Low Gas Prices Lead C-store Customers to Trade Up Purchases
NEW YORK — Lower fuel prices have led to consumers visiting convenience stores more often and spending more money on in-store merchandise, according to a pair of newly released Wells Fargo Securities LLC reports.
Plummeting oil prices have padded c-store customers’ wallets, allowing them to trade up and treat themselves.
“The largest beneficiary of lower gas prices appears to be categories like craft/import beers and tobacco, in which a consumer is purchasing the same quantity of product (e.g. a 6-pack of beer, pack of cigs), but able to upgrade to a higher priced/premium product,” stated the reports, written by Bonnie Herzog, managing director of beverage, tobacco and convenience store research. “Further, we note that these premium products generally carry more attractive margins, which we expect will translate to solid margin expansion in merchandise categories on top of the strong sales growth.”
Non-alcoholic beverages in particular had a strong fourth quarter in 2014, noted Herzog. Non-alcoholic beverages enjoyed 5.9-percent growth in the fourth quarter, based upon a Wells Fargo survey of c-store operators representing more than 15,000 locations.
“It's all about low gas prices with 100 percent of our contacts indicating lower gas prices had a favorable impact on sales relative to last year and more than three-quarters suggesting foot traffic had improved,” she reported.
These positive indicators lead Herzog to hypothesize that fourth-quarter earnings from publicly traded convenience store retailers will be quite strong. In fact, the Wall Street analyst firm reiterated its “overweight” rating on the c-store sector.
CST Brands Inc., parent of Corner Store locations, is Wells Fargo’s top stock recommendation among the c-store sector.
Several convenience store-related companies will be reporting fourth-quarter 2014 earnings beginning this week.