9 Highlights From Virtual SOI

ALEXANDRIA, Va. — In turning its annual State of the Industry Summit into more than eight hours of video presentations and multiple slide presentations, NACS created a definitive digital resource for reviewing the past year in convenience-store sales and considering what the future—especially in light of the coronavirus pandemic—might look like for the industry.

“As a NACS family, we wrestled with the decision to continue with the NACS State of the Industry Summit in any format,” said Andy Jones, president and CEO Sprint Food Stores, Augusta, Ga., and chairman of the NACS Research Committee, in welcoming “attendees” to the digital product. “But for five decades, our industry has relied upon NACS to collect, analyze and disseminate critical information about the performance metrics and benchmarks that allow us to define success in a very dramatic landscape and make the necessary changes to sustain [ourselves through] the challenges ahead. So we’re excited to gather together in this virtual format.”

The CSP editorial team spent much of the past week listening through the dozen sessions and scrolling through slides to develop what will be a special issue of CSP magazine featuring a detailed collection of the data and insights unveiled during the summit. Watch for it in June.

In the meantime, here are nine highlights that stood out …

Data suggests the c-store channel has an opportunity to increase its assortment of staple and fresh items to accommodate consumers sheltering in place during the coronavirus crisis and the continued social distancing lifestyle, according to Larry Levin, executive vice president of consumer and shopper marketing for Chicago-based market research firm IRI.

The total U.S. market saw growth of 28.5% in the four weeks ending March 22, and 29.2% compared to the previous year. C-stores saw 6.2% growth in sales in the same four-week period, while grocery channels grew 39.2% and drugstores 21.5% in that same period.

“Some markets saw sales growth in the past four weeks, suggesting that convenience stores might see heavier traffic as other channels reduce hours and or continued low to out-of-stock items,” Levin said.

Until the spread of COVID-19, more than half of CPG dollars were spent outside the home. The new post-COVID-19 environment could be an opportunity to provide sandwiches and other meals people can pick up on the go in c-stores and consume at home, Levin said. Many restaurants have started doing this by selling products consumers can cook at home.

“There are opportunities to captivate on the new normal,” Levin said.

While pointing out that he’s no epidemiologist, economist Anirban Basu, chairman and CEO of Sage Policy Group, Baltimore, said pent-up demand and low interest rates will help fuel what he believes will be a “rapid resurgence” in the economy once the coronavirus health crisis subsides and cities and states remove shelter-in-place orders. Citing documentation from the SARS epidemic several years ago, Basu said Asian economies saw a quick increase as businesses reopened, although he said it would be “naive” to think an actual recovery in the United States wouldn’t take years.

By most measures, convenience-stores came through 2019 smelling pretty sweet: Record pretax profits, outstanding fuel margins—gallons even grew 1.1%—and a 4.9% burst in in-store sales suggest retailers are getting their arms around the challenges of the day.

But cut another way, three-quarters of the industry couldn’t draw a profit from in-store sales.

“If we look at operational metrics for the industry, net of any fuel component, you’ll see that only a portion of our firms—namely the top quartile—would be profitable,” said Charles McIlvaine, CEO of Coen Markets, in breaking down the preliminary NACS State of the Industry data beyond the surface numbers. The top quartile shows the average results of the top 25% of firms on several measures within the NACS State of the Industry sample with the highest store operating profits.

“If you look at inside-store operating profit, the top quartile on a per-store per-month basis [is] making just under $10,000 [on average],” McIlvaine said. “The second, third and fourth quartiles are all losing money; the bottom quartile [is] losing around $14,000 per store per month.”

In a year when many retailers saw record margins on gasoline as prices maintained an uncharacteristic stability—and as the industry enters a post-coronavirus reality in which gasoline prices and volumes have crashed—getting beyond fuel profits is more important than ever, McIlvaine said.

“[This data] is extremely valuable when we think about fuel margins and how those move and may leave a false sense of security for us,” he said in a presentation during NACS’ virtual SOI experience. “All of us need to start focusing on what does our business looks like within the four walls. That’s a discipline I think all of us should be adopting.”

Dayparts are fading in today’s foodservice landscape, said chef Thomas Talbert, vice president of culinary marketing for CSSI Marketing and Culinary, Chicago. In restaurants, off-peak transactions account for 25% of total unit sales today, he said, citing data from CSP’s sister research firm Technomic, Chicago. Blurring dayparts has led restaurants and c-store chains such as McDonald’s and TravelCenters of America, respectively, to launch all-day options—a big business model for the foodservice industry, Talbert said.

“Consumers want what they want, when they want it and how they want it,” he said. “Some people might want a slice of pizza or a taco for breakfast, while others who work a night shift might eat dinner at 7 a.m.”

But offering all-day options doesn’t mean operators should promote their entire breakfast menu 24 hours a day, nor does it mean they should have a full taco menu available during breakfast. Instead, it means considering what offerings their consumers enjoy most and making those available all day, Talbert said.

“If you’re not offering all-day solutions, now is that time to bring it forward and take advantage of the vacuum that’s going on in the space right now,” said Christopher Wolf, senior vice president of strategic insights and planning for The Marlin Network, Springfield, Mo.

Credit card interchange fees totaled less that industry pretax profits in 2019, but just barely, with $11.9 billion in pretax profits and $11.8 billion in card fees, a consistent comparison made by NACS. During his State of the Industry presentation, McIlvaine of Coen Markets said the sway credit card companies hold over everyday purchases isn’t going away.

“The trend of going cashless is not going to revert itself anytime soon. In fact, I suspect that over time, the usage of credit cards is going to increase,” McIlvaine said. Also, credit card fees were up 6.3% total, he said. That’s about $77,000 per store in credit card fees in 2019.

With the combined weight of the federal government raising the minimum buying age for tobacco to 21 from 18 along with new restrictions on flavored vape cartridges, NACS anticipates a 7%-9% loss in category sales during 2020. Two major factors are driving that estimate.

One is an anticipated loss of 5% of cigarettes sales from the change of the minimum age to buy tobacco products to 21 years old.

The second is the ban on flavored e-cigarettes, which accounted for 35% of e-cigarette sales in 2019.

Tobacco continues to be less profitable while packaged beverages and foodservice are driving profits, according to Chuck Maggelet, chief adventure guide for Maverik Inc. Although tobacco is the largest sales category at 34% of sales, it makes up only 17% of gross profit dollars. Meanwhile, packaged beverages are 15% of sales but 18% of gross profit dollars. Foodservice is 25% of sales but 39% of gross profit dollars.

The COVID-19 pandemic is spurring new consumer behaviors when it comes to home delivery. According to Lori Stillman, vice president of research for NACS, social distancing orders across the nation have helped push more consumers to order goods online. Many of those consumers will not change shopping behaviors soon, she said.

Barrington, Ill.-based Brick Meets Click reported that 31% of U.S. households ordered food online in the past month. Of those, 43% said they will continue or are extremely likely to continue shopping online after the crisis subsides. That’s about 17 million households that will be new and continuing users of last-mile fulfillment.

As consumers moved from initial stockpiling during the onset of COVID-19 health precautions, a time of “restricted living” took over as cities and states initiated shelter-in-place orders, giving rise to an increase in beer and cigarette sales, according to Caitlyn Battaglia, associate client director for Nielsen, New York. Battaglia said c-stores became a convenient resource for preferred items as pantry inventories began to deplete.

The 2020 NACS State of the Industry Summit Virtual Experience is now available for on-demand viewing. Access critical benchmarking data, analysis, emerging trends and executive insights at convenience.org/SOISummit.