NACS SOI survey presents opportunities to grow amid the economic malaise
CHICAGO -- When it comes to surviving the travails of a suffering economy, consider the c-store industry "recession-resistant." Such was the message at the 2009 NACS State of the Industry Summit in partnership with CSP, where attendees learned of the dangers--and opportunities--created during a time of financial crisis. "We've learned to operate lean, mean and survive in tough times," said Sonja Hubbard, NACS chair and CEO E-Z Mart Stores Inc., during the opening general session yesterday at the event in Chicago. "Adversity's a great teacher."
Dr. David Nelson, president [image-nocss] of Study Groups (FRMC Inc.) presented the first of two sobering economic overviews that morning, revealing how great that degree of adversity is for the channel and country at large. Nelson (pictured) reminded attendees of last year's SOI Summit, where, during his presentation, only one-third of those polled believed the economy was in a recession. Now that it has been determined the country began its downward slide in fourth-quarter 2007, the question is, how low can it go before it becomes a depression?
By Nelson's standards, real gross domestic output would have to fall at least 10%, unemployment would need to grow to at least 15% and the funk would have to last three to seven years to be considered a true depression, rather than a severe recession.
Recovery, which could be a matter of months or years, requires meeting three goals: "full" employment, price stability and economic growth. With unemployment currently at 8.5%--or 15.6% if you include those working part-time who would rather be full-time--this may be one of the tougher metrics to meet. Nelson's team believes a commonly projected 9% unemployment peak may be too optimistic, and anticipates double-digit figures in 2009. Deflationary pressures continue to throw price stability in question, while negative consumer spending, a downturn in exports and a collapse in business investment makes economic growth elusive.
How has this impacted the c-store industry? Based on Nelson's own calculation using a sample of 168 retailers, the drop in consumption alone has hit inside sales an average of $4,842 per store per month between January 2008 and February 2009.
Figures for 2008, however, show a surprisingly resilient industry. Reversing a two-year downward trend, c-store pre-tax profits grew 54.2% to total $5.2 billion, according to the NACS State of the Industry survey powered by CSX. Sales rose 8.1% to reach $624.1 billion, thanks to strong motor-fuel sales growth and a drop-off in gasoline prices during the second half of 2008, presenting an opportunity for retailers to recoup margin.
This also helped place the c-store channel in a charmed position, able to post a growth in sales when other industries--namely drug stores, warehouse clubs and restaurants--suffered declines, according to U.S. Department of Commerce figures.
At the same time, credit-card fees paid by the industry grew by $800 million, or 10.5%, to reach $8.5 billion. This represents more than a doubling in fees between 2004 and 2008.
Survey data gathered from the same-store sample of 156 retail firms representing 20,553 stores showed some more encouraging figures of the industry's performance during a tough economic environment. Same-store merchandise and foodservice sales were up 3.0% and 3.9%, respectively. "These changes are a friend to our industry," said Fran Duskiewicz, Summit chair and senior executive vice president of Nice N Easy Grocery Shoppes Inc. The common assumption was that the leap in fuel prices during the first half of 2008 would wallop inside sales. Rather, while fuel gallons fell 2.4%, total in-store sales grew 3.2%.
Another gratifying figure: the in-store gross-margin percentage held flat between 2007 and 2008, according to the same-store sample, "an amazing feat," Duskiewicz noted, considering that foodservice gross margin was down 1.1 point and cigarettes was down 1.4 points. It was made possible by the industry's strong focus on immediate consumables such as candy and snacks.
Utilities led the increases on direct-store operating expenses, up 8.1% to reach $3,965 per store per month, followed by repairs and maintenance, up 6.3%. The largest operating expense was wages and benefits, up 2.4% to reach $18,245 per store per month. Here, with unemployment high, retailers have a chance to reshuffle the personnel deck. "It's a great time to have controlled turnover in the c-store," said Duskiewicz, "and get the right people on the bus."
A look at the top 10 in-store categories by inside sales contribution shows cigarettes at No. 1 (32.7%), followed by foodservice (13.9%), packaged beverages (14.1%), beer (10.2%), OTP (3.9%), milk (3.1%), salty snacks (3.5%), candy (3.2%), packaged sweet snacks (2.6%) and general merchandise (1.4%). When examined by gross-margin dollars, foodservice leads (32.9%), followed by packaged beverages (16.6%) and cigarettes (16.0%).
The industry's top performers again distinguished themselves clearly from those at the bottom. Top-quartile retailers--those in the top 25% of the CSX database--enjoyed more than twice the foodservice sales per store per month than the bottom-quartile performers, and sold more than twice the number of motor-fuel gallons. Top-quartile stores posted average monthly pretax profits of $13,173 per store month, compared to a $3,626 per month loss by bottom-quartile retailers.
It's performance such as this and an increasingly worsening economy that had co-presenter Greg Parker, president of The Parker Cos., warning these poor performers: "You either have to get out of the business, or figure out how to get to the next quartile."