Banner Year Doesn’t Change the Need for Change

There’s no doubt that 2018 was an exceptionally good year for convenience store retailers. On the surface, and by many financial measures, the c-store industry sold more stuff for higher margins than ever before.

However, the upbeat picture is tempered by more sobering statistics contained in this year’s 44th annual Convenience Store News Industry Report.

C-store operators have to be concerned about a few statistical trends in particular:

• Declining trips — This is a malady that’s affecting all retail, but c-stores are particularly feeling the pinch from fewer transactions and trips as improved automobile fuel efficiency means less trips to the gas pumps. E-commerce is also keeping shoppers at home more, and competition from small-format hybrids like Walmart and Kroger Express and dollar stores are blurring the lines and the meaning of “convenience.”
• Fewer employees — The nation’s low unemployment rate is making it harder and more expensive to recruit, hire, train and retain good associates. Wages continue to be one of the fastest-growing line items among a host of rising direct-store expenses, which also include credit card transaction fees.

I think it’s great that key metrics like total revenue, fuel sales, gross profits, pretax earnings and fuel margins all increased last year. These are important measures of the financial health of the industry. But a couple of years of higher fuel prices and strong gas margins shouldn’t mask the fact that the traditional “gas, cokes and smokes” convenience store model is a dinosaur.

As RaceTrac Chief Operating Officer Billy Milam pointed out at the recent 2019 NACS State of the Industry Summit, traditional industry paradigms need to change from being a fuel provider to an energy provider; from a commodity-driven business to a service-driven business; and from one-size-fits-all promotions and limited assortments to tailored, personalized experiences with a hyper-localized and differentiated assortment.

One additional takeaway: Foodservice continues to increase as a percentage of c-stores’ inside sales, but the growth of this critically important category has slowed significantly in the past two years. Are c-stores reaching a ceiling on how much they can increase prepared food sales? Or is this just a pause before another growth spurt?

For the past half-century, this publication has chronicled the constant evolution of the convenience store industry. One thing I know is that today’s c-store leaders, like their forebears, have no intention of resting on their laurels.