Retailer, wholesaler data reveal opportunities for catching a sales and profit tailwind
NEW YORK -- The question isn't so much can convenience retailers continue to grow sales and profits into the coming year. It's which of the many opportunities presented during the CSPNetwork CyberConference How's Business Q3: Can We Sustain the Momentum? to chase.
Sponsored by U.S. Smokeless Tobacco Co. (USSTC) and McLane Co., the CyberConference presented a snapshot of convenience store business conditions in the past year with retailer data. The bottom line: Everything's looking good, said presenter Ben Meyer, national sales manager for CSX, a division [image-nocss] of the National Association of Convenience Stores (NACS). Click here to view and OnDemand replay of the session. (Free for retailers and wholesalers. $49 for all others.)
Meyer pointed to several figures pulled from CSX: The NACS State of the Industry (SOI) database, which was fed by 82 firms representing 4,453 stores. Comparing per-store per-month data for the nine months ending September 2006 and September 2007, retail participants saw a 0.7% increase in cents-per-gallon (CPG) fuel margin, and per-store growth of 2% in fuel gallons, an 18% rise in pretax profit, 5.7% growth in in-store sales, and a 6.5% rise of in-store gross-profit dollars.
The biggest dynamics shaping 2007 year-to-date and 2008 potential performance: the federal minimum-wage increase; credit-card fees on fuel prices that have continued to push past $3 a gallon; and cigarette state excise taxes that may artificially reflect higher sale increases that are not the result of selling more products.
Regarding the minimum-wage increase, Meyer said the effects appear to be subtle so far in 2007. It's probably not going to be an immediate impact, but we're probably going to see some ripple effects as time goes on, he said.
The average selling price of fuel stayed relatively flat, ticking up only 2.1%, while credit-card fees grew 9% to reach $4,600 per store per month, according to CSX figures. One can deduce that people are using plastic a lot morefor their fuel purchases, said Meyer.
On a regional basis, the Midwest, which has traditionally suffered the most in terms of fuel margins, actually grew its CPG profit by 2.8 cents, helping lift its pre-tax profit dollars by $2,800 per store per month. The central United States saw a 2.3-CPG increase, giving it a $3,000 per-store per-month boost vs. last year. Meanwhile, the Southeast, which has traditionally enjoyed stronger fuel margins, lost 1.8 cents per gallon, resulting in a cut of about $1,700 less pre-tax profit per store for the number of firms in CSX's regional database.
Maybe retailers in certain regions realized they were done low-balling to increase fuel volume and it was time to get a little more reasonable return on their investment, suggested CSX co-founder Dick Meyer. As an example, he said the Southeast, which enjoyed greater than usual profits around Hurricanes Katrina and Rita and in 2006, may be seeing a leveling off.
CSX data shows a 3% growth in cigarette sales, and an 8.7% rise in margin dollars. Don't be mesmerized by a great sales performance as far as cigarette sales this year, warned Ben Meyer, who noted the influence of extraneous factors on cigarette sales figures, such as several state excise tax increases that went into effect this year.
Echoing the trends pointed to in the CSX figures, shipment data from McLane Co. Inc., Temple, Texas, showed some growth in the cigarette category, although as with the CSX figures, they must be tempered by taxation. Tony Frankenberger, vice president of merchandising, presented data from McLane's Impulse System, which is based on aggregate c-store info from a customer base of more than 24,000 stores.
Average per-store per-week cigarette shipments (APSW) grew 8.1%, or the equivalent of $496.28, according to McLane. Factor in tax inflation and that figure slips to net growth of about 2.9%.
This growth is contrary to overall cigarette sales, which are down about 3%. This is telling us that the c-store arena has become the destination of choice for the cigarette smoker, said Frankenberger. As we've watched other classes of trade and retailers back out of the business, the c-store industry has embraced it and consequently, while we're in a declining industry, we are able to produce productive growth, which is a good sign.
Premium brands are driving that cigarette growth, a trend that is evident nationwide and one that McLane attributes to the focus by the cigarette majors on promotional incentives for premium brands.
Other category highlights:
Other tobacco products (OTP) has truly been an exciting arena this year, said Frankenberger, noting McLane figures showing 13.2% APSW growth, or an additional $59.70 per week. Total can sales are up nearly 19%.
CSX figures show 13.2% growth in OTP sales per store per month and a 13.9% leap in margin dollars.
We are seeing a tremendous amount of innovation as it relates to flavors, delivery techniques, the introduction of snus, spitless tobaccoall of those things are going to help drive increased growth in the category, Frankenberger said.
You have to recognize, while we continue to see positive results out of the cigarette category, there is tremendous pressure on the smoker today, said Frankenberg, citing legislative and local restrictions on lighting up. So we're seeing a convergence of consumers willing to test these new products because of innovation, because they can now go into a tobacco product that is spitless, that has a flavor profile that's appealing.
Chris Rebello, program director, sales and retail operations for USSTC, pointed to 5%-6% growth in moist smokeless tobacco (MST) category volume for 2007 to date, the continuation of a five-year growth trend. The premium segment is driving much of this: Premium MST sales rose 7% in 2007, according to ACNielsen figures, and 74% of category gross-profit dollars came from premium. In addition, most new-to-the-category users choose a premium product.
Candy APSW growth is 5.1%, or $18.77 per store, according to McLane. Price increases in the category pad these figures, Frankenberger noted, although he couldn't quantify the artificial lift. Regardless, chewing gum is the big winner in the category this year, driven by innovations in flavors and packaging.Snacksalternative, salty and sweetshowed a 6.8% APSW increase, or a $16.33 average sale increase per week, McLane reported. Meat snacks are leading the growth, with monster sticks and new flavor profiles in tender cuts providing the fuel. Warehouse-delivered salty snacks are also contributing some lift, a lot of it driven by continued awareness by the retail side as it relates to the profit proposition between warehouse deliveries and DSD, Frankenberger said.Total foodservice sales grew 9.8%, while margin dollars rose 9.3% per store per month, according to CSX data. From a wholesale perspective, perishable foodservice saw a 10.9%or $32.98increase on APSW, McLane reported, with growth coming from fresh fruit, fresh-cut fruit and vegetables, and on-site prepared foods, said Frankenberger. Roller grill, that c-store staple, is also growing thanks to innovative new products.CSX data shows packaged beverages growing sales by 10.7%, with a 10.2% margin dollar increase per store per month. McLane shipment figures echo this performance: Cold dispensed beverages' APSW grew 10.5%, but packaged beverages show only a 1.6% uptick. I don't believe we have an issue in packaged beverages, said Frankenberger, who chalked up the poor showing to the past mild summer.APSW growth in health and beauty care, general merchandise and automotive was weighed down by plummeting sales in the film and camera segment, which continues to suffer from consumers' stampede toward digital cameras. Perhaps the only product area keeping these categories in the black is vitamin supplementsand in particular, energy productswhich have seen 91.4% in YTD growth.
In terms of productivity trends, total inside sales per labor houra popular metric with CSX participantsgrew 4.2%, while inside sales per labor dollar grew 1.6%. Total inside sales per square foot rose 3.8%.
Comparing CSX's top 25% and bottom 25% performing retailers, top-quartile players enjoyed greater fuel gallons plus total inside sales per store, total inside sales per labor hour and gross profit dollars per labor dollars. Meanwhile, they outpaced their low-quartile competition in labor cost per hour$11.54 to $13.12, reflecting a greater investment in employeesand enjoyed a lower non-manager turnover, 93% to bottom-quartile retailers' 224%.
In one of the unanswered questions of the session, CSX data showed a 40% overall increase in manager turnover, a move from 28% in 2006. Dick Meyer offered a few possible reasons behind the figure. As it gets harder to make money, and because we have very progressive retailers in our database, are they getting impatient with mediocre work and therefore forcing turnover, or is it a result of closing more underperforming stores, which we continue to see a trend on? he suggested. Or, these retailers may just have gotten better at reporting turnover. Either way, it's a figure CSX will continue to analyze closely.