NEW YORK -- Wells Fargo Securities LLC analysts remain bullish on convenience following their review of the NACS State of the Industry (SOI) Summit that took place earlier this month in Chicago. In a research note, senior analyst Bonnie Herzog said she believes positive trends in the convenience-store sphere will continue as “the industry is embarking on a new era of sophistication and growth.”
Forecasters predict that maintaining focus on the inside of the store is key to driving profitable growth, and to that extent, getting foodservice right should be top priority. Foodservice gross profit dollars increased from 29.1% in 2013 to 33.5%. One way to maintain that momentum is to concentrate on healthy food options, especially as retailers attempt to connect with millennial and Gen Z consumers.
Prepared food gross margins in c-stores average 57.6%, underscoring Wells Fargo’s view that “getting foodservice right” is of vital importance. Prepared food sales increased 7.7% per store per month in 2014, while gross profit dollars increased 5.7%. And as quick-service restaurant (QSRs) step up their games, convenience stores should remain one step ahead, the report said.
Also important to driving inside-store momentum is maintaining focus on cigarettes. Because this category remains the largest sales contributor in c-stores with $48,500 in sales per store per month, increasing penny profit per pack will continue to offset volume declines.
Rosier economic circumstances bode well for c-stores because they bode well for the c-store customer, the research finds. The positive employment picture, with an average of 269,000 jobs created per month over the past 12 months, means more commuters with more purchasing power. Accompanying lower oil prices suggests that consumers are likely to purchase larger vehicles. Overall, the strong state of the U.S. economy portends real gains in consumer spending, home price appreciation and new home construction.
The report likewise indicates that although the economy is on the upswing, there are still some trends to keep an eye on, namely the aging populace, growing minority populations and lower overall population growth. Analysts are also keeping an eye on regulatory changes, as well as innovation and technological gains, such as mobile payments and alternative fuels.
As the industry continues to grow, it remains fragmented and larger chains continue to get stronger. Strong fuel margins, despite soft gallon trends, will help to drive future growth across the industry, the report said.
"We believe savvy, innovative operators will capture an outsized portion of profits," she said.
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