CHICAGO -- “Cheap gas was definitely good for everyone in this room,” Andy Jones, president and CEO of Sprint Food Stores, Augusta, Ga., said as he kicked off “The Numbers” portion of the NACS State of the Industry (SOI) Summit in Chicago with Billy Milam, president of RaceTrac Petroleum, Atlanta.
Providing the retailer’s perspective, Milam covered top-line revenue growth to bottom-line pretax profitability measures on financial and operational metrics to help retailers better assess the health of their businesses. Also offering the retailer’s point of view, Jones shed light on key drivers of the fastest growing categories and assessed changing merchandise and foodservice trends.
U.S. convenience stores experienced record in-store sales in 2015, led by strong growth in foodservice products, offsetting a big drop in fuel sales over 2014, according to the report.
“Lower gas prices left money in people’s wallets, driving both inside sales and gross-profit dollars,” said Jones.
Low gasoline prices caused overall sales in the convenience-store and fuel retailing industry to decrease significantly, dropping 17.4%; however, the low gas prices and a recovering economy benefited retailers by driving more consumers inside the store.
“What’s important to shoppers? Cheap gas, jobs and easy credit,” Milam said. “That’s important to retailers too.”
Fuels sales dropped 27.7%, while in-store sales rose 5.8%. This resulted in total in-store sales reaching a record $225.8 billion in 2015.
Overall, 69.2% of total industry sales were motor fuels, but motor fuels only accounted for 39.5% of profit dollars. Motor fuels continued to drive sales dollars, but in-store sales drove profitability.
“Two thousand fifteen, it was a hell of a year,” Jones said. “Fuel consumption was up, transactions were up, fuel margins were strong. But there is some headwind. Direct-store operating expenses are also up.”
Despite record in-store sales, direct-store operating expenses (DSOE) outpaced inside gross profit dollars in 2015. If DSOE remains high throughout 2016 and beyond, this trend will create challenges for convenience-store retailers as they look to grow their businesses.
Convenience-store pretax profits increased in 2015 to $10.6 billion, despite a slight decrease in the average gas margin, which was 21.6 cents per gallon before expenses.
In 2015, nine out of 10 top in-store categories had positive sales and all 10 had positive gross profit dollar growth.
Here’s how in-store sales were broken down in 2015:
- Tobacco (cigarettes and OTP): 35.9% of in-store sales
- Foodservice (prepared and commissary food; hot, cold and dispensed beverages): 20.8%
- Packaged beverages (carbonated soft drinks, energy drinks, sports drinks, juices, water and teas): 15.1%
- Center of the store (candy; sweet, salty and alternative snacks): 10.7%
- Beer: 7.2%
- Other: 10.3%
Quick-service restaurants (QSRs) are going after convenience-store foodservice. “They’re noticing our increases--so now we have a target on our back,” Jones said.
QSRs are stealing from the c-store pricing playbook of 2 for $2, 2 for $3, for example, and “we trained millennials to shop this way,” he said.
Snacking categories, including alternative snacks, salty snacks, candy and packaged sweet snacks, all had strong growth as some consumers, especially millennials, moved toward snacking and away from traditional meals. For the first time, alternative snacks, a category driven by protein- and energy-rich items, has landed in the top 10.
“Alternative snacks, for the first time ever, made the top 10 list,” said Jones, referring to a category driven by protein- and energy-rich items. “What a great category it is for us all.”
Foodservice accounted for 33.7% of gross profit dollars in 2015. Packaged beverages were second, accounting for 18.8% of gross profit dollars. While tobacco products constituted 35.9% of in-store sales dollars, they accounted for only 16.8% of gross profit dollars.
The top-10 in-store categories in c-stores ranked by sales dollars represent about 80% of all in-store sales.
“It’s no surprise that the top quartile does about two times the business of the bottom quartile does in most core merchandise categories.” Jones said. “But food and dispensed beverage is where the top quartile has a vast difference over the bottom quartile. The gap between the top and bottom quartile is over five times in hot dispensed beverage and almost four times that in prepared food. In a nutshell: The top quartile companies in this room are killing it in foodservice.”
Beyond sales, convenience stores remain an important part of the economy. The convenience and fuel retailing industry employed 2.5 million people in 2015 (a 2.9% increase from 2014). If total industry sales were compared to the GDP of other nations, the $574.8 billion convenience-store industry would rank just above Switzerland at No. 21.
The industry’s 2015 metrics are based on the NACS State of the Industry survey powered by CSX, the National Association of Convenience Stores’ wholly owned subsidiary, the industry’s largest online database of financial and operating data.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.