NATIONAL REPORT — Considering that the past few years have brought new sets of challenges, it is logical to face 2023 with some skepticism. However, the convenience channel's supplier and distributor communities are not letting economic headwinds — and notably, continued talks of a recession — cast a shadow of gloom over the coming year.
According to the 2023 Convenience Store News Forecast Study, the channel's suppliers and distributors are cautiously optimistic about the new year. Even with concerns about the U.S. economy, they are neutral or somewhat positive regarding their 2023 business outlook.
Their outlook also improves when it comes to their specific product category. In fact, nearly two-thirds of respondents hold a positive category outlook heading into 2023. This is down slightly from 2022 as suppliers and distributors shift toward a more neutral viewpoint this year (16 percent of respondents), but still trumps the 21 percent who have a negative outlook.
Business conditions in the convenience channel are also promising. Three-quarters of suppliers and distributors report having a positive outlook toward business conditions in convenience, an improvement of 4 points year over year. Just 14 percent have a negative outlook.
Optimism toward business conditions in dollar stores and grocery stores has also ticked up heading into 2023. Conversely, suppliers and wholesalers are feeling less confident about the mass merchant and drug store channels, the study found.
Overall, more than six in 10 suppliers and distributors expect convenience to face increased cross-channel competition in 2023, which is a slight uptick from the previous year. These respondents see the largest threats coming from dollar stores, grocery delivery sites/apps, grocery retailer sites/apps and Amazon/Amazon Fresh.
Different Sides of the Same Coin
Even armed with optimism, c-store suppliers and distributors do still have some concerns going into the next 12 months. These concerns mirror those of their retailer partners.
When asked what issues they anticipate having an impact on sales and profitability in 2023, suppliers and distributors cite inflation and economic issues as a key concern (26 percent put this first, and 59 percent put it in their top three).
Rounding out the top five issues that are keeping suppliers and distributors up at night are supply chain (55 percent ranked this in their top three), labor turnover and hiring (41 percent), a decline in consumer spending (35 percent) and the cost of raw materials (28 percent). All in all, this is not much different than last year's responses, though a decline in consumer spending did move up a few spots.
Additional issues suppliers and distributors anticipate having an impact on sales and profitability in 2023 revolve around regulation; product development; retailer moves — both expansion and consolidation; e-commerce; and emerging technologies.
Dollars & Cents
Given the pressures facing both businesses and consumers these days, it's not surprising that inflation and economic issues jumped to the top of this year's list of key concerns. Many suppliers and distributors pointed out that hesitant consumers are buying less as prices go up, and focusing their spend on essential items.
As one respondent noted: "Consumer spending is continuing to trend toward a need and survival basis vs. want and freewill. The extra has diminished."
With consumers and businesses facing limited financial growth, the bottom line is expected to be impacted. "Less" is a recurring theme: less money to spend in-store will equal less profit, and less driving will result in less fuel purchased in the channel.
"Compressed consumer spending power is anticipated well into 2023. We expect market baskets to drop as consumers decrease impulse buys," one respondent explained.
Areas of Opportunities
Many c-store retailers continue to grow organically through new-to-industry sites and have announced plans to enter new markets. This opens the door to new opportunities for the industry's suppliers and distributors.
"Retailer expansion means more possible potential locations to service," one respondent said. And yet another noted: "The greater the distribution footprint, the greater the possible revenues for the involved parties."
New product development also offers some hope, as "people always want new," one respondent pointed out. And even as supply issues drive some products from the inventory mix, "getting some new items in the market will help fill the voids," another respondent added.
E-commerce will also have an impact on business in 2023, suppliers and distributors predict. They noted that more sales are moving in that direction, albeit some product sales still depend on customers physically entering a store.
"COVID has led many consumers to prefer convenience over physical visits in many categories and while the trend has gone back to pre-COVID routines, we believe e-commerce will continue to grow. More so with the creation of Meta," one respondent observed.