State of Imbalance
Industry sales hit $577.4 billion as credit-card fees rise to double pretax profits
CHICAGO-- Attendees at the 2008 NACS State of the Industry Summit in Partnership with CSP in Chicago had a lot of numbers to digest on Thursday, but there's one figure in particular that presenters wanted them to remember: $7.6 billion. That's the sum total of credit-card fees paid by retailers in 2007, a $1 billion increase from the year prior, according to the NACS SOI survey powered by CSX.
Consider that the industry generated $577.4 billion in sales, but only $3.4 billion in profits—a $1.4 billion drop from 2006—and the disparity is even more stark. This places industry [image-nocss] credit card fees at more than double pretax profits, only one year after they surpassed total industry profits.
"If that's not enough to get you mad…I don't know what it's going to take," said Richard Oneslager, president of Balmar Petroleum/FirstHand Management LLC, and NACS chairman.
This sobering news, delivered in the wake of a presentation on the bleak economic forecast for 2008, was meant not to depress, but to spur retailers to action. House bill 5546, the Credit Card Fee Act, is perhaps the best chance the retail industry has had to reset the balance, presenters argued, and urged those in attendance to contribute toward the legislative push. "We cannot outspend these folks," said Oneslager, referring to Visa and MasterCard, which have 76% market share of all credit-card transactions. "The only thing we can do is out-work them."
Considering that 67% of c-store sales in 2007 were paid for by plastic, and the industry's vulnerability this year is clear.
Examining the rest of the industry balance sheet, 2007 proved to be very much a mixed bag. Fuel volume dropped nearly 5% to hit 150.4 billion gallons, while fuel prices grew 8.8%.
Examining data on a same-firm basis—118 firms represented by 17,615 stores in the CSX benchmarking database—it is obvious that top-quartile firms will prove more resilient than most to economic recession and the credit-card fee crunch. Stores in the top quartile generated 32% more profit than those in the bottom quartile, they sold three times as much in foodservice and twice as much in merchandise, and had four times the gross profit dollars in foodservice vs. the bottom-quartile retailers. Top-quartile stores generated $17,715 in operating profits per month, vs. only $559 for bottom-quartile sites.
For all quartiles, wages and benefits as a percent of gross profit dollars grew 1.2 points to hit 27.9%, led by an increase in health-insurance costs. Other core expenses also grew, with credit-card fee increases leading at 21.5% increase per store per month, followed by repairs and maintenance, and driveoffs.
The top 10 categories ranked by sales dollars per store per month places cigarettes at No. 1, followed by packaged beverages, beer, food prepared on site, hot dispensed beverages, salty snacks, other tobacco products, candy, general merchandise and cold dispensed beverages.Examined by gross profit dollars, packaged beverages take the lead, followed by cigarettes and food prepared on site. "If you added hot, cold and frozen," noted presenter Fran Duskiewicz, senior executive vice president at Nice N Easy Grocery Shoppes, and 2008 NACS SOI Summit chair, "one-third of gross-margin dollars come from things people drink. We are a drink store."
Other areas where the convenience channel has staked a claim: energy drinks, which enjoyed a 25.5% increase in c-store sales, and OTP, which grew its sales 11.4% in 2007.
Despite the interest in sales performance, retailer attendees were urged to consider gross profits contributions by the in-store categories as well. Foodservice leads with 26% share of in-store gross-profit dollars, followed by packaged beverages at 20% and cigarettes at 19%. Indeed, 78% of gross-margin dollars came from only five categories. But the newest opportunities may be found in the 22% share of gross-profit dollars from "all other" categories. "Look for what's available in that 22%," said Duskiewicz.
Click hereto view the CSP Daily News Flash reporting on the release of this data.