Opinion: The Pressing Need for Convenience Stores
By Joe Petrowski on Jan. 05, 2017FRAMINGHAM, Mass. -- I’ve been keeping tabs on the convenience-store industry for a long time. Since 1976, we have had a 40-year decline in site counts, going from almost 400,000 sites to 154,000 sites today serving 320 million Americans.
The decline was driven by consolidation, the growth of individual sites in inside sales and gallons, cross-channel competition and real estate switching to higher and better use. So far, unlike other retailing businesses, convenience retailing has seen few negative effects from internet retailing, and I don't expect them to come. (In fact, forward-thinking retailers are leveraging social media and the internet to increase sales through distribution services, fixed-price fuel sales and preordering services.)
But the latest data indicates not only have we bottomed out at 154,000 sites, but we should gradually see an increase because certain areas of the country have a pressing need to add stores.
So where should we expect expansion and growth opportunities? Let’s take a look …
6 factors
For convenience retailing, there are six factors that define the attractiveness of a market area:
- The number of existing stores
- The growth rate of the area combined with income per capita
- Demographics (blue collar, millennials, dual-income families, etc.)
- Prevalence of quick-service restaurants (QSRs) and cross-channel competition (CVS, Walgreens, Starbucks and the like)
- Willingness of customers to rely on habitual convenience visits (stronger in rural communities than urban)
- Transience of the population (strong in Florida, Arizona, California and college towns)
Based on my analysis, the United States is now in need of 6,000 additional stores to bring the count to 160,000 stores, which is what we need to serve a mobile population of 320 million people; however, if we resume our historic population and economic growth through household formation and immigration, the population in seven years will be 400 million people, and we will need another 40,000 convenience stores, bringing the total count to 200,000 sites.
But growth and economic development is not smooth over all geographies, so we have states with great opportunity and states that need to shed sites. Here’s how I see them breaking down …
States that need more convenience stores
- Alaska
- Arizona
- California (probably difficult given the regulatory climate)
- Colorado
- Florida (expansion there is already drawing competition)
- Hawaii (real-estate expense limits growth)
- Indiana
- Iowa (great demographics and growing)
- Montana
- Nebraska (good growth, great demographics and friendly toward business)
- Nevada
- Ohio
- Oregon
- Texas (too many gas stations but a need for stores)
States that need to shed c-stores
On the other hand, there several states that could stand to lose a few c-stores. Here are the most obvious:
- Alabama and Mississippi (growth stagnant and overstored, though demographics are great)
- Georgia (good demographics and growth, just overstored)
- Maine (a mess; population shrinking)
- New Jersey (overstored and slow/no growth)
- North Carolina (see Georgia)
- Pennsylvania (economic growth stagnant, more deaths than births)
- West Virginia (Maine without the ocean view)
The rest of the states fall in between, but the above should be taken as a guide only.
Doing business
Meanwhile, CNBC’s 2016 ranking of the Top States for Business set a priority for where c-store growth could most readily succeed. Here’s the top 20:
- Utah
- Texas
- Colorado
- Minnesota
- North Carolina
- Washington
- Michigan
- Georgia
- Iowa
- Florida
- Nebraska
- North Dakota
- Virginia
- Wyoming
- Idaho
- Indiana
- Oregon
- Tennessee
- South Dakota
- Massachusetts
Other factors
Of course, convenience stores are visited by men more often than women. So let’s consider this: With a U.S. population of 320 million people, the country has 163 million females and 157 million males (and females live longer).
The states with populations that are more than 50% male include Alaska, Colorado, Montana, Nevada, North Dakota, Utah and Wyoming.
While the male consumer aged 18 to 55 is a prime convenience-store customer, exceptional retailers can reach across age and gender.
Understanding the macro currents is important, but convenience retailing, like politics, is local. The cost of the real estate, capital required, excellent execution and knowing your competition can overcome any macro headwinds.
With a growing economy, higher individual net worth, low gasoline prices and a consumer finding better quality and prices along with convenience at their community convenience store, the industry is poised for much better days.
Joe Petrowski is an advisor to BW Gas & Convenience dba Yesway, Des Moines, Iowa, a c-store unit of Brookwood Financial Partners LLC, Beverly, Mass. He is also founder of Mercantor Partners LLC, a private-equity group focused on downstream energy distribution and retail convenience, and former CEO of Cumberland Farms and Gulf Oil.