For an industry born nearly 90 years ago, the rapid transformation in the convenience-store channel underscores a business model built on change. And did we see change in 2014.
We witnessed three multibillion-dollar mergers. We saw street prices at the pump fall to below $2 a gallon in many markets. We saw foodservice expand across single- store shops and major chains. We saw a wave of redesigns welcoming customers to stay awhile, enjoy a bite and tap into free Wi-Fi.
And we saw optimism in the gradual economic rebound; in our ability to compete against historic rivals with deeper pockets; to adapt our store sets and mindsets to a new consumer that lives on mobile and incessant connectivity; and in knowing that while fuel and cigarettes remain important, the business model has expanded into new growth opportunities.
We saw total annual gross profit spike by nearly 12% year over year, fuel pool margin exceed 22 cents a gallon and merchandise sales climb by more than 4%.
A closer look at the data shows that top-quartile retailers continue to decisively outpace the rest of the channel in virtually every operational benchmark.
Top-quartile performers have nearly double the fuel sales of the second quartile, outpace others by more than one-third total merchandise sold, excel in foodservice sales—and accomplish all of this with a comparable gross margin.
Strikingly, top-quartile operators registered $73 in in-store sales per square foot, easily outranking second-quartile retailers, who netted $44.74.
Top-quartile performers also paid the highest per hour, more than $2 above third- and fourth-quartile companies. And for an extra $2 spent in wage hours, top-quartile companies gained $11 in in-store gross profit dollars. As to why top operators make the choice to pay more, much of it is attributed to running more labor-intensive programs and strengthening recruitment opportunities.
What do the gaps between the top quartile and the rest of our industry tell us? Certainly, size does play a part, but it is hardly decisive. Average square footage for top-quartile operators was larger than third- and fourth-tier retailers, but slightly less than the 3,113-square-foot average of second-quartile merchants.
For sure, foodservice remains a notable wedge in our channel between the haves and have-nots. While bottom-half performers generated well below $15,000 in monthly foodservice sales, top-quartile operators captured more than $36,000 in average monthly sales.
From all evidence, a robust forecourt aligned with a strong foodservice program and friendly customer service clearly set the stage for a dynamic store.
Consider some of the key points shared by Kevin Smartt, CEO of Kwik Chek, at the summit:
- Embrace the fıve C’s: Create an environment for the customer, deliver choices, customize your offer, craft your offers (local brands mixed in with major) and guarantee convenience in all respects.
- Healthy is sexy: Healthier options are no longer a choice. They are a must. Millennials and, even more so, Gen Z are embracing healthier choices and are willing to pay more for them.
- Optimize the cold vault: The cooler remains a powerful growth engine for the convenience store. While continually evolving, packaged beverages deliver extraordinary innovation across all segments, a dynamic gross margin of nearly 40%, making it a market-basket springboard and day-part essential. It is not surprising that packaged beverages rank in the top three in both in store sales and gross-profit dollars.
- Tobacco: After several years of modest decline, cigarette sales enjoyed a 0.1% increase in same-store tobacco sales at c-stores. At the same time, the vaping segment continues to show growth, albeit at a somewhat slower pace than was projected a few years ago. Cigarettes remain an operational backbone, and we have seen nice increases in premium cigarettes, as well as in cigars, OTP and vape.
- Foodservice: In 2014, nearly $1 of every $5 spent inside the c-store was on foodservice, along with more than one-third of all in-store gross profit. Expect continued innovation and expansion of foodservice in our channel, from increased rollouts of frozen-yogurt stations to retailers such as Kwik Trip and Sheetz joining the Partnership for a Healthier America.
For more from Kevin Smartt and the in-store categories, turn to p. 95.
The industry has never been healthier, both in profitability and financial strength. The industry is also undergoing significant changes, and those who embrace the transforming consumer needs will thrive.
Billy Milam of RaceTrac said it well when reflecting on the channel’s $685 billion in total fuel island and inside sales in 2014: “If we were the country of NACS, it would put us between Saudi Arabia and Switzerland.”
Pretty impressive indeed.
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