Mild winter, hot summer: Typically a formula for sizzling business at the fountain and coolers, but for John West, sometimes it’s too hot.
“When it’s too hot, people don’t come out,” he says.
But West, vice president of marketing for Odessa, Texas-based Alon Brands Retail, says the first half of 2012 proved productive, not just for the staples, but also for untapped areas such as general merchandise. For example, the chain has enjoyed several weeks of successfully testing unique, value-priced toys. (See p. 74.)
“The landscape changes,” West says. “Now dollar stores seem to be trying to get our business, so we’re trying to get after theirs.”
Business at the company’s 300 locations is up 4% overall through midyear, and general merchandise is up 23%. It’s the kind of innovation that’s necessary when, according to an exclusive midyear report compiled by CSP, many core categories are essentially flat.
That’s not to say there’s no good news. “Retailers are going back to the basics,” says Matt McCourt, director of convenience and spirits for Chicago-based SymphonyIRI. “Retailers and suppliers are creating synergies so there’s promotional dollars. That’s what’s driving growth in dollar sales.”
Standing out to date are beer at 9% growth since the beginning of the year (through June 10, according to SymphonyIRI), smokeless tobacco at 8% and energy drinks at a stellar 20%. The percentages get more significant when considering all three categories rake in a good portion of c-store revenue.
A category such as beer, for example, is up 9% on sales of $7.3 billion, translating into a $600 million increase. A loss of 22% in cough syrup, a category that takes in only $2.7 million in this time period, means losing out on $600,000. Not a trifle, but paling in comparison to the gains from beer.
“Tobacco is a big category … where a couple of percentage points makes a big difference,” says Tom Robinson, president of Robinson Oil Co., Santa Clara, Calif. “So far, it’s not been stellar.”
Some of the surprise performers include the wine category, not only showing double-digit increases, but also accounting for a formidable percentage of overall sales. Other tobacco products (OTP) is also stepping up, as are energy shots.
What’s most important is the increasing flow of information, according to retailers such as West, who has uncovered new revenue streams by increasing up audit frequency in several categories. For this second annual, exclusive Midyear Category Data Report, we have once again worked with data specialists SymphonyIRI Group, which pulls information from about 16,000 sample c-stores in the United States. The company points out that for its data, branded statistics refer to individual SKUs vs. a brand grouping.
We’ve also worked with the industry’s largest wholesaler, Temple, Texas-based McLane Co., whose numbers are based on units purchased, which reflects sell units or cartons. The company combines c-store and travel-business numbers, totaling 20,965 locations, with the “carton pull” counts going from Jan. 1 to June 30, 2012. The numbers are net of returns.
The report from our third data partner, Chicago-based Technomic Inc., comes from its study “Outlook and Opportunities in C-Store Foodservice,” issued in February 2012.
As a refresher of CSP’s Category Management Handbook, this update offers retailers sales highlights for the industry’s major categories, at a time when a few tweaks in store sets may tip the scales for 2012.
Promotions Tied to Improved Dollar Sales
Parallel to the idea that retailers are “going back to their roots” and milking core categories to increase both dollar and unit sales is the tie to a bump up in promotional dollars.
A review of SymphonyIRI numbers going back 52 weeks from July 15, 2012, reveals an undeniable link between increased supplier promotional support and improvement in dollar sales, according to McCourt of SymphonyIRI.
While not all categories saw this kind of activity, categories such as sports drinks, energy drinks, salty snacks and chocolate saw significant increases in promotional-dollar support, resulting in significant increases in dollar sales.
“Suppliers and retailers are getting a bang for their buck,” McCourt says. “There’s obviously some synergy going on where people have figured out the promotional opportunity that will drive business.”
On the other end of the spectrum, promotional dollars for cigarettes have dropped dramatically by 25%, leaving retailers coping with a 0.1% decrease in dollar sales over the 52-week period.
McCourt also believes promotions keep many tried-and-true subcategories and brands among the industry’s top sellers.
Beverages Insight
Arguably, the cold vault of the convenience-store industry was built on the back of three beverage categories: milk, carbonated soft drinks (CSDs) and beer. Today, that core is in a remarkable state of flux.
During the first half of 2012, milk volume sales in convenience stores shrank 5%; CSDs, following on a couple of slow years, have seen a welcome 3% increase; and beer, well, thank goodness for beer. It’s growing at 5% in volume even as price increases boost sales dollars over the 9% mark, according to year-to-date Convenience AllScan data from SymphonyIRI Group through June 10, 2012.
Based on those basics, it’d be easy to assume the beverage category was pretty flat for the first half of the year. Look closer, and a wonderland of consumer curiosity comes into focus: Six of the top 10 beverage subcategories—energy drinks, bottled water, sports drinks, ready-to-drink teas and coffees, juices and juice drinks, and high-ticket wine—actually saw double-digit growth.
“This year, energy and sports drinks are driving growth [in my stores], which I think is what the industry is seeing as a whole,” says Mike Adams, senior category manager for BP/ ampm stores, La Palma, Calif. “It’s mostly on the noncarbonated side vs. CSD that we’re seeing growth. Not that CSD is negative; but if you look at the overall growth rate, it’s a lot higher on the noncarb side.”
Certainly, weather has a lot to do with it: A mild winter and hot spring/summer is just the ticket to draw customers into the store from the gas pump or just for a refreshing treat, retailers say.
Also helping are more consistent messages put out by retailers to let customers know there’s value—“not the hottest price on the street, but a good price”—to be had inside the stores.
General Merchandise Insight
What started out as tinkering has turned into what could be an all-out assault on dollar stores.
In an effort to head off a channel bent on selling more convenience goods, West of Alon Brands Retail looked into toys that could be priced at $1.79 alone or bundled.
“It’s starting to generate excitement about new dollars,” says West, emphasizing that picking the right items is critical. “We’ve had tried-and-true novelties with plush toys and bracelets, but we wanted something different.”
The renewed interest in dollar items has led the chain to a 23% increase in general-merchandise sales so far this year. Already, West and his team have created five formats for their value-priced sections. One being installed this summer is 20 feet long. A significant rollout in El Paso, Texas, this summer is generating a lot of internal buzz.
“So we’re looking at putting a value program in as many stores as we can,” West says. “Low-cost, low-retail [priced] health and beauty works. Our initial startups have been very good.”
Beyond rediscovering once-stagnant categories, West is interested in diving more into what’s hot today. “We neglected energy shots,” West admits, even though SymphonyIRI data shows the category on a continual climb. “We neglected it, took it for granted. We forgot there are other types of products, the calming [products], hangover relief. … We’re now taking a look at that.”
Foodservice Insight
Murphy Oil USA saw foodservice sales grow 3% to 4% in the first half of 2012. It’s a bit less than the chain of more than 1,100 convenience stores would have liked, but it’s ahead of the c-store industry as a whole and double that of foodservice-industry growth in general.
“Growth in c-store foodservice has outpaced overall industry sales since 2008,” according to the Technomic Inc. report “Outlook and Opportunities in C-Store Foodservice” issued in February. “The segment experienced nominal sales growth of 2.8% over the past four years, compared to just 1.5% for the entire foodservice industry.”
For El Dorado, Ark.-based Murphy Oil, dispensed beverages kept Ben Lucky, category manager for foodservice and dispensed beverages, guessing for much of the first half of 2012.
“Beverages are running about flat, maybe up or down 1%, depending on which market it is,” he says. “As temperatures now are coming up and staying up, I’m actually seeing a 7% week-to-week jump that puts the subcategory back where we should be [compared to] the same time last year.”
Not that cooler weather doesn’t have its perks. “The corollary is that my coffee sales were actually up,” Lucky says. “So early on [the weather] was friendly to coffee and not friendly to fountain, and then vice-versa.”
On the food side, Lucky found good fortune with prepared sandwiches and prepared heat-and-eat items, two areas that Technomic predicts will grow over the next couple of years.
“Projected foodservice category growth in convenience stores through 2014 is expected to exceed the previous four-year period, driven by soups and salads, fully cooked meats, frozen dispensed beverages and pizza,” according to the Technomic report. “Of the major foodservice categories, only cold dispensed beverages are expected to grow less.”
Meanwhile, consumer acceptance of foodservice in c-stores continues to be a struggle.
“While c-stores have made inroads into foodservice, the underlying challenge remains driving traffic to them and away from other foodservice options,” according to the report.
One-third of 1,000 consumers surveyed by Technomic said they visit a c-store for foodservice two or three times a week.
Tobacco Insight
John Strickland Jr. is not upset about holding steady with his cigarette volumes and margins, especially having seen a couple of price increases in recent months.
“Sales dollars have been flat year over year,” says Strickland, a 14-store retailer based in Goldsboro, N.C. “But we’ve not suffered a loss of gross-profit margin.”
The malaise with cigarettes appears indicative of his marketing area. “Gas [prices have] come down, but we have not seen a positive impact,” Strickland says. “In our neck of the woods, customers are out of money.”
Yet even the cash-strapped hold onto the staples, which according to Strickland are cigarettes and alcohol. Data from SymphonyIRI shows a 1% increase in cigarette dollar sales year to date ending June 10, 2012. That’s an increase on $24.4 billion in U.S. c-store sales. Unit sales saw less of a lift of 0.25% on more 4 billion units.
The hero in terms of percentage growth continues to be OTP. Smokeless tobacco surged 8% on $2.2 billion in dollar sales. For Strickland, moist tobacco continues to grow in sales at his locations. He sees potential in multi-can promotions and specials.
Other new products in the category “have yet to turn a whole lot of dirt for us,” he says. “Do they have a place for us in our market? No question. We may ratchet down a few SKUs, but we’re going to keep [these new categories].”
Snacks Insight
Similar to last year’s Midyear Category Data Report, the growing popularity of foodservice appears to be buoying snack sales, with multiple subcategories achieving double-digit growth. The three subcategories with the largest dollar sales—potato chips, tortilla/tostada chips and other salted snacks (no nuts)—all showed increases ranging from 12% to 14%.
For Strickland of Wayne Oil, what he calls his “grocery” section, which includes packaged snacks and chips, are “holding up very well.” He and his team recently reviewed that category and decided they could improve. They did what he called a “radical” makeover in terms of SKU mix and pricing, while still managing to maintain margins. The effort helped, with Strickland describing the category as a “bright spot” for 2012.
McCourt of SymphonyIRI says retailers such as Strickland have “gone back to their roots” by tweaking core categories.
Candy Insight
The candy category has been difficult for retailer West of Alon. He says the price of raw ingredients has been pushing prices up, with his response being to price lower to eliminate the differential between the c-store and competing channels. But to zig after a zag, West has been pushing volume by doing two-for-three promotions in king-sized products. “Business is picking up,” he says.
A revelation that he had this year was with seasonal displays and candy. Recent Halloweens have shown lackluster performance in candy; however, this past Easter, he and his team saw a 90% sell-through of items.
Because of their potential, he says the snacks and candy sets are now coming under more frequent review, potentially going from once a year to once every other month.
McCourt of SymphonyIRI cites the tie to promotional dollars. Chocolate dollar sales are up 8.7% over the 52 weeks ending July 15, 2012. Promotional dollars for the category were up 16.2% over the same time period.
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