Small Operators Face 2024 With Tempered Optimism

NATIONAL REPORT — The last few years have been a mixed bag of expectations for the convenience store industry's small operators (those operating 20 stores or less).

As 2023 approached, the channel's smaller players were trepidatious, still plagued by the unprecedented economic pressures brought on by the COVID-19 pandemic and worried about the vitality of their businesses in the coming year.

Now, with a new year ahead of them, the small operators who participated in the 2024 Convenience Store News Forecast Study don't feel much different than those who participated in last year's study. However, there are some areas of improvement heading into 2024.

The number of small operators who report a positive outlook on the economy is up 8 points from last year's forecast. Still, less than a quarter of small operators (22%) have a positive economic outlook. Similarly, while the percentage of small operators who view the U.S. economy in a negative light is down by 13 points year over year, this number still accounts for more than half of smaller retailers (54%). The other 24% say they are neutral.

[Read more: Number of U.S. Convenience Stores Increases for Second Consecutive Year]

"Inflation is driving fewer impulse purchases, and the national outlook also has people watching spending closer," one small operator observed.

On a scale of one to five — where 1 represents "Terrible, wake me up when it's over" and 5 represents "It's going to be our best year ever!" — the largest percentage of small operators (43%) rate their expectations for 2024 at a 3.

Reflecting a slight shift in optimism by some small operators, 14% of respondents put their expectations at a 5, a 7 point increase compared to the 2023 study. Another bright spot: No small operator surveyed for this year's forecast selected a rating of 1.

Competitive Watch

Foot traffic in the new year could be a stumbling block. There is more pessimism in the c-store retailer community toward foot traffic patterns this year. Only 32% of small operators and 33% of large operators expect their foot traffic to increase this year, a drop of 11 points and 3 points, respectively.

Nearly half of small operators (46%) expect their foot traffic to stay the same, up 5 points year over year, while the other 22% are bracing for a decrease, up 6 points vs. a year ago.

When it comes to what will impact their sales and profitability in 2024, the industry's small operators are apprehensive about a multitude of factors. Labor turnover and hiring jumped into the No. 1 slot this year, while other top areas of concern are increasing operational costs, inflation and economic issues (last year's No. 1), and motor fuel prices.

On the labor front, small operators lamented:

• "Slim pickings in the hiring pool."
• "We are seeing a sharp decline in the number of applicants for all levels of jobs and the ones who are applying are asking for significantly higher pay and benefits."
• "In order to provide the service level we aspire to, we require a higher staff count. It is difficult to find the necessary talent at the current hourly wages."
• "With 100% turnover, we can't train fast enough."

Similar to their larger counterparts, small operators are less concerned about supply chain issues in 2024. However, unlike the industry's larger retailers, small operators are more concerned about the impact of tobacco regulations on their stores.

Another issue affecting the outlook of both small and large operators is increasing cross-channel competition, as cited by 60% of small operators and 73% of large operators.

Both small and large operators view dollar stores as the biggest threat. Interestingly, small operators are more concerned about Amazon/Amazon Fresh than their larger counterparts (35% vs. 23%). However, large operators are more concerned than smaller retailers about the threat of quick-service restaurants and food delivery apps such as Uber Eats and DoorDash.

Making Improvements

Despite their apprehensions, small operators are prepared to make their stores more attractive to customers this year by meeting their expectations for enhanced convenience services.

Slightly more than three-quarters of the small operators surveyed (76%) currently offer mobile payment in-store, with 8% planning to add it in 2024. At the pump, 68% of small operators now offer mobile payment, with 8% saying this feature will be added in the coming year.

Other top initiatives planned by small operators for the coming months are adding delivery via a third-party service (24%) and adding contactless shopping via kiosks (22%).

"We want to succeed and will do whatever it takes," one small operator remarked.