Out Of Control

Credit card and health insurance costs soar as retailers keep handle on most other expenses

Direct-store operating expenses increased by a relatively modest 6.6 percent last year, as recession-tested convenience retailers maintained a tight grip on the expenses under their control. However, two expenses not under their control — credit card transaction fees and health insurance costs — soared by 20.2 percent and 9 percent, respectively.

The rise in credit card fees underscores the c-store industry's concern over the recent attempts by the banking industry to overturn the Durbin swipe fee reform included in last year's federal financial reform bill. Two bills seeking to delay and likely kill the reform that was signed into law last year have been introduced in Congress. If passed, they would scuttle any relief for retailers from this sky-rocketing expense burden.

Last year, credit card fees accounted for 12.1 percent of retailers' gross profits. On a per-store basis, these fees cost more than $59,000 per unit — only labor costs were higher. In terms of dollars, credit card costs increased more than $10,000 per store in 2010 over the previous year.

Like credit card fees, health insurance is another expense item that has become highly politicized and mostly out of retailers' control. Passage of comprehensive health care reform has done little to rein in these costs for employers. Health insurance expenses rose by nearly $1,500 per store across the convenience store industry last year, and totaled 3.62 percent of retailers' gross profits.

In contrast, wages, the largest expense line item, rose 3.6 percent last year to a little more than $206,000 per store. Total labor compensation, including health insurance, workers' compensation costs and other benefits, increased 3.7 percent last year.

Operators continue to open bigger stores. The average sales area of a convenience store rose to 2,330 square feet last year, a 25-square-foot increase from the average sales area in 2009. Non-sales area also increased, up 7 square feet to 792 square feet. Total store size is now 3,122 square feet. These larger stores also sit on larger parcels of land. Total property size for a c-store operation last year averaged 27,525 square feet, 70 square feet larger than the year before.

With more retailers growing their foodservice operations, foodservice shrink drove total in-store shrink to 1.36 percent of sales last year. That's an increase from 1.33 percent of sales in 2009, and 1.32 percent of sales in 2008. Shrink involving cigarettes, the second-largest shrink category, increased slightly to 1.19 percent of sales last year. Total in-store shrink averaged a little more than $17,000 per store in 2010, up from $16,260 the previous year.

In-store customer transactions increased to their highest level since 2008, with an average of 3,210 in-store transactions per week last year, up from 3,180 in 2009. In-store customer transactions averaged 3,230 per week in 2008 and reached as high as 3,328 in 2006.

The size of the average in-store transaction has been steadily rising. Last year, the average in-store transaction rose 8 cents to $7.47. In 2008, the average convenience store transaction was $6.97 and in 2007, it was $6.75, up from $6.35 the previous year.

Motor fuel transactions increased as well to 2,654 per week in 2010 from 2,550 per week in 2009. In 2008, average motor fuel transactions per week at convenience stores were 2,821. The average motor fuel transaction rang up to $24.92 last year, up from $22.20 in 2009, but well below the high of $28.42 registered in 2008 when gas prices last peaked.

The average volume per transaction declined to 9.1 gallons, down from 9.5 gallons in 2009, but an increase from the 8.8 gallons pumped per transaction in 2008. —Don Longo