State of the Industry 2013
C-stores break $700 billion in sales but stumble to finish in 2012.
State of the Industry
C-stores break $700 billion in sales but stumble to finish in 2012
Despite recessionary setbacks in2009 and 2010, the convenienceretailing channel reboundedover the past two years to surpass $700billion in sales for 2012, resuming a breakneckpace that began as early as 2004,according to numbers released at thisyear’s NACS State of the Industry (SOI)Summit.
Though c-store CEOs and CFOs weremore focused on 2012 benchmarks at thisyear’s conference, it was hard to overlookthe achievement of the channel at large,including a 21.2% recovery from the 2009-2010 recession and a 44% improvementover 10 years ago, when sales as an industrybegan increasing exponentially.
“We’ve crossed the $700 billion mark,”said Glenn Plumby, SOI presenter andvice president of operations for SpeedwayLLC, Enon, Ohio. “And profi tability morethan doubled. That’s quite a testament towhat we do on a daily basis to take care ofcustomers.”
Investments in capital, foodservice anda higher-quality labor force drove bothsales and profi tability for c-store operators,even in the face of increasing competitionfrom drug and dollar stores, lingering joblessnessand declines in gasoline consumptionand cigarette sales.
Still, despite big-picture success, themicro view of 2012 was one of “stumblingto the fi nish line,” Plumby said. Fuel salesand volumes, cigarette sales and pumptransactions were all up in the fi rst half ofthe year but dropped dramatically in thelatter. “It was the tale of two halves.”
Drawing a comparison with this year’sSuper Bowl and the Superdome lightsgoing out mid-game, Plumby said, “TheRavens had all the momentum. Then thelights went out and the game changed. SanFrancisco got hot and Baltimore limpedto the fi nish line. We limped from a salesperspective.”
As an industry, total sales grew 2.7%to $700.3 billion from $681.9 billion in2011, with inside sales up 2.2% and fuelup 2.9%. Pretax profi ts rose to $7.2 billionlast year, up 3% from $7 billion theyear prior.
Held in partnership with CSP BusinessMedia in the Chicago suburb ofRosemont, Ill., the 10th annual SOI conferencedrew nearly 400 c-store executivesand suppliers ready to reconnectwith trends and benchmark their ownnumbers.
Continuing patterns included the growing disparity between top- andbottom-quartile companies, the expansionof foodservice as a replacement forthreatened categories and the ongoingincursion—albeit slightly abated in2012—of credit-card fees into industryprofi ts.
Presenters revisited numbers with newlenses this year, making direct comparisonsto foodservice and other competingretail channels, as well as singling outareas where the industry as a whole madeground. Some highlights:
Cross-channel competition from drug and dollar stores is heating up asmajor chains break into categories suchas beer and tobacco.
Foodservice potential has yet tobe realized, because industry averagesbarely touch per-store earnings frombranded quick-service restaurants (QSRs).To the industry’s credit, c-store foodservicenumbers are growing faster than those ofQSRs.
Store size means little becausetop-performing chains average about thesame fl oor space as bottom-quartile stores.
Higher labor costs follow top performers,though higher wages typicallytranslate into higher per-store profits.Fortunately, overall industry expenses aregrowing slower than infl ation.
Credit-card expenses have sloweddue to effects from legislative victories.
“For 2012, some in our industry hadpersonal bests, but some struggled,”Plumby said, pointing out that withthe exception of upcoming changes inhealth-insurance regulation, “you canlook at 2013 with a lot of optimism.”
Overall, Plumby said the industry is ina good position to do better in 2013, butcautioned SOI attendees of factors theyshould take into account.
First, the industry must rationalize itsasset base. The growing divide betweentop performers and bottom puts to questionthe industry’s lower-end properties.“Can those assets sustain?” he said.
Second, it must grow foodservice ata faster pace. The channel’s per-monthaverages are lower than that of the lowestQSRs. With c-stores having higher numbersof transactions overall, “we can getthere through a better conversion rate,”Plumby said.
Finally, he suggested improvingcenter-store sales by employing strongermerchandising and assortment strategiescould help operators take advantage oftheir store count and overall market share.
“When you look at new competitors,drug and dollar stores, we need to workharder inside to offset [that threat],”Plumby said.
Top performers outpace industry despite averaging same square footage
Maybe no one’s head turns when they hear the industry’stop-performing companies outpaced the bottomby six times profit and EBITDA. But to knowthat they do it in about the same amount of space may makethose same heads spin.
As NACS State of the Industry (SOI) quartile comparisonsget more consistent year over year, the trends that recur fall backto foodservice and people, two elements that make the parity insquare footage plausible.
“You’d think ‘build bigger and they will come,’ but it doesn’tseem average square footage makes a difference,” said GlennPlumby, SOI presenter and vice president of operations forSpeedway LLC, Enon, Ohio. “What’s impressive is foodservice.”As a whole, the industry managed a positive increase of 2.7%in total sales, with profitability up a solid 3%. But it’s the topperformers taking the lion’s share.
Top-quartile c-store chains in the SOI study of 2012 figuressell 3.4 times more in foodservice, averaging $33,978 per monthvs. bottom-quartile stores at $10,303. But top-quartile stores stillsell 1.8 times more in both motor fuels and merchandise and sell twice the amount inside the store persquare foot.
The labor cost per hour for top performersis higher, at 1.2 times that of thebottom quartile—but so is profitability.Top chains make $31.03 in gross profitdollars per labor hour vs. $18.89 for thebottom quartile, or 1.6 times the latter.
As noted, square-footage numbersare similar for both quartiles, with topquartilecompanies averaging 2,535 squarefeet and the bottom at 2,532. The floorspace even dips a bit with those at the verytop, with top decile, or the top 10% of bestearningcompanies, averaging 2,062 squarefeet vs. 2,535 for the top quartile.
Equally reflective of this profit-to-spaceratio is a reliance on gasoline sales. Topquartilecompanies need less than half thecents-per-gallon metric to reach breakevenvs. bottom quartile, according to 2012SOI numbers. While top-quartile companiesneeded 7.53 cents to break even,bottom-quartile companies needed 15.54.
Still, c-store CEOs and CFOs finding internalnumbers well in the top quartile maybe dismayed to find disparities betweenthem and the top decile. Plumby clarifiedthat the top 25% includes the top 10%, sothe comparisons may be skewed towardthe average over the stellar.
With break-even cents per gallon(CPG), for instance, the top decile needed6.65 cents in 2012 vs. the top quartile at7.53. More distinctive differences occurredin store operating profits: The top 10%made $32,771 per store per month vs. thetop 25% at $24,543—a 26% difference.Profit per square foot in this case was$15.89 for top-decile stores vs. $9.68 forthe top quartile.
Still, top-quartile stores are undoubtedlytaking the bulk of the industry profits.Average profit and earnings before interest,taxes, depreciation and amortization(EBITDA) both drop precipitously movingdown the quartiles: Top-quartile storeoperating profit was $24,543; the secondquartile was about half that, at $12,588.Third quartile was $8,451, and the bottomwas almost a third of that, or $3,869.
The difference between top and bottomcertainly is a story about volumes—gasolinethroughput, cigarettes, beer, all thecore c-store staples—but the clear disparityis with foodservice.
Foodservice sales made for $33,978in per store per month sales for the topquartile in 2012. Second quartile did only$12,630. Oddly enough, third-quartileplayers did slightly more ($13,696) thanthe second quartile, while bottom-quartilestores did a third of the business of topquartilecompanies, at $10,030.
The numbers tell two stories for theconvenience channel: one of thriving, andanother of merely surviving. A particularlyrevealing number, Plumby said, was returnon capital employed. Top-quartile companiesprovided a 17.55% return, whilelowest-quartile companies had 2.33%.
“A return on capital employed at justover 2% makes us wonder how thoseoperators can continue to invest [in theirbusinesses],” he said.