Risks & Rewards

2015 was a fantastic year to be a convenience store retailer, highlighted by the record instore sales the c-store industry achieved. Times were so good, in fact, that Billy Milam, president of RaceTrac Petroleum Inc., said it was “easy” to deliver industry financial data to attendees of the 2016 NACS State of the Industry (SOI) Summit.

Likewise, Western Washington University Professor of Economics David M. Nelson, Ph.D., provided more good news to the record 600-plus convenience store retailer and supplier executives who assembled at Chicago’s Hyatt Regency O’Hare hotel April 11–13. Although a seven-year economic recovery is often considered long-in-the-tooth, Nelson expressed no concerns whatsoever that the United States is currently on the brink of a recession.

He did acknowledge that annual growth in the U.S. economy is slow on an annual basis, but stressed this is actually good news. “In a word, the economy is slow. But it is better to go slow in the right direction than fast in the wrong direction,” the professor stated.

Three other factors that should greatly benefit c-store retailers moving forward are:

• Strong housing starts, leading to more construction workers frequenting c-stores;
• Robust new vehicle sales, forecasted to reach 18 million new car sales in 2016; and
• A low inflation rate.

Of course, the c-store industry is not without its challenges. In the headwinds column for 2016 and beyond is: declining fuel margins as oil prices stabilize, and direct-store operating expenses, which grew faster than gross profits during every month of 2015, data from NACS, the Association for Convenience & Fuel Retailing, revealed.

An even bigger concern, though, is the changing labor landscape. NACS Chairman Jack Kofdarali, president of J&T Management Co. Inc., said the approved minimum wage increase to $15 per hour in his company’s operating state of California will be a “nightmare.”

Fellow SOI Summit speaker Joe Kefauver, managing partner of Align Public Strategies, took the labor talk even further, discussing how unions are organizing quickly and effectively. Employee compliance is another concern, he said.

“With break times, holidays, etc., it’s almost impossible to not trip up,” Kefauver explained. “C-store retailers need to have a healthy, expedited, internal compliance conversation.”

And as always, competition remains a headwind. “We have a target on our back,” said Andy Jones, president and CEO of Southeast c-store retailer Sprint Food Stores. He focused on quick-service restaurants (QSRs), which he said have taken many ideas from c-stores. McDonald’s all-day breakfast and Burger King’s grilled hot dogs are two prominent examples.

Jones encouraged c-store retailers to turn the tables in these five ways:

1. Franchising and cleaning up balance sheets. QSRs are increasingly getting rid of owner-operator models and moving to all-franchisee models.
2. Twofers. QSRs have followed c-store retailers’ lead and now offer twofers, threefers and even fourfers to attract customers.
3. Health, wellness and sourcing. McDonald’s has committed to having 100-percent cage-free eggs by 2025, and several QSRs are eliminating preservatives and additives.
4. Importance of food safety. Problems at Chipotle Mexican Grill are a prime example.
5. Focus on millennials. Taco Bell is just one QSR chain that is using advertising campaigns to try and attract millennials.

NACS SOI Summit
April 11–13, 2016 Chicago