Our exclusive, annual CSP Outlook Survey, which gauges how c-store operators see the past year and anticipate the year ahead, this year received the most positive responses of its 11-year history.
Gas prices averaging almost $1 a gallon less than last year injected the adrenaline, but clearly the business model of fuel, corner locations, small formats and retailers’ growing commitment to foodservice dovetailed with a number of complementary trends, including shrinking households, shifts to urban centers and an improving economy.
“[This year] was fantastic,” says Kyle McKeen, president and CEO of Alon Brands, Dallas. “The fall in crude prices translated to lower fuel prices and more money in customers’ pockets. We couldn’t have asked for a better year.”
Indicators for a strong 2015 first emerged in fall 2014, when stagnant fuel demand and a boom in domestic production sent crude prices tumbling. Market factors cascaded down to the street, where, despite initial volatility, retailers were rewarded with record windfalls—a 46% jump in profits overall. (Previous fluctuations were in the single digits, according to NACS.) Even if the industry fails to sustain last year’s trajectory into 2015, the past three years have clearly shown signs of greater profitability.
In addition to revealing an overall appreciation for current market conditions, the survey sheds light on what led to this year’s success, from the introduction of fresh foods to evolving tobacco and beverage strategies.
How do you anticipate your 2015 sales will compare to 2014?
| Much higher | 20.7% |
| Somewhat higher | 62.2% |
| The same | 13.4% |
| Somewhat lower | 3.7% |
| Much lower | 0.0% |
Upward Trajectory
Can today’s good fortune continue? Demographic trends ranging from millennials coming of age to the rising number of single-person households have aligned with a channel-blurring trend in meal occasions and continuing low gasoline prices, brightening horizons for the coming year.
In 2014, the GDP was 2.4%. While not the highs of 2010 at 2.5%, gross domestic product has been steadily increasing and is expected to hit 2.5% in 2015, according to the U.S. Department of Commerce.
A Strong Format
The c-store formula appears to be winning in a stagnant economy populated with time-starved consumers.
$10.4 billion: A record 46% jump in c-store pretax profits in 2014. The years 2012 and 2013 saw 2.8% growth and 1.4% decline, in 2013, respectively, even though they still were strong years for the channel.
1%: C-store population growth in 2014 to 152,794 stores. It’s essentially the same number of stores, but the channel took in more profit.
Smaller-Footprint Trend
Building smaller formats has been a larger retail trend for the past few years, according to data-analytics firm Buxton Co., Ft. Worth, Texas, even while newly built c-stores are getting larger by historic standards. The top reasons for smaller formats:
- Reduced overhead and occupancy costs.
- Convenience is a priority for consumers in urban centers.
- Ability to reach shoppers in previously unrealistic locations.
Source: NACS
Falling Gas Prices
A dramatic drop in crude prices in late 2014 sent retail prices tumbling, and they held below $2.50 a gallon for much of 2015—even under $2 in many markets. The result for 40% of Outlook Survey respondents was increased store traffic and sales.
40%: Decline in average gasoline retail prices from 2014 to 2015, according to the Energy Information Administration (EIA)
How have lower gasoline prices seen in 2015 affected your business?
| Increased in-store traffic and sales | 40.0% |
| Increased fuel volume | 27.3% |
| No impact | 16.6% |
| Increased competition on street postings | 13.7% |
| Other | 2.4% |
| Our business has not experienced lower gasoline prices this year | 0.0% |
Source: CSP Outlook Survey 2015
Food Influencers
Three of the country’s largest demographics are shaping food-purchasing patterns, according to Port Washington, N.Y.-based NPD Group.
- Millennials like fresh, less processed foods and shop the perimeter of grocery stores for fresh and nonpackaged food. By 2015, the number of millennials is projected to surpass that of baby boomers.
- While a shrinking population, baby boomers remain a considerable force. They are looking for foods that sustain health, including whole grains, protein and calcium, as well as foods low in saturated fat, sodium and cholesterol.
- Hispanics appreciate fresh, home-cooked food, with 65% being millennial age or younger.
Top foods for the c-store channel:
>50%: Percent of eating and beverage occasions occurring alone, according to NPD
6: How many more food visits occurred at retail outlets vs. quick-service restaurants (QSRs) from March 2015 to June 2015, according to NPD
27%: Percent of households with just one person—the highest level in U.S. history, according to the U.S. Census Bureau
Table of Contents
Foodservice: Fresh Changes
Foodservice: Multiple Directions
Fuel: A Fruitful Year for the Forecourt
Tobacco: Retailers to Shuffle the Mix
Packaged Beverages: Shuffling the Drink Deck
Challenges to Prepare For
Foodservice: Fresh Changes
If it isn’t broken, don’t fix it. Most retailers responding to the Outlook Survey believe they have a model that works, with more than 60% saying they are not planning any changes to their businesses in 2016.
That’s not the case with everyone, however. Kevin Smartt, CEO of Kwik Chek Food Stores Inc., Austin, Texas, is developing a loyalty program at his stores: “We’re sourcing a lot of opportunities for consumer interaction outside the store in terms of marketing platforms that have not typically been available to us.”
In terms of in-store sales, an emerging potential comes with foodservice, and fresh foods in particular. Lisa Dell’Alba, president and CEO of Square One Markets, Bethlehem, Pa., says the company recently launched a family meal-kit program that’s showing promise. “It’s about having dinner on the table in 30 minutes or less,” she says. “It’s all healthy, fresh food—something our employees have really embraced and [supported].”
Statistically, c-store shoppers are consuming healthier foods, such as vegetables, fruits and healthy snacks, than they were a year ago, according to a recently released study from the Hudson Institute, Washington, D.C. The study shows 75% of c-store customers say they are eating healthier than they used to, with the amount of shoppers interested in healthy, on-the-go foods having increased from 59% to 66% in the past seven years. The report says that healthier snacking “has become the norm.”
Foodservice: Multiple Directions
Though adding a layer of operational complexity, made-to-order items are another emerging opportunity and source of retailer optimism.
Larger foodservice trends point to a desire for customization. Sixty-five percent of consumers in Technomic’s latest c-store foodservice study suggested they are more likely to purchase food at c-stores “if there are made-to-order stations where I can customize items.”
Made-to-order food is particularly appealing for specialty drinks and both burgers and sandwiches, according to Chicago-based Technomic.
With firsthand knowledge, Brad Call, executive vice president of Maverik Inc., North Salt Lake, Utah, says the company’s new “built to order” Bonfire Grill has proven successful. “Our focus for 2015 was obviously core elements of our business, but our built-to-order foodservice topped the list,” he says.
For many retailers, made-to-order food may present both a promise and wishful thinking—most Outlook Survey respondents have not taken advantage of the opportunity. Made-to-order food represents only 9.3% of respondents, self-serve is at 22.0% and made on site (made at the store but not customized for each customer) comes in at 14.7%.
Fuel: A Fruitful Year for the Forecourt
Lower fuel prices at the pump yielded stronger margins and volumes, according to Outlook Survey respondents. While retailers did not expect an exponential jump going into 2016, most did predict either the same levels of both traffic and revenue or slightly higher.
Tobacco: Retailers to Shuffle Tobacco Mix
Retailers responding to this year’s Outlook Survey appear ready for tobacco resets, with a third planning to grow some product segments while shrinking others. To that extent, vaping products seem to have an edge. E-cigarettes face an uncertain future, with almost as many respondents planning to shrink the segment as are planning to grow it.
Packaged Beverages: Shuffling the Drink Deck
A large segment of retailers in the survey see potential improvements for their cooler sets, with more than 43% saying they intend to switch out different products in the coming year.
Energy drinks, beer and wine seem to be the categories that rise above other packaged beverages among Outlook Survey participants.
2016 Forecast & Challenges: Cautious Optimism
Reliant on a capricious public, retailers have expressed caution looking into 2016, despite the past two years of profitability.
While a slight majority (54.9%) expect some improvement in their businesses for 2016, their overt caution is consistent with previous years, mostly due to market uncertainties. The Affordable Care Act, credit-card fees and regulatory pressures continue to top the survey’s list of ongoing concerns.
Jim Fiene, president of Midwest Retail Group, Milwaukee, says rising administrative, labor and insurance costs are forcing higher prices in the store and at the pump. “We have to operate in a political and human-resource world,” Fiene says. “Consumers are understanding the discount driver [is fading and] they’ll have to pay more.”
What do you expect to happen to business conditions next year?
| Some improvement | 54.9% |
| Remain the same | 35.3% |
| Great improvement | 6.1% |
| Decline | 3.7% |
| Somewhat decline | 0.0% |
| Greatly decline | 0.0% |
What are the top three biggest business challenges you face today?
| Credit-card fees | 17.4% |
| Affordable Care Act (Obamacare) implementation | 13.4% |
| Regulatory pressures | 11.2% |
| Employee turnover | 10.7% |
| Increased competition—c-stores | 9.8% |
| Increased competition—nontraditional (food, drug, mass, dollar) | 9.4% |
| Volatility/reduced margins on fuel | 8.5% |
| Minimum-wage increases | 6.7% |
| Continued economic weakness | 5.4% |
| Availability of capital | 3.1% |
| Declining fuel demand | 2.7% |
| Other | 1.7% |
Among the competitive channels, which are the biggest threats to the c-store channel?
| Dollar stores | 24.7% |
| Grocery and supermarkets | 18.4% |
| Club stores (e.g., Costco, Sam's Club) | 16.7% |
| Drug stores | 15.5% |
| Mass merchandisers (e.g., Target, Walmart) | 12.6% |
| Restaurants | 8.1% |
| Other | 4.0% |
If you plan to make changes in 2016, what changes will you make?
| Remodel/refresh stores | 25.0% |
| Add or expand profit centers | 19.8% |
| Increase emphasis on inside sales | 19.8% |
| Grow by building new sites | 14.6% |
| Grow by acquisition | 8.3% |
| Small, strategic selloffs of stores | 4.2% |
| Introduce new fuel brand | 2.1% |
| Sell off major chunks or entire business | 2.1% |
| Introduce new store brand | 1.0% |
| Other | 3.1% |
About the Outlook Survey
After emailing the Outlook Survey to its readership list in October 2015, CSP received responses representing an estimated 10,000 stores. Comparing survey results year to year is not scientifically valid because respondents are not the same, but each stand-alone year appears to reflect larger market conditions.
Here’s the chain breakdown of survey respondents:
| 1-20 stores | 45.1% |
| 21-50 stores | 22.0% |
| 51-200 stores | 14.6% |
| 201-500 stores | 8.5% |
| 501 or more stores | 9.8% |
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