Total In-store Gross Margins Decline

The tough economy and increased competition weighed on in-store gross margins for convenience stores in 2009. Average gross margin percent for merchandise and foodservice both declined, by 1.5 percentage points and 4.9 percentage points, respectively. The last time both side of the store declined was in 2005.

These declines caused total industry in-store gross margin percent to drop two percentage points, to 26.71 percent from 28.67 in 2008. The last time total in-store gross margin percent was below this level was 2001, at 27.8 percent.

The biggest decline in merchandise gross margin percent was seen in packaged beverages, dropping 3.58 percentage points to 32.59 percent, perhaps due to a maturation of the energy drink segment and slower bottled water sales — two segments that had seen explosive growth in previous years. Despite these declines, certain in-store merchandise categories gained some margin in 2009, including the No. 1-ranked ice (52.66 percent, up 0.21 percentage points), health and beauty care (44.51 percent, up 0.12 points), wine and liquor (22.65 percent, up 1.1 points), and fluid milk (18.69 percent, up 0.45 points).

On the foodservice side, the category's average gross margin percent fell to 45.65 percent in 2009, from 50.59 percent a year ago. Taking the largest hit was prepared food, dropping 5.41 points from 45.17 percent to 39.76 percent. The area of foodservice with the highest average gross margin percent remains frozen dispensed beverages, at 64.19 percent.

Looking at gross margin dollars per store paints a similarly grim picture. All in-store categories — save health and beauty care, candy/gum and cigarettes — experienced a decline in gross margin dollars. Overall, per-store gross margin dollars fell 2.7 percent, or $8,900. On the merchandise side, gross margin dollars declined 2.0 percent, while the foodservice side showed a steeper 4.8-percent drop.

For the three categories that showed growth in average margin dollars, health and beauty care came out on top with a generous 18.1-percent increase, due to the continued popularity of energy shots. This was followed by cigarettes at an 8.6-percent boost, contributing $62,709 to the average store's bottom line thanks to an opportunity presented ahead of last year's federal excise tax increase. The third in-store category to show an increase in gross margin dollars was candy/gum, lifting 2.3 percent.

And despite foodservice's declines in gross margin percent and dollars per store, it still beat out cigarettes in terms of gross margin dollars per store and industrywide for the third consecutive year.

bottom line:

Both foodservice and merchandise gross margin percentages declined in 2009.

Packaged beverages saw the largest decline in gross margins for in-store merchandise, while prepared food suffered the largest fall for foodservice.

Nearly all in-store categories saw a drop in gross margin dollars.
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