complete different user experience, than the store on the corner. I believe one of the key reasons they are all large enough to have capabilities to implement these newer services. Because, in many cases, these larger chains are using IT environments, IT solutions, which are coming out of, more out of the retail world than out of the C-store world - where the focus is only to the forecourt, or [00:05:00] mainly to the forecourt and very specific solutions have been installed. So these more advanced ones, they have higher sophisticated solutions, and with tremendous effort in many cases of professional services and customization, they can provide the services they have at the moment, which are exceptional.
Uli Seeman: They provide kiosks, they provide order terminals, but they are customized and limited to their chains, and [00:05:30] the adoption into the other piece of the industry is quite difficult. Although keeping in mind that about 50 to 60 percent of the C-stores, gas stations, you have are owned by single owner.
Karen Webster: Wow.
Uli Seeman: So they don't have an IT company, or IT capabilities like the ones I mentioned before, these larger chains. For them it's very, very tricky, to get into such advanced technology.
Karen Webster: So, how are they [00:06:00] able to do that? Because yes, I agree with you that the large chains have embraced technology - mobile apps, and are doing lots of things to engage consumers and to habituate that experience. Not only when people stop to fill up, but for purely the convenience of being able to pop in and pick up things, including now better food than what used to be the case back in the 1970's. But the 50 [00:06:30] percent of those who aren't that fortunate, how are they able to keep up and compete? What kind of technology should they be thinking about? Or are they thinking about?
Uli Seeman: First of all, to take a little comment on what you said healthier food, food in general - so all of them have the challenge, that they need to find compensation for the declining sale in tobacco. And in some areas which are the margin carriers, for these stores. So they are trying one way or the other to come up with food, with healthy food, with prepared food, in order to maximize their business. So, now looking on the implementation side, on the solutions side, the focus is for them to find providers with more box solutions. Means where the implementation effort to adopt it to that particular owner or, [00:07:30] small chain is very, very limited and where they can do even where there are low capabilities of IT management.
Uli Seeman: And where they can do an adjustment in order make it, to customize their solution and have a look and feel for their particular store. On the other side, the IT, that solution provider, they are slowly following that trend, but many are coming out of the larger retail environment, larger retail customer scene, so they're [00:08:00] used to have a model, a business model, which is based more on professional services than on solution sales. So this gap is slowly getting closed, but it's very slow. That's why you don't find any implementations, many self check-outs, or kiosks in this smaller store format today.
Karen Webster: To the point about margins, and the considerations for making these investments. I mean I think we all know that, margins on fuel purchases are quite thin. And so the [00:08:30] opportunity, is to drive people from the forecourt into the store to make higher margin purchases. On top of that there are obviously the labor cost associated with staffing these stores. So there is a lot of appeal, you would think just based on the numbers, for a self service environment. I think it could perhaps even help some of the brand imagery of some of these stores, that need to signal that there are [00:09:00] new innovations awaiting inside.
Karen Webster: But is there such a thing as a turnkey self solution, for these independently operated players who have the most to lose frankly? Because people will stop to get gas but that's about it?
Uli Seeman: Slowly evolves in this direction. So coming from this big implementation into, like I mentioned before about solutions. Some of the providers [00:09:30] are looking into this, there are some first solutions in the market which are focusing truly to a low cost implementation, in order to enable them. Like you said, you're absolutely right the challenge ahead at the moment is the wage increase. In many cases everybody's discussing this fifteen dollar wages - in many cases it's already there, if you see the signs we are hiring, an attendant is making already in some metropolitan areas thirteen dollars and more, an hour.
Uli Seeman: [00:10:00] So they have to overcome this hurdle, and new technologies are providing from my perspective, quite sophisticated solutions in order to lower implementation costs, and in order to give them a high flexibility - although, in regards of that business format yeah? One is selling burgers, the next one is selling pizzas, so even that kind of adaption needs to be addressed on a very simple way, to give them the opportunity [00:10:30] to basically buy this kind of solutions off the shelf. And yeah, my perspective is yes, it's moving in that direction, although if you see now in other areas - in other food areas for example - McDonald's is big time -
Karen Webster: Yep.
Uli Seeman: Emerging, self ordering kiosks systems. And this is driving the industry, from my perspective in the absolute right direction. And it's also showing some good opportunities if you look in food, in quick service restaurants, what kind of basket size increases [00:11:00] they recognize by using kiosk systems. Having not a human being in front of you, asking you if you want to super size something, is really driving the basket size. Which is coming back then, to a benefit for the convenience stores as well, and it's returning the investment into this equipment way faster than they anticipated at the moment.
Uli Seeman: On the other side, obviously you need to check the store format. Does it really have the capability to provide the option to implement something like kiosks and self check-outs. Not every [00:11:30] store will have that - that size, that format that clientele, which will accept these kinds of new services and touch points.
Karen Webster: So looking at, the broad landscape of C-stores, not just the smaller format guys, but the large chains as they think about competing with...not just other fuel operators, but grocery stores, and the smaller format stores like we're seeing pop up from Amazon and [00:12:00] others; are they looking to other retail categories for inspiration on how to engage with customers? Where are they looking for models, if you will, to bring into their environment?
Uli Seeman: They truly, they do look into other formats. And they have to look into other formats. If you go to groceries or home improvement or fast food, they all implemented one way or the other, self check-outs [00:12:30] or kind of, kiosk services. And what they also try to do is to have one platform for all their different touch points to their clients, so that it feels convenient to use them and you don't need to adapt yourself to the different user interfaces, touch points. That's how we call them here.
Uli Seeman: On the other side, that's exactly the area today's convenience store owners are looking into as a reference. They finally, [00:13:00] from my perspective, recognized they have to move in a more modern, more adapted world. Otherwise, they will have a significant issue to attract the younger population. If I talk to my kids, to their kids, what is getting you into a convenience store? Well it's not only the light anymore, it's over some kind of, following the term 'convenient'. When I go in there I don't want to sit in queue, and wait to pay my [00:13:30] candy bar - I want to have the best possible service. The kids are used to go, to a Starbucks for example and pre order a coffee. So how can I transfer that format into a convenience store? That's what the convenience store owner also looking for. You can see that, if you talk to them, yeah Diebold Nixdorf's, you'll see there is a demand, there's really a need and they want to be more innovators.
Karen Webster: It's interesting what used to drive me as a kid into convenience stores were the Slurpee's. From 7 -11. I mean it [00:14:00] was very product driven! Not so much convenience driven but, you know, I think we laugh about this but...you are seeing, where convenience stores are trying to parley convenience plus their own type of product hook to bring consumers in - whether that's coffee, or other food items, I think you're starting to see that kind of affinity and loyalty being [00:14:30] introduced into these formats, or perhaps re - introduced.
Uli Seeman: Yes, absolutely. And what - we have here a little term, inside of our company; it was in the past fuel, then it became fuel plus - as you mentioned very very early in the conversation here - it was early in the 1900s already, but now it's plus fuel. So you go there, because hopefully, in future, you create a kind of destination to make people go in there. One of my most favorite examples [00:15:00] and best examples, is if you come to Texas or it's going now in the states around here, is Bucky's. They created more or less a destination for people to come; not only because of their clean bathrooms, but also it's more a shopping experience if you go in there for food and other items, than only the gas.
Karen Webster: Interesting.
Uli Seeman: And I truly believe and see that the trend in this direction is going. [00:15:30] You provide special food in order to drive your customers to your C-store and fill up the car.
Karen Webster: Yeah.
Uli Seeman: In the other way around, you have to go because the demand is there to fill up the car, and this is the next convenience store.
Karen Webster: Yeah that's interesting.
Uli Seeman: Yeah I believe that is the trend we will see, in the upcoming years as well. And maybe there will be a little bit of consolidation as well, because like I said the very small format owner - they're [00:16:00] maybe not capable to follow that trend, but time will prove, yeah. You don't see it yet.
Karen Webster: Yep. What is the impact, Uli, do you think of mobile in driving this change, and perhaps putting pressure on C-stores large or small to rethink delivery and this plus fuel mantra that you've identified as the [00:16:30] future?
Uli Seeman: I see mobile as an opportunity to be honest. Because, at this point many of them have to invest a lot of effort into upgrades, to follow the rules, the EMV compliance -
Karen Webster: Right.
Uli Seeman: The EMV PCI 5 compliancy. So all around payment. Mobile in the future, will probably give them the opportunity to slowly migrate rather to mobile payments, than to payment [00:17:00] at the pump. And mobile will also give the opportunity if you are in the app, to embed functionality to pre order or order items out of the store. And maybe then, self check-out is the bridge into that - where you either have a kind of same format application running on your mobile, and you can complete your transaction. Because you can pick up stuff at that device, or [00:17:30] you can make a final check out or final payment at that device. So the whole journey is a little bit easier and it's more like you used to do at a normal retail environment; where you may pre order already on your mobile app, certain items, and you go in the store to pick them up only, and not to select them anymore.
Karen Webster: Yeah, I mean it's interesting how all these technologies are obviously very complimentary - but getting back to the origin of the category, [00:18:00] which is convenience, and technology can provide that experience in terms of self service check-out capabilities, mobile through pre order, and staging fuel purchases at the pump. And certainly replicating the curbside pickup, and all the different things that one experiences today in other retail formats. So it'll be interesting to watch that evolution.
Uli Seeman: [00:18:30] Yes I agree. And it will evolve eventually into such a direction. You made, by the way, a comment about purchasing at the pump. At this point, there are very few suppliers supporting these kinds of functionalities.
Karen Webster: Right.
Uli Seeman: I recognize it's slowly going into such a direction, in some states you can already buy for example a lottery ticket together with your purchase of gas. [00:19:00] But overall, that implementation that for example you start a transaction during - you fill your car, and then you go ahead within that transaction and order your coffee, your dairy's, whatever from in store. It's more an exception, than a standard functionality and feature. With the new world, having hopefully - not hopefully, we will have android devices and so forth, in the forecourt. And a combination [00:19:30] of mobile payment like you mentioned before, there will be way more flexibility and functionality provided for consumers, in order to have more convenience in a convenience store.
Uli Seeman: And I believe although that will drive eventually more traffic from the forecourt into the store. Today, more than half, more than 70 percent of [inaudible 00:19:52] I remember, are just coming on site to fill the car.
Karen Webster: Right.
Uli Seeman: They're not going in store.
Karen Webster: Right. Yeah.
Uli Seeman: It's not a very high level.
Karen Webster: [00:20:00] Yeah no, it's not. And I think you make a good point which is - there are things that have to change, in order to open the tab if you will, for the purchase of fuel, and adding on to that purchase things that may be desired in the store itself. But that certainly is convenient and I think you can imagine lots of innovators thinking about ways to make that experience that much [00:20:30] tighter. Especially, I know the things that you guys are thinking about with combining self service and technology and mobile payments, to make that experience that much better for the consumer - and certainly margin enhancing for the operator.
Uli Seeman: Absolutely. We are trying to address exactly that. The increasing cost of labor, the availability of labor -
Karen Webster: Right.
Uli Seeman: In some cases you can even pay fifteen bucks and more, you don't get anybody, because it's not the most attractive industry.
Karen Webster: Right.
Uli Seeman: So [00:21:00] to overcome all these hurdles, and attract the stores for the people at the end of the day, let them have a very positive customer experience. Rather than staying in queues, and making it complicated to do your purchase in these kinds of store formats. So yeah, that's absolutely our focus.
Karen Webster: Excellent. Well Uli, it was really nice to chat with you. I was happy to recall my experience as part of this discussion of buying Slurpee's [00:21:30] at 7-11, that was kind of a throwback, to my youthful days! But it's an interesting category and it's certainly exciting to see innovation unfolding before our very eyes in a format that we've taken for granted for many many years, and is now really among the forefront of opportunities for innovation. I appreciate your perspective and thanks for your insight.
Uli Seeman: [00:22:00] Thank you. Looking forward to the next one.
Karen Webster: Yes, you and me both. Bye bye now.
Uli Seeman: Bye.