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Whether a c-store operator chooses to grow his or her business by building new stores or acquiring existing units, the strategic question of where to operate these stores remains the same.
A good place to start is to look at population trends. Is the population expected to grow? Where will the growth come from, in terms of age, gender, ethnicity, etc.? What is the competition like in a particular market? Who is already there -- including other c-stores as well as supermarket, drug and other competitive channels -- and what are they doing?
Where is the new commercial and residential development going? What is the current and anticipated economic picture, including income and employment levels? Is the area a transportation hub where commuters swarm during the morning and evening rush hours? Is it a destination for tourists, dependent on seasonal business? What is the overall demand for products and services?
The 2008 Convenience Store News Saturation Study may provide a first step: an examination of market areas throughout the country that compares current population to c-store count.
Since CSNews' last saturation study in 2004, the increase in total c-store count (12 percent) has outpaced U.S. population growth (up 3.6 percent). As a result, the average number of people available per c-store -- the average saturation rate -- has declined from 2,224 to 2,058 per store (down 7.5 percent).
Starting with a regional view, the South remains the only oversaturated region (that is, one where the population per store is higher than the national average), while the Midwest, Northeast and West may all be considered undersaturated. Of course, all four markets have specific areas that fall into each of these categories, those that are oversaturated with c-stores and those that have an under-served population in this respect and can therefore support the addition of more stores.
The total U.S. population growth, at 3.6 percent from 2004 to 2007, was outpaced by the West (up 5.4 percent) and South (up 5.0 percent). During the same period, the c-store count increased by 12 percent, a rate that was topped in the Northeast (16.3 percent) and the West (14.1 percent).
The net result of these shifts in population and store count is that the saturation rate declined in each region, as more stores were available to serve the population. The largest decline came in the Northeast, where saturation dropped by 13.3 percent, and this region saw the largest change in the index, from 0.78 in 2004 to 0.83 in the current study. The smallest decline was in the South, down 5.6 percent, where the index remained unchanged at 1.30.
New Jersey, Pennsylvania Offer Potential
While Northeast states saw the largest percentage increase in store count since CSNews' last saturation study in 2004 (16.3 percent), the region gained only 0.05 points in the saturation index (from 0.78 to 0.83). Population growth in this area is slower than the national average and lowest among all regions at 2.5 percent from 2000 to 2007, with only an additional 1.1 percent projected from 2007 to 2012.
Among the nine states in the region, only three can be classified as oversaturated: Vermont, Maine and New Hampshire. Of the top 10 oversaturated markets, eighth-ranked Pittsfield, Mass., one of the smallest markets measured, showed the largest change with its index moving from 0.96 in 2004 to 1.16 in 2007. The New York metro area -- largest in terms of population -- raised its saturation index from 0.57 to 0.66 during the same period.
New Jersey and Pennsylvania remain the most undersaturated states in the region, both falling below the region index of 0.83. Trenton-Ewing, N.J., remains the most undersaturated market. While there is clearly room for growth, caution is advised, as population growth for the market continues to trail the national average (5.5 percent from 2000 to 2007, with an additional 3.3 percent expected by 2012). In terms of population growth, the best bet among the 10 most undersaturated markets would seem to be York-Hanover, Pa., which grew by 9.5 percent in the last seven years and is expected to add an additional 6.1 percent by 2012.
Most Stores Per Capita in Saturated South
The southern states continue to dominate the c-store industry with almost half of the total store count and the highest regional saturation level at 1.30, making it the only oversaturated region. Is there still room for growth? Population estimates suggest there is, with growth of 9.4 percent from 2000-2007 and another 6.2 percent predicted by 2012.
Since CSNews' last study, Mississippi has overtaken Alabama as the most oversaturated state. In fact, at a level of 2.03, Mississippi has the highest index of any U.S. state. With population expected to increase by only 2.3 percent over the next five years, opportunities for new stores appears limited in larger markets. Of the five markets with population above 100,000 included in this study, the lowest index was an oversaturated 1.40 for Memphis.
Among the other states in the region, only Maryland and Delaware are undersaturated (along with the District of Columbia). Among the most undersaturated markets are the Washington, D.C. area and Baltimore-Towson, Md. The real opportunity, however, seems to be in third-ranked Naples-Marcos Island, Fla. While the population is still relatively small, it has exploded by more than 30 percent since 2000, with another jump of 18 percent expected in the next five years. Meanwhile, its index has actually dropped from 0.92 in 2004 to 0.81 currently, suggesting that the c-store count has not yet caught up to the population growth.
Among the top 10 undersaturated markets, Miami-Ft. Lauderdale-Miami Beach, Fla., has the largest population, at more than 5.5 million, and the largest store count (2,298) with a saturation index of 0.86. Population for that area is expected to grow by 6.8 percent by 2012.
Room for More Stores in the Windy City
At 0.95 (or five percent below the national average), the saturation rate for the Midwest region has not changed in the past three years. Illinois, with the largest population, has the lowest index at 0.75. Its largest market, the Chicago area, has the second lowest index in the region at 0.62. That market's population growth was 4.7 percent from 2000 to 2007, with 2.8 percent expected by 2012, both below the national average.
The most undersaturated market continues to be Ann Arbor, Mich., with a saturation rate almost half that of the average market (at 0.59), which is relatively unchanged since the last study.
There have been some changes in ranking among the most saturated states. While South Dakota remains at the top with an index of 1.67 (up from 1.50 in the last study), North Dakota moved into second, pushing Iowa into third place. Two states -- Michigan and Wisconsin -- now sit at 1.00, the national average saturation level.
In terms of population growth, only five Midwest markets in the study achieved double-digit growth from 2000 to 2007; among those, only three -- Des Moines, Iowa, Rochester, Minn. and Lawrence, Kan. -- are undersaturated (the last is ranked 10th with an index of 0.72, down from 0.87 in the last study).
In addition to Lawrence, Kan., the other big mover among the top 10 was the Milwaukee area (up from 0.58 in 2004 to 0.70 in the current study). This change was driven by a 28 percent gain in store count during the past three years, coupled with relatively flat population growth (an increase of 1.0 percent since 2000).
Go West For New Stores
With the highest population growth and lowest saturation index, the West region overall appears to hold the most potential for c-store operators. The population grew by 10.9 percent from 2000 to 2007 and should rise another 7.5 percent by 2012. Meanwhile, the overall saturation index stands at 0.71, exactly where it stood three years ago.
The region has the top three undersaturated markets in the country: the Los Angeles (the largest in overall population), San Jose and Oxnard, Calif., areas. Of those markets, Oxnard is expected to see the largest population growth, with a 6.3 percent by 2012. That market also gained the largest percentage of stores over the past three years, up by 18.9 percent.
These three California markets contribute to that state's overall position as least saturated, at 0.57. In fact, seven of the top 10 undersaturated markets are in California. The state is second only to Texas in both population and total c-store count.
Oversaturated markets are more spread out, as six states are represented within the top 10 list.
The Las Vegas-Paradise, Nev., market continues to experience one of the largest population growth rates in the country (growing by 31.4 percent in the past seven years), while the saturation rate has declined from 0.84 in 2004 to 0.76 currently, as c-store growth has not kept pace (increasing by 13.7 percent in the past three years).