Reversal Of Fortune

Unlike previous years, in-store sales fueled 2012 sales and profit growth

With in-store sales leading the way, the convenience store industry achieved record total revenue of $708.2 billion in 2012, an increase of 2.8 percent from the previous year. In-store sales (merchandise and foodservice) grew 4.7 percent, according to the Convenience Store News 2013 Industry Report.

Those figures represent a turnabout from the previous two years when high fuel prices drove industry sales gains of 13.5 percent and 20 percent in 2010 and 2011, respectively. Last year's in-store sales surge was the highest seen in more than five years and helped fuel total industry gross profits to $77.8 billion, a 2.4-percent gain from the previous year.

Motor fuels sales increased just 2 percent to $515.4 billion, as volume dipped another 1.2 percent. U.S. fuel consumption continued to decline from its peak in 2007 due to better-mileage automobiles. Also, the number of miles driven by American consumers is down about 5 percent from its 2007 peak.

The c-store industry ended the year with 149,220 stores, a net total of 1,094 units more than the prior year. The ratio of chain-operated units to single-store units remained the same, with 37.1 percent of the industry's stores being part of chains and 62.9 percent operated by single-store owners.

Although in-store sales grew faster than motor fuels sales, the impact on the industry's sales and profit mix was negligible. Motor fuels represented 72.8 percent of industry sales and 33.9 percent of gross profit dollars last year — both figures slightly less than in 2011. Conversely, in-store sales represented 27.2 percent of industry sales, but 66.1 percent of industry gross profits.

Because profit margins are much higher inside the store than on motor fuels, the gains in in-store sales had a positive impact on industry profits. Total industry pretax profits increased 4.1 percent to approximately $6.72 billion, or about $46,000 per store.

Among the in-store categories, foodservice once again was the shining star. Foodservice sales grew 7.6 percent last year to $27.6 billion, outpacing the 4.2-percent gain experienced by all other in-store product categories. The percentage increase in foodservice sales was the highest since 2007, but the category has seen strong growth throughout the past decade as convenience store retailers continue to shift resources toward growing their on-the-go food business.

Convenience store merchandise sales, excluding foodservice, were up 4.2 percent, a robust gain compared to the 2.5-percent and 2.7-percent sales gains experienced in 2010 and 2011, respectively.

On a sales per store basis, convenience stores achieved a 3.9-percent increase to $1.32 million per store, a record high. That increase was more than double the 1.7-percent increase posted in 2011.

Merchandise sales gains were led by packaged beverages, up 8.8 percent per store; salty snacks, up 10 percent per store; wine and liquor, up 8.5 percent per store; and alternative snacks, up 12 percent per store. Solid sales increases within the store were also registered in beer/malt beverages, up 4.5 percent; other tobacco products, up 4 percent; candy, up 4.5 percent; and ice cream and frozen novelties, up 6.1 percent per store.

Cigarettes, the largest in-store sales category — representing almost 33 percent of inside sales — continued to struggle. Cigarette dollar sales rose only 1.2 percent in 2012.

Foodservice is still the second-largest category for in-store sales, accounting for about 14 percent. Foodservice sales increased 6.8 percent per store last year. The prepared food segment grew 8.1 percent, while cold dispensed beverages were up 6.4 percent.

Overall gross margin per store on in-store product categories rose 4 percent last year. Foodservice accounted for the highest gross margin dollars per store. The category's profit dollars increased 6.5 percent per store, although average gross margin percent slipped slightly to 45.05 percent, from 45.18 percent in 2011.

Within foodservice, gross margins increased the most for prepared food, up 7.9 percent, to $47,471 per store. Cold dispensed beverages were up 6.2 percent in gross margin dollars per store.

Cigarettes accounted for the second-highest gross margin dollars per store, even though the category's profit dollars declined by 2.2 percent. Cigarettes' average gross margin percent dropped from 14.71 percent in 2011 to 14.21 percent last year.