Debt and Rising Taxes Suffocating U.S. Economy
JERSEY CITY, N.J. – Who are the authorities on the future of the convenience store industry, and what can you learn from them? In this series of exclusive one-on-one interviews with c-store industry leaders, started in 2010, Convenience Store News Editor-in-Chief Don Longo explores the most important trends and issues facing the convenience store industry.
This month, Longo interviews a high-ranking executive with one of the largest c-store retailers in the nation. We feel his stature in the industry and insights on the issues makes his answers important to share with our readers even though he asked to remain anonymous.
What do you consider to be the most important trends influencing retailing today?
The impact of digital technology has been profound. It’s been going on for a while, but it has really accelerated in the past year. Another trend that goes along with technology is transparency. Customers know so much more now about products, prices and services. It’s a lot harder for a retailer today if [he or she] is not very competitive with their pricing, assortment, offer or customer service.
It’s a transparency loop -- the more transparency there is, the better you as a retailer have to be; then everybody gets better to stay competitive; and then the customer demands even more and expects even better prices, assortment and service. This feeds an intensifying competitive loop that is only going to increase and become more competitive.
The other big change that goes hand-in-hand with consumer lifestyle changes is the way traditional retail channels are blurred in consumers’ minds. Consumers view shopping as a choice from among a bunch of different store types, not a bunch of different retail channels. This will influence how suppliers go to market. Suppliers and retailers that stick to the old style and old channel definitions will be surpassed by retailers that better understand today’s digital, 24-hour, interconnected and always-connected consumer lifestyles. The challenge to build closer connections with shoppers is a mandate before all retailers today.
How have you traditionally marketed your offerings to consumers and what’s different about how you do it now?
Over the next three to four years, I see channel pricing going away. Channel pricing is based on the old channel definitions and pricing structures that are obsolete. Suppliers, in particular, will have to adjust. Traditional channel pricing limits the amount of new products that suppliers can bring to market and can slow new product development if they are segmented by channel.
Another major challenge for retailers is cigarette pricing, specifically the MLP (Marlboro Leadership Price) pricing for Marlboro. It has negatively impacted the cash flow for retailers in a way that can stifle growth; it takes away dollars that could be reinvested into the stores.
What are your thoughts about the current evolution of c-stores? Is the push to grow foodservice sales working?
I think the further evolution of c-stores, in most cases, will require them to sell food on the go. C-stores must be able to offer food solutions for customers that are on the go and/or need to eat quickly.
There’s also a high likelihood they’ll need to improve and evolve services to make life easier for customers. Mobile payments, for example, is going to be the next wave of innovation. You’re going to see a lot of innovation, then consolidation of service providers, with the big payoff being the data collected on consumers – information on who is buying what.
With motor fuel consumption declining, what do you foresee as the future of fuels in the United States?
Petroleum will continue to play a major role, along with other fossil fuels, in the future energy needs of this nation. As we figure out the technology, other energy sources will come online, but petroleum will still dominate because we continue to find ways to burn oil cleaner and get more output out of the same amount of oil.
Switching gears, what are the foremost non-industry specific retailing issues that are on your mind?
The rising public debt and the rising tax rate in the U.S. have both become unsustainable. The high corporate tax rate and the high personal income tax rates in the U.S. are making our industries less competitive and unable to create wealth at the rate we have in the past.
The government raises taxes to pay down the national debt, but the debt gets worse because the higher taxes prevent the economy from growing fast enough to produce the necessary revenues to pay down the debt. It’s a vicious circle.
Of course, the government must provide a safety net of benefits to its citizens, but the way to do that is not by raising taxes. It is by growing the economy, because a growing economy reduces the dependence on safety nets in the first place.
Interwoven with my concern about rising taxes is my worry about the absolute gross [U.S.] debt. The sheer size is enormous -- $16 trillion-plus and growing. We’re collecting about $2.8 trillion in tax revenue per year, but we’re spending a trillion dollars a year more than we’re taking in. In the next two to three years, at this pace, our national debt is going to grow to $17 trillion to $18 trillion. We have an overleveraged economy.
No one today remembers the Great Depression of 1929 and nobody believes it can happen again, but it can. So, if you think we can always print more money to make up for our debt, then you are probably going to be prepared to pay $20 for a candy bar or $24 for a soda.