SOI: 4 Elements That Drove Inside Sales to a Record High in 2016

CHICAGO -- Inside sales in convenience stores were up 3.2% in 2016 to reach a record $233 billion in sales, eight of the top 10 largest product categories in convenience stores saw positive growth in 2016, and nine had positive gross-profit dollar growth, according to newly released NACS State of the Industry data, the convenience- and fuel-retailing industry’s premier benchmarks and key performance category insights.

The top 10 in-store categories ranked by sales dollars represent about 80% of all in-store sales. And even cigarettes saw positive growth during the past year. Factors such as low fuel prices, job growth and more discretionary income in consumers’ wallets drove spending inside the store, according to NACS.

Here’s how in-store sales performed in 2016:

• Tobacco (cigarettes and OTP): 36% of in-store sales
• Foodservice (prepared and commissary food; hot, cold and dispensed beverages): 21.7%
• Packaged beverages (carbonated soft drinks, energy drinks, sports drinks, water, juices and teas): 15%
• Center of the store (salty snacks, candy, packaged sweet snacks and alternative snacks): 9.8%
• Beer: 6.7% (12.2% for stores selling beer)
• Other: 10.8%

Here's how the top categories broke down ...

While tobacco products, including cigarettes, were 36% of in-store sales dollars, they accounted for only 18.2% of gross-profit dollars. Other tobacco products (OTP) is a bright spot, achieving double-digit growth in both sales and gross-profit dollars. Since 2001, U.S. smoking rates have continued to decline, driven by individuals ages 18 to 29. Product innovation and consumers moving from combustible tobacco products to other forms of tobacco are driving the OTP category.

Packaged beverages (nonalcohol) accounted for 18.5% of gross-profit dollars. Within the category, enhanced water (12.3% increase in sales), sports drinks (up 4.5%) and bottled water (up 3.9%) led sales growth from the cooler in 2016, signaling a move by consumers toward healthier and/or functional beverage options.

Snacking categories, including salty snacks, candy and alternative snacks, all had strong growth as some consumers, especially millennials, moved toward snacking and away from traditional meals. For the second consecutive year, alternative snacks, a category driven by protein- and energy-rich items, reached the top 10 in-store merchandise categories, also signaling a desire by consumers for immediate/healthier snacking options.

Foodservice, a broad category that includes prepared and commissary foods, hot dispensed beverages (coffee), cold (fountain) and frozen dispensed (slushee) drinks, continues to be a key focus for growth in the convenience-store channel. Foodservice contributed 21.7% of in-store sales in 2016 and accounted for 35.2% of gross-profit dollars, with prepared food and cold dispensed beverages driving the category’s growth. In 2016, convenience stores experienced growth in every foodservice subcategory except for commissary and frozen dispensed beverages.

There is a notable dichotomy between the top-quartile performers and bottom-quartile retail performers within the convenience-store industry, with nearly a 10-fold difference in store operating profit between the two quartiles. In terms of foodservice, the top quartile is excelling at hot dispensed beverages, with 6.6 times the coffee sales compared to the bottom quartile and more than three times in prepared food sales.

The industry’s 2016 metrics are based on the NACS State of the Industry survey powered by its wholly owned subsidiary CSX LLC, the industry’s largest online database of financial and operating data.