Mergers & Acquisitions

Where to Build C-Stores in 2019

CSP’s top 10 places take into account key population and growth metrics

CHICAGO — For Joe Petrowski, the numbers look good for convenience-store growth.

As a senior adviser and director of fuels for the rapidly expanding Yesway chain, based in West Des Moines, Iowa, Petrowski is always looking for opportunities to extend the retailer’s network of locations, with an eye for both growing and underserved communities.

As a numbers guy, Petrowski considers the most viable markets this way: The approximately 153,500 convenience stores and gas stations in the United States serve 320 million people, or about 2,100 people per store. The country has 243 million vehicles, or three vehicles for every four people. Population growth is about 3% per year considering births, deaths and immigration. That means the average age of Americans is going up but at a slower rate than in recent years.

“All this bodes well for future economic growth and, especially for retail, the engine of [gross domestic product],” Petrowski says.

In the case of Yesway, which has grown to rank No. 43 on CSP’sTop 202 list of the largest c-store chains through a series of small acquisitions, Petrowski may be focused on pickup opportunities. But many of the best markets in which to buy are also the best in which to build, as shown in CSP’s annual ranking of top markets for building new c-stores. (See slideshow below.)

Now in its fourth incarnation, this ranking not only reflects several key population and growth metrics but also considers the ever-evolving retail landscape, changes in the convenience space and, more recently, disruptive forces.

Hot Spots for C-Stores

From the perspective of convenience retail, the growth outlook differs by state, market and even within the same neighborhood. With those caveats in mind, Petrowski used a formula involving c-store density, population stats, vehicles per household and other metrics to identify 17 states, as well as the District of Columbia, as worth a closer look. Those states include Alabama, Kansas, Maine, Michigan, Mississippi, North Dakota, South Carolina, South Dakota, Texas, Vermont and Wyoming.

With this initial list as a consideration, CSP reviewed newly released U.S. Census Bureau data, advice from industry experts, reports on c-store new builds and mergers-and-acquisitions activity to determine the top markets for building. Depending on the perspective, a market could be really hot or ice cold. Highly competitive c-store chains investing millions in high-traffic, multipump, full-on foodservice formats may be successfully building in new neighborhoods, but more than likely they’re also making entire zones impenetrable for the competition.

This past spring, Tulsa, Okla.-based QuikTrip confirmed its expansion into the Denver market, taking its food-focused concept into one of America’s fastest-growing metropolitan areas.

Having just opened its 800th store chainwide, QuikTrip moved on Denver after Colorado changed its beer laws.

“We already have people in the market for the real estate. But the last piece of the puzzle for QuikTrip was when they got rid of the 3.2 beer,” says Mike Thornbrugh, manager of public and government affairs for QuikTrip, referring to the previous legal limit of percentage of alcohol by volume allowed in beer sold in Colorado c-stores. The repeal of state 3.2 beer laws—which were also reversed in Kansas and Oklahoma—set the stage for greater growth for QuikTrip.

“In Oklahoma, when we got rid of it, even though we had a dominant share, business was even better,” Thornbrugh says. “Now that Kansas has shucked it, our business is going to grow in Kansas too.”

Colorado ended the prohibition of higher-alcohol beers on Jan. 1. “That’s going to provide a lot of sales growth for that state,” he says. “That’s one of the reasons we’re going.”

The heat in Colorado is only getting hotter. Des Moines, Iowa-based Kum & Go has openly spoken about its entry into Colorado Springs, Colo. [CSPDec. ’18, p. 44].

Kum & Go, which has more than 400 stores, has also invested heavily in foodservice as well as growlers and sit-down eating areas. Executives with the chain asked themselves: What markets would be good for the long term? What was the competition like there? What was the real-estate availability and cost?

Colorado made their list. Even though the state is attracting big c-store names such as QuikTrip, Colorado markets consistently make top 10 lists for population growth, job creation and both cultural and lifestyle diversity. Ultimately, Kum & Go’s already heavy presence in Colorado—more than 50 locations—and its resulting brand recognition helped it choose the Denver area, officials said.

The Real Deal

The voracious building of convenience retail in states such as Colorado, Tennessee, Florida and Texas runs counter to the challenge of so-called disruptive online competitors, a force that could snuff out any passion to build new brick-and-mortar retail.

But that threat could be overstated, says Randall Gross, director of Randall Gross/Development Economics (RGDE), which has offices in Nashville and Washington, D.C. Gross, a planning and development consultant, says research by International Council of Shopping Centers, New York, puts e-commerce at 10% of all retail sales nationally. But take away mail order, catalog sales and online sales from established brick-and-mortar retailers, and that online “disruption” amounts to a mere 3% of retail sales.

“People need to be cautious when they talk about the death of brick-and-mortar retail,” Gross says. “Now, average [driving] trips per household may be stable or declining, but that also depends on the market. The total number of trips is increasing here in Nashville.”

In describing the growth of Nashville, Gross cites a demographic evolution similar to many cities that hit “boomtown” status. The healthcare, technology, education, service, automotive and entertainment industries have kept Nashville consistently in the top five cities for job growth since 2010.

The city was also chosen by Amazon for its operations hub, which brought in 5,000 new jobs.

The combination of lifestyle, jobs, climate and downtown and urban mixed-use development attracts a younger, college-educated demographic, which in turn attracts businesses needing skilled workers, Gross says. At the same time, the evolving job environment creates what he calls a “bifurcated” housing market.

Young people making six-figure salaries may choose to live in the suburbs, but many will opt for an apartment or condo in the city. That demand pushes service workers—people who work in retail, restaurants and hotels—further out of the city limits and into housing they can afford.

The phenomenon ultimately creates opportunity for the traditional convenience-gas format because blue-collar and service workers have to drive into the city, but it also creates opportunities within the city for more high-end convenience solutions.

“Young people and empty nesters with more income may be less likely to drive, so their type of convenience might be a grocery store downstairs,” Gross says. “And those newer stores may be trying to do delivery, offer personalized service with higher-end, higher-profit items—skimming off the cream of the market, with customers who want the time efficiencies and have the ability to pay.”

Boomtown Breakdown

Growing cities such as Nashville, which boasts a population growth rate double that of Tennessee, are highly coveted areas for investment. What other markets are expanding?

The South and West continue to have the fastest-growing cities in the United States, according to U.S. Census Bureau estimates released in May. Climate, job opportunities, standard of living and entertainment and recreational options are helping drive growth. Among the 15 cities or towns with the largest numeric gains from 2017 to 2018, eight were in the South, six were in the West and one was in the Midwest.

Phoenix was at the top of the list with an increase of 25,288 people. Rounding out the top five with the largest population increases were San Antonio and Fort Worth, Texas; Seattle; and Charlotte, N.C.

Cities in the South that experienced a surge in population growth were led by Austin, Texas, which added more than 12,500 residents from 2017 to 2018; Jacksonville, Fla. (12,153); Frisco, Texas (10,884); McKinney, Texas (9,888); and Miami (8,884). Western cities that added the highest number of new residents included San Diego (11,549); Denver (11,053); Henderson, Nev. (10,759); and Las Vegas (9,016). Columbus, Ohio (10,770), was the only city from the Midwest in the top 15.

Smaller markets also saw growth. According to the Census Bureau, 10 incorporated places exceeded the 50,000-person population mark in 2018, including Madison, Ala.; Maricopa, Ariz.; Bentonville, Ark.; Newark, Ohio; Stillwater, Okla.; Smyrna, Tenn.; Leander, Little Elm and Wylie, Texas; and Lacey, Wash.

Also, three cities crossed the 100,000-person population mark in 2018: Vacaville, Calif.; San Angelo, Texas; and Kenosha, Wis.

For c-stores, housing growth is also a big consideration because commutes from home to work often dictate where people stop for fuel and their morning coffee. Utah was the fastest-growing state in terms of housing units, with an increase of 2.2% from 2017 to 2018. Idaho had an increase of 1.9%, and Colorado and Texas had an increase of 1.6% each.

Knowing the Customer

For most c-store retailers looking for opportunities to build new stores, growing populations are a compelling lure. But Travis Heiser, president of IMST Corp., a c-store site analysis consultancy based in Houston, says his best, most successful clients understand who’s in the community and has devised a strategy to serve them.

“You want to attract them frequently and keep them coming back,” Heiser says. “These retailers can explain the demand.”

Options such as seating areas for customers with bikes, special services for military personnel in uniform or USB ports for college students to plug in their devices can all be strategies to create a destination store.

“Where I see developers reacting to competitive pressures, they’re looking to customize every location as much as possible,” Heiser says. “They’re very specific to the opportunity.”

With the idea that growth-minded retailers respond to definable pockets of demand, even markets that are not considered “hot” could be strong opportunities, Heiser says. Many older cities such as Chicago and St. Louis, while not showing the kinds of growth rates as Nashville or Austin, are seeing strong job markets and subsequent retail investment. In these “established communities,” the existing population base makes for a viable opportunity, he says. Many of the industry’s preeminent c-store chains—Wawa, Sheetz and QuikTrip, to name a few—are reexamining the walkup c-store in more densely populated urban centers.

“We see innovation in fuel stops, coffee shops and fast-food restaurants, so the reality is that many markets are hot,” Heiser says. “Maybe all that’s lacking is an innovative retailer.”

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