SPRINGFIELD, Mo. -- On April 11, a day after the Energy Information Administration's Short-Term Energy Outlook predicted that gasoline prices would peak in May with a national average of $2.87 per gallon, the National Association of Convenience Stores (NACS) revealed through its State of the Industry (SOI) data that 2006 store profits fell 23.5% nationwide, while industry sales reached a record $569.4 billion. Total c-store sales increased by a record $74.1 billion, or 15%, in 2006, while nationwide [image-nocss] fuel sales increased 17.9% to $405.8 billion. In-store sales increased 8.3%.
But NACS said motor fuel gross margins fell 1.7 cents to 14.7 cents per gallona 5.7% decrease from 2005 and the lowest level since 1983.
To illustrate that discrepancy in a real market, the Springfield (Mo.) Business Journal checked in with two local chains, Rapid Roberts and Cody's Convenience Stores. Rob Wilson, who owns 22 Rapid Roberts, said fuel sales account for 75% of his revenues, but less than 5% of his profits. Tom Cook, director of operations for Cody's, said fuel sales bring in 70% of revenues, but also less than 5% of profits.
It's out of proportion with inside sales, Wilson told the newspaper. It's like a loss leader, anymore. As prices have gone up, the uses have gone down as everyone tightens up. But everybody wants to keep that same volume and that same number of customers coming in, and so that drives down the margin on the street. It's a very price-sensitive commodity.
Cook said Cody's uses signage and coupons at the pumps to drive inside sales. Gas is almost a necessary evil that we all live on to drive customers into our stores, Cook told the paper.
Credit cards add to the crunch, costing c-stores a 3% fee per transaction. Wilson instituted a prepay policy at a quarter of his stores to combat driveoffs, which he said occur daily. With prepay, most consumers use credit cards. He said smaller c-store operators are being forced to sell to larger competitors; he has seen more mergers in the last two years than in the previous eight years combined, he said.
That's why Cody's is growing so aggressively, the report said. The chain was established in 2002 with a single store in Rogersville and now has 17 locations. As we grow, hopefully we can be frugal enough and control our capital expenditures and spread out our costs, Cook said.
He said 30% of Cody's customers shop inside the stores. To increase that number, Cody's is expanding food offerings, including the chain's first espresso bar.
Meanwhile, rising gasoline prices are causing economic strain for the majority of Americans, but only one in five reports facing severe problems as a result of higher prices at the pump, according to a CNN/Opinion Research Poll of more than 1,200 U.S. consumers.
Two-thirds said that rising gasoline prices are causing hardship for their families; that is virtually the same number who felt that way when gasoline prices began to rise last spring, the report said. Of those polled, only 19% found themselves in severe hardship because of the affects of rising gasoline prices, opposed to 47% who said they have experienced a moderate hardship and 33% who reported no hardship at all.
Phil Flynn, senior oil analyst for Aleron, found the number of those suffering hardships surprisingly low, telling CNN that the low number explains why gas demand is at a record high, despite high prices. Because for the vast majority of people, it isn't a hardship for them.
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