It’s Getting Better

Convenience store retailers’ view of the overall U.S. economy appears to support our forecast that 2016 will be a “good” year for American businesses.

“The economy in general is doing quite well,” said Maureen Maguire, founder and CEO of ThinkResearch and chief analyst for Convenience Store News’ annual Industry Forecast Study.

However, Maguire pointed out that many of the positive economic signals also have downsides. For example, the reduction in the nation’s unemployment rate is offset by the large number of people who have left the labor market or are under-employed. This has provided the Federal Reserve with an impetus to increase interest rates.

Stock market reaction to the interest rate hike last month was muted due to the Fed’s transparent communication policies, Maguire noted. “At this point, most market participants expect the Fed to continue to raise rates over the course of at least the next 12 months by 50 to 100 basis points,” she said. “Of course, that depends on the labor market and the goal for inflation to come in close to the Fed’s annual target of 2 percent. As long as the economy marches toward those two goals, we should expect rate increases.”

Forty-one percent of convenience store retailers polled in CSNews’ exclusive Retailer Forecast Study said their companies view U.S. economic conditions overall as “slightly positive” for 2016. About 18 percent are “very positive” about the 2016 economic outlook. Almost 30 percent said they feel “neutral” about this new year. However, about 13 percent are “slightly” or “very negative” about business prospects in 2016.

Interestingly, c-store chain respondents are less enthusiastic about the 2016 economic outlook than the industry’s single-store operators, 77.8 percent of whom feel “very” or “slightly positive” about this year vs. 51.7 percent of chain retailers.

A real advantage going into this year is that inflation remains low. Maguire pointed out the U.S. Bureau of Labor Statistics reported last month that the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally-adjusted basis. Over the last 12 months, the all items index increased 0.5 percent before seasonal adjustment, with the food index climbing 1.3 percent but the energy index declining 14.7 percent.

“Going forward, we should expect the inflation rate to tick up slightly toward the Fed’s annual target rate of 2 percent,” said Maguire. “This is not necessarily a bad thing. It will encourage consumers to purchase goods and services rather than wait for them to be cheaper in the near term.”

Maguire ticked off several factors that could dim the 2016 forecast, including the continued slowing of China’s economy; increased terrorist attacks, particularly in the United States; a drastic slowdown in Europe; and a return to higher oil prices.


Falling gas prices are the story when it comes to motor fuels, and this trend is highly likely to continue. Based on CSNews’ Forecast Study estimates for 2015, the average retail price per gallon dropped nearly $1 to $2.57. The low-price environment is expected to last for the entirety of 2016, when the average price per gallon is forecasted to decline an additional 2 cents to $2.55.

Diesel saw an even bigger drop when comparing 2015 estimated figures to actual results posted in 2014. The average price per retail diesel gallon dropped an estimated $1.21 per gallon in 2015. Diesel prices are forecast to increase slightly by 4 cents per gallon to $2.76 this year, however.

As expected with a lower fuel price environment, c-stores continue to sell more gallons of fuel, but the lower price per gallon is causing dollar sales in this category to drop significantly when comparing 2015 estimated data to 2014 actual figures.

Despite fuel dollar sales declining, margins are up and the lower prices are a great boon to operators in other metrics such as in-store sales, as seen in other areas of the CSNews Forecast Study.

On a whole, c-store operators are optimistic about their motor fuel sales in 2016. Fifty-three percent of retailers polled expect their fuel gallon sales to increase this year on a per-store basis, with only 9 percent expecting gallon sales to decrease. This represents a 3.5-percent-age-point increase vs. 2015 on a per-store basis.

The low unemployment rate, strong fuel-based loyalty programs, more travel due to lower gas prices and a milder winter throughout much of the country were cited by retailers as the top reasons why fuel gallon sales should remain robust.

Of note, though, c-store chains are more optimistic regarding fuel sales than their single-store counterparts. Nearly two-thirds of chain retailers expect gallon sales to increase in 2016 on a per-store basis, vs. just 4 percent of chains who expect fuel gallon sales to decrease.

Conversely, only 27 percent of single-store operators expect fuel gallon sales to increase this year. A majority (54.5 percent) expect gallon sales to stay the same as in 2015, while 18 percent expect gallon sales to decline year over year.


Convenience store operators continue to view foodservice as a growth category that represents a major point of opportunity in the coming year. A total of 82.4 percent of retailers polled believe their foodservice sales, which include prepared food and hot, cold and frozen dispensed beverages, will increase in 2016. This marks a slight uptick from the 81.3 percent who predicted the same one year ago, showing an increased level of optimism.

Even c-store operators that do not expect to see foodservice growth have an overall positive sentiment, as 17.6 percent of respondents expect sales to stay the same. Zero respondents said they expect their foodservice sales to decrease.

“[Foodservice] will only grow for those who do it right,” one retailer commented.

Although larger c-store chains have more resources to commit to a foodservice program, retailers of all sizes view the category positively. In fact, more single-store owners expect to see increased foodservice sales than chain stores, at 87.5 percent vs. 80.8 percent respectively.

This positive view of foodservice stems from improving consumer perceptions coupled with execution, according to survey respondents. Customers increasingly view c-stores as a valid meal destination, increasing the demand for quality prepared food and beverages, which in turn validates their perspective.

Foodservice has a “big upside if performed correctly,” said another retailer.

Some c-stores are approaching the category cautiously, testing items and adding foodservice only to certain stores rather than a full-scale rollout. Others anticipate a high rate of growth and in fact have created new management positions to spearhead the category.

Retailers point to ethnic food as a potential big trend in 2016.


Any tobacco retailer knows the category has been faced with some challenges over the past few years, especially with cigarette volumes steadily decreasing and alternative products fighting for space. But 2015 told a different story and 2016 is expected to be a continuation of that tale.

After many cycles of decline, cigarettes rebounded slightly in the past year with unit volume growth per store estimated at 0.7 percent and total industry unit volume growth estimated at 1.5 percent for 2015. That’s quite a jump from 2014 declines of 3.1 percent and 1.9 percent respectively.

The upswing is expected to continue this year, albeit at a slightly lower rate, according to CSNews’ research. Specifically, the 2016 forecast places unit volume growth per store at 0.3 percent and total industry unit volume growth at 1.2 percent.

And no surprise here: Cigarette costs are expected to rise again. Manufacturer list prices are forecast to jump from $36.14 per carton in 2014 to $38.14 this year. Taxes are also increasing. Federal, state and local taxes combined per carton are forecast to rise from $20.92 in 2014 to 21.32 in 2016. New York still has the highest state levy at $4.35 per pack, a number that has held steady over the past few years and almost $3 more than the average state tax.

From the retailer point-of-view, c-store operators are pretty evenly split on what they think will happen with cigarettes in 2016. Only 13.9 percent believe sales will stay the same.

Meanwhile, other tobacco products (OTP) continues to be a shining star behind the register. When the final numbers come in, 2015 is expected to have been a banner year for OTP. Estimates put unit volume per store at a 6.9-percent increase, with dollar sales per store ticking up 4.6 percent and total industry dollar sales increasing 5.4 percent.

These coming 12 months call for a similar forecast: a 5.7-percent increase in unit volume per store, 3.9-percent increase in dollar sales per store and 4.8-percent increase in total industry dollar sales.

The one OTP segment that seems to be struggling a bit lately, though, is cigars. Unit volume per store saw a 6.6-percent increase in 2014, yet the segment was only estimated to post a 5-percent increase in 2015. 2016 forecasted growth is even lower at 2.6 percent.

Still, c-store retailers remain bullish on OTP. Roughly 70 percent of the retailers CSNews polled expect their OTP sales to increase in 2016, with only 16.2 percent predicting a decrease.

Retailers do agree on one thing: OTP performance in 2016 hinges on regulation, specifically the Food and Drug Administration’s final deeming rule, which will impact electronic cigarettes and cigars as well as other segments of the tobacco category.


When it comes to their cold vault prospects in 2016, c-store operators hold a largely optimistic view, with nearly one in seven (67.6 percent) believing their packaged beverage sales — including carbonated soft drinks, bottled water, sports and energy drinks — will rise, as opposed to 5.4 percent who expect sales to drop. The net change forecasted by retailers is 4 percent.

Chain retailers have a slightly more favorable outlook on the category, with 70.4 percent expecting to see a sales increase this year, compared to 60 percent of single-store owners.

Retailers note that much of packaged beverages’ success this year will stem from the bottled water segment, for which a 7-percent increase in dollar sales per store is forecasted.

For packaged beverages overall, the per-store prediction for dollar sales is 6.5-percent growth, a little higher than what retailers are anticipating.

C-store operators are pretty equally optimistic about the beer/malt beverages category, as 63.6 percent of those polled expect their sales to increase this year. The net change forecasted by retailers is 3.4 percent. That’s pretty close to what CSNews’ research is forecasting: a 3.1-percent increase in dollar sales per store for 2016.

Delving deeper into the various segments of beer, one retailer commented: “Imports and craft dominate growth. … Premium beer is flat (which is an improvement!).”

As consumers seek more diverse flavor profiles and new beverage innovation, micro beer (a.k.a. craft beer) is generating a lot of growth and excitement, albeit off a still-small base.


Expectation that the candy category will grow this year is down sharply from one year ago. Only 46.2 percent of c-store retailers believe their candy sales will grow in 2016, down from the 60 percent who said the same last year. However, the number of retailers that expect their sales to stay the same jumped from 19.6 percent last year to 41 percent this year. Only 12.8 percent of retailers expect candy sales to decrease within the next 12 months.

Chain retailers hold a more favorable view of the category, as 46.2 percent of chain respondents anticipate a sales increase compared to only 33.3 percent of single-store owners.

“[There is] innovation, but nothing to really move the needle,” one c-store operator remarked. “[The] value equation vs. other snacks is getting out of whack.”

Retailers predict the net sales change will be 2.2 percent. According to the CSNews forecast numbers, per-store unit volume growth will slow to 2 percent for total candy, gum and mints in 2016, down from the estimated 6.4-percent growth for 2015. However, dollar sales growth per store is forecasted to see a slight increase of 3.6 percent.

Chocolate is expected to have another year of declining unit volume at -2.9 percent. The good news is this decline will still represent an improvement from 2015’s estimated -6.2 percent. Dollar sales are expected to remain flat year over year.

In contrast, while growth of non-chocolate is slowing, unit volume per store is forecasted to increase 7.1 percent while dollar sales per store are forecast to increase 9.2 percent.

Meanwhile, the mints segment is forecasted to increase unit volume per store by less than 1 percent and dollar sales by 2.2 percent, both up from 2015 estimates. Unfortunately, gum is likely to see another rocky year of largely flat volume and dollar sales.

According to retailer feedback, the introduction of new products is expected to have an impact on the candy category in 2016, as will an increase in health awareness as consumers keep a closer eye on what they put into their bodies.


Consumers’ tendency to replace regular, full meals with on-the-go snacking is nothing but good news for the convenience retail channel. After slower sales growth in 2015, the salty snacks category, which includes potato chips, tortilla chips, pretzels, ready-to-eat popcorn, nuts and seeds, is expected to rebound and show stronger growth in 2016.

Total industry dollar sales grew an estimated 4.4 percent in 2015, according to the CSNews Forecast Study. This was a drop from the actual 9.3-percent growth the category saw in 2014, but total dollar sales are forecasted to rebound in 2016 and reach nearly 7-percent growth.

On a per-store basis, unit volume is forecasted to grow 3.2 percent in 2016, marking a slight increase over 2015’s estimated 2.8-percent increase. Higher prices have boosted dollar sales, which are forecasted to show nearly twice the growth at 6 percent per store, up from an estimated 3.6 percent in 2015.

Retailers expect the continued popularity of snacking to contribute to the growth of salty snack sales this year, with 64.1 percent of retailers saying they believe their sales in this category will increase and 25.6 percent expecting sales to stay the same. Chain retailers are even more bullish, with nearly three-quarters believing their sales will increase.

The new year will also bring “increased variety and less dependence on large suppliers with low margins,” one retailer predicted.

Other retailers expect awareness of and innovation in healthy items to have a big impact.


More convenience store retailers are putting an emphasis on fresh and healthy eating and with that comes a focus on expanding edible grocery offerings. The trajectory over the past few years is noticeable. In 2014, retailers grew the category at a mere 1.6 percent in overall dollar sales and notched only a 0.4-percent uptick in dollar sales per store.

What a difference 12 months made. The numbers for 2015 put the estimated growth at 4.8 percent in total industry dollar sales and 4 percent in dollar sales per store. Unit volume is also estimated to have increased 5 percent last year.

2016 looks to bring more of the same. According to the CSNews results, edible grocery unit volume per store is forecasted to increase 5.4 percent, with dollar sales per store up 4.6 percent and total industry dollar sales growing by a healthy 5.5 percent.

The almost mirror images of 2015 and 2016 follow in line with c-store retailers’ expectations. Nearly half of all retailer respondents to CSNews’ study anticipate their sales in the category to remain the same this year, while only 15.8 percent expect sales to dip.

Within those numbers, approximately one-third of chain operators are penciling in an increase in 2016 sales, and single-store operators are even a little more optimistic.

As for which trends retailers see having an effect on the category, many cite an increase in healthy product awareness as a positive trend. On the negative side, some do note that the smaller size of their stores do not allow for much in grocery offerings.

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