State of the Industry 2013
C-stores break $700 billion in sales but stumble to finish in 2012.
Comparisons frame c-store benchmarks, show potential shortcomings
By c-store standards, top-tierchains ought to be proud, breakinginto new categories such asfoodservice with a growth trajectory thatought to please any investor.
But wait: In terms of foodservice, theindustry’s top-quartile stores don’t makeas much as a typical Pizza Hut.
Comparing apples to oranges? GlennPlumby, SOI presenter and vice presidentof operations for Speedway LLC,Enon, Ohio, doesn’t think so. He believesthe gap represents the potential groundc-stores can gain as they dive further intothe category.
The c-store industry’s top-quartilestores averaged $34,948 in foodservicesales in 2012 vs. an average of $60,307per store per month for a Pizza Hut,according to NACS research.
“A Pizza Hut does twice as well[in foodservice] as our top quartile,”Plumby said. “We know our transactionsare much higher. … If we can getconversion from people fueling, there’san upside.”
But foodservice comparisons wereonly part of the larger channel-blurringpicture, he said, warning that drug anddollar stores are starting to stock coreconvenience items. “They’re beginningto look more and more like us, sellingbeer and cigarettes.”
Plumby started the comparisons withnumbers of stores. Overall, c-stores grewto 149,220 in 2012, up 1,094 stores (or0.7%) from 2011. Drug stores, on theother hand, grew by 5.7% to 40,727locations, while dollar stores did a bitbetter with 5.8% growth and 23,421stores.
Sales growth also showed crosschannelheat, starting with in-store salesgrowth for the convenience channel at2.2% in 2012 vs. 2011. Comparatively,Goodlettsville, Tenn.-based Dollar Generalexperienced 7.1% sales growth, withone rival, Chesapeake, Va.-based DollarTree, not far behind at 6.2%. Drug-storechain CVS, Woonsocket, R.I., reporteda 9.6% growth rate, with Deerfield, Ill.-based Walgreens showing fallibility witha 2.8% loss year over year.
Core categories also came under firefrom cross-channel competition. In hisreview of c-store categories, SOI presenterKevin Smartt, CEO of Kwik Chek FoodStores Inc., Bonham, Texas, said the topthree drug-store chains increased beerlocations by 10.1%, while Dollar Generalwent from testing beer in 2011 to selling itat more than 5,000 stores in 2012.
Similarly with cigarettes, Dollar Generaltested the category in 2011 and beganselling it at 10,500 stores in 2012. Matthews,N.C.-based Family Dollar also wentfrom testing in 2011 to rolling it out to6,000 stores last year.
Still, growth in foodservice withinc-stores was commendable, Plumby said.Comparing same-firm c-store numbers,the industry achieved an 8.7% growthin foodservice sales, while foodservicestalwarts such as Oak Brook, Ill.-basedMcDonald’s and Louisville, Ky.-based KFCwere able to muster only 4.7% and 3.5%growth, respectively.
“No one in the category is up as nicelyas we are,” Plumby said. “It’s encouragingthat we’re growing at a faster pace.”
Year Over Year
While foodservice was a dramatic partof c-store sales growth and profitabilityin 2012, it was just a portion of overallindustry increases. Total sales for theindustry rose 3% to $589,026 per storeper month. Separately, fuel sales rose2.9% from the year before, while in-storesales rose 2.2%.
Though several SOI attendees saidan unseasonably warm March last yearpropelled spring numbers, Plumby saida couple of outside factors slowed growthoverall. The first was falling gasoline consumption.At its 2007 peak, consumptionin the United States was 9.3 million barrelsper day. In 2012, it was 8.7 million.Volumes across the industry were down0.6% in 2012 from the year before and astaggering 7.45% since 2007.The so-called “jobless” economicrecovery was also no help, Plumby said.According to NACS estimates, almost 10million more people were not countedin national unemployment statisticsfrom four years ago.
“What that means is there are 10million less people—people who weretruly key to our business, people whowould go to work and go home, are notcoming into our stores,” Plumby said.“When you take that many people outof the labor force, it will certainly havean impact.”
Almost in spite of those drawbacks,the industry as a whole did show gains.Foodservice sales were up 8.7%, whichPlumby called significant, while merchandisesales were up 1%. Gross profitfor foodservice was up by double digitsat 13.2%, with merchandise profit up2.8%. In all, gross profit for the industrywas up 3.1%.
Gasoline Consumption Falls
No summer driving seasons last year, but 2013 opens with promise
Gasoline as a core c-store contributor to sales and profitability had its upsand downs for 2012, with sales showing some increases but weighed downby lower margins and higher retail prices.What may be most disconcerting to retailers was a documented absence lastyear of the traditional driving season, when motorists take to the roads for summervacation and warm-weather activities.
Diagramming a period from May through August, Glenn Plumby, vice presidentof operations for Speedway LLC, Enon, Ohio, showed how consumption essentially“flattened out.” One of the concerns stemming from last year’s conference was fallingdemand, Plumby said.
“That fear turned out to be reality,” he said. “We just didn’t get a summer drivingseason.”
Two main reasons for the drop, Plumby said, were motorists simply opting todrive less and an increase in fuel-efficient cars. From a peak of total miles driven in2007, Americans drove 5% fewer miles in 2012, he said, citing NACS research. Thatfact and better fuel mileage combined to take a bite out of consumption, as it were.
Fewer miles driven and more fuel-efficient cars also contributed to a continuingtrend in demand destruction for gasoline. Again, after that 2007 peak, Plumby said gasoline consumption was down 7.45%.“That’s very alarming and very concerning,”he said.
An indicator to Plumby of diminishedconsumption was a drop in thenumber of overall transactions in stores,particularly over the second half of 2012.Pump transactions were down as well,SOI numbers revealed.
“When consumers stop walking intostores, it makes it really hard to sell anything,”Plumby said, citing that lengthydiscussions among NACS researchcommittee members have yielded noroot cause. “We have no silver-bullet[reason].”
Further complicating the picture wasa one-two punch from overall marginsand retail prices. Margins fell 0.4% from2011 to 2012, going from 18.2 cents to17.8 cents. At the same time, pumpprices hit $3.60 on average, an all-timehigh for the industry, Plumby said.
“If you look at those figures, and how2012 had [retail prices] approach $4 a gallonthe most [number of times] ever, thosearen’t good factors coming together inour favor as far as pleasing customers anddriving consumption,” he said.
However, Plumby was quick to pointout that the beginning of 2013 has alreadyshown bright spots. Consumption in thefirst few weeks of the year was already1.3% above 2012. The numbers are evenmore stellar in light of the fact that retailgas prices rose at record rates during thattime period. Even better news for retailersis that margins rose 3.6 cents, up to 16.6cents from 13 cents in 2012.
Staving off Credit Fees
Still, for many retailers, selling moreproduct, whether it’s fuel or merchandise,comes at a cost. Credit-card feesgrew at a slower rate than the industry’s pretax profit, a pattern that runs counterto previous years, Plumby said. Unfortunately,the fees still added up to $11.2billion for the industry last year.
Comparing trend lines between pretaxprofit and credit-card fees paid in2012, Plumby said the legislative victorysecured through the Durbin Amendmentsaved retailers and consumers aconsiderable amount. “Credit cards arenever a good thing to talk about,” hesaid, “but that’s encouraging.”