ANKENY, Iowa – While cigarette sales continue to benefit from lower retail-fuel prices, Midwest c-store giant Casey’s General Stores is experiencing a drop in growth rates from past quarters of “high single-digit” increases.
The chain set a 6.2% growth goal for fiscal year 2017 for its overall grocery and general merchandise category, reflecting the prospects of cigarette sale increases falling back to the mid-single digits, officials said in their recent earnings call.
In her assessment of the Ankeny, Iowa-based chain’s quarterly results, Bonnie Herzog, managing director of beverage, tobacco and convenience-store research for Wells Fargo Securities, New York, said Casey’s experienced “weak consumer demand in farm-belt markets, overall softness in restaurants and food retail, a deceleration of cigarette sales and a reversal of recent ‘uptrading’ trends and a general food deflation.”
“For us, if you look at fiscal 2017, the best-case scenario is margins will be stable to slightly down in the cigarette category,” said Bill Walljasper, CFO of Casey’s. “It’s really challenging for a convenience-store operator to really drive grocery and other merchandise margin because cigarettes are such a large piece; for us they are about 40%.”
The company does not put out same-store numbers for cigarettes, but Walljasper said they’ve been tracking at high single-digit comparable rates for cigarettes over multiple years. He said it was the result of the company's move about two years ago to the Marlboro leadership program. The move made Casey’s more competitively priced to where the chain started gaining back market share.
“At some point that will plateau as you cycle over those,” Wallasper said.
In the grocery and other merchandise category, same-store sales were above the company’s annual goal, increasing 7.4% in the quarter, he said.