After 38 years in c-stores, I was surprised (and pleased) when my good friend Mitch Morrison invited me to author one more, preferably “bold” article on my industry views. To help me select a succinct thesis, I looked at John Roscoe’s “18th Annual (and final) Dollars Per Day Survey” published in 1988. Roscoe was, in my opinion and those of many other veterans, the original and boldest soothsayer of the industry, including accurately predicting the names of seven chains he saw as headed down the toilet—and saying as much on the cover of his last report.
After our industry’s banner profits in 2014, I’m reluctant to be negative about our short-term profitability. However, I feel compelled to surface a few fiscal dynamics that I worry are not adequately on retailers’ strategic radar screens. Consider:
Monitoring “real” volume growth. I wish industry trade associations and the press would outlaw talking about fuel sales in dollar terms. We’d be better served in measuring true growth if they universally embraced the metric that I believe David Nelson may have coined: total inside sales plus total gallons sold. Taking inflation and excise taxes out of cyclical commodities such as fuel allows you to measure volume/performance more consistently.
Productivity and performance metrics. CSX and Study Groups helped educate retailers on meaningful “productivity” measurements as related to the performance of employees, facilities, capital and operations. Enthusiastic followers embraced new and credible guideposts such as top performers’ results in terms of per-store volume, margin and profit dollars and return on invested capital. NACS adopted these top-quartile comparisons and similar benchmarks in its State of the Industry reports. I am confident such analyses have helped retailers more definitively monitor their companies’ distinguishing fiscal and operational attributes.
People and Costs
Identify your ongoing labor costs. Does anyone question how important controlling store labor and related benefits costs will be in the next few years, in terms of reasonably forecasting per store profitability? Have we ever witnessed such a chaotic, often politically driven environment that threatens virtually every employer’s potential to recruit and/or retain motivated and productive employees? There are so many current unknowns and virtual moving targets that your CFO must analyze each new change.
What’s your annual per-store profitability effect of these labor-related regulations:
- Overtime for salaried employees. President Obama’s recently announced proposed regulations would expand overtime pay to salaried employees making less than $50,400, more than double the level currently exempt from overtime.
- “Guestimating” the $15-minimum-wage push. What started in Seattle doesn’t seem to be staying west. Just recently, New York’s Fast-Food Wage Board recommended that quick-service-restaurant workers (which would include c-stores) increase their minimum wage to $15 over the next few years. The New York Association of Convenience Stores is appealing, and I wish them luck. I realize many chains are paying higher than minimum wage, but have you calculated the ripple effect of an increasing starting wage coming to your area?
- Living with the Affordable Care Act. One politician famously said, “We’ll have to pass the bill to find out what’s in it.” Can someone produce a definitive guideline that our industry can rely on to predict our employers’ and employees’ (shared) cost of those electing Obamacare and/or alternative health care and/or related penalties? I’d gladly evaluate funding such a “tool” if one exists, because I fear being sideswiped by unknown new costs from the ACA.
- Managing more employees per store. One dynamic I heard fromNACS’ preliminary 2014 State of the Industry comments was that the average number of employees per store increased about 19% last year. I believe this was attributed to an increase in part-time equivalents. I’d like to see someone’s estimate of the increased administrative and store-management costs of training, scheduling and supervising 19% more employees to perform the same hours of work pre-ACA. (P.S.: Watch your turnover and sales/hour metrics after these changes.)
Phew! When you digest these issues, do they make clearer why almost all major oil companies have abandoned retail operations in favor of long-term (non-personnel-related) fuel contracts? Might you also conclude that it’s more than coincidence that ESOP-based c-store chains are often “best in class” operationally and profit-wise?
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