Convenience at a Crossroads

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Convenience at a Crossroads

By Don Longo, Convenience Store News - 05/27/2008
By now, you don't need me to tell you that 2007 wasn't the best of years for the convenience store industry. According to the Convenience Store News 2008 Industry Report, yearly in-store sales per store increased by the lowest percentage in five years. In-store gross margin dollars per store rose by the lowest percentage in four years.

Did your company outperform the industry's average overall sales gain of 8.6 percent, or in-store sales increase of 3.8 percent? What about the modest gross margin dollar rise of 4.8 percent?

It's almost a matter of survival that you did. History tells us that when the convenience store industry goes through a period of economic slowdown or recession, the first thing that happens is overall sales and profit growth flattens out or declines. And, each time the business is threatened, the industry goes through some sort of major shakeout -- many big and small retailers sell out, go Chapter 11 or liquidate, while the survivors not only prosper but often adapt to new ways of doing business.

For example, after the recession of the early 1980s, retailers were forced to look less at areas of the business that drove sales and more at the things they could do to grow profits, said Fran Duskiewicz, senior executive vice president for Nice N Easy Grocery Shoppes, in upstate New York. Duskiewicz, who has 23 years experience in the industry and has been through three recessions, noted that after the 1981 recession, "the number of gallons, units and cartons sold became less important to us than things like foodservice and other sources of margin." Duskiewicz agreed with other retailers I've spoken with that the economy doesn't look like it's going to get better any time soon, especially in markets most heavily affected by the housing bust, like Las Vegas, Denver, and several markets in California and Florida.

"Every time the industry has faced economic difficulties, we have come out stronger," said Duskiewicz, a long-time member of NACS Research Committee. "For retailers to grow and prosper, they have to offer consumers more reasons to stop at their stores beyond cheap gas or cigarettes," said Duskiewicz. He added that NACS research shows the most successful retailers have the highest foodservice sales, the largest stores and spend the most on people. These retailers also have the highest facility expense and the highest labor costs, but they also have the most margin dollars, do the most to drive costs out of the supply chain and post the lowest direct store operating costs as a percentage of gross profit dollars in the industry.

The 2008 CSNews Industry Report reveals an industry that is still highly fragmented, with a high percentage of single-store owners, despite continued merger and acquisition activity by many of the larger retailers. As an industry, c-stores are weathering the recession better than most other retail channels -- c-stores' sales growth of 8.6 percent outpaced sales gains posted by the restaurant industry (up 7 percent), drug stores (up 5 percent) and grocery stores (up 2.5 percent) in 2007.

However, with continued skyrocketing credit card transaction, energy and food costs, 2008 is shaping up to be another lackluster year. But I am also confident that the c-store industry will again emerge stronger, but different. Our 2008 Industry Report is likely to find that the successful retailers are operating still larger stores, less dependent on gas and cigarettes, and more focused on foodservice and other higher-margin products. Their expenses may be greater, but they will be generating an even higher return on their assets.