Top Performers: Bottom's Up

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As the industry comes to grip with the growing divide between larger chains with greater resources and the independent operator, the SOI data continues is revealing a new twist: the revenge of the small retailer.

If last year’s data is any indication, the bottom-performing 25% of stores in the SOI research are trying to regain ground.

In what Glenn Plumby, SOI presenter and vice president of operations for Speedway LLC, Enon, Ohio, called an “unexpected twist,” the gap between top and bottom performers—while still considerable—actually became narrower, in part because the bottom quartile got more aggressive on cigarette sales. (Click here to see a further breakdown of the cigarette category.)

Referring to the 14.1% gross margin percentage for bottom-quartile companies vs. the 13.5% for the top quartile, the former “was much lower [in] 2012,” Plumby said. “Whether that translates to more profit, we’ll see. But it’s the first time in many years the gap fell between top and bottom.”

On an operational level, productivity for the top quartile was 170,268 gallons of fuel vs. 107,281 for the bottom, a difference of 1.6x; $132,106 in inside merchandise sales vs. $76,102, a difference of 1.7x; and foodservice sales of $34,572 vs. $9,712, a difference of 3.6x.

“The difference is 1.6x, but at the end of the day, that gap actually fell between top and bottom quartiles,” Plumby said.

He then turned to comparing the top 10% of stores to the rest. With the number of gallons sold at 221,000 and inside sales at $163,000, that segment clearly outperformed the rest, but “in reality, the top-decile number is down from 2012. That’s quite a surprise.”

Another fact that caught Plumby’s attention was how the top-performing decile (which is also part of the top quartile) had an average store size of 2,100 square feet; that’s smaller than the top-quartile average, which is closer to 2,500. “Is bigger really better?” he said. “It’s a question we have to ask ourselves.”

In terms of people productivity, all retailers showed higher turnover. Pointing to the improving economy, he said retailers should expect workers to pursue higher pay and better opportunities. But in this case, top performers are faring better. The difference in turnover rates for non-managers between top quartile vs. bottom was 12 points in the SOI numbers. For managers, it was 18.6 points.

“The gap has gotten large and is expanding,” Plumby said, “largely because top-quartile manager turnover is down [from 19.8% in 2012 to 18%]. We’ve done a better job of holding onto our solid store managers.”

But Plumby also made a point of growing labor costs. “At $15.26 an hour [for top-decile companies], it’s something to pay strict attention to,” he said. “That is a very expensive employee to be working in our stores.”

Probably the most significant differences between top and bottom come in with capital productivity, said Plumby. “This is the money slide,” he said.

Top-quartile companies operate at a 6.4x gap over the bottom quartile, with those at the top taking in $26,593 per store per month vs. bottom companies at $4,174. Break-even cents per gallon (CPG) is significantly lower at 7.66 cents vs. 16.76 cents. Earnings before interest, taxes and depreciation is a dominant 6.1x.

The difference puts to question what the bottom quartile is doing to make inroads against those at the top, Plumby said. “For the bottom quartile, the sales gap shrunk, but the profitability and capital productivity gap grew,” he said. “So it wasn’t done as efficiently as the top quartile.”

He also cited that the return on capital investment on the bottom end was a negative 0.36%. “I think it’s the first time the bottom quartile is showing a negative number,” he said. “It’s something very concerning, especially when you’re looking at investing money into a chain to be able to keep up with the people across the street. … You have to be able to generate a level of return in order to put the capital in.”

Better, Best Have Wins, Setbacks

While the top-performing chains on a whole continued to do well, the top 10%, or top decile, of stores had a few setbacks. Though its sales numbers were, as expected, higher than the other quartiles and higher than last year, the top-decile numbers were actually down in terms of return on capital employed, going from 19.16% in 2012 to 16.90% in 2013, according to NACS officials.

Source: Preliminary figures from NACS State of the Industry Survey of 2013 Data and CSX LLC

*Earnings before interest, taxes, depreciation and amortization

Quartile Breakdown The disparity between top and bottom performers continued to grow on some fronts, but in certain categories, such as cigarettes, NACS officials say the rift actually got smaller.

Source: Preliminary figures from NACS State of the Industry Survey of 2013 Data and CSX LLC

*Earnings before interest, taxes, depreciation and amortization

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