An Upward Trend
More retailers report cautious optimism in Outlook Survey, but success proves highly local.
It’s been a slow climb out of the recession, but c-store retailers are finally beginning to see better times ahead. According to CSP’s Outlook Survey 2012, in which 189 retailers participated, nearly 60% of respondents described current business conditions as “good” or “excellent.” Roughly the same percentage expect “some” or “great” improvement in 2013.
Jared Scheeler, director of retail operations for Bobby & Steve’s Auto World, a chain of seven sites based in Eden Prairie, Minn., is one of those seeing “excellent” business conditions, with its strongest growth in 15 years. Scheeler says his company’s model is a little different from the norm—its sites aim to meet every automotive need, from gasoline to car wash to repair—but it still relies on its c-stores to drive traffic to the auto side of the business. He credits the strong economy and low unemployment in the Minneapolis/St. Paul area for part of the success; for the first half of the year, in-store sales were up 11%.
The company also has worked to bring consistency to its model, moving from having separate owner-operators for each store to corporate headquarters assuming control.
“Overall, it’s been fine,” says Edward Marszal, founder and CEO of California Retail Management, Carmichael, Calif., which owns 18 sites in California, one in Nevada, one in Ohio and 10 in Hawaii. The company is a distributor of 76-branded fuel and a Chevron dealer. “I think the economy’s coming back slowly,” he says.
He says his company follows the retail basics for success: “We have two rules: The customer’s always right, and rule No. 2 is if the customer is wrong, refer back to rule No. 1. The other thing: We act or go broke. If you see something wrong, if you walk by an employee doing something that is not right and don’t react, eventually you will go broke. Fix things that are wrong and don’t accept the mediocrities.”
For some retailers, the current state of business is all about perspective. “Last year was so bad, things have stabilized,” says Fran Galle, owner of Neon Deli, a site in Middletown, Conn., that sits across the street from Wesleyan University and is centered on a New York/Philly-style deli offer, in addition to the usual c-store fare. He rated conditions as “good.”
“Last month, we were over our 2010 levels,” he says. “With the end of October, we’re maybe $2,000 below 2010 levels.” Meanwhile, he has had success with growing foodservice sales to make up for shrinking cigarette sales. “Margins are way up because cigarette sales are way down. If the average cigarette sale is less than $9, and if I convert it to a fast-food sale, I went from an 18% to 50% margin. So that makes a big difference.”
Jim Garrett, president of Volta Oil, Plymouth, Mass., says the industry has proven to be recession-resistant. His company has seen a slight increase in sales from last year. He’s optimistic and ready to hire more employees for his Boston stores if it warrants in the coming months, although this depends on the continued improvement in local unemployment and underemployment.
Despite the slowly improving national unemployment rate and other economic indicators, many retailers still had to deal with tough local economies. Scott Hartman, president and CEO of the 57-site Rutter’s Farm Stores, York, Pa., says 2012 was a “flat” year—agreeing with 36% of Outlook Survey participants. His expectations for 2013 are for more of the same.
“In central Pennsylvania, a lot of the economy is based off manufacturing; we have a lot of heavy manufacturers around the area and skilled machine shops,” says Hartman. While these highly skilled jobs have showed resilience when the economy softens, they have eroded as the auto and defense industries have weakened.
“When I look at the numbers, there’s just not what I would call anything new happening—no new manufacturers arriving, no warehouses going up,” says Hartman. While his area is a strong transportation hub, he says he’s not seeing as much activity among trucking companies.
Meanwhile, a small percentage (5.2%) of retailers described conditions as “poor.” While this is the lowest percentage in the history of the Outlook Survey, it is all too real to the retailers who are struggling. A one-store retailer in the St. Louis City, Mo., area, who requested anonymity, is under assault from a variety of factors, including local high unemployment, a depressed economy, a financially stressed customer base and new competition. Inside sales are off 15% in 2012.
“I do business in an area with a lot of high-end restaurants,” he says. “It’s still an OK place to live and work for a city location, but for most of the independent restaurateurs, their business is down 20% to 35% from their peak in 2007 and 2008, so they’re struggling.” Many of his customers work in these restaurants. “If they don’t have money in their pocket, they’re not going to stop and spend it with me.”
While he expects improvement in 2013, he says it will be a “false sense of prosperity” from inflation, whether through state increases in cigarettes taxes or commodity prices. This, he fears, will create a negative, spiraling effect on profits. “Commodity prices will start pushing prices up, especially in foodservice,” he says. “Employees will want and demand more money, margins will get squeezed because of commodity prices, and a couple of years from now, gross margins will get squeezed another point and a half. That’s my fear.”
But even the St. Louis City retailer refuses to surrender to these hardships. For example, he is banding together with other local businesses to rebrand his neighborhood and make it more of a destination. He also shows tremendous faith in the strength of the c-store model.
“I’m chronically optimistic,” he says. “What it gets down to in convenience retailing: It’s a happy smiling face, taking care of a customer, and it’s only a 15-second transaction. We can make a difference in people’s lives.
“Convenience retailing—unlike any other retail out there—is actively engaged and knowledgeable about people we serve. We know their families when there is tragedy and joy. A good retailer doesn’t abuse that privilege but uses that to keep folks coming back.”
Wealth, Health Challenges
The high cost of swipe fees continues to rank as c-store retailers’ biggest challenge, with more than 60% of Outlook Survey participants selecting it as one of their top three business challenges. Retailers report modest relief from The Durbin Amendment on debit-card fees, but they see more work ahead on the issue.
“[The Durbin Amendment] gave us a little bit of an immediate relief on our merchant processing fees, but it’s still a major issue; it’s still the No. 2 line item as far as expenses on our P&L after payroll,” says Scheeler of Bobby & Steve’s Auto World.
The Affordable Care Act (ACA) ranked third, cited by 37% of respondents, including Hartman of Rutter’s, who says his chain has been redesigning its health insurance benefits to match up to the ACA’s standards for an affordable health-care plan. “We’re also looking very hard in the next year about how the average hours will impact who is eligible and who’s not,” he says, because any employee working more than 30 hours will become eligible for insurance.