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SOI 2019: Half of the Industry Is ‘a 10-Year-Old Business Model’

Evolve now or go the way of Blockbuster: c-store leaders
nacs state of the industry summit

CHICAGO — Considering the big headline of the preliminary State of the Industry data was a third year of record sales, the overall tone of the SOI Summit in Chicago was one of caution. Sure, the industry just topped $654 billion in sales compared to $601 billion the previous year, but there are concerns to consider at every turn.

Billy Milam presented the top-line numbers with restrained exuberance. "In a world where [most other channels of retail] are down, our sales [per store per month] were up 9.9%, but our transactions were down 2.3%," said Milam, chief operating officer for RaceTrac, Atlanta, and head of the NACS Research Committee. "So we're selling more stuff to less people."

Among the challenges, he noted:

  • Top-heavy industry: Between 2015 and 2019, half of the 20 largest chains in the industry have gone through some sort of merger or acquisition, consolidating a major portion of stores with the largest chains.
  • Independent retailers: The number of single-store operators declined by nearly 2,200 units in 2018, the first time in nine years that the channel didn’t grow.
  • Small chains: The number of chains of four or more stores dropped by 155 companies, continuing a trend from the past decade. “Over the past four years, we’ve seen a 19% decline in the number of companies with four or more stores,” Milam said.
  • Dollar stores: At the same time, dollar stores have grown steadily, from 23,421 units in 2012 to 31,620 in 2018, making it the fastest-growing channel in retail, often targeting rural markets where c-stores are the top player. 
  • Credit-card fees:Credit-card fees outpaced total industry profits ($11.1 billion to $11 billion, respectively) for the first time in four years.
  • Amazon: With reports that Amazon intends to open 3,000 of its frictionless Amazon Go stores in the next 3 years, the online retailer threatens to become to fourth-largest convenience chain in the country.

“I know a lot of you think, 'I don’t need to worry about Amazon; they’re not coming for my market,'” Milam said, “But they’re redefining the definition of convenience stores. … The mindset of that customer is being retrained.”

Together, these challenges—what Milam frequently called “attacks” on the convenience channel—have created an S-curve in the trajectory of the industry, making now a key time for retailers to evolve.

A 10-Year-Old Model

“The ‘Cokes and smokes’ business model has crested,” said Charlie McIlvaine (pictured above) as he led discussion of the category-specific data presented at the SOI Summit. McIlvaine, chairman and CEO of Coen Oil, Canonsburg, Pa., cited healthy transitions by the c-store channel into foodservice, which grew its sales contribution to the channel by 6.58 percentage points from 2009 to 2018, while tobacco sales lost 2.05 points and beer dipped 1.91 points during the same period, according to CSX and NACS SOI data. However, he said a large majority of that transition was led by top-quartile retailersthat is, those retailers who produced total sales in the top 25% of the channel.

Bottom-half retailers, meanwhile, are clinging to tobacco and beer sales. “The bottom half is still [working with] a 10-year-old business model,” he said.

To that end, both Milan and McIlvaine encouraged a paradigm shift for the industry to match the disruption that has become pervasive to the retail channel.

“Other channels of retail are getting product into [consumers’] hands in other ways. They don’t have to come to the store anymore,” Milam said. “There is a different expectation from our customers now than what we’ve seen in the past.”

Among the paradigm shifts suggested during the summit were:

From (today)To (tomorrow)
Fuel providerEnergy provider
Commodity-driven businessService-driven business
Limited interaction with customers (less than 4 minutes)Best-in-class customer experience to create a destination that delivers convenience in products, food and services
Offers and promotions are one-size-fits-allTailored and personalized experiences and services
Limited assortment (coffee, tobacco, other channel staples)Hyperlocal or differentiated assortment
Traditional buying channelsOmnichannel, frictionless options

What happens if the industry does not evolve? McIlvaine asked. He evoked the specters of Radio Shack and Blockbuster Video, two chains that liquidated and disappeared, as primary examples of retailers that refused to change.

“We have a track record of being relevant and evolving,” he said, “but we cannot rest on our laurels.”

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