Total U.S. convenience store sales reached a record high of $814 billion last year, an increase of nearly 23 percent year over year, as Americans returned to normal living and the nation’s convenience stores benefitted from the bounceback of traditional commuting routines and shopping behaviors. However, not all c-store operators shared in the riches equally.
Among the industry’s single-store and small chain operators, fewer reported an increase in total dollar sales for 2022 vs. the year prior, according to the fourth-annual Convenience Store News State of the Small Operator Study, which looks at how the convenience channel’s small operators are performing vs. their larger chain counterparts. About six in 10 small operators saw their overall sales per store increase last year, compared to nearly eight in 10 in 2021.
Year over year, a higher percentage reported a decrease in sales: 19.7 percent in this year’s study vs. just 7.4 percent in last year’s study. Still, this is much improved from the nearly two-thirds of operators who reported a decline in 2020 during the worst of the COVID-19 pandemic.
On average, single-store and small chain operators reported their average sales per store last year increased by 19.8 percent, slightly below the 21.7 percent increase they netted in 2021. Smaller operators underperformed their larger brethren by about 3 percentage points as average per-store sales among the whole U.S. c-store industry increased by 22.7 percent last year.
For the second year in a row, motor fuel sales industrywide posted an annual increase upwards of 30 percent. Largely driven by higher gas prices, the industry’s 2022 fuel revenue rose by 32.9 percent to reach $538.7 billion. Fuel volume grew slightly, with gallons up 1.6 percent for the year.
A little more than six in 10 single-store and small operators reported their motor fuel sales dollars increased last year. The average net increase in fuel revenue was 31.4 percent, down from a 37.4 percent jump the prior year. The industrywide increase for 2022 was 32.9 percent, comparatively.
About the same percentage of single-store and small operators — six in 10 — reported their in-store merchandise sales rose last year, down from 76.9 percent who said the same the year before. The average net increase in in-store revenue was 5.5 percent, up just slightly from the year prior when in-store sales among single-store and small operators rose 5.2 percent.
Again, however, smaller operators underperformed compared to the industry average. For the second consecutive year, in-store sales at all U.S. convenience stores in 2022 hit a new high, reaching $275.3 billion, which equated to a 6.6 percent increase year over year.
Across the industry, the strength of in-store sales last year was propelled by the power of the foodservice category. More and more c-store retailers are enhancing their in-store offers to entice customers to visit the store even when they don’t need to fill up their gas tank. High-quality foodservice programs that boast fresh, appealing prepared foods and customizable dispensed beverages are an integral part of this burgeoning effort that is happening industrywide.
Total foodservice sales in the c-store industry were up a whopping 19.5 percent in 2022. More than three-quarters of the small operators surveyed this year said their prepared food dollar sales increased last year, with a net average gain of 21.1 percent. Not one operator said their prepared food sales decreased for the year, while the rest said sales stayed the same.
The same trend was not evident, though, across the hot, cold and frozen dispensed beverage categories, perhaps indicating that the industry’s smaller operators are not keeping up with the improvements and advancements being made at the larger c-store chains these days.
While more than 70 percent of small operators reported an increase in hot dispensed beverage sales in 2021, only about 43 percent reported an increase for 2022. Similarly, while 63 percent saw an increase in cold dispensed beverage sales in 2021, this percentage dropped to 56.5 percent last year. And in frozen dispensed beverages, more than 80 percent of small operators reported increased sales in 2021, but this percentage fell to 65.4 percent for 2022.
The most successful convenience store operators have not only committed to foodservice, but they’ve moved it to the forefront of their business. Industry-leading retailers are building new, bigger stores that make fresh food the first thing customers see when they walk through the door. They’re also investing significant time, money and resources in enabling customers to order food and beverages the way they want and obtain them the way they want — think online ordering, mobile ordering, curbside pickup, in-store pickup, delivery, seating and more.
Surviving vs. Thriving
Whether operating a single store or a small chain, surviving against the larger convenience store chains is always top of mind for the industry’s small operators, and it can be challenging at times. This is especially true as of late, with the catalyst being the onset of the COVID-19 pandemic, which forced convenience store retailers to adapt by adopting and accelerating new services such as mobile ordering, delivery and contactless experiences.
Fast forward to today and these competitive pressures are combined with a post-pandemic world that includes an unpredictable economic climate, an erratic fuel market, supply chain woes and an inconsistent labor pool, creating a perfect storm for small operators to weather.
This kind of business environment has industry experts split on how they would rate the current health of the small operator. Roy Strasburger, CEO of StrasGlobal, a Temple, Texas-based provider of consulting, operations and management services serving the small-format retail industry, gives single-store and small operators a rating of 7 — an assessment he considers “good.” Strasburger explained that his rating is driven by today’s high fuel margins and convenience retailing being favored by consumers during difficult economic times.
John Matthews, president and CEO of Raleigh, N.C.-based Gray Cat Enterprises Inc., which provides retail consulting for multiunit operations, told CSNews that he cannot assign a rating to the current health of the small operator community because of the multitude of factors that come into play, including market conditions, competitive pressures, store location and a retailer’s offering.
“Some small operators are hitting the ball out of the park, while others are going to be out of business within five years unless they adapt. So, a rating would take both of these into account and just muddy the rating,” Matthews stated.
The major obstacle threatening small operators right now is the convenience channel’s accelerated overall change in the marketplace post-pandemic, according to Matthews. “Think about all the changes that have been brought to the forefront in the last three to five years,” he said.
These changes, according to Matthews, include:
- Product expansion — The need to get into “meaningful” foodservice and create a differentiated offering;
- Technology enhancements — From mobile apps, self-checkout and frictionless engagement to overall operational streamlining to minimize labor;
- Expanded services — Addressing the electric vehicle (EV) charging evolution; expanding seating areas, and getting more involved in the community;
- Customer engagement options — Delivery, pickup, food trucks, drive-thrus and pop-ups have all become the norm; and
- Investing in more appealing stores — Updating interiors and exteriors, and creating experiences for customers, not just transactions.
The good news is both Strasburger and Matthews agree that one key opportunity small operators have at their disposal to improve their business performance is leaning into the concept of local and putting the emphasis on “convenience” as the industry continues to evolve.
"[Small operators] have the opportunity to be the consumers’ retail location of choice for food, beverage and immediate consumable items. Convenience retailers have the unique position of being the local purveyors of products to the community and can know their community on a very individual and in-depth basis,” Strasburger pointed out.
Small operators can do this by optimizing their relationship with their supplier and distributor partners. In Strasburger’s opinion, the best thing a supplier can do for an operator is introduce new products to the retailer. Suppliers have earlier knowledge as to what is being introduced and can help assess which new products would work in an operator’s market.
“An offshoot to this is sourcing and introducing local products for the operator. The more locally oriented the store is, the stronger the relationship between the operator and the customer,” Strasburger said, predicting that the next retailing state will be hyperlocal. “The more locally oriented a store is, the better it can compete with the large chains, online purchasing and quick-delivery competitors. It’s not just about the products, but also about creating a relationship with local manufacturers that the community wants to support.”
Additionally, Matthews suggests small operators seek out guidance on how to optimize every part of their business and look at their P&L line by line to find opportunities. Having a local store marketing plan and considering the “store of the future” also can be beneficial.
When asked what his 10-year outlook is for the c-store industry’s small operators, Matthews said it is not hard to see the future. “Adapt, invest, improve or become obsolete,” he stressed.
Should I Stay or Should I Go?
After four years of decline, the number of convenience store industry locations operated by single-store operators rose by 1.2 percent last year as this sector added 1,087 stores. Single stores account for more than 60 percent of the industry. The number of stores operated by chains also ticked up last year by 1,061 locations, increasing 1.8 percent. The industry ended the year with a total store count of 150,174 vs. 148,026 in 2021.
While the size and influence of single-store operators remains significant, acquisition activity last year shifted to midsized and smaller operators. For example, Brunswick, Maine-based Rusty Lantern Markets picked up the Mallard Mart chain, adding four stores to its footprint in Maine when the Mallard Mart owners decided to retire. And moving west, the owners of Dino Stop Convenience Stores in the Green Bay, Wis., area exited the industry after more than half a century and sold their six-store chain to 7ECO Holdings LLC, a Denver-based chain of roughly 60 stores.
English punk rock band The Clash famously asked in the early 1980s, “Should I stay or should I go?” Lately, many independents and operators of small convenience store chains are asking themselves the same thing as the c-store business gets more competitive and complex.
On March 31 of this year, Green Zebra Grocery closed all three of its locations after a decade in the convenience store industry. Founded in Portland in 2013, Green Zebra sought to redefine what it means to be a convenience store in America. The retailer offered customers made-from scratch grab-and-go meals, a full-service coffee bar, kombucha Zlurpees, locally sourced meat, produce and groceries, and local beer.
Green Zebra founder and CEO Lisa Sedlar said the company had been “holding on by a thread” since the COVID-19 pandemic started and was “in austerity mode since then.” In a statement posted to the company’s website, she noted that Green Zebra experienced nine straight quarters of increases to its cost of goods, packaging, fuel, insurance, taxes and freight charges, among other expenses. Alongside those price hikes, the retailer also couldn’t overcome obstacles that included supply chain and staffing shortages, as well as “razor-thin” grocery margins.
“We definitely gave it our all and fought the good fight. We are thankful for the opportunity to have been in service to our community,” Sedlar said. “I want to express my deep gratitude and love for our truly awesome team members, loyal customers, vendor friends, landlords, investors and everyone who has helped us along the way. It has been a great honor to serve our local community over the last 10 years, and we’re beyond disappointed that we were unable to overcome the challenges presented by the global pandemic and current economic conditions.”
Industry experts expect to see more small operators exit the business.
“The demand for businesses with good cashflow and good assets is still in demand and will continue to grow,” predicted Terry Monroe, president of American Business Brokers & Advisors, based in Effingham, Ill. “There are many smaller and midsized convenience store chains in the United States that are owned by baby boomers who are at retirement age. Consolidation of the convenience store industry is not slowing down anytime soon.”
He pointed out that his company gets no less than two inquiries a week from qualified financial buyers outside of the industry wanting to purchase convenience stores because of the consistent cashflow the channel has generated over the years.
“The last four years, we have seen more acquisitions in the convenience store space be more aggressive than the first 20 years, and we anticipate the pace for acquisitions to increase due to the fact there are a lot of small chains that are thinking about exiting the business and most of the ‘A’ sites in the towns across the country are already taken,” Monroe added.
John Sartory, managing director of North Palm Beach, Fla.-based Petroleum Capital & Real Estate LLC, echoes that the forces that started big consolidation in the convenience channel — notably, the maturing of the industry and generational issues — will persist. Additionally, he observed that small operators today are being faced with several headwinds, including a heightened focus on technology as consumers demand new levels of tech to speed up transaction time and enable ordering when they want, how they want.
“Technology like self-checkout is great, but it costs money; it’s not cheap,” Sartory said. “You hope to offset labor costs, but initially you have to have the capital. For a small operator, can you compete with Sheetz, Wawa, 7-Eleven or QuikTrip with all the innovations they are bringing to their stores? I’m not saying you can’t compete, but it’s tougher and you have to have access to capital.”
The drivers behind an operator’s decision to sell are different for everyone, according to Ken Shriber, managing director and CEO of Petroleum Equity Group, headquartered in Chappaqua, N.Y. He pointed to business structure, geography, competition and asset stack as considerations.
“If an owner already has a very profitable portfolio of stores and a wholesale business, and they can fund additional acquisitions, rebuilds and build large format ground-up big box c-stores with large forecourts and foodservice, they may be advised to remain,” Shriber said. “If, on the flip side, they do not have the significant capital and expertise needed to develop big-box sites with a thriving foodservice business, they are well-advised to sell and monetize what they have, given the record prices being paid. When competition builds their bigger, modern sites nearby and impacts the local operator, it will be too late to achieve that outcome.”