Good Things, Small(er) Packages

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Good Things, Small(er) Packages

By Melissa Kress, Convenience Store News - 01/19/2017

NATIONAL REPORT — Whether you are a convenience store retailer with one location, 10 locations or hundreds of locations, many of the issues you face are the same. However, how you view the impact of these issues on your business differs. For instance, small operators (those operating one to 10 stores) are starting off 2017 slightly less optimistic than their larger counterparts.

To take the pulse of the convenience store industry heading into 2017, Convenience Store News recently surveyed retailers across the convenience-channel spectrum on what they foresee for sales and profits in 2017. An overwhelming majority forecast an increase in sales this year; however, small operators are a little less confident. According to the survey, 73.3 percent of small operators expect to see an increase vs. 88.6 percent of total respondents.

Conversely, roughly one-quarter of small operators (26.7 percent) believe their sales will stay the same, vs. 11.4 percent of total retailers. No respondents, regardless of store count, predict their sales will decrease, reflecting the strength of the convenience store business.

Looking at the issues that will have the biggest impact on sales and profitability for their c-stores in 2017, small operators ranked motor fuel prices (74.6 percent), labor issues (61.5 percent), healthy eating trends (46.2 percent), health care costs/regulations (38.5 percent), and tobacco and electronic cigarette regulations (30.8 percent) as their top five.

With all the changes in tobacco regulations that came last year — notably, implementation of the deeming rule extending the Food and Drug Administration's regulatory authority to other tobacco products including e-cigarettes and cigars — it's no surprise that these changes are weighing on retailers' minds.

State excise tax increases are also top-of-mind for small operators, particularly voter approval of California's ballot measure to hike its state excise tax on cigarettes by $2 a pack. This is just one of several tobacco cost increases on the horizon.

"The $2-per-pack tax rate on tobacco will reduce sales. The $1-per-hour minimum wage raise will increase labor costs. Fuel prices will impact everything if they increase," commented one respondent to the CSNews survey.

Taking the Initiative

To drive their sales and profits up in 2017, convenience store retailers across the board seem to think alike. Small operators, like their larger brethren, are looking to increase business by offering more customer perks. For example, some respondents pointed to loyalty programs and other customer appreciation incentives as efforts on tap for 2017. Others are exploring ways to increase their store selection, and considering offering a proprietary gas card.

But not all initiatives may be doable. "We would like to add liquor, but are getting stifled by the city," one retailer responded.

As for footprint growth, 27.3 percent of small operators expect to increase their store count in the coming months, while 63.6 percent expect their footprint to remain the same. Only 9.1 percent of small operators expect to decrease their store count this year. These figures lag the total industry, where 50 percent expect a store-count increase, 43.3 percent anticipate it will remain the same, and 6.7 percent expect to decrease their portfolio size.

Confidence Boost

Small operators see several reasons to be optimistic about the convenience store business in 2017. According to the survey, they are feeling good about their staffs, their offerings, and the current and future state of the U.S. economy.

"Freeway travel is increasing because of steady fuel prices. Locals are using our auto repair services more because of a slightly better economy," one survey participant explained, adding: "Definitely see a change in higher sales of healthier snack options."

Plus, c-stores can be a destination point in more ways than one. As one small operator put it: "Confident in my crew, positive attitude, and this town needs a better place to visit."

That being said, there are some concerns. Chief among them are labor costs, gas prices rising, and uncertainty surrounding the change in the Oval Office.

Change of Power

Speaking of, as President-elect Donald Trump prepares to be sworn in, small operators have mixed feelings about what changes lie ahead under his administration.

Some foresee less regulation, and tax breaks. "He is on the business owners’ side," one retailer said, adding that he does not expect to see new environmental regulations.

Others are more skeptical about the change in power leading to positive changes. In fact, when asked what will be the greatest positive changes under the Trump administration in 2017, responses included: "Can't think of a single thing;" "I have no idea;" and "Waiting for surprises."

When asked what will be the greatest negative changes under the Trump administration, small operators pointed to immigration and the loss of customers as a result.

Still, when all is said and done, CSNews found that retailers on the smaller end of the c-store spectrum are largely optimistic about their personal business prospects in 2017. On a scale of one to five — with one being the worst and five being the best — 41.2 percent of small operators are feeling a three, 28.8 percent are feeling a four, and 30 percent are feeling like a five.