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A More Upbeat Outlook

2014 likely to be better than 2013 for national economy and c-store retailers

A Convenience Store News Staff Report

With an improving labor picture, the national economy as measured by the Gross Domestic Product (GDP) is projected to grow “in the high 2 or low 3 [percent]” range this year, according to Convenience Store News’ consulting economist Maureen Maguire, president of ThinkResearch and chief analyst for the annual CSNews Industry Forecast Study.

A good point of estimate for 2014 would be 3 percent. That would be a slight improvement over the estimated 2.1-percent growth in GDP in 2013. The economy grew a very strong 3.6 percent in the third quarter, driven mostly by inventory building that was responsible for nudging up 2013 GDP by one-tenth of a percentage point.

“A 3-handle will be nice for 2014, but it depends largely on how confident the consumer is given all the risk and uncertainty in the market and general economic environment,” added Maguire, who last year forecasted a 2.3-percent gain in GDP for 2013.

Of all the various economic indicators, the unemployment rate is going to be the best barometer of consumer health in 2014, according to Maguire and several convenience store retailers interviewed by CSNews. The unemployment rate in 2011 was 8.9 percent, followed by 8.15 percent in 2012 and an estimated 7.5 percent in 2013. Surprisingly, the rate in November came in at 7 percent, exceeding most forecasters’ expectations. The labor market is poised to add jobs at a stronger rate this year than in 2013 and support a continued drop in unemployment.

Other factors expected to have a big impact on sales this year are fuel prices and the weather.

“If fuel prices stay below $4 per gallon, we should see good growth,” one retailer predicted.

Another retailer noted that 2012 was “a picture-perfect weather year” for the c-store industry, while 2013 was beset by storms and unfriendly weather conditions. “If 2014 falls somewhere in between those two extremes, we should see good growth,” he said.

The recent improvement in the labor picture likely contributed to the Federal Reserve’s decision last month to slow down its bond-buying program sooner than many analysts expected. Although the Fed said it is reducing the amount of bond purchases by $10 billion per month, it also said it plans to hold short-term interest rates near zero “well past” the time when unemployment falls below 6.5 percent.

Last year, the economy faced many difficult circumstances. Taxes increased with the reinstatement of the payroll tax at the beginning of the year. The eurozone worsened and China’s economic growth slowed. Plus, in mid-summer, fears that the Fed would begin tapering off on feeding the money supply touched off an increase in interest rates that threatened to cut off the slowly recovering housing market.

This year, a number of factors feed into Maguire’s more upbeat outlook on 2014:

  • Housing is poised to continue its recovery. The number of new homes needed to keep in step with household formations is low, so homebuilders are waiting for some stronger signals before they start building again.
  • Inflation is low, which helps to keep interest rates low. There is slack caused by previous weak demand, removing the threat of inflation.
  • The equity market did very well last year, which contributed to the “wealth effect.” Increased household wealth spurs consumer spending.
  • Auto sales look good, helped by low interest rates and easy financing.
  • Food prices have been flat for the last year after peaking at the end of 2011 and trending downward after that.
  • Consumer household debt is rising again from historically low levels when consumer debt declined sharply during the recession. It is currently trending at historical norms. Delinquency rates are extremely low and consumer bankruptcy rates are continuing to decline.
  • The federal deficit as a percentage of GDP has been trending down after peaking in 2009. Given the current stalemate in Congress, the deficit should continue to trend down.

Looking at retail sales, Maguire noted that beer, wine and liquor stores have been trending upward for the past two years. “Retail sales for 2013 were good, but not great,” she said. “Going forward, 2014 will be stronger than 2013 and a welcome relief to the past several years of lackluster growth.”

Along with providing the overall U.S. economic outlook, the CSNews Forecast Study formulates individual forecasts for the product categories of most importance to c-store retailers:


Prices at the pump are expected to drop once again in 2014. The average price for all grades of gasoline this year is projected to come in at $3.49 per gallon, vs. $3.62 in 2013 and $3.69 in 2012. Likewise, the cost of a diesel gallon is predicted to dip even further, with the average price projected to be $3.42 per gallon, compared to $3.55 last year and $3.97 in 2012.

Matt Paduano, vice president of category management at Nice N Easy Grocery Shoppes Inc., told CSNews that he views this as good news for the upstate New York-based operator of more than 85 locations. “Usually, when costs come down, fuel margins are better,” he said.

Not so good news for the industry at large is that motor fuel gallons sold at c-stores will not see a substantial turnaround in 2014. C-stores are expected to sell 146 billion gallons of gasoline in 2014, the same as in 2013. Over the years, there have been several reasons cited for the downward slide in gallons sold: the economic recession; more fuel-efficient vehicles as required under the federal government’s fuel economy standards; and an indication that today’s Millennials seek alternative-fuel vehicles as opposed to “gas guzzlers” loved by prior generations.

In terms of c-store fuel dollar sales, falling pump prices and flat gallons will lead the industry to sell $515 billion worth of regular, midgrade, premium and diesel fuel this year, down from an estimated $527 billion in 2013 and $547 billion in 2012.


For the past couple of years, the story behind the back bar has been the same: cigarette volume is declining and other tobacco products (OTP) are picking up the slack. However, the story for 2014 may be that things are starting to stabilize in the tobacco category.

The CSNews Forecast Study shows c-store cigarette volume closing out 2013 down 1 percent and although the numbers indicate another down year in 2014, the decrease is only forecasted to be 0.2 percent. Cartons per store are projected to drop to 8,410, only slightly down from 2013’s 8,428. However, both years are a noticeable drop from 8,526 cartons in 2012.

The OTP segment, meanwhile, will remain at the other end of the spectrum with sales expected to continue their upward trajectory. The numbers for 2014 indicate another good year, even though the sales forecast only calls for a 1.5-percent increase, vs. 7.3 percent in 2013.

But the big story in tobacco continues to be electronic cigarettes. CSNews Forecast Study data shows the potential for e-cigarette sales to grow by 120 percent this year, down slightly from the segment’s estimated 151-percent growth in 2013.

The forecast coincides with what is playing out in c-store chains across the country. Paduano said Nice N Easy reduced cigarette space in 2013 to make room for OTP like moist snuff and electronic cigarettes, and will continue to move in that direction in 2014.

Similar moves are taking place at Plaid Pantry convenience stores out West. “We will start to allocate some of the tobacco shelf space to e-cigs in 2014,” reported Jonathan Polonsky, executive vice president of Beaverton, Ore.-based Plaid Pantries Inc.


2014 will see more of the same in both the malt beverages and packaged beverages categories.

Per-store volume for malt beverages grew an estimated 1.6 percent in 2013 and is expected to increase another 1.5 percent in 2014. Per-store dollar sales are also expected to show slight growth this year of 0.9 percent, on pace with growth of 1.2 percent in 2013.

Micro beers will continue to be a standout in the cold vault. Dollar sales growth on a per-store basis in 2014 is projected to reach 30.2 percent, up from 22.2 percent last year. Unit volume growth per store will slow from 40.6 percent to a still-solid 28 percent.

“Crafts and better beers will continue to drive growth in 2014 since more focus and space will be part of the 2014 plans,” Paduano predicted. “Malts have done very well with the Mike’s Lemonades, Twisted Teas and all of the ciders introduced. I also expect sub-premium beers to continue declining in 2014.”

On the other side of the cold vault, packaged beverages sputtered a bit in 2013 as total c-store industry sales growth dropped 6 percentage points from the previous year. Still, the category posted per-store increases of 3.2 percent in volume and 4 percent in dollar sales. Category growth is expected to remain steady this year at 4-percent unit and sales gains per store.

Within the category, carbonated soft drinks (CSDs) are projected to have another status-quo year, with per-store dollar sales growing 1.3 percent vs. 1.5 percent last year. This has left some retailers pessimistic. “This category is flat and we will plan it that way for 2014,” said Plaid Pantries’ Polonsky. “There is little to no innovation and thus, no growth.”

Growth of alternative drinks is also slowing compared to previous years. On a positive note, bottled water sales growth is expected to improve after dropping precipitously from 2012 to 2013.


Pricing constriction will lead to essentially flat sales of candy, gum and mints in 2014. While units will be slightly up, this will not correspond to an equal boost in dollar sales.

The Forecast Study calls for a 1.7-percent unit volume increase per store, but only a 0.3-percent gain in per-store dollar sales this year. This is a reversal of what was seen in 2013 when dollar sales were up 2.1 percent per store, yet unit volume was down 0.6 percent.

Overall, the average convenience store in 2014 is expected to ring up $34,022 in candy category dollar sales for the year, compared to $33,991 in 2012 and $33,207 in 2012.

While the chocolate segment this year will turn in minimal unit and sales gains of 1 percent and 2 percent, respectively, the non-chocolate segment will remain the candy category frontrunner. Coming off of very strong growth years in 2013 and 2012, non-chocolate candy this year is projected to slow, but still gain 2.9 percent in sales and 3.9 percent in units per store.

As for what’s driving the performance of non-chocolate, Polonsky of Plaid Pantries said it comes down to innovation. “New stuff sells,” he remarked.

On the negative side of the candy category, mints and gum will continue their downward slide. With this being the third consecutive year of declining sales and units in gum, the only positive thing to say about the segment is that this year its slide will be slightly less severe.

Mints, meanwhile, will mark a second straight year of decline in 2014, posting a 2.9-percent dip in per-store dollar sales and a 1.7-percent drop in units. A lack of promotions and a declining number of smokers are headwinds affecting both gum and mints, noted Polonsky.

“Gum is in the tank,” said Paduano of Nice N Easy. “Gum has been declining badly over the past three to four years. According to gum vendors, it is the young people that have shied away from gum and there has been a renewed focus to get those consumers back.”


While it may not have the riveting plot of a primetime TV drama, retailers ought to tune into the mystery of evaporating sales and unit volume growth in the salty snacks category.

The good news, according to CSNews Forecast Study numbers, is that sales of salty snacks will increase in 2014 for the third consecutive year. However, year-over-year growth (percentage wise) will lag in this category also for the third straight year.

In 2012, actual sales per store totaled $35,655, an 11.3-percent increase. In 2013, year-over-year growth was more than cut in half to 5.4 percent. In 2014, this category is forecasted to see year-over-year growth of just 1.2 percent for a projected $38,255 in average sales per store.

Meanwhile, unit volume has likewise stagnated over the past three years, according to the data. From a unit volume of 24,339 per store in 2012 to a projected unit volume of 25,115 per store in 2014, volume growth has essentially been flat.

So, why is year-over-year growth in sales and unit volume shrinking? Perhaps customers are moving away from salty snacks in favor of other items to fill their snacking needs, or maybe a growing number of health-conscious consumers are cutting back on consumption.

Whatever the reasons for the stagnation, retailers that CSNews reached out to are not overtly concerned. “Salty snack sales have been up high single digits for us,” reported Paduano of Nice N Easy. “The main vendors have focused on price points that resonate with the consumers. Both [Frito-Lay] and Wise have done very well with the $2 price point on their products. Although good for sales, it does cut into margin.”

Similarly, Polonsky of Plaid Pantries does not believe customers are moving away from the category. “We are giving our customers lots of reasons to make these purchases with us,” he noted. “There is too much competition in the market to be lazy with this category or any other.”

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