Watch Out for These C-Store 'Disruptors'

While economy appears on mend, don't ignore three trends, Nelson warns at NACS SOI

Samantha Oller, Senior Editor/Fuels, CSP

David Nelson NACS Sate of the Industry Summit

David Nelson

ROSEMONT, Ill -- The indications are good that the economy is on the mend, although convenience store retailers still have plenty of disruptors that can stymie future growth. That was the message of Dr. David Nelson, founder of Finance & Resource Management Consultants Inc. and professor of economics at Western Washington University, during his annual presentation on the economic outlook at the 2014 NACS State of the Industry Summit.

Nelson pointed to falling unemployment rates, growth in household income, higher housing starts and vehicle sales as well as a projected ramp-up in the growth rate of gross domestic product as all positive signs. "There are a lot of green lights for refreshing change," he said.

At the same time, economic growth is being concentrated among the wealthiest Americans, and growth in worker productivity is not being followed by increases in hourly compensation. As Nelson noted, the top 1% of earners have captured two-thirds of economic gains since the recession. This is not a good dynamic for the economy or c-store industry, which relies on a strong middle class.

Also expect increases ahead--Nelson cited increasing commodity costs for food and a likely increase in interest rates. "Rates are going to be going up--it's just a matter of timing," Nelson said, citing statements from Federal Reserve chairperson Janet Yellen. The federal funds rate was projected to grow from 0.25% in 2014 to 2.25% in 2016--which would still be a very low interest rate in a strong economy. Nelson advised retailers to lock in lending rates now, before increases hit.

He also warned retailers to heed three larger trends that will impact business for years to come:

  • Demographic shifts. With a rate of growth slowing to a pace not seen since the 1930s, the population is becoming older, as baby boomers move into the 65 and older bracket. This group also drives less than the rest of the population--or about one-half that of 20-to-54-year-olds on an average miles driven basis. Older workers are leaving the labor force, leaving fewer workers to care for the young and old.

And the population is growing increasingly diverse--by 2018, minorities will represent the majority of those 18 and younger.

"How are you designing your offer to reflect their wishes and demands?" asked Nelson.

  • Technology shapes shopping habits. While online sales currently make up only 5.6% of retail sales, they are growing at twice the rate of sales at brick-and-mortar stores. Also consider that retailers in 2013 saw only one-half of the holiday shopping traffic they did in 2010. Less shopping in stores means less driving, Nelson noted, adding that technology has also reduced millennials' desire or need to drive.

Meanwhile, as competition from alternative fuels intensifies, new forms of transportation are developing, whether it is Google's driverless cars or, potentially, even Amazon's delivery drones.

"Figure out a way for technology to help you succeed," Nelson advised.

  • Regulation expands. The increasing fuel efficiency of the vehicle fleet took a nearly 17% bite out of fuel demand between 2010 and 2013, Nelson said, representing 100 gallons per driver per year. Expect demand to continue its long-term decline as fuel-efficiency standards are set to double by 2025.

Also, smoking rates have fallen from 42% of the population in 1965 to 18% today, with the federal government targeting a 12% rate by 2020.

And the Obama administration's push to increase the minimum wage to $10.10 per hour, coupled with state-level efforts, could benefit workers who are currently employed but make it harder for the long-term unemployed to find work, Nelson warned. The president's plan to sign an executive order to increase the number of salaried workers eligible for overtime pay could also affect c-stores if the current eligibility guideline is raised.

"What's your business plan to deal with these?" Nelson asked. "Take change by the hand before it takes you by the throat."

For more on the economy from the National Association of Convenience Stores' 2014 SOI Summit in Rosemont, Ill., see Related Content and watch for additional coverage in CSP Daily News. CSP Business Media is the exclusive media partner of the event.