Holding Steady

Consumers are still feeling aftershocks of The Great Recession, but CSNews' 2012 forecast shows several bright spots for convenience stores

A year ago, the global recession had ended; the devastated housing market was showing signs of slowly improving; the labor market was lagging the economic rebound; and consumers were angry. "Consumers [were] saying, 'We're mad as hell and we're not going to take this anymore,'" noted Maureen Maguire, president of ThinkResearch and Convenience Store News' partner on its annual Industry Forecast Study.

Now, a year later, the U.S. economy continues to feel the fallout of The Great Recession, Maguire said during the 2012 CSNews Industry Forecast Council meeting, held late last year. Citing continuing problems in both the housing and labor markets, she predicted that consumer pessimism — fueled now by gridlock in Washington, Wall Street protesters and a negative national media — will adversely impact retail sales in 2012.

Although the recession officially ended in June 2009, "it will officially feel like it lasts through 2012," Maguire told an audience consisting of some of the biggest retailers in the convenience store industry. This year's CSNews Industry Forecast Council, sponsored by General Mills, included representatives from 7-Eleven Inc., RaceTrac Petroleum, The Pantry Inc., Susser Holdings Corp./Stripes, Alon Brands, BP ampm, Quick Chek, Handee Marts and Circle K.

Compared with the third quarter of 2009, personal consumption in the United States improved slightly over the past two years, according to government statistics. However, the increase in business spending, which rebounded about a year ago, was much slower in 2011, and residential investment, which was up about 10 percent in the third quarter of 2009, plunged by nearly 30 percent in the third quarter of 2011.

Improvement in the job market has been slow and uneven across the country. "We need about 250,000 jobs to be created per month [to impact the unemployment rate] and we're not seeing that," Maguire said, citing the mere 80,000 net gain in jobs recorded in October as an example.

On a regional basis, unemployment rates have ranged from a low of 3.5 percent in North Dakota to a high of 13.4 percent in Nevada. Other hard-hit states include California (11.7 percent unemployment in September), Florida (10.6 percent), Michigan (11.1 percent), North Carolina (10.3 percent) and South Carolina (10.5 percent).

Weighing even heavier on consumer confidence, though, is the percentage of Americans who are either unemployed and still looking for a job; unemployed and aren't looking for a job anymore; or employed part-time, but would rather be working full-time. That percentage is a whopping 15.3 percent, only slightly lower than a year ago when it was 15.9 percent.

"Consumer confidence is terrible," said Maguire. One of the reasons consumers are so irate is the cost of living (inflation) is rising faster than average hourly earnings for all employees.

According to the Bureau of Labor Statistics, the average hourly earnings of all private-sector employees increased just 1.8 percent from March 2007 to September 2011. However, in that same four-and-a-half-year time span, inflation was up 3.9 percent, meaning wages are not keeping up with the cost of living.

Maguire did dispel fears of a so-called "double-dip" recession, noting "that's not going to happen because companies are awash with cash."

At press time, several economic trends appeared to be going in the right direction to support modest growth in 2012. Consumer confidence was up markedly in both the expectations and current situation components. The Conference Board's Consumer Confidence Index, compiled by IHS Global Insight, surged 15.1 points, or 36.9 percent, in November compared to October 2011. The point increase was the highest month-over-month gain since April 2003, and the percentage increase was the largest the index has seen since April 2009.

"We know that the trajectory of the recovery is not going to be straight up," said Maguire. "It is going to be more like two steps forward and one step back, or a stutter step."

Maguire described the November employment numbers as both promising and troubling. The unemployment rate declined by a 0.4 percentage point to 8.6 percent. The number of unemployed persons, at 13.3 million, was down by 594,000 in November. The labor force, which is the sum of the unemployed and employed, was down by a little more than half that amount.

"It's promising that more folks are working, but worrisome that so many are leaving the workforce. That is not a good thing for employees, but we will see if it is a good thing for employers in the productivity numbers," Maguire said, noting that another promising note is that the revisions to back jobs data have all been up, and the guidance that the Bureau of Labor Statistics provides for the annual revision is also positive.

Fig. 1

The Economy: Does It Feel Like Anything Has Changed From Last Year?

As for oil prices, which recently hit $100 per barrel, Maguire feels consumers seem to have become desensitized to it — maybe because the price has been hovering at the $90-per-barrel range for so long. "With China slowing down, I wouldn't be surprised if the $100 per barrel is short-lived," she commented. "We know that speculation is rampant here, but it's anybody's guess to estimate how much of the run-up is due to speculation."

During the Forecast Council meeting, she also presented these conclusions about the prospects for the U.S. economy this year:

• Real gross domestic product (GDP) will grow by 2.9 percent in 2012, compared with a projected 1.7-percent gain for 2011;
• Inflation will rise 2.9 percent, following a 3.2-percent increase in the Consumer Price Index in 2011;
• Total retail sales will grow by 4.6 percent in 2012, after a 7.5-percent increase in 2011; and
• Unemployment rates will drop from the current 9 percent to a still-high 8.7 percent in 2012.

There are several bright spots in the 2012 CSNews Forecast Study for convenience stores. The study model predicts that key product categories such as chocolate candy, other tobacco products (particularly moist snuff and snus) and energy products (energy drinks, shots and bars) will see strong unit and dollar sales increases this year.

Slightly lower pump prices will result in a decline in fuel dollar sales for the convenience store industry in 2012. Motor fuel prices will drop by a few cents this year, but remain in the mid-$3 range, according to the Forecast Study. The average retail price per gallon for 2012 is expected to hit $3.60 ($3.50 for gasoline and $3.85 for diesel.) In 2011, the average price per gallon was nine cents higher at $3.66 ($3.58 for gasoline and $3.85 for diesel).

Both national gallons and convenience store gallons are forecasted to increase this year vs. last year. The 2012 forecast for national gallons is 182.3 billion, vs. 181.5 billion in 2011. This year's forecast for c-store gallons is 147.9 billion, compared to 147.2 billion last year.

This projected increase in gallons, though, will not be enough to push 2012 sales above the previous year. National sales of gasoline in 2012 are expected to decrease from $663.7 billion to $656.7 billion. C-stores specifically will see a decline from $ 536 billion to $532.6 billion.

Fig. 2

Unemployment Rate by State

Fig. 3

Motor Fuels Forecast

(Regular, Midgrade, Premium, Diesel)

This year's Forecast Council also included special presentations from General Mills' Senior Manager of Consumer Insights Krista Loria on how consumers make purchase decisions for immediate consumption products, and Matt Mandeltort from Technomic Inc. on the top opportunities for convenience store foodservice.

2012 Forecast Study Council

Convenience Store News held its 10th annual Industry Forecast Council in Jersey City, N.J., in November. Sponsored by General Mills, the Forecast Council Included representatives from nine leading convenience store chains. During the Council meeting, CSNews' partner Maureen Magulre, president of ThinkResearch, presented dollar and unit volume projections In key c-store product categories based on data from various sources. Including The Nielsen Co. for category sales history, TDLinx for store counts, and government sources for motor fuel volume and pricing data. The data is run through a sophisticated projection model and then presented to c-store retailers for their feedback and Input Into the final 2012 sales projections presented here In summary form. To purchase the full version of the 2012 Industry Forecast Study, Including macro-economic data, and sales and volume information on key categories and subcategories, visit www.csnews.com/catalog.html.

FORECAST COUNCIL MEMBERS:

• Jim Doederlein, 7-Eleven Inc.
• Kyle McKeen, Alon Brands
• Maxwell Min, BP ampm
• David Wilkins, Circle K
• Mike Triantafellou, Handee Marts
• John Schaninger, Quick Chek
• Dave Henninger, The Pantry Inc.
• Ben Hoffmeyer, Susser Holdings Corp./Stripes
• Brad Galland, RaceTrac Petroleum

SPECIAL GUESTS/PRESENTERS:

• Krista Loria, General Mills
• Kelly Quinn, The Nielsen Co.
• Matthew Mandeltort, Technomic Inc.
• Maureen Maguire, ThinkResearch

SPONSOR:

• Randy Anders