Insights

Navigating Store Choice Among Small-Box Retail Formats
Article

Navigating Store Choice Among Small-Box Retail Formats

Much like in the media realm, choice is rampant across the retail landscape. In fact, more than 18,000 new retail stores have opened in the U.S. since 2007, providing consumers with an even broader abundance of diversity and choice. And when we look at expansion drivers, we see that the overwhelming majority (88%) of that variety has come from small-format stores: dollar, convenience and drug.

Given recent trends, Nielsen conducted a study to understand what consumers are looking for when they shop the growing small-box channel. Nielsen then used consumer responses about 68 small-box retailers to derive the Nielsen Store Equity Index (NSEI), which ranks brands for familiarity, connection and loyalty.

In reviewing the results of the recent research, only one of the top 10 retailers by NSEI score is a national retailer. These findings, similar to those of prior research of this nature, demonstrate how local and regional players are nimble enough to create deeper bonds with their shoppers.

The study also highlights the distinctiveness of small-box stores and the differences in the channels themselves. One major distinction is that smaller-format stores provide a convenient way to meet consumers’ on-the-go needs.

How is the small-box retail landscape unique?

Small-box retailers meet a specific shopper need, serve a younger demographic and a face a distinctive set of challenges. Consumers make the vast majority of their small-box trips to meet immediate needs, so it’s critical that retailers in this channel deliver on the promise of convenience while meeting the specific needs of each shopper’s trip—or they risk losing the shopper’s future trips as well.

Big-box retailers and grocers entering the small-box arena have seen successes and failures, and some large players have exited the space after only a short period of time. Knowing the intricacies of shopper needs and expectations with the small-box space is critical to future successes.

How do small-box retailers connect with shoppers?

As a part of its small-box research, Nielsen delved into 32 retailer attributes that drive store loyalty and store choice. These attributes correspond with five key factors:

  • Convenience
  • Price
  • Product
  • Experience
  • Promise

Understanding the importance of these attributes can help retailers determine tactical and strategic initiatives. The table below ranks several basic, core and emerging consumer needs and connects them with the retail attribute they belong with.

To be part of shoppers’ consideration set, retailers need to ensure their stores have an acceptable environment for shopping and meet shoppers’ expectation for convenience.

Retailers can drive deeper emotional connections with shoppers by setting themselves apart from other retailers with respect to trustworthiness, good prices, well-stocked shelves and friendly employees.

Given convenience positioning for small-box retailers and their limited space for product differentiation, product assortment is secondary to other needs, but represents an opportunity to differentiate once other needs are met.

How are different small-box channels unique?

Even though many small-box operations traverse similar premises, there is differentiation between the channels. Consumers, for example, perceive C-Stores to have a better assortment of prepared foods and beverages. So in that regard, shoppers are much more likely to make a meal-time trip to those stores, while they’re likely to visit drug and dollar stores for larger fill-in and routine purchases.

The attributes that drive equity vary by channel, retailer and demographic segment. Those variances notwithstanding, however, one attribute is universal: be a trustworthy retailer. Among each channel, the differentiating factors are:

  • C-Stores: Prepared foods
  • Dollar: Attractive environment
  • Drug: Engaging loyalty programs, convenient locations

To win in the small-box channel, retailers will be best positioned by delivering on the areas that consumers consider the price of entry and excelling in the attributes that drive equity. Only then, should retailers seek to differentiate themselves with other attributes.

Methodology

The insights from this article were derived from Store Choice Drivers, an English-language survey of 11,500 shoppers (ages 13 and older) between Oct. 6 and Oct. 19, 2015, by Nielsen Consumer and Shopper Analytics.

Channel Coverage:

  • Dollar (seven banners)
  • Drug (six banners)
  • Convenience (55 banners)