ATLANTA -- Sales in convenience stores have remained strong in 2016, but coming off two historic years of sales—during which the industry saw record pretax profits of up to $10.6 billion—Leroy Kelsey, director of industry analytics for NACS, offered three strong cautions for retailers, especially smaller independents as the industry enters the fourth quarter.
“In 2015, [gasoline] prices were stickier than usual, … and the average household saved $700,” Kelsey said during a NACS Show workshop titled Where Is the Industry Going and What Does It Mean for the Small Retailer? “As a result, they spent more; they drove more.”
This year is a little different, leading Kelsey to offer these warnings …
With two years of strong profit and loss (P&L) statements driven by hefty gasoline margins (24.3 cents per gallon on average in 2014 and 23.6 in 2015) and increased in-store sales driven by lower gasoline prices.
“A lot of your peers, those guys who were struggling, got a stay of execution,” Kelsey said.
That may not be the case this year.
While the lower gasoline prices generally have remained, margins have caught up. In the first half of 2016, gasoline margins averaged 20.0 cents per gallon.
The acquisition by Alimentation Couche-Tard, the second-largest c-store retailer in the United States, of CST Brands, the fifth-largest, has yet to close, but it’s just the tip of the iceberg of major acquisitions that have occurred in c-stores this year. And it means two things for the industry, according to Kelsey:
- “We are symmetrically overloaded at the top” of the c-store channel, with an overwhelming number of stores operated by the top 10 players.
- “There is a high probability right now you are competing with a national brand,” Kelsey said. “And if you are not competing with a national brand, you’re probably competing against a major regional chain” with great brand recognition.
Either way, the struggle for the small retailer is becoming more difficult.
Eighteen U.S. states have increased their minimum wage over the past three years, and the movement for a national minimum wage of $15 per hour continues to gain momentum.
As a result, “direct-store operating expenses are growing faster than inside gross profit dollars,” Kelsey said.
Put all three of these issues together, and it makes it all the more important for independent retailers to differentiate their businesses to help them stand out from the crowd, Kelsey said.
The NACS Show started Tuesday, Oct. 18, in Atlanta and continues through Friday, Oct. 21.