NEW YORK -- As the Energy Information Administration (EIA) reported gasoline prices ticking up for the seventh week in a row, retailers are facing yet another year where the fuel pumps place dead weight on profits; however, inside the convenience store, a few categories present opportunities for balance.
During a recent CSPNetwork CyberConference, How's Business 2007: Benchmarking for the 21st Century, Gene Gerke, co-founder of benchmarking firm CStoreXchange LLC (CSX), and Roger Grogman, vice president of marketing with distributor McLane Co., examined [image-nocss] the current bullish fuel environment and highlighted some in-store opportunities that can help stabilize and grow retailers' profits. [To view an OnDemand replay of the CyberConference, sponsored by McLane Co. and Radiant Systems, click here (free to retailers and wholesalers, $49 to suppliers).]
Gerke drew data from CSX's retail and petroleum-wholesaler benchmarking database, drawn from the 11 months ending November 2006, and focusing on a same-store sample of 92 companies represented by 4,470 stores that submit monthly financial performance.
As expected, fuel had a strong impact on retailers' profits during this time period. Fuel gallons changed little when comparing the 11 months ending November 2006, with the CSX sample retailers pulling in 123,800 gallons per store per month, up only 0.4%; meanwhile, fuel margins slipped 0.5 CPG.
The average selling price per gallon rose to $2.54, and, consequently, credit-card fees increased nearly 22% during this 11-month time period, up to $4,300 per store per month. At the same time, retailers' fuel mix continues to prove highly sensitive to price increases, with consumers switching from high-margin premium to lower-grade, lower-profit fuel as prices per gallon rose.
As a retailer, do you manage your margin and mix to continue to make a profit out of the gasoline side of the business? said Gerke. When prices went down, premium gallons went back up again. It's a challenge to manage that product mix in the c-store business. So the opportunity is how do we generate more gross-profit dollars out of what's going on inside the store?
Grogman highlighted some of those in-store opportunities by examining trends in wholesale shipments year-to-date through Dec. 29, 2006, including store-delivered costs broken down by average per store per week (APSW) for wholesale-delivered products that fall within the NACS categories. McLane has been sharing c-store shipment data with CSX as part of a partnership announced in January.
While No.1 category cigarettes showed little growth outside of taxes, other tobacco products (OTP) increased its APSW by nearly 12% over the previous year, reflecting consumer interest and satisfaction with the product offerings available in the market today in OTP, said Grogman. In addition, the category showed little seasonality, with growth extending throughout the 12 months reviewed.
One highly seasonal categorypackaged beveragesgrew its APSW for the year by more than 10%. What began to drive the business overall in the summer months sustained itself over the long period because the growth in the summer was so high it actually pushed the year-to-date average to a much higher level than it's ever had before, Grogman said.
Meanwhile, foodservice, which Grogman referred to as the real star of the show, grew its percent-to-total by 22.2% for food prepared on site and 27.5% for commissary and other packaged products.
Unlike other categories with spurts of growth, this has shown growth all year long and certainly sustained itself, he said. Here's a category that's getting consumer acceptance, has got strength throughout different seasonality aspects of the business and will contribute significantly to overall gross-margin dollars in the store. That is a huge effort that has netted success that will certainly contribute to retailers' success as the year goes on.
All of our retailers on average have it growing but our top performers have found out a way to make foodservice a significant part of their revenue stream and driving gross-profit dollars to help them have higher levels of profitability, concurred Gerke. According to the CSX same-store sample, total foodservice sales grew 7.5% during the 11 months ending November 2006, while margins increased 5.0%. I think this will become more and more the bellwether of successful companies.
Ken Pearson, a member of the presentation panel and marketing director at CSX subscriber Stop-n-Go, Madison, Wis., said his company is benchmarking its performance in several categories including foodservice, beer, packaged beverages and snacks against national, regional and state averages to validate its current programs. As a result, the retailer is focusing on upgrading its grab-and-go foodservice items and examining its SKU selection in cigarettes and OTP.
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