CHICAGO — Convenience-store operators make their living on 99-cent bags of chips, penny margins and focusing on the little things. So at a time when speakers at the NACS State of the Industry Summit are encouraging retailers to evolve in the face of change, signs of that evolution are showing in ways both big and small—albeit not for everyone.
More and more, the top-quartile companies have adapted their business model to address declines in cigarettes and fuel, grown the higher-margin foodservice category or countered the increasing popularity of online retailing.
“The bottom half is using the same model, while the top quartile has evolved,” said summit speaker Charlie McIlvaine, chairman and CEO of Coen Oil Co., Canonsburg, Pa., as he pointed to the quartiles’ differing performance in the top six categories. And the gap between the industry’s 25% most profitable operators and the bottom half of the industry will only widen.
The top performers exceed the bottom on a number of metrics, mainly profitability and unit throughput, according to preliminary numbers presented at the summit. The most significant disparity between top and bottom performers comes in foodservice, with top performers developing expertise and devoting more space to either food prepared on-site or fresh sandwiches and salads delivered from commissaries or wholesalers.
Same-Firm Facility Productivity
Per store per month
The gulf between top- and bottom-quartile retailers continues to widen on a number of fronts, with overall profitability disparities raising particular concern. Top-quartile retailers’ store operating profits, for instance, were more than 10 times greater than that of bottom-quartile retailers in 2018. Their average EBITDA* was 11 times that of bottom-quartile retailers. And in-store sales per square foot were more than double that of bottom-quartile operators, showing they are maximizing the square footage of the store.
| Measure | Top quartile | Bottom quartile | Difference |
|---|---|---|---|
| Gallons sold | 230,806 | 90,196 | 2.6X |
| Fuel sales | $637,818 | $227,392 | 2.8X |
| Average fuel price | $2.76 | $2.52 | 24 CPG |
| Fuel gross-profit dollars | $58,343 | $19,682 | 3.0X |
| Merchandise sales | $188,666 | $73.145 | 2.6X |
| Foodservice sales | $75,245 | $12,850 | 5.9X |
| In-store gross-margin % | 36.99% | 29.40% | 7.59 points |
| Cigarette gross-margin % | 15.80% | 13.74% | 2.06 points |
| Average square feet | Average square feet | 3,191 | 2,541 |
| In-store sales per square foot | $66.15 | $32.23 | $33.92 |
* Earnings before interest, taxes, depreciation and amortization
Source: NACS preliminary data. Final data to appear in the NACS State of the Industry Report of 2018 Data.
From 2009 to 2018, the industry in general increased its foodservice percent of inside sales by 6.58 points—the highest increase among six top c-store categories, according to CSX data. But when comparing top and bottom performers, the distinction is dramatic. From 2009 to 2018, bottom-quartile companies saw foodservice’s share of inside sales fall 0.75 points.
Meanwhile, top-quartile companies grew the category’s share by a whopping 12.27 points during that same 10-year period. The top quartile also rang up 5.9 times more foodservice sales per store per month than the bottom quartile, or an average of $75,245. “That’s evidence of change,” McIlvaine said.
Leaders in Merchandise Sales
Per store per month
Tobacco supplied the greatest share of in-store sales in 2018, but its contribution continues to shrink in size. Foodservice ranked second in sales but first in profits, providing more than one-third of in-store gross-profit dollars.
| Category | Sales dollars | PCYA* |
|---|---|---|
| Cigarettes | $52,249 | (3.1%) |
| Packaged beverages | $26,413 | 4.4% |
| Beer | $14,640 | 1.8% |
| OTP | $11,878 | 23.6% |
| Salty snacks | $5,811 | 3.6% |
| Candy | $5,575 | 0.5% |
| Packaged sweet snacks | $2,723 | (5.9%) |
| Milk | $2,365 | (5.7%) |
| Alternative snacks | $1,970 | 2.6% |
| General merchandise | $1,829 | 2.3% |
Source: NACS preliminary data. Final data to appear in the NACS State of the Industry Report of 2018 Data. | * Percent change from a year ago
Overall, top-quartile companies made up to two times more than the c-store averages in all major categories: cigarettes, packaged beverages, beer, OTP, salty snacks, candy, packaged sweet snacks, milk, alternative snacks and general merchandise. “The top is expanding basket size and volume and changing the mix,” McIlvaine said.
Total Industry Sales
Inside c-store sales grew 2.2% in 2018 to hit $242.2 billion, a modest increase compared to a nearly 13.2% jump in fuel sales, inflated by higher gasoline prices.
Source: NACS preliminary data. Final data to appear in the NACS® State of the Industry Report of 2018 Data.
Category Breakdown
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