SOI Summit Reveals Trends, Numbers

David Bennett
April 2, 2014
CSD Staff
Foodservice remains critical to convenience stores’ bottom line as the business structure changes to respond to consumer trends.
With the 2014 NACS State of the Industry (SOI) Summit now underway at the Intercontinental Hotel in Rosemont, Ill., hundreds of c-store retailers and suppliers are taking an opportunity to review up close various economic trends and figures that provide a snapshot of how the industry is doing, and where it’s headed.
After Brad Call, vice president of adventure culture for Maverick Inc. and chairman of the NACS Board of Directors, kicked off the program Wednesday, April 2, presenters delivered what c-store attendees had come to hear. Data gathered from retailers nationwide indicated the challenges that companies faced in 2013, as well as future issues.
According to guest speaker and economist David Nelson, Ph.D., professor of economics at Western Washington University and founder and president of Finance & Resource Management Consultants Inc., said business populations are watching closely to what degree the Federal Reserve will tighten U.S fiscal policies.
Sill there are other major trends that should concern c-store companies, Nelson said, including healthcare costs that require employees to pay a higher percentage, rising food costs, and a stubborn U.S. unemployment rate.
While the unemployment rate has fallen from a peak of 10% in October 2009 to 6.7% in February, by many measures the job market remains weak. The job market would need to see an unemployment rate between 5.2% and 5.6% that would be “consistent with maximum sustainable employment,” Nelson said.
There is still a lot of slack in the labor market still,” Nelson said.
There are signs of an improved economy that bodes well for the c-store industry, including more housing—and the foot traffic of construction works. However, Nelson warned summit attendees of major changes to the country’s culture that will affect the way c-store perform in the market. Those changes include a changing U.S. population that is growing more slowly, is more diverse, and continues to get older.
On the other hand, the number of younger Americans is growing—a faction that is driving less, communicating through smart devices, and whose product choices vary from their parents. Besides quick adaptation in technology, Nelson also described how c-stores must ponder and respond to the country’s robust regulatory climate that fuel tobacco and alcohol sales, in addition to proposals to boost the country’s minimum wage to $10.10 per hour and paying more full-time employees overtime.
Perhaps the most significant challenge for c-store operators, said Glenn Plumby, vice president of operations at Speedway LLC of Summit, Ill., is not only expanding margins, but profitability in the face of increasing competitor and economic challenges. Plumby showed tables depicting positive sales and gross profits overall, except for cigarettes, which fell 5.7% when measuring gross profits per store, per month.
Because cigarette sales continue to decline, Gumby said the best category to replace that lost revenue is foodservice, which increased a modest 2.4 % to 2013 from 2012. That increase was at least six percentage points lower however, compared to the period of 2012 and 2011. Still, foodservice gross profit sales have grown faster than cigarettes in three of the last four years.
In other news for 2013, inside sales increased 2.4% to $204 billion—the first year metrics showed the $200 billion barrier broken. Also, fuel sales decreased 1.9% to $491.5 billion in 2013, from $501 billion in 2012.
Contradictory to some of the positive data from some categories, information of core direct store operating expenses and facility expense jumped 5.1%, something that Gumby warned should send up a red flag. For the first time, the NACS data was broken down by region, with the Western, which includes Arizona, California and Idaho outperformed five other U.S. regions in different sales categories.
By The Numbers
Kevin Smartt, CEO of Bonham, Texas based-Kwik Chek Food Stores Inc., told attendees while foodservice remains a critical part to the industry’s changing business structure, c-store operators must stay apprised of trends and customer preferences, especially when it comes to customization and healthy food options. Overall, foodservice sales contribution equaled 18% of total 2013 sales, and the margin contribution was 29%.
Top and second quartile chains, compared to last year, dropped in cigarette sales, while the third and fourth quartiles grew cigarette sales.
In other categories, the distance between top and bottom quartiles are growing. In the packaged beverage category, for example, there was a 2.3-times difference in store operating profits between top and bottom quartile. In all foodservice categories the top also continues to distance themselves, especially in hot dispensed, which showed a 7.3-times difference in store operating profits between top and bottom.
Snacks continue to be a bright spot at c-stores, with a center sales contribution of 9.9%, and a margin contribution of 12.4%. Morning snacking remains underdeveloped, even as 17% of snacking occurs in early morning. Customers have less time to prepare traditional meals, are more mobile and calorie conscious, all of which are driving snacking.
Meanwhile in the tobacco category, the U.S. adult smoking rate has dropped to 18%. Since 2001 the average state tax on a pack of cigarettes has skyrocketed from from 43 cents to $1.45 per pack. As CVS leaves cigarettes, some $2 billion in tobacco sales up for grabs. Moist smokeless and spitless tobacco are driving OTP growth. E-cigs are estimated at $700 MM, but we’re seeing a shift to vapors/tanks. All the while possible regulations loom over the category.
The U.S. Median Age is the highest it has ever been in census due to aging boomers and increased life expectantly, but Millennials are 27% of the population and make up 39.5% of the c-store shopper base. Savvy c-stores are keeping an eye on the demands of this generation.