What A Ride

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What A Ride

By Don Longo, Convenience Store News - 06/14/2010

2009 was characterized by extreme highs and lows as convenience stores survive the recession better than most other industries

Total convenience store sales in 2009 declined for the first time in the 35-year history of Convenience Store News' Industry Report, plunging 20 percent to $505.7 billion. The drop was mostly due to a 29-percent decrease in motor fuel revenues during a recessionary year when gas prices fell 28 percent from the year before. Exacerbating the drop-off — fuel consumption was also down as Americans drove less and more fuel-efficient vehicles joined the nation's auto fleet. The recession also reduced trucking traffic, which adversely affected diesel sales.

This year's CSNews Industry Report is a study in contrasts, as the Great Recession affected sales and profit figures in many different, and often contradictory ways. For example:

Store count declined for the second year in a row, but unlike in 2008, more chain-owned stores disappeared than those operated by a single-store owner.

Fig. 1

Store Growth Analysis

Usually, higher gas prices reduce fuel consumption and lower prices spur it. But unlike previous trends, the big decline in fuel prices last year did not increase consumption, as motor fuel volume was down 1.7 percent from 2008.

In-store sales grew 4.2 percent, beating the percentage gains made in the non-recessionary years of 2008 (2.5 percent and 2007 (3.9 percent).

However, the in-store sales gain was heavily driven by increased taxes on tobacco, price hikes in candy and snacks, and growth in the small but booming energy shot subcategory. Take cigarette sales out of the picture and in-store merchandise sales, including foodservice, were flat (down 0.2 percent). Staple departments such as packaged beverages, beer, general merchandise and hot dispensed beverages recorded flat or decreased sales. "Flat is the new up in many categories," said Greg Parker, CEO of 23-store Parker Cos., at NACS' SOI event in Chicago last month.

Fig. 2

Total Convenience Store Sales

Fig. 3

Total Motor Fuel Volume

On the bright side, foodservice sales grew almost 6 percent, despite heavy discounting throughout the industry and heightened competition from fast-food operators.

Because of the 0.2-percent decline in number of stores, in-store sales grew faster on a per-store basis than industrywide. The average store generated $1.2 million in in-store sales, a 4.5-percent gain — which compares favorably to inside sales per-store gains of 3.3 percent and 3 percent recorded in 2008 and 2007, respectively.

In addition, as motor fuel sales declined, in-store sales as a percentage of the industry's sales mix grew 8 points, from 26.2 percent in 2008 to 34.2 percent. Accordingly, in-store sales' percentage of gross profit dollars rose 2 points to 68.3 percent of the total industry profit dollar mix.

Fig. 4

Industry Sales Mix

With such a huge overall decline in revenues, it's no wonder total industry gross profit dollars also decreased. C-store industry gross profit was down 5.8 percent to $67.6 billion in 2009. That comes on the heels of a 6.2-percent increase the previous year. Motor fuel was the big culprit. Gross profit in fuel was down 11.6 percent industrywide to $21.4 billion. Gross profit in in-store categories was also down — dropping 2.9 percent to $46.2 billion, following a 4.2-percent increase in 2008.

Fig. 5

Gross Profit Dollar Mix

Fig. 6

Industry Gross Profit

However, although gross profit dollars were down, gross profit margin as a percent of sales climbed last year as retailers wrung higher margins out of the gasoline they did sell. Combined gross profit margin rose to 13.3 percent of sales, up from 11.3 percent in 2008, while motor fuel gross profit margin climbed to 6.4 percent, from 5.2 percent the year earlier. In-store profit margin declined 2 points, though, falling to 26.7 percent, from 28.7 percent in 2008.

Reflective of the overall difficult operating environment, total industry pretax profit was down 7.9 percent last year to $5.2 billion. Despite the decline in profit, it's important to note that this figure was still the second-highest pretax profit figure of the past five years. On the down side, credit card transaction fees again outpaced total industry pretax profits, even though the drop in fuel sales helped lower these credit fees to $7 billion, 10.7 percent less than last year.

Fig. 7

Gross Profit Margin

(as a percent of sales and dollars per store)

Fig. 8

Total Industry Pretax Profits

The bottom line? Convenience stores proved once again that they are — in the words of Parker — "one of the most recession-resistant industries in the retail world." According to U.S. Census Monthly Retail Trade data, total drug and pharmacy store sales were up only 3.4 percent last year and grocery sales were flat (down 0.1 percent). So, convenience stores' 4.2-percent in-store sales gain looks pretty good in comparison.

Parker pointed out c-stores have the price elasticity to survive a recession. That was certainly borne out by this year's CSNews Industry Report, which showed gross profits declined by a much smaller percentage than overall sales.

Parker's advice to c-store retailers for 2010: "Watch your numbers. Increase profitability with margin and cost control, and hire better-quality employees."

Other Industry Report findings include:

  • Texas was by far the state with the largest increase in number of stores, with 114 net additional convenience stores in 2009. Other states with significant increases in store count were Georgia (43), Massachusetts (39) and Ohio (33).
  • The states with the biggest decrease in convenience stores were Minnesota (85), Florida (80), Missouri (60) and Alabama (59).
  • The number of gas stations with kiosks, rather than full-blown convenience stores, also declined last year. According to Trade Dimensions, a sister Stagnito Media company to CSNews, there were 19,465 gas kiosks in operation last year, a drop of 461 units, or 2.3 percent, from 2008.
  • The percentage of c-stores selling gasoline stayed about the same: 79.8 percent in 2009 compared to 79.2 percent in 2008. The five states with the largest percentage of c-stores selling gasoline were concentrated in the Midwest: North Dakota (96.6 percent), Nebraska (96.6 percent), Iowa (95.5 percent), South Dakota (95.3 percent) and Kansas (95 percent). The five states with the lowest percentage of convenience stores selling gas were in the eastern U.S.: Washington, D.C. (37 percent), Massachusetts (49.9 percent), New Jersey (43.5 percent), New York (56.3 percent) and Rhode Island (60.1 percent).

Data collection and analysis of the CSNews Industry report is supervised by Debra Chanil, Stagnito Media Research Director, in partnership with Preston/ Rogers Associates Inc. For complete report methodology, see page 84.