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CHICAGO -– As the convenience store industry celebrated what one speaker at the NACS State of the Industry Summit (SOI) described as "a good year" in 2012, with a "number of shining moments," retailers have to be somewhat nervous about a channelwide business slump that started in the second half of last year and is continuing through the first quarter of this year.
Glenn Plumby, vice president of operations for Ohio-based Speedway LLC, presented the top-line performance data at the NACS SOI Summit as a "Tale of Two Halves." A strong first half powered the convenience store industry to record sales of $700.3 billion in 2012, despite a "dreadful second half" that appears to be carrying over into the first 90 days of 2013, he noted.
Even a fairly rosy U.S. economic outlook presentation by Study Groups (FRMC Inc.) President David Nelson couldn’t hide the fact that industry sales, which were up 2.7 percent overall in 2012, were up only 0.6 percent and 2.6 percent in the third and fourth quarters of last year, respectively.
On top of that, Plumby noted that most retailers are seeing soft results in the first quarter of this year.
The culprit behind the decline in both inside and fuel sales (fuel gallons were down 0.7 percent and 0.8 percent in the last two quarters of 2012) appears to be a steep decline in transactions. According to NACS data, overall transactions (inside and at the pump) went from up 5 percent in the first quarter, to a 1.4- percent gain in the second quarter, to totally flat in the third quarter and negative 0.7 percent in the last quarter of 2012.
"Something happened to overall transactions in the second half of last year Why? I’ve got nothing," Plumby stated, indicating his bewilderment at the situation.
Kevin Smartt, CEO of Texas-based Kwik Chek Food Stores, came up with his own theory for the second-half drop when he presented the NACS merchandise category numbers. "The [Presidential] election. The fiscal cliff. The worse drought since 1895. Hurricane Sandy, which devastated the Northeast. All these may have had something to do with the second-half business slowdown for the c-store industry," Smartt surmised.
Nevertheless, Plumby, a member of the NACS Research Committee along with Smartt, noted that 2012 had more than its share of "shining moments" for the c-store industry. For example, the gap between the industry’s pretax profit ($7.2 billion) and what the industry paid in credit/debit card fees ($11.2 billion) narrowed slightly after many years of skyrocketing increases.
Other encouraging signs include:
- U.S. gasoline consumption, after several years of decline, was up 1.3 percent in the first quarter of 2013.
- Fuel margins, after falling for several years and remaining flat in 2012, were up in the first quarter of this year.
- Foodservice continued its rise. Foodservice sales per store/per month were up 8.7 percent last year, beating total in-store sales, which rose just 2.2 percent, by a wide margin.
- C-store foodservice sales grew faster than many large fast-food chains (McDonald’s was up 4.7 percent, Burger King was down 6.6 percent and Pizza Hut was up 1.1 percent) on a per store/per month basis.
- Total direct-store operating expenses were up 1.1 percent despite a 6.3-percent increase in health insurance costs, illustrating that retailers are managing the expense side of the business very well.
Plumby closed his presentation with some suggestions on what retailers should do, based on his analysis of the numbers:
- Rationalize your assets. "The difference in performance between top-quartile and bottom-quartile companies is growing," he noted.
- Continue to grow foodservice at a rapid pace. "Growth is looking good, but there is still a lot of upside if you consider the QSRs [quick-service restaurants] as your competition," he said.
- Grab market share. "Both outside and inside the store," he rallied.
- Grow profitability by knowing what your shopper wants. He specifically referenced industry research, such as the "Playbook for Success" study by the NACS/Coca-Cola Retailing Research Council.
- Acquisition/consolidation. "We’re going to see more consolidation. There’s an ever-present need to grow," he concluded.
The busy first day of the NACS SOI Summit, which continues today, also included breakout sessions on specific product categories and additional presentations. One by Dennis Gartman, editor and publisher of The Gartman Letter, focused on the commodities markets and gave another optimistic view of the future of the U.S. economy.
"We are so much better off than any other country in the world…anyone who says otherwise is an idiot," Gartman commented.
Todd Hale, senior vice president of consumer and shopper insights for Nielsen, spoke about innovation, particularly looking at how other retail channels, such as grocery, drug and dollar stores, are innovating and challenging convenience stores in the areas of convenience and foodservice.
Additionally, a breakout session on packaged beverages was presented by Brad Morris, head of Customer Advisory Services for Coca-Cola Refreshments, and Ivan Alvarado, director of category management for the Dr Pepper Snapple Group. According to Alvarado, one of the key drivers for consumers is variety. They go to specific stores based on brands and flavors available.
"Consumer research done by Coca-Cola shows that the top reason for selecting a store for a beverage purchase is the brand and flavor selection," he said. If a desired product isn’t available at a particular convenience store, 39 percent will drive further to another convenience retailer to get the variety they want.
"We also know that shoppers at a convenience store don’t want to spend too much time," added Alvarado, who reported that the average time to choose a beverage is 12 seconds. "If they don’t see what they want quickly, at 30 seconds, the shopper will give up. So, understanding what your shoppers want is critical. Variety is important, but having the right variety is critical."