Getting Their Fill

Question: When can lower sales be considered good news to a retail channel that continues to add to its already dominant store count in the United States?

Answer: When those lower sales are caused by a sharp decline in fuel prices, which provided convenience store retailers with a pair of benefits that made 2014 a very good year.

With fuel prices at their lowest level in many years, consumers had more money in their pockets to spend on in-store merchandise, driving a 3.2-percent increase in in-store sales to a record $203.1 billion. Consumers continued to spend more on prepared food at c-stores, as overall foodservice sales grew 6.3 percent last year.

The second benefit: Depressed fuel prices were accompanied by generous fuel margins, resulting in a 29.9-percent increase in fuel gross profits on a 2.6-percent volume gain. Lower prices also helped to stabilize falling gas consumption patterns. All of this pumped up retailers’ gross profits to a solid double-digit gain of 12.5 percent in 2014.

Total convenience store industry sales dropped slightly last year to $704.5 billion, from $706.4 billion the previous year, according to the 2015 Convenience Store News Industry Report, the longest-running, continuously published annual report on the health and performance of the convenience retail channel. The sales decline was the second consecutive year that total revenue fell after a three-year surge from 2010 to 2012, when sales rose from $505.7 billion in 2009 to a record high of $708.2 billion in 2012.

Motor fuel sales were down 1.6 percent to $501.4 billion last year, also the second consecutive year of decline. Motor fuel volume increased to 147 billion gallons of fuel, the highest amount of consumption since the 148.2-billion peak in 2007.

The increased profitability achieved by retailers last year is illustrated in the improved motor fuel gross profit margin as a percent of sales of 7.21 percent, a substantial gain over the 5.32-percent gross profit margin on motor fuels recorded in 2013.

October 2014, in particular, was cited by retailers as the beginning of the most profitable period of fuel sales for the entire year. “October was a very good month for fuel retailers,” RaceTrac Petroleum Inc. President Billy Milam said at a recent NACS conference.

Total industry gross profits grew to $89.7 billion last year. Pretax profits increased 34.1 percent to $8.968 billion. On a per-store basis, pretax profits were up 32 percent to $59,889 per store. Both total gross and pretax profits are record highs for the c-store industry.

STORE COUNT GROWTH

Despite a high level of merger and acquisition activity last year, the total number of convenience stores in the United States increased by 1,512 to 152,794 stores. Thirty-seven percent of those stores are operated by chains of two stores or more, with the remaining 63 percent operated by single-store owners. The percentage of single-store owners has remained between 61.8 percent and 63 percent for the past decade, so it is apparent industry consolidation was concentrated among the larger chains.

Among the big mergers of the past year were Circle K parent Alimentation Couche-Tard Inc.’s purchase of The Pantry Inc.; Speedway LLC’s acquisition of Hess Corp.’s retail network; CST Brands Inc.’s general partner purchase of Lehigh Gas Partners (now CrossAmerica Partners), as well as their joint purchase of Nice N Easy; and Energy Transfer Partners’ purchase of Susser Holdings Corp. and Aloha Petroleum Ltd.

Convenience stores still outnumber all other types of retail outlets by a wide margin. There are almost twice as many c-stores as category killers (83,959), three times as many as supermarkets (50,645) and more than three times as many as drugstores (41,378). One out of every three brick-and-mortar retail establishments in the United States is a convenience store.

CATEGORY HIGHLIGHTS

Total merchandise and foodservice sales per store set a record high of $1,356,301 last year, a 1.6-percent increase. In-store sales broke the $1-million-per-store barrier in 2006.

In the cigarettes category, “flat is the new up,” Kevin Smartt, CEO of Kwik Chek Food Stores, remarked at the recent NACS conference. A declining category the past several years, sales of cigarettes were essentially flat at c-stores last year at $63.2 billion — still the largest sales-producing category in the store.

Packaged beverages had another strong year, increasing 5.1 percent to $25.2 billion in c-store sales in 2014, and prepared food (both commissary- and on-site prepared) came in at $21.2 billion in sales, an increase of 8.9 percent.

Among other major product categories, the biggest percentage sales gains were in edible grocery (up 5.1 percent), other tobacco products (up 4.3 percent), general merchandise (up 7.6 percent) and salty snacks (up 6.3 percent). Among lower-volume categories, strong percentage increases were registered in wine and liquor (up 8.9 percent), alternative snacks (up 9.9 percent) and packaged sweet snacks (up 9.8 percent).

Sales were flat or slightly down for non-edible grocery (up 0.3 percent), fluid milk (down 1 percent), ice cream and frozen novelties (up 1.3 percent), health and beauty care (up 0.3 percent) and publications (down 0.4 percent).

From a profitability standpoint, foodservice generated the highest amount of gross profit dollars at nearly $13.8 billion. The other star category in profits was packaged beverages, which generated $8.2 billion in gross profit dollars last year. Prepared food (a subcategory of foodservice) contributed $8.2 billion of gross profits to c-store retailers’ bottom line.

The gross profit margin on in-store sales remained relatively flat at 26.7 percent, but motor fuel gross profit margin soared to 7.21 percent, from 5.32 percent in 2013. The combined result was a 10.7-percent increase in gross profit dollars per store.

The biggest percentage increases in profitability were generated by alternative snacks (up 16 percent in gross profit dollars), salty snacks (up 10.7 percent), wine and liquor (up 8.9 percent), packaged sweet snacks (up 8.7 percent), general merchandise (up 8.5 percent), health and beauty care (up 7.9 percent) and frozen dispensed beverages (up 7.8 percent).

Several categories saw declines in gross profitability last year. These included non-edible grocery (down 9.1 percent), fluid milk (down 8.4 percent) and cigarettes (down 1.4 percent). All three of these categories saw gross profit declines in 2013 as well.