Industry Sales a Mixed Bag
SOI: Fourth best year in dollars and profits tempered by recession realities
CHICAGO -- When the catchphrase of the day is "flat is the new up," it's easy to lower expectations for convenience store industry performance in the face of perhaps the worst recession since the Great Depression. But while static growth may have been typical for some of the industry's biggest categories in 2009, for the channel at large, it's hardly the entire story.
"This is the state of one of the most recession-resistant industries in the world," said Greg Parker, president and CEO of The Parker Cos., Savannah, Ga., and vice chairman of NACS' Research Committee, an opening [image-nocss] speaker at the NACS State of the Industry Summit in Chicago.
And Parker (pictured) had the numbers to back him up: C-stores grew in-store sales 4.9% in 2009 to reach $182.4 billion, according to the NACS State of the Industry Survey of 2009. Figures from the U.S. Department of Commerce show c-store inside sales up 7%, outpacing the restaurant, warehouse, grocery and drug channels, where growth was flat or negative.
Also consider that, despite an 18.1% drop in total industry sales, led by a 26.9% falloff in fuel sales, the c-store industry managed to post the fourth best year by total dollar sales in the past 30 years. Meanwhile, industry pretax profits rang up at $4.8 billion in 2009, the fourth best year of profitability on recordand despite a 7.6% decrease from 2008's record year.
It truly is all about context when digesting the industry numbers. The first NACS State of the Industry Survey encompassed only 111 companies with just over $1 billion in sales. "It's almost a rounding error with the industry sales of today," said co-presenter Jay Ricker, president of Anderson, Ind.-based Ricker Oil Co. and 2009-2010 NACS chairman and president.
Regardless the size of the final numbers, Ricker stressed the importance of the annual survey to the long-term success of the industry, providing not only key benchmarking metrics and category standards but also critical numbers that enhance the credibility and amplify the industry's voice to Congress.
Retailers who study the numbers will come out ahead with less competition than in the past, said Parker, and he provided some powerful examples. Credit-card fees fell 11.9% in 2009 to hit $7.4 billiona smaller figure than 2008's $8.4 billion high, but still a tough one to swallow. Parker noted that credit-card companies made 50% of the industry's 2009 profits simply by processing transactions.
Fuel pool margin dropped 19.3% to reach 13.8 CPG in 2009, although this compared to a banner year when retailers were able to generate profit thanks to a sharp drop in fuel prices in 2008.
Examining same-firm sales197 firms representing 23,265 sites that have participated in the NACS State of the Industry Survey for the past two years1.3% bump in fuel gallons between 2008 and 2009, a figure that Parker said reflects the industry's best operators. Fuel gross-margin dollars fell 18.0% to hit $16,667 per store per monthagain, compared to 2008, the "best year in the industry" by this metric. Cigarette gross-margin dollars rose 18.8% or $7,618 per store per month, a strong performance that Parker chalked up to state minimums.
Foodservice supplied 20.2% of total gross-margin dollars among the same-store firms, up from 16.6% in 2008, although Parker emphasized the importance of factoring in expenses for each of the foodservice segments to fully understand how this hot category ultimately impacts the bottom line. Fuel provided 27.3% of gross-margin dollars, compared to 31.7% in 2008. While presenters highlighted the correlation between fuel and inside sales, this correlation becomes less relevant as fuel prices increase. With this in mind, "We need to give consumers three to four reasons to stop at our stores," Parker said.
On the expense side, total direct-store operating expenses (DSOE) fell 1.1% in 2009, led by an 11.4% drop in credit-card charges. On the upswing: Utilities (+3.7%) and repairs and maintenance (+4.8%), which Parker credited to software and other upgrades for PCI compliance. Wages and benefits fell 0.1%, with wages off 0.7% and workers' compensation down 3%. Health insurance climbed 3.4%, a trend that NACS expects to accelerate for 2010 in light of the passage of health-care reform.
Summing up, Parker highlighted a few tasks for retailers in 2010, including a greater emphasis on the backcourt, a focus on lowering breakeven CPG, upgrading the employee pool and rebuilding and investing in the business. "Liquidity is key," he said. "It's a great time to sell underperformers and bank the cash."
Fran Duskiewicz, senior executive vice president with Nice N Easy Grocery Shoppes Inc., Canastota, N.Y., and a NACS board member, next supplied a rundown of industry productivity, with a comparison between the most and least profitable retailers. One upside to recession has been a drop in turnover; annual manager turnover was 15.9% for the top quartile of retailers, compared to 17.4% for the bottom, while nonmanager turnover was 64% for the top and 74.4% for the bottom.
In-store gross-margin dollars per labor houra favorite NACS metrictotaled $27.09 for the top-quartile retailers, and $19.15 for the bottom. This latter figure was especially worrisome: "If you're under $20, you're dead," warned Duskiewicz.
Within capital productivity, the top quartile truly pulled away from the pack with an EBITDA of $17,071 per store per month, compared to $1,268 for the bottom quartile. "The rich are getting richer," said Duskiewicz. "Cash is king. Those are the survivors in the industry."
In providing the category recap, Duskiewicz urged retailers to give those labor-free, higher-margin categories a second look in 2010. In particular, cigarettes were first in in-store sales contribution, with 35.8% of dollars, and third in gross-margin dollars at 17.5%. Despite the price increase pushed through after the increase of the federal excise tax on cigarettes in 2009, retailers were able to keep a step ahead, Duskiewicz said. Among the subcategories, sub-generic and private-label grew units 28.7% in 2009, according to Information Resources Inc., while premium lost 4.2% of its unit volume. Interestingly, fourth-tier units fell 4.5%.
Other tobacco products were another opportunity. No longer the "little category that could," OTP saw gross-margin dollars rise 56.1% between 2006 and 2008.
A surprisingly neglected subcategory: hot beverages, which despite being a high-margin, low-labor segment, lost gross-margin dollars between 2008 and 2009."It's a scary proposition to see such a tremendous source of margin given up," Duskiewicz said, and suggested retailers revamp their competition against QSRs.
While foodservice and packaged beverages led the categories in gross-margin dollar contribution at 29.7% and 17.7%, respectively, both have hidden costs, including labor, utilities and repairs and maintenance, Duskiewicz noted. Packaged beverages and beer were both cited for their sluggish growth in 2009, tied directly to the weak economy and high unemployment.
And in snacks and candy, increases in dollar sales and drops in unit sales suggested that consumers were trading up to larger, take-home and king sizes for their value appeal, rather than a drop in interest in the categories.
Indeed, inside the c-store, flat is the new up, Duskiewicz said, although the feeling is "more positive" for the rest of the year.Data presented at the NACS State of the Industry Summit was preliminary and derived from company submissions as of March 31. Final industry data will appear in the NACS State of the Industry 2009 Data Report, which can be ordered directly from NACS at www.nacsonline.com.
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