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C-stores Prove Recession Resistance in '09

CHICAGO -- The convenience store industry has long been called recession-resistant, and it again proved itself in 2009 as in-store sales grew despite the stresses of a recessionary economy, and bucked the overall retail industry's downward trend, according to data released earlier this week by NACS at the State of the Industry (SOI) Summit, held here.

"The NACS SOI enterprise helps define our industry," said Jay Ricker, president of Ricker Oil Co. and NACS chairman. "Forty years ago it showed we were the fastest growing segment of the food industry. Today we are 4 percent of the Gross Domestic Product."

The mood of the event was cautiously optimistic as convenience store industry executives from across the country gathered at the Intercontinental Hotel to digest the association's latest figures and glean opportunities from speakers including David Nelson, president of FRMC Inc.; Jim Russo, vice president of marketing for The Nielsen Co.; and fellow retailers such as Fran Duskiewicz, senior executive vice president of Nice N Easy Grocery Shoppes, and Greg Parker, CEO of The Parker Cos. Inc.

On the first day of the two-day NACS SOI event, Nelson provided a look into the economic future of the nation. Beginning by asking the standing-room only audience if they felt better now than at this time last year -- and getting a clearly positive response -- Nelson said the improved vibes in 2010 were due to a number of factors, including the real possibility in 2009 that the U.S. would fall into a depression, rock-bottom consumer confidence and spending, and jumps in unemployment, home foreclosures and bank failures.

Currently, the U.S. is feeling better because the financial system stabilized and the economy is growing, while unemployment is declining, he said, adding part of what is helping the growth is the government's actions around the Recovery Act, which has added 1 percentage point of growth to the economy in 2009, according to economists estimates. Without such stimulus, the February unemployment rate would have been more than 10 percent, he said. In addition, the actions are expected to add 3.3 percentage points of economic growth in 2010.

And as retail motor fuel volumes right themselves from the decline seen in 2008, convenience stores stand to benefit. With every 1 percent increase in fuel volume, convenience stores are seeing a 0.36 percent to 0.57 percent jump in real inside sales growth, Nelson explained. In 2009, total fuel volume was up 1 percent.

Despite the nation's unemployment rate standing at high numbers, improvements in this area will also assist in-store sales figures. For every percentage point improvement in the unemployment rate, in-store sales could increase between 1 percent and two percent, he said.

Going forward, Nelson predicted a "moderately paced recovery." Citing various leading indicators that showed warnings ahead of the recession, Nelson said these indicators should also turn up before the recession's end, which they did in the spring of 2009.

"All [indices] point to our economy is in recovery and has been for some time," he said, explaining the moderate pace of the recovery is due to a continued "massive deleveraging cycle" where asset prices are still contracting, and borrowing and lending is restrained. In fact, the tightening of the credit markets have resulted in a 7.2 percent drop in the total loans and leases from all commercial banks, he said.

While the convenience store industry has been hard hit over the past year, certain factors made the industry particularly recession-resistant, Nelson said. For example, gas and diesel margins in 2008 saw huge increases that put a lot of money in companies' bottom lines. Because of this, c-store retailers entered the recession "much better off than the average firm," he said. In addition, c-stores shrunk their balance sheets, paid off long-term debt and increased equity, according to Nelson.

"You certainly have positioned yourself well in the marketplace," he said, later adding: "We are in recovery, position yourselves for it."

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