Winning

Convenience store sales outpace competing retail channels

For all the hand-wringing over losing sales to competitive channels from outside the industry, convenience store retailers won the race against other channels last year — particularly drugstore chains, many of which made highly visible moves into traditional c-store categories such as alcoholic beverages, tobacco and even foodservice.

Convenience store in-store sales grew 3.4 percent in 2010, reaching a record $178.8 billion, surpassing the growth rates of most other competing channels, including drugstores (2.4 percent) and grocery stores (2.3 percent), according to the just-released Convenience Store News 2011 Industry Report and U.S. Department of Commerce figures.

Total sales, including motor fuel, soared to $574.1 billion last year, a 13.5-percent increase over 2009 when oil prices were the lowest since 2002. Motor fuel sales alone experienced an 18.8-percent gain at convenience stores in the just concluded year.

Industry gross profits also were up last year, from $67.6 billion in 2009, to $71.5 billion in 2010, a 5.7-percent increase.

Part of this sales growth is attributed to a small gain in the number of stores. The number of U.S. c-stores grew 1.2 percent over the past year and stands at a record 146,341 stores, according to the NACS/Nielsen TDLinx 2011 Convenience Industry Store Count, released this January.

Higher fuel prices and slightly higher volume also drove the total industry sales gain. Motor fuel sales grew 18.8 percent last year as overall per gallon prices rose 17.2 percent. Fuel continues to generate the majority of c-store revenue, but only a small share of the industry's profits.

Overall, 68.9 percent of total c-store sales dollars were from motor fuel. Even with an increase in motor fuel gross margins to 16.3 cents per gallon (up 8.7 percent), motor fuel margins remained slim and motor fuel still only accounted for 33.2 percent of gross profits at c-stores.

Reversing two years of declining motor fuel volume, convenience stores pumped two billion more gallons of fuel last year, a 1.4-percent increase, after declines of 2.2 percent and 1.7 percent in 2008 and 2009, respectively.

Gross profit margin as a percent of sales declined slightly last year to 12.45 percent, from 13.33 percent the year earlier. Pricing and competitive pressures kept in-store merchandise and foodservice gross margin flat at 26.78 percent, from 26.71 percent in 2009. Gross margin on motor fuel fell to 5.97 percent, from 6.43 percent the year before.

Convenience industry pretax profits reached $6.1 billion in 2010, an increase of almost $1 billion. On a per-store basis, pretax profits increased to $42,666 per store in 2010, up from $36,422 the previous year.

The fact that convenience store sales outpaced those of competing channels illustrates the strength of “convenience” as a driver of consumer shopping behavior. The continued growth of foodservice, albeit at a slower rate than in past years, also boosted in-store sales for the industry.

Despite these strong financial results, concerns remain for the industry, especially with credit card and debit card fees jumping a staggering 21.4 percent to $8.5 billion.

Foodservice sales growth again outpaced that of other in-store merchandise categories. Foodservice sales rose 6.1 percent to $23.8 billion last year, while merchandise sales were up 3 percent to $155 billion. The percentage sales growth for foodservice last year bettered the 5.3-percent growth rate of the previous year, but was down from the double-digit growth rate of 2007. In terms of share, foodservice share of total in-store sales edged up from 13 percent, to 13.3 percent in 2010.

Merchandise sales growth was slightly lower than the 4.1-percent gain of 2009, yet much better than the meager 1.9 percent eked out in 2008.

Cigarettes, foodservice and packaged beverages combined accounted for nearly 60 percent of in-store sales last year, and the top 10 categories represented nearly 90 percent of in-store sales.

The fastest-growing category in percentage sales gain of total industry sales last year was other tobacco products (OTP), which rose 12.4 percent. The foodservice subcategories of cold and hot dispensed beverages grew by 6.5 percent and 6.3 percent, respectively. The prepared food segment racked up a sales gain of 6 percent, while cigarettes — the largest revenue-producing category — grew 5.1 percent.

Among the other top 10 categories, candy/gum had a strong 3.3-percent sales gain last year, while the relatively small alternative snacks category was up 6.1 percent. In contrast, the salty snacks category was down nearly 5 percent in sales at convenience stores last year, and the beer and general merchandise categories were essentially flat.

Foodservice once again generated the most of gross margin dollars inside the store at $75,041 per store, followed by cigarettes ($66,663), packaged beverages ($45,347) and beer/malt beverages ($22,649).

More than two-thirds of in-store gross margin dollars come from the top five categories:

■ Foodservice (22.4 percent of in-store gross margin dollars)

■ Cigarettes (19.9 percent)

■ Packaged beverages (13.6 percent)

■ Beer (6.8 percent)

■ Edible grocery (6.3 percent)