Convenience Store Sales Outpace Competing Retail Channels

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Convenience Store Sales Outpace Competing Retail Channels

By Debra Chanil, EnsembleIQ - 04/06/2011

CHICAGO -- Convenience store in-store sales grew 4.4 percent in 2010, reaching a record $190.4 billion, surpassing the growth rates of other competing channels, including warehouse stores/clubs (4.0 percent), restaurants (3.4 percent), drug stores (2.4 percent) and grocery stores (2.3 percent), based on U.S. Department of Commerce numbers.

The industry's 2010 numbers were announced in Chicago today at the annual NACS State of the Industry Summit, a two-day conference that reviews and analyzes the industry's key economic indicators.

"The theme for 2010 can be called 'more' -- more sales, more profits, more volatility with motor fuels, more attacks from the competition," said NACS Chairman Jeff Miller at the annual industry event. "But we've also come together more as an industry as well."

Combined with $328.7 billion in motor fuels sales, total convenience store sales in 2010 were $575.6 billion, or one out of every 25 dollars of the overall $14.624 trillion U.S. gross domestic product, according to NACS.

Part of the sales growth can be attributed to a small increase in the number of stores. The number of U.S. c-stores grew 1.2 percent over the past year and stands at a record 146,341 stores, according to the NACS/Nielsen TDLinx 2011 Convenience Industry Store Count, released in January 2011.

Higher fuel prices and slightly highly volume also drove the sales gain. Motor fuel sales grew 17.2 percent last year as overall per gallon prices rose 14.4 percent. Fuel continues to generate the majority of c-store revenue but only a small share of the industry's profits. Overall, 69.3 percent of total c-store sales dollars were from motor fuels. Even with an increase in motor fuels gross margins to 15.8 cents per gallon, motor fuels margins remained slim and motor fuels still only accounted for 26.4 percent of pretax profits at c-stores.

C-store pretax profits reached $6.5 billion in 2010. As a percentage of total sales, pretax profits in 2010 were 1.1 percent.

"Our strong performance in 2010 shows that our convenience offer -- especially one-stop shopping and speed of service for refreshments, food and fuel--continues to resonate with customers," said NACS vice chairman of research Fran Duskiewicz, senior executive vice president of Canastota, N.Y.-based Nice N Easy Grocery Shoppes.

Despite the strong financial results, concerns remain for the industry, especially with credit-card and debit-card fees jumping a staggering 21.6 percent to hit a record $9 billion. Total credit- and debit-card fees surpassed overall c-store industry profits for the fifth straight year. As a percentage of overall sales, credit- and debit-card fees increased from 1.45 percent to 1.56 percent of total industry sales dollars, factoring in all forms of payment, including cash and check. Just looking at motor fuels sales, credit- and debit-card fees added 4.7 cents to every gallon of gasoline sold at c-stores in 2010.

In-store sales have shown significant growth at c-stores over the past decade, growing 82.9 percent since 2000. This year's in-store sales alone topped total sales -- combined in-store and motor fuels sales -- for every year through 1998.

According to NACS, nearly three-quarters of in-store sales are from the top five categories:

1. Cigarettes (35.8 percent of in-store sales).
2. Packaged beverages (14.2 percent).
3. Foodservice (12.9 percent).
4. Beer (8.3 percent).
5. Other tobacco products (4.0 percent).

More than two-thirds of in-store gross margin dollars are from the top five categories:

1. Foodservice (21.9 percent of in-store gross margin dollars).
2. Cigarettes (18.4 percent).
3. Packaged beverages (17.7 percent).
4. Beer (5.4 percent).
5. Candy (4.8 percent).

The industry's bifurcation continues as well. Top quartile performers had profitability of more than 10 times that of the bottom quartile -- with monthly profits per store of $23,891 compared to $2,033. Top-quartile companies had sales that were at least double the industry average in most categories and four times higher for hot dispensed beverages (almost exclusively coffee) and three times higher for cold dispensed beverages.

"The top quartile stores are just cranking and pulling the industry average up with them," said Duskiewicz. "Their stores are bigger and more competitive. They can sell gas and cigarettes at lower margins and make it up with foodservice. It has become dramatic how the top quartile is pulling away."

John Zikias of Kentucky-based Thorntons and a member of NACS Membership and Convention Committee, added: "Top quartile retailers get there by being famous for something. Their customers are going to their stores for a reason -- low cigarette prices or good foodservice. They find what they are good at and they stay passionate about it. (His advice is to) focus on the consumer. Become famous for something and deliver. Find something to be famous for, provide good customer service and your customers will come back."