Northern Foods, one of the UK's largest food store suppliers, has found that consumers are reining back on their convenience spend. This has the potential to damage forecourt shop sales in the short term, meaning fuel retailers must ensure that grocery staples are not neglected in favor of premium products in a period of waning consumer spending.
The UK convenience food market is one area of retailing that is still expanding. However, Northern Foods [NFDS.L], a key supplier of convenience products to stores such as Marks & Spencer [MKS.L] and Tesco [TSCO.L], recently announced a profit fall of 6.7% and has cited a reining back on the purchase of convenience items, such as premium ready meals, as a contributing factor. The overall slowdown in UK consumer demand is expected to linger over the summer, with the CBI and City economists recently announcing that the three-month average sales levels fell to their lowest point since August 1992.
This trend, as well as the more commonly discussed impact of high oil prices on non-fuel sales, has implications for forecourt retailers given their high investment in the retail arena. Moreover, the focus has often been on higher-value products: for example, some 80% of BP Connect's offering is described as premium and the company has just announced a tie-up with Marks & Spencer, a supplier that undoubtedly falls into the quality end of the food retailing market. If consumer confidence remains low it may mean that consumers reject a lot of the additional services petrol retailers are investing in, such as skipping their mid-morning caffe latte and muffin.
Fuel retailers should be tracking the correlation between consumer confidence and their own shop sales and taking action when a significant adverse impact on trade is apparent. The key response is to think carefully about the products and services being offered, cutting back on the range of premium impulse items when consumers are feeling the pinch and ensuring that grocery staples are not neglected. Motorists might not have many alternatives when it comes to reducing their petrol spend, but in selecting a retailer for their bread and milk, the options are far more abundant.