NATIONAL REPORT — There is no denying that change is coming to the convenience store industry. Some changes are already underway while others are further down the pike, but there is no question that c-store retailers need to decide now how they are going to handle these changes, so they don't get left behind.
What lies ahead includes a changing forecourt, a changing foodservice offering and a changing merchandise mix. Focusing on where the emerging trends driving these changes intersect can hold the key to thriving for years to come.
EVs & the Convenience Value Proposition
The full impact electric vehicles (EVs) will have on the convenience channel remains to be seen. Driven by consumers' desire to "go green" and legislative moves on the state and federal levels aimed at phasing out gas-powered vehicles, EVs could be a game-changer for the industry.
However, there are some critics who are not ready to crown EVs as the next big thing. In late October, economist Steve Moore told Fox Business' Varney & Co. that EVs may be "the next big flop" for automakers and likened it to Ford's Edsel model car.
Nonetheless, c-store retailers cannot take a wait-and-see approach if they want to keep up with major chains that are already preparing for a growing EV customer base by adding charging stations to their locations.
Last year, Altoona, Pa.-based Sheetz Inc. surpassed a major milestone of more than 2 million EV charging sessions. An early adopter of public EV charging stations, the chain installed its first EV charger in Pennsylvania in 2012. Meanwhile, fellow Keystone State c-store retailer, Media, Pa.-based Wawa Inc., added charging stations to its 150th location in September 2023.
Aside from embracing the evolving mobility scene, both these c-store chains have something else in common: well-known foodservice platforms that have built up what some may call a fanatical fan base. And foodservice could play — and most likely will play — a critical role in attracting the EV consumer.
"Our convenience store customers are all having that conversation about what does five years, 10 years look like when EVs take a higher percentage of cars on the road, and how do they capture that market share of folks who need to settle down and wait for 30 minutes instead of a five-minute fuel up," said Patrick O'Mara, senior solution principal for RELEX Solutions, a supply chain and retail planning platform.
"How do you then actually transfer people from in their cars — where the cars essentially become little TV studios or movie theaters themselves — and get somebody out of their car into the facility for whatever purpose you're trying to serve?" he asked.
As O'Mara noted, Sheetz has a mix of indoor and outdoor dining options, while travel centers offer an array of quick-service restaurant (QSR) options. "I think an interesting model is the truck stop-travel center model. They obviously cater to customers who are already on that similar kind of timeline, although the rest period of a driver is significantly longer than that of somebody who's just making a road trip, for example," he explained. "I think it's a good model of where you've seen QSRs that invite people to come in and sit down as opposed to having folks [do] more of that kind of grab-and-go traditional convenience."
Whatever the mix, if retailers are positioning themselves for a future where EVs will account for 20% to 50% of the market, they need significantly more space dedicated to dining and entertainment "to be able to attract people to your fueling station or recharge station vs. another," O'Mara said.
EVs & the Evolving Foodservice Offer
It's not only the dedicated space that will change, but also the offer itself. As Convenience Store News posed in our May 2023 cover story: Do c-store retailers without foodservice have a future in the industry? The answer is, probably not. When you factor in EV customers who are looking for something to do while charging their vehicles, the answer slips closer to no.
Whether that foodservice offer begins to resemble something like the Central Perk coffee shop in TV sitcom "Friends" or a fast-casual sit-down restaurant depends on the retailer and the geography.
"I don't think there's a one-size-fits-all approach. In convenience today, you've got Sheetz, Wawa and Casey's that are foodservice operators at a high degree, selling very different food products to very different consumers," O'Mara noted. "On the East Coast, having more of that lounge kind of feel makes a lot of sense, whereas maybe in the Midwest and small towns, having that coffee shop doesn't make as much sense because it doesn't attract that type of consumer."
EVs & the Evolving Experience
What is important across the board, according to O'Mara, is standing out from the crowd. "Having that unique, differentiated experience that's going to drive people into that specific location is going to make sense," he said, calling out Buc-ee's. "If I'm on a road trip and I stop into a Buc-ee's, even though I'm getting gas, I'm going to spend 30 minutes inside walking through and just marveling at it. They already have an experience that's set up. They're just missing the EV charging ports because right now, their consumer is a fuel consumer.
"That's something I would describe as a unique experience. Yes, there's foodservice; you can get coffee. They don't call it a lounge or in-store dining, but they're already capturing customers for 30-ish minutes," he continued. "I think having differentiated experiences, based on where you're located and who your consumer is, is really going to make the difference in who's successful making that transition to an EV consumer."
The experience does not need to be extreme and could be as simple as offering a dog park. As a travel center operator, Oklahoma City-based Love's Travel Stops is already well positioned to attract EV customers traveling the nation's highways. Add to that its growing dog park network and it has upped the ante.
"Labor costs are growing exponentially, especially in this industry. Being able to have something that's low cost like a dog park where you've got more long-term maintenance costs associated as opposed to day-in, day-out labor costs, that's a great way to capture customers at a higher margin as long as you're also getting them to spend," O'Mara said.
That brings up another conversation around EV charging: monetization, he noted. "Right now, we're almost training consumers that fuel should be free, and that's not sustainable," O'Mara said. "As we get 75% of Americans driving EVs, you have to charge for electricity. How can retailers figure out the monetization of the EV component, but then also how do they then extend and capture that customer?"
With a dog park, that may mean selling dog treats or having a walk-up coffee window so that customers don't have to come inside with their dogs. "Being able to kind of pair that, again, differentiated experience I think is something that's going to create a winning environment," he said.
Value & the Convenience Proposition
While the future may bring rise to a new growing customer base, the EV consumer, the economics of the here and now has brought rise to the value-seeking consumer.
At its meeting on Nov. 1, 2023, the Federal Reserve Board held short-term interest rates steady for the second consecutive month, but the impact of continuous rate hikes since March 2022 could be felt for some time to come — especially with the possibility of a future hike still on the table.
Inflationary pressures and uncertainty are taking a toll on U.S. consumers. It has been reflected in their shopping habits, noticeably when it comes to shoppers shifting to private label brands.
For the first half of 2023, store brands again posted record sales and share — similar to the past 18 months, according to a report from the Private Label Manufacturers Association (PLMA). The success of store brands at checkout includes outdistancing national brands in two key metrics.
[Read more: Five Private Label Trends Spotted at PLMA's 2023 Expo]
Store brand dollar sales across all U.S. retail outlets increased 8.2% vs. 5.1% for national brands year over year for the six-month period ending June 18, 2023, according to Circana data. That extends store brands' powerful two-year run. Measured against the first six months of 2021, dollar sales during the same period in 2023 improved by 16% or roughly $17 billion ($91 billion in 2021 vs. $108 billion in 2023).
C-store chains are taking notice and many are ramping up their selection of private label items on the shelves.
Over the past three years, Ankeny, Iowa-based Casey's General Stores Inc. expanded its private label line to more than 300 SKUS from an assortment that previously had bottled water and some bag candy.
"It's been a tremendous boom to our business. Today, about 10% of our units and about 10% of our gross profit dollars in the grocery general merchandise category come from our private label brands," President and CEO Darren Rebelez said following the company's Investors Day in late June. He added that 120 of those 300-plus items are SKUs only found at Casey's. "They're unique to us. It gives our guests another reason to come to the store."
Additionally, Laval, Quebec-based Alimentation Couche-Tard Inc., parent company of the global Circle K banner, has identified private label brands as a growth opportunity as part of its next five-year plan. As the retailer announced on Oct. 11, 2023, it is looking to launch approximately 110 new private label products in its stores this year on top of the 250 to 300 products already in the merchandise mix across its stores. Currently, private brands are approaching 10% penetration in Couche-Tard's strongest markets.
Private Label & Staying Power
Regardless of what happens with the economy, there is some indication that consumers' interest in private label products could be here to stay.
The second installment of the 2023 Power of Private Brands series from FMI – The Food Industry Association found that 96% of grocery shoppers purchase store brands at least occasionally and 46% purchase private brands most or all of the time.
Furthermore, approximately 60% of shoppers are buying private brands much more or somewhat more in the past year, compared to 26% for national brands.
And, according to FMI's research, 90% of shoppers say they are likely to continue purchasing private brands regardless of inflation or grocery price changes, which points to the growing loyalty shoppers have for store brands.
Sixty-eight percent of shoppers cite price as their top reason for buying private brand items, but a nearly equal number (67%) cite good value.