14 Trends for 2014

Our editors’ picks will help you navigate the new year with success

On the cover of every issue of Convenience Store News is our tagline, “Keeping the Industry Ahead of What’s Next.” In that spirit, our editors have brainstormed what we believe are the 14 key trends that will define and shape the convenience store industry in 2014.

Some are trends that will bring new challenges to the industry, such as the decrease in mobility that is happening as technology makes it easier for people to shop and connect without ever leaving their house; or the movement to raise the tobacco purchasing age to 21, which will put great strain on a category already limping under immense pressure.

Some are trends that will bring new opportunities to the industry, such as the influx of mobile consumers who are driving adoption of mobile apps, mobile payments and more. The way Americans are consuming food and beverages now — constantly grazing and constantly on the go — also means more occasions for c-stores to capture their business with the right offering.

Still other trends are a sign of how far this industry has come. For instance, c-stores are gaining serious credibility not only with consumers, but also in the retail industry where they are being viewed as a major threat by competitors — and as a result, are being imitated and borrowed from. Likewise, the convenience store industry could soon be known as the convenience restaurant industry as more operators deliver foodservice items rivaling the best quick-service and fast-casual restaurants.

What all 14 of these trends have in common, though, is that they illustrate the growing number of moving parts convenience retailers must juggle in order to be successful today, tomorrow and in the year ahead. Staying ahead is a requirement for staying in business.

Above all else, the most important thing to remember about trends is that it’s always better to be making them rather than chasing them. If you’re not doing something today to address each of these trends — or better yet invent new ones — what are you waiting for?

1 Driving in Decline

Motor fuel volume sold in the United States has been flat or declined each year since 2007. Retailers that depend on generating profits from fuel sales are basically playing a market-share game on a commodity with high price volatility and one where consumers are fixated on shopping by price.

It’s a situation that’s not likely to change anytime soon. As America’s auto fleet becomes more fuel efficient (driven by government-mandated corporate average fuel economy standards) and a stagnated economy, miles driven are very likely to decline again this year.

Other factors are also contributing to the decline in driving in America. The recent trend of people moving back into cities and urban areas has shortened driving distances for many Americans. Another long-term trend that is impacting driving habits is the very different relationship younger Americans have with the automobile. According to some experts, Millennials today just don’t view their cars with the same fervor as Baby Boomers did in the 1970s and ‘80s.

The greater use of alternative fuels (some government mandated, some market driven) will cut into the sale of traditional petroleum fuels. Higher blends of ethanol, biodiesel and compressed natural gas, and even electric vehicle chargers, are likely to gain greater use in 2014.

C-store retailers need to understand that fuel volume (which, on average, represents more than 70 percent of their revenues) will be flat or decline in the years ahead.

2 The C-store Image Tipping Point

Industry experts have known for years that a convenience store isn’t just a convenience store — it can be a dinner destination, a place to go for all the basic essentials or simply a favored neighborhood market to be considered alongside many other types of retail locations. More and more, average consumers have come to realize the same thing and the c-store industry at large is on the cusp of being commonly viewed as far more than just a place to pick up gasoline and a greasy snack.

C-store chains are increasingly holding themselves to higher expectations and making this known to customers. Wawa Inc., for instance, made its first redesign since the 1990s a key component of its entrance into the Florida market, winning the 2013 CSNews Retailer Innovator of the Year award in the process, while Alon Brands Inc. highlighted its focus on cleanliness by giving itself the white-glove test through its yearlong Clean 13 campaign. Food is also a focus, with chains like Rutter’s Farm Stores testing a high-end coffee bar program and Nice N Easy Grocery Shoppes Inc. adding mini grocery stores.

And consumers are taking notice. “There are c-stores where you know it’s a gas station and c-stores [where] you can’t tell it’s a gas station,” said one participant in a Convenience Store News 2013 Foodservice Summit consumer focus group.

As this trend gains momentum, 2014 is likely to see a tipping point in how consumers view the industry. They won’t just look and see a c-store — rather, they’ll look and ask what kind of c-store it is.

3 The Living Wage Movement

One of the goals of labor unions and their advocates today is to reverse the 30-year decline in membership by organizing the service sector of the economy. “However, the union model doesn’t work at the current wage and benefit rate of the service industry,” said Joe Kefauver, CSNews’ government affairs columnist and a consultant to major retail trade associations, including NACS, the Association for Convenience & Fuel Retailing. “It’s no coincidence that their living wage campaign focuses on raising the minimum wage to $15 per hour.” By artificially inflating wages in the service sector, including foodservice and retail establishments, the business model becomes more attractive for unionization.

Unions are attacking the service industry on two fronts. Firstly, through a variety of union-backed organizations like worker centers “Fight for 15” and “Our Walmart,” these groups are pushing a menu of legislative and regulatory initiatives that include raising the national minimum wage, increased sick leave and other similar measures that require legislative or ballot approval.

Secondly, through the back door, these groups are mounting an intensive public relations campaign that is currently aimed at big companies such as McDonald’s and Walmart. “If they can put enough pressure on those companies, they’re hoping they will unilaterally raise their wage model,” said Kefauver. If those big companies do that, so will others.

With today’s gridlock in the federal government, retailers in 2014 should expect to see a number of so-called “living wage” ordinances debated and voted on at the state and local levels. It’s important to note that these local campaigns are part of a broader, nationally organized and locally executed movement.

“Every local fight is a national fight,” Kefauver pointed out.

4 New Hotspots for Growth

Organic growth and acquisition activity by the convenience industry’s largest players is poised to take off in 2014. Circle K parent Alimentation Couche-Tard Inc., Corner Store operator CST Brands Inc., MAPCO parent Delek U.S. Holdings Inc., Stripes operator Susser Holdings Corp. and Speedway parent Marathon Petroleum Corp. are just a few of the c-store chains that have hinted at big growth plans in the year ahead.

With all these retailers and others clamoring to aggressively expand — and only so much space to go around — new markets are emerging as hotspots for convenience store growth. Chief among them: Arkansas, Florida (specifically Volusia County), North Carolina and Tennessee.

In Arkansas, Casey’s General Stores Inc., MAPCO and Kum & Go LC are among those mining the state for expansion opportunities. MAPCO, for instance, has reported that Arkansas is a key target for its ramp-up of new large-format convenience stores, dubbed “mega stores.”

In Florida, 7-Eleven Inc., RaceTrac Petroleum Inc., Thorntons Inc. and Wawa Inc., are all looking to make a splash in the Sunshine State. Wawa, for one, has a goal of opening between 20 and 25 ground-up stores per year in the central Florida region.

Meanwhile in North Carolina, Sheetz Inc. and QuikTrip Corp. have been busy building new stores over the last few years and aren’t nearly done yet. In fact, Sheetz recently broke ground on a second distribution center in Burlington, N.C., to support its growth in the state.

Finally in Tennessee, Casey’s and Speedway are gearing up to make a presence. Key markets for Speedway, which just recently entered the state, are Nashville, Knoxville and Chattanooga.

5 The Upscaling of C-stores

As convenience retailers elevate their product mix, particularly in the areas of foodservice and health and wellness, the design of the store must be elevated as well to complete the transformation and gain consumers’ trust. Hence, the convenience store of 2014 will still deliver convenience, of course, but in a more modern, sophisticated and stylish way than ever seen before.

The upscaling of c-stores has gone beyond being just a trend. Instead, new prototypes that put foodservice first and use colors and materials more frequently seen in homes than in retail outlets are becoming the norm — at least for the top-performing convenience chains. And it’s no surprise that consumers are coming to expect their local c-store to meet this new standard.

Sam Hirbod, president and CEO of Pacific Convenience & Fuels LLC, summed it up best when discussing how his Pleasanton, Calif.-based chain is revamping its stores and taking on a brand-new name, My Goods Market, to create a more upscale image.

“We want to resonate with a larger demographic and not just make the stores appeal to one set of customers,” he said. “C-stores have often neglected the professionals and soccer moms, and I’ve said in the past [that] Starbucks is one of the most successful c-stores. While we were asleep, they took care of everyone we didn’t.”

6 It’s Obamacare Decision Time

Barring a second unexpected extension, one of the top headlines in 2014 is sure to be the second phase of the Patient Protection and Affordable Care Act (PPACA), otherwise known as Obamacare. The PPACA requires employers with more than 50 full-time workers (30 hours or more per week) to provide health benefits as of Jan. 1, 2015 or face a $2,000 penalty per full-time employee beyond the first 30.

Although it may seem that convenience store retailers have plenty of time to make their Obamacare decisions, the federal government will determine the number of employees at a given retailer by looking at the average number of employees for at least a six-month period in 2014, not simply the number of employees as of Dec. 31. Hence, c-store retailers need to make decisions on how they will approach Obamacare right away.

Mario Castillo, a labor and employment lawyer for Houston-based Monty & Ramirez LLP, told CSNews the first thing retailers should do is conduct an independent third-party study in an attempt to whittle down how many workers will seek coverage under the PPACA once 2015 rolls around. A human resources firm, consultant or law firm familiar with the c-store industry are among the third-party groups considered most qualified to conduct this survey.

C-store operators should expect Obamacare to be costly. Dennis Hatchell, CEO of The Pantry Inc. — operator of Kangaroo Express stores — recently stated that Obamacare will be a large expense for the retailer, but The Pantry will “do what’s right for [our] people.”

7 Alternative Fuels Come Into Focus

Alternative fuels are highly unlikely to steal away much market share from traditional petroleum in 2014, but a much clearer picture should be painted this year on which fuels are truly viable.

E15 is perhaps at the top of the list. Despite a concerted effort by the American Petroleum Institute and other groups such as AAA to disallow use of the controversial fuel, E15 — a blend of 15 percent ethanol and 85 percent gasoline — has thus far withstood every legal challenge since the Environmental Protection Agency approved the fuel blend for sale in 2001 or newer automobiles. As of last month, approximately 40 gas stations offered the fuel blend. 2014 could be the year that E15 pump installations either take off or collapse.

The future of compressed natural gas (CNG) is also at the forefront. CNG has several purported benefits, including its local abundance and cheaper price than gasoline. But as gas prices decline as CSNews’ 2014 Forecast Study predicts, will consumers continue to search for this alternative fuel? Will c-store operators decide the infrastructure costs are too high to add CNG pumps?

The alternative fuels landscape leaves plenty of questions unanswered. 2014 will bring answers.

8 The Mobile Consumer

The “mobile consumer” has become a two-fold term in the convenience store industry. On one hand, c-store shoppers have always been mobile and on the go. Now in the 21st century, most customers are mobile in the digital sense as well, able to connect to the Internet from virtually anywhere. The bottom line is that if c-stores aren’t already mobile, they better act fast to keep up with their customers.

Apps are a prime way for c-store chains to stay connected with mobile consumers, and 2014 is sure to see more widespread adoption of this marketing medium. Mobile apps can provide a wealth of information, including store locations, the latest on new products and promotions, and even coupons that can be downloaded directly onto shoppers’ mobile devices while they’re in the store.

According to the CSNews 2013 Technology Study, nearly 30 percent of the responding c-store retailers said they offer a mobile app. Top app features are a store locator, coupons and customer feedback.

Most recently, some c-store chains also have been incorporating mobile payment technology into their apps. The same study showed that just 2.1 percent of the responding c-store retailers were offering a mobile wallet payment option last year, but 32 percent planned to do so within the next one to three years.

9 The “Age” of Tobacco

Federal regulations dictate that retailers cannot sell cigarettes and smokeless tobacco products to anyone under 18 years old. In some areas, though, consumers will have to wait another three years to legally purchase a pack of cigarettes or a tin of moist snuff.

In mid-November, New York City Mayor Michael Bloomberg signed into law a bill that boosts the minimum age to purchase tobacco products to 21. It was not entirely surprising since Bloomberg’s three-term administration — which ended Dec. 31 — has often been described by critics as the “Nanny State.” However, what is somewhat surprising is that the push to up the tobacco purchasing age limit to 21 is reaching all corners of the country.

At the same time Bloomberg was putting pen to paper, members of the Board of Health in nearby Suffolk County, N.Y., were unanimously recommending the county legislature increase its legal sale age to 21. The county’s age is currently set at 19. County legislator William Spencer (D-Centerport) is expected to introduce a bill backing the move in January.

Hawaii County on the Island of Hawaii also joined the trend, becoming the only county in the state to raise the sale age to 21. The Hawaii County Council unanimously approved the measure. Once signed by Mayor Bill Kenoi, the bill will become law effective July 1.

The “21 Club” is sure to get more members in 2014. And as anyone old enough to remember when it was legal to drink alcohol at 18 will tell you, it could just be a matter of time before 21 becomes the rule for purchasing tobacco products and not the exception.

10 Energy Saturation

In today’s harried world, the simple fact remains: Consumers are still looking for a boost. But with so many energy products to choose from — drinks, shots, gum, supplements, etc. — it’s gotten to the point where customers may have too many options and sales are being cannibalized.

The rise and fall of energy shots is case in point. According to the latest CSNews Industry Report, per-store sales of energy shots declined 1 percent in 2012. This follows several years of impressive sales growth — 18.4 percent in 2011, 36.4 percent in 2010 and 92 percent in 2009.

Energy drinks, meanwhile, suffered during the economic recession but are now back to turning in steady numbers, albeit as a mature segment with its years of widely high double-digit growth in the past — unless manufacturers and retailers can tap into an entirely new user base.

And that may not be entirely out of the question. Long a subcategory favored by teenagers, young adults, and blue-collar and Hispanic males, Nielsen Homescan data released in August indicated that busy mothers and their households, categorized as “Young Bustling Families,” are now more likely to use energy drinks than the average U.S. household.

Over the next five years, energy drink maker Red Bull expects the segment’s growth to be driven primarily by five factors: baseline growth from core brands; consumers’ insatiable need for an energy boost and expansion of usage occasions; focus on category management; growth of the core demographic target, especially Hispanic shoppers; and category innovation.

11 Grazing

The days of three square meals are long gone as consumers eat what they want as they are hungry, rather than waiting for breakfast, lunch or dinnertime. A larger number of U.S. consumers are “grazing” — eating snacks or small portions multiple times a day when hunger strikes or simply when they have time.

Millennials, in particular, have adopted this habit and a recent survey showed that a majority of college students rely on snack foods in lieu of meals. As the lines between dayparts continue to blur, c-store retailers have more reason to experiment with their offerings, throwing out long-held practices.

The trend isn’t just limited to c-stores, either. Research from Technomic Inc. found that limited-service restaurants are offering more snack-size, handheld items and car-friendly packaging, while full-service restaurants have begun selling more pairings, trios and flights to cater to those who want to snack-and-share. But c-stores, which already cater to on-the-go customers, often 24 hours per day, are particularly well-positioned to be the destination of choice for customers who want just a little something.

Offering the right mix of ready-to-eat products is a key factor in capitalizing on the grazing trend. Smaller, portable versions of existing brands are a good way to go. In addition, better-for-you snacks are on the rise, while other top snacks include granola/energy bars, chips, fruit and baked goods.

12 Segmenting the Customer Segments

It’s been a long-held belief that a convenience store’s core customer is blue-collar and male. While that may still hold true, over the past few years, retailers have begun opening their eyes to a larger demographic profile. Proof can be found in CSNews’ recent cover stories, “The New ‘It’ Consumer” (February 2013) and “Wooing the Female Shopper” (March 2012).

Labels such as male vs. female, young vs. old, and white vs. ethnic no longer allow retailers to really understand and meet the needs of their customer base. Convenience retailing in 2014 requires taking a deeper dive into the customer pool by further segmenting the customer segments.

For example, while sports fans are often the target of in-store marketing campaigns during key events — think Super Bowl and the World Series — did you know that Nielsen research found that 43 percent of Hispanics feel loyalty toward sports sponsorships and 41 percent of this demographic are inclined to buy products offered by sponsors? These stats certainly make a case for turning the marketing focus to the Hispanic sports fan, rather than just the sports fan.

The retail industry should also look at each female consumer segment and Millennial consumer segment with a different lens. Notably, young moms are emerging as key consumers of energy drinks. Hispanic Millennials (aged 22 to 35), meanwhile, make up 65 percent of the adult Hispanic population in the United States and are significantly influencing the ethnic group’s overall eating attitudes and behaviors.

While it is not feasible for c-store operators to cater to every possible combination of consumer attributes, great opportunity lies in taking customer segmentation up to the next level.

13 Just the Tip of Tobacco Innovation

A few years ago, if you had asked a crowd of tobacco insiders and retailers if the electronic cigarettes category had legs, the answer would have been a resounding, “No.” Flash forward to 2014 and the question is not if it has legs, but how far these legs can take the category.

Without a doubt, e-cigarettes are the next big thing. But now is not the time to sit back and relax. With federal regulations still up in the air and high levels of trial but low levels of adoption, it is time to be looking further down the road for the next, next big thing.

The Big Three tobacco companies — The Altria Group Inc., Lorillard Inc. and Reynolds American Inc. (RAI) — ask themselves that question every day. Listen to their earnings calls each quarter and one key concept repeatedly stands out: innovation.

Innovation does not mean reinventing the wheel. It could just be taking an existing product and kicking it up a notch. For example, RAI’s R.J. Reynolds Vapor Co. describes its entry into the e-cigarette market, VUSE, as a digital vapor cigarette, mainly because it contains a microprocessor in the power unit and a smart chip in the cartridge. In addition, LOGIC Technology Development LLC has secured a patent for an e-cigarette puff counter that is expected to roll out this year.

Whether it is tweaks to products already on the market or a complete evolution of the nicotine replacement segment, the New Year will prove to be an exciting time for the back bar.

14 Coming Soon: The Convenience Restaurant Industry?

Improving foodservice is on the agenda of many convenience store chains as consumers increasingly turn to c-stores as a place to purchase a meal. This year will see more of these chains taking the extra step of not just changing the way they approach fresh food and beverages, but changing their overall retail approach to be all about the foodservice.

Sheetz Inc. was the first to embrace the identity of a “convenience restaurant,” where customers can pick up the usual c-store goods, as well as order fresh food items from its Made-to-Order menu.

“Everything we do is through restaurant glasses,” said Sheetz Inc. CEO Joe Sheetz.

Likewise, Wawa Inc. has stated its goal is to create a whole new restaurant segment known as “fast casual on the go,” combining the best attributes of a convenience store and a fast-casual restaurant.

While Sheetz and Wawa are examples of chains that have gone all in, other c-store operators are just beginning their transformation into a convenience restaurant by adding indoor and outdoor seating, high-quality proprietary-branded foodservice programs, and even drive-thrus where possible.

Operating a convenience restaurant takes innovation, a deep understanding of customers’ needs, and extra commitment from both staff and company higher-ups. As more foodservice-focused chains prove that it can be done, the days of a convenience restaurant industry are not far off.