Memorandum submitted by Association of
Convenience Stores (ACS)
The Association of Convenience Stores (ACS)
represents 32,000 retail outlets throughout the United Kingdom.
Its primary function is to represent these shops to Government.
Members include SPAR, Budgens, the Co-op and Premier.
ACS members play a vital community role. They
serve local people from a location either in the heart of villages
or suburbs, from town centre sites, or on petrol forecourts.
The Convenience Retailing Sector
There are 53,653 convenience stores in the UK.
The breakdown of the stores operating in the sector is shown below:
| Segment | Numbers 2001
| Numbers 2002 | Numbers 2003
| Numbers 2004 |
| Non-affiliated independents | 34,250
| 33,787 | 32,900 | 32,576
|
| Total symbols | 7,175 | 7,371
| 7,794 | 8,424 |
| Total forecourts | 9,766 |
10,282 | 9,907 | 9,401
|
| Convenience multiples | 2,756
| 2,804 | 2,186 | 2,213
|
| Co-operatives | 1,297 | 1,381
| 1,977 | 2,065 |
| Total | 55,244 | 55,625
| 54,764 | 54,679 |
| Joint Ventures | 662 | 845
| 902 | 1,026 |
| Total exc. Joint ventures | 54,582
| 54,780 | 53,862 | 53,653
|
| | |
| |
Fig 1: Convenience Store numbers 2001-04
Non-affiliated independents are those which are not part
of a recognised symbol group or other brand. Symbol groups are
fascia brands supported by a wholesale distribution arrangement
with the independent retailer. Multiples are wholly-owned and
managed from a central office, and co-operatives may be part of
any of the dozens of co-operative societies which operate retail
outlets.
These figures show unaffiliated independents and forecourts
in decline, and symbol groups, convenience multiples and co-operatives
enjoying a growth in store numbers.
Overall store numbers in the sector are in decline. These
stores run on tight profit margins, typically around 2%. This
puts in jeopardy the survival of stores who lose income streams
and profit. Any reduction in the profitability of these retail
businesses may lead to the community losing that outlet and the
vital service it provides to local people.
Convenience stores are faced with growing competitive and
regulatory pressures. Superstore companies are increasingly moving
into the neighbourhood retailing sector, and this places smaller
retailers with reduced buying power and ability to invest in an
unenviable competitive position.
While the Government seeks to address the regulatory burden
through various initiatives and bodies like the Better Regulation
Task Force, the reality facing retailers is more bad regulation
impacting on their business. At present, retailers are facing
increased costs under the new Licensing Act: typically £475
for three years as opposed to £30 under the current system.
Similarly, legislation such as the Animal By-Products Regulation
places additional cost and operational pressure on convenience
store operators.
The overall picture of the convenience store sector is of
a declining number of businesses battling to survive against growing
competitive and regulatory pressures. For these retailers, the
denial of opportunities to maximise their return from limited
retail space would seriously threaten their viability.
Cash machines in convenience stores
IGD's Convenience Retailing 2004 report discusses the value
of ATMs to convenience stores. It notes that:
"ATMs are fast becoming an expected facility in certain
segments, forecourts being a prime example."
This is reflected in the growth of ATMs in convenience stores
as shown below in the same report.
| Symbol Stores
| | Convenience Multiples
| | Co-op Stores
| |
| Company managed forecourts
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| |
| 01 | 02 |
03 | 01 | 02 | 03
| 01 | 02 | 03 |
01 | 02 | 03 |
| % offering ATMs | 24 | 25
| 27 | 42 | 36 |
56 | 28 | 37 | 50
| 30 | 15 | 33 |
| | |
| | | |
| | | |
| |
Fig 2: Penetration of ATMs in convenience stores
These cash machines may be owned and operated by the bank
and situated externally. Such machines are generally funded by
interchange fees between banks.
Alternatively, ATMs may be sited inside the store. Many of
these cash machines are "self-fill", where the retailer
replenishes the machine from his own cash. There is usually a
charge applied to internal ATMs. These machines are usually operated
through an independent ATM provider (IAD).
IGD explain the reasons for the development of cash machines
in convenience stores thus:
— Income generation: banks and cash machine providers
will pay either a fixed rental fee for the space used, or will
make a payment related to the number of transactions the machine
is used for. Internal ATMs will generally make a surcharge, a
proportion of which is given to the retailer through an agreed
contract with the machine provider.
— Footfall driver: Harris International Marketing
(HIM) research shows that ATM users visit forecourt stores an
average of four times per week, compared with 3.7 times per week
for non-users.
— Increased basket spend: the same HIM research
shows that ATM users spend on average £5.11 per trip to a
forecourt shop, compared to £3.38 for non-users.
The last of these three reasons identified by IGD suggests
that ATM users spend some of the money they withdraw inside or
immediately outside the store in that shop. HIM research shows
that 67% of the funds withdrawn from cash machines in convenience
stores are spent in that store.
HIM add a fourth point of value of the in-store ATM:
— ATMs increase the catchment area for shoppers
to that store.
Customers value the safety they feel when using a cash machine
inside a convenience store. Many customers, especially women,
do not feel comfortable using cash machines situated on the street—most
notably when beggars loiter close to the ATM. These customers
prefer using a cash machine surrounded by other customers and
staff in a well-lit and hospitable environment.
There have been significant security concerns over the placement
of cash machines in convenience stores. Incidents of ram-raiding,
in which the thief would drive through the front of the store
to get access to the cash machine, were frequently reported by
ACS members. However, in recent years industry security initiatives
and better security management of ATMs on site have helped to
reduce instances of cash machine ram-raiding.
Internal cash machines are generally installed where banks
have decided that there are insufficient transactions to warrant
doing so. Bank ATMs generally require around 200 transactions
per day to be economically viable. Internal ATMs can operate with
transaction levels as low as 15 to 20 per day. These machines
are therefore additional to the network of bank-run and free-to-use
ATMs.
This low level of usage is demonstrated by the fact that
while 40% of cash machines are managed by IADs, only 3% of transaction
value is conducted through these machines. They are therefore
characterised by being lower-usage sites.
The principle of charging
When a customer uses a cash machine, they are in effect arranging
a loan of another party's (the retailer, IAD or bank) cash. For
machines where this loan is not arranged between two banks, the
costs of this transaction fall upon the customer.
Retail space is at a premium. Space dedicated to a cash machine
could be used for other products or services. That space attracts
rent and rates, as well as the costs of maintaining it to required
levels of lighting and cleanliness. Security measures are further
fixed costs associated with including an ATM in store. Furthermore,
there are costs and inconvenience involved in fitting an ATM.
Therefore, the provision of an ATM attracts costs to the
retailer. Financial reward is therefore a necessity for them.
In some cases, banks decide that the gain involved in providing
a cash machine allows them to make a payment to the retailer without
making a charge to the customer. This is due to interchange payments
agreed between banks for one another's customers using cash machines.
Where ATMs are self-fill and/or are obtained through a third
party cash machine supplier, the levy of a charge to the customer
is likely to the only way in which revenues can be generated to
give retailers compensation for the costs of offering this service.
Transparency
The principle of charging for cash machine transactions rests
on sound information being provided to the customer, ensuring
that they are aware of charges being applied to them, and are
able to make an informed choice over how to obtain cash.
LINK has a mandatory rule that customers are warned before
commencing their transaction that a charge will be applied to
them. Under the LINK system, this information is given to the
customer once the relevant bank has informed the machine of its
charge.
Individual operators use policies of displaying charges through
stickers or other means. This policy is sometimes hard to implement
due to the varying charges applied by different banks and machines.
ACS is satisfied that information provided to customers is
sufficient to allow the customer to make a free choice of where
to obtain cash. This choice is analogous to a customer buying
a drink in a pub compared to a supermarket. The pub is likely
to be more expensive because the customer has been provided with
a convenient and pleasant environment, which brings with it a
different cost structure. Just as it would be unfair to expect
a pub to match supermarket prices on alcoholic drinks, the value
of using cash machines in different contexts cannot be compared
like for like.
Financial exclusion and location
ACS strongly believes that the provision through convenience
stores of cash machines and other services such as cashback and
the Post Office makes a significant contribution to promoting
financial services to a wide variety of households.
| Symbol Stores
| | Convenience Multiples
| | Co-op Stores
| |
| Company managed forecourts
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| |
| 01 | 02 |
03 | 01 | 02 | 03
| 01 | 02 | 03 |
01 | 02 | 03 |
| % offering ATMs | 24 | 25
| 27 | 42 | 36 |
56 | 28 | 37 | 50
| 30 | 15 | 33 |
| % offering cashback 13 | 10
| 14 | 96 | 74 |
38 | 100 | 99 |
97 | 1 | 0 | 0
|
| Post Office | 15 | 17
| 16 | 25 | 14 |
26 | 6 | 9 | 12
| 0 | 0 | 0 |
| | |
| | | |
| | | |
| |
Fig 3: Comparison of availability of ATMs and cashback facility
Fig 3 shows that cashback is also widely available and offered
in many stores. The Post Office is available in a number of outlets.
Some retailers are wary about offering a cashback facility
due to the security risk involved in maintaining large quantities
of cash in tills. Most retailers try to keep cash levels in tills
down to a minimum to ensure that those committing robberies and
till snatches will gain poor rewards for doing so.
Many convenience stores operate In low income areas. It is
important to acknowledge that the provision of ATMs inside and
outside convenience stores is an additional service to customers,
and does not replace other opportunities for customers to gain
access to cash and other services.
Given the closure of many local bank branches, the provision
of ATMs in convenience stores in by far the most cost-efficient
way for many customers to access cash.
If these services, funded by a charge of some sort, were
removed, two socially-undesirable outcomes would accrue:
— there would be fewer ATM facilities available
to customers, as banks would be unlikely to replace these services
where transaction rates were so low;
— retailers would come under increasing financial
pressures, and their own viability may be threatened.
ACS does not have access to any further information on the
demographic distribution of cash machines.
Post Offices
Retailers' ability to choose the right cash machine offer
to their customers is inhibited in cases where the Post Office
is sited at a store. Post Office Ltd apply restrictions in their
contract with subpostmasters that requires them not to take up
any ATM deal other than that offered by the Post Office. ACS believes
this is an unjustifiable restriction of retailer choice.
Conclusion
ACS is satisfied that at present cash machines offered in
or outside of its members' stores are:
— of additional benefit to the customer;
— important to the future health of the convenience
store sector; and
— transparent in their charging, offering the customer
choice of where to obtain cash.
ACS is happy to provide further views and information to
the Committee, and is committed to supporting this examination.
2 December 2004
| 
