Rough Seas

6/7/2014

The convenience store industry experienced some rough seas last year, with total sales and motor fuel revenue slightly down, foodservice sales growth slower than in previous years ? particularly for hot and cold dispensed beverages ? and higher expenses all negatively impacting profit growth in 2013.

According to the just-released Convenience Store News 2014 Industry Report, the longest-running annual accounting of c-store sales, profit and operational performance, convenience stores in the United States generated more than $700 billion in total sales for the second consecutive year in 2013. However, total revenue was flat because motor fuel sales dropped 1.1 percent and in-store sales growth slowed significantly to 2.1 percent, after climbing by 4.7 percent in the previous year.

For the second year in a row, slower motor fuel price hikes dampened fuel revenue growth. But unlike the previous year, when the industry experienced its highest in-store sales surge of the past five years, in-store sales in 2013 grew only modestly. The coup de grâce was that operating expenses continued to rise at a faster pace than gross profit dollars.

Amid all those rough waves, though, a few calm spots could be seen:

In-store merchandise and foodservice sales grew faster than the overall population in 2013, with per-capita sales up 1.4 percent.
The industry?s store count continues to expand. The channel added more than 2,000 net new stores last year, a 1.38-percent increase to 151,282.
After declining for the previous two years, motor fuel volume rose slightly in 2013 to 143.3 billion gallons pumped, a 1.6-percent increase over 2012. An improving economy and less volatile fuel prices likely contributed to the slight uptick in usage. However, total volume is still well below the 148-billion gallon level reached in 2007 and is not expected to grow significantly in the coming years.
The industry?s overall sales mix showed a slight gain in the more profitable in-store segment (27.9 percent of total sales) at the expense of motor fuel sales (72.1 percent). The gross profit dollar mix remained the same as the previous year, with in-store sales generating 66 percent of gross profit and motor fuels generating 34 percent.
Although the industry?s pretax profit and pretax profit per store dropped by 0.5 percent and 1.4 percent, respectively, gross profit dollars rose 2.5 percent last year.
Gross profit margin (as a percent of sales and dollars per store) was essentially identical to the previous year, coming in at 26.74 percent for in-store, 5.32 percent for motor fuels and 11.29 percent for combined in-store and motor fuels.
Foodservice, a category that most retailers are focusing on to counter the impact of declining categories like motor fuels and cigarettes, saw sales grow 6.5 percent. That increase was below last year?s 7.6-percent gain, but well within the growth rate of the previous five years.
The top 10 product categories represented 89.8 percent of in-store sales and 87.5 percent of in-store gross margin dollars. While cigarettes still commanded the highest percentage of in-store sales at 32.09 percent, that figure dropped from 32.87 percent, allowing other higher-margin categories to grow. Foodservice, for example, grew to 14.95 percent of in-store sales, up from 14.32 percent; packaged beverages grew to 12.18 percent, from 11.96 percent; other tobacco products (including electronic cigarettes) are now at 4.83 percent of sales, up from 4.52 percent; and salty snacks are at 2.63 percent, up from 2.53 percent.
Driven by gains in prepared food sales, overall foodservice increased to almost 25 percent of total in-store gross margin dollars, while cigarettes dropped to 16.57 percent. Cigarettes generated 18.63 percent of gross margin dollars just two years ago. Other categories that grabbed a larger share of in-store gross margin dollars included packaged beverages, other tobacco products and candy/gum.
Industrywide gross margins grew the most in wine and liquor (up 12.2 percent), prepared food (up 10.5 percent), other tobacco products (up 8.4 percent), salty snacks (up 5.9 percent), and packaged beverages (up 4 percent).

On the negative side, however, in addition to the rising operating expenses (see page 50), there were these troubling results:

Inside sales per store increased only 1.2 percent to $1.34 million per store.
Soft dispensed beverage sales kept foodservice from growing at its traditionally high rate. Hot dispensed beverages were down 1.4 percent, while cold dispensed were up only 1.5 percent and frozen dispensed up only 1.1 percent. Increased efforts by quick-service restaurants like McDonald?s to grow their breakfast business likely had a negative impact on convenience store coffee sales.
Aside from cigarettes, other soft product categories last year included edible grocery (up only 1 percent), general merchandise (up 1.5 percent), non-edible grocery (down 1.5 percent), fluid milk (down 7.5 percent), ice cream (down 1.3 percent), and health and beauty care (down 2.3 percent). The decline in health and beauty care was no doubt attributable to a slowdown in energy shot sales, once one of the fastest growing subsegments in the store.