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MIAMI BEACH -- The CEOs of 7-Eleven Corp. and Alon USA kicked off the opening session of NACS' 2011 Leadership Forum with a review of the critical issues and opportunities facing the convenience store industry.
While both CEOs identified several troubling challenges for the industry, they also both pointed out how the convenience industry has proven very resilient, having fared better than most other retail channels throughout the recession. Strong retailers with strong brands and well-executed retail concepts will continue to thrive into the future, they agreed.
The jobless recovery, the rising cost of commodities, channel blurring or competition from other retail channels of trade, and increasing government oversight of business were just a few of the major issues cited by Joe DePinto, CEO of 7-Eleven, in his opening address before a crowd consisting of most of the convenience industry's top retailers and suppliers.
The high unemployment rate -- which is really 17 percent if you include "underutilized" workers or those working in jobs below their former level -- has changed the dynamics of retailing, claimed DePinto. "A seller's market is now a buyer's market," he said.
He also pointed out that rising commodity prices are putting a burden on retailers. Prices for everything from crude oil, to coffee, wheat, beef and sugar have risen rapidly, and tobacco, the industry's top in-store revenue producing category, has come under increasing government regulation and a dramatic rise in taxes. "Ten states currently have excise taxes of $2 per pack or more," said DePinto, and many states are looking to raise tobacco taxes even higher to close wide budget gaps.
Healthcare reform has provided insurance coverage for nearly 30 million uninsured Americans, but the controversial legislation passed last year doesn't do anything to address healthcare costs, he noted. "If healthcare legislation doesn't change, our health insurance costs will double by 2014," said DePinto.
DePinto also warned attendees that the interchange fee cost issue is not over despite the passage last year of swipe fee reform. "We all owe the NACS team our thanks for their endless hard work in driving swipe fee reform legislation," he said. "The industry will save billions but we need to keep applying pressure. The banks are throwing everything they have (to reverse the reform)." He urged all attendees to go to www.unfaircreditcardfees.com and send a note to their congressmen and senators to support the reform.
DePinto also gave a quick update on the progress made by 7-Eleven at overhauling its corporate culture to one of servant leadership in support of the company's stores and franchisees. "To stay relevant, you have to listen to your customer and change," concluded DePinto. "Our customers, the environment and the competition is changing rapidly. We must be mindful of that and change just as rapidly."
Jeff Morris, CEO of Alon USA, a leading refiner and marketer based in Texas and also operator of Southwest Convenience Stores, which consists of more than 300 7-Eleven and Fina stations in Texas and New Mexico, addressed the future of the forecourt side of the business.
Morris pointed out that gasoline demand in the United States peaked in 2007. "We will never again sell as much gas as we did in 2007," said Morris. Why? The energy bill passed in December of that year set new mileage standards that call for a huge fuel efficiency improvement, which was accelerated to a new goal of 25 percent fuel efficiency improvement by 2016 by the Obama administration.
As car makers strive to meet that target, consumers also began buying more fuel efficient autos when fuel prices reached $4 per gallon in the summer of 2008. These factors are working to change the types of vehicles on the road today and in the future. "In reality, consumers can't change their fuel demand much through their driving behavior," noted Morris. "They still must drive to work, to school, etc. But, when they buy a new vehicle and go from a 15-mile-per-gallon guzzler to 30 mpgs, that is significant change."
As for future fuel technologies, Morris is betting that gasoline will remain the main fuel of choice despite a demand decline of 1 percent per year over the next few years. However, the growth will be in diesel fuel, as diesel demand will actually grow 1 percent per year.
His advice to retailers is to be smart about their forecourt investments with the understanding that any growth in gasoline will have to come out of competitors' market share. "The pie is not growing," he said.
Morris continued: "Think about diesel. It's not a requirement, but it is the growth fuel of the future. Be careful about natural gas (CNG). The science doesn't support a long-term investment in CNG. And, be very careful about ethanol. It's very costly to convert and the science doesn't support ethanol vehicles. It's all politically driven by the ethanol lobby which is dependent on Congress passing annual subsidies."
As for electric vehicles, Morris sees strong future possibilities for hybrid electric vehicles, but right now "understand you'll be investing for the early adopters today."
The NACS Leadership Forum continues Thursday and Friday with discussions and panels from leading retailers and experts on the critical areas of refreshments and people.