Low Gas Prices Drove Higher 2016 C-store Sales

ALEXANDRIA, Va. — Convenience stores saw an increase in sales in 2016, partially on the back of lower gas prices. And retailers expect to ride the wave of strong sales into this year.

According to a survey of retailers conducted by NACS, the Association for Convenience & Fuel Retailing, more than two in three convenience retailers said that their fuels sales increased in 2016, and nearly the same percentage say that foodservice sales increased.

"The continued improvement of the economy and low gas prices gave our customers more confidence to buy inside," said Richard Parry, president and CEO of Aloha Petroleum, adding that he expects "better-for-you" items to help continue to drive strong sales in 2017.
 
Industry-wide, better-for-you items like fruits and vegetables, yogurt, nuts and health bars saw strong sales in 2016, with 63 percent of retailers reporting that sales of these items increased in 2016. Only one retailer surveyed said that sales were down in 2016, the survey found.

"Healthier-for-you items are beginning to gain some traction," said Michael Zielinski, president of Retail Management Services Inc.

Retailer confidence about the U.S. economy also surged. A record 79 percent of retailers said that they are optimistic about the U.S. economy — a 26-point jump from last quarter. This surge in retailer optimism mirrors the optimism of their customers. A record 60 percent of U.S. fuel consumers said that they are optimistic about the U.S. economy, according to the NACS December 2016 consumer sentiment survey.

In addition, retailers also are very optimistic about the overall convenience retailing industry. More than three in four convenience retailers said that they are optimistic about the industry's prospects in the first quarter of 2017, a seven-point jump from three months ago.

On tap for 2017 are new investments in technology related to loyalty programs and enhanced customer experiences, which are central to the strategy of growing convenience store sales this year, NACS said.

Continued technology enhancements surrounding digital advertising, consumer awareness and loyalty are a priority at Casey's General Stores, according to President and CEO Terry Handley. Meanwhile, A.H. Jamra Co. is investing in point-of-sale technology, said David Oswald, company president. 

In the survey, retailers said that new investments in food and beverage equipment are also growing sales. For example, Kwik Trip saw strong sales from its high-end hot beverage sales with its Franke machines, and is investing in new beverage offers to continue the momentum. 

"We expect explosive growth from our new cold-brew coffee and smoothies in 2017," said Steve Loehr, vice president of Kwik Trip.
 
Other trends to watch for in 2017 include ready-for-you meals and locally produced products like snacks, merchandise and craft beers, the survey found.

According to NACS, increased investments in their stores may have helped reduce retailer concerns over competition. Overall, 39 percent of retailers cited competition from other convenience stores as a concern, down from 47 percent who cited industry competition a year ago. 

Meanwhile, 33 percent cited concerns over competition from other channels like drug stores or dollar stores. However, the new Amazon Go concept "could be a game-changer down the road," said Lisa Dell'Alba, president and CEO of Square One Markets Inc. 
 
Retailers are much more concerned over threats to their business that are less in their control. A majority of retailers (55 percent) said that they are concerned about regulations and legislation that could affect their businesses. Also, 53 percent are concerned about labor issues, an increase from the 41 percent who cited labor as a concern a year ago.
 
Despite concerns over threats to their businesses, 69 percent of retailers are optimistic about their own business prospects in the first quarter of 2017, largely because of the combination of convenience and an enhanced food offer, according to NACS.
 
"I truly think food will continue to be the trend in 2017 — but it's going to take ingenuity and creativity to continue to entice people to visit convenience stores for lunch and dinner. We'll need to continually adapt to reflect trends and customer preferences — whether it's a new burger or a new healthy option," said Dennis McCartney, director of operations at Landhope Farms.
 
The quarterly NACS Retailer Sentiment Survey tracks retailer sentiment related to their businesses, the industry and the economy as a whole. A total of 81 member companies, representing a cumulative 4,052 stores, participated in the December 2016 survey.