The S curve: It shows the growth of a variable (usually sales) in terms of another variable (typically a unit of time). There’s a short, soft start. Then, boom: It rockets up nearly vertically, before eventually stagnating. Hence, the S.
But for a mature industry on the eve of disruption, that S quickly becomes an expletive.
“If you look from 1981 to 2017, the [industry sales] trend is going up, up, up, up, up. But for the last three years, sales-wise, it has kind of tapered off,” said Andy Jones, president and CEO of Sprint Food Stores, Augusta, Ga., during the 2018 NACS State of the Industry (SOI) Summit.
“Our industry sales are beginning to look an awful lot like an S curve,” Jones continued. “If that’s the case, could we have maxed out our current business model?”
“Even if we increase the market-basket spend, we can’t make up the entire spend from [a] lost trip.”
Key 2017 Metrics
Total industry sales increased 9.3% in 2017, driven largely by a 14.9% increase in fuel sales. Fuel margins hit the highest level since 2014 at 22 cents per gallon, a 9.6% increase over the year prior.
Source: Nielsen, TDLinx and U.S. Energy Information Administration; NACS preliminary data. Final data to appear in the NACS State of the Industry Report of 2017 Data
With a dip in trips as the canary in the coal mine, the NACS research committee led this year’s summit with a focus on preparing the industry to meet—and hopefully make—its own fate.
The latest industry numbers are deceptively rosy. The c-store channel netted its 15th straight year of record in-store sales and its fourth straight year of more than $10 billion in pretax profits. Total sales increased 9.3% to $601.1 billion, and pretax profit increased 1.6% to $10.4 billion. Inside sales were up 1.7% to $237.0 billion, while fuel sales reached $364.1 billion—a 14.9% increase over 2016.
“That’s great,” Jones said of the more than 9% sales increase, “but the concern is that was led by fuel due to commodity price increases. Inside sales [were] up only 1.7%.”
U.S. fuel consumption had a rocky start in the first six months of 2017, off 2.4% year over year, according to the U.S. Energy Information Administration (EIA). “A 2.4% decrease doesn’t sound like that big of a number, does it? But it was the equivalent of going 4.4 days with zero—that is zero—fuel sold in the U.S.,” Jones said. Overall, the year ended with fuel consumption down almost 1%, thanks to gains in the tail end of the year.
Average motor-fuel prices were higher in 2017: $2.38 per gallon vs. $2.11 in 2016. Fortunately for fuel retailers, last year fuel margins reached 22 cents per gallon, their highest point since 2014. And while the dip in fuel consumption in early 2017 left retailers playing catchup, “2018 fuel consumption is more like 2016 than 2017,” Jones said. “That’s really good.”
In a year full of ups and downs, 2017 dealt one blow that left a particularly painful sting: Credit-card fees increased 5.8% to $10.1 billion. “It’s crazy that an industry that makes $10.4 billion in profit has to pay $10.1 billion in fees just to process the payments,” said Jones. “This issue has got to be addressed.”