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By Don Longo
Last year at this time, all the talk -- both within and outside the convenience store industry -- was about skyrocketing fuel prices. Gasoline prices at the pump were headed to $4 per gallon, and some pundits were predicting we'd see $9 per gallon gas prices by 2010.
Today, the attention has shifted from gas prices to the economy. Have we reached bottom with the recession? Perhaps. Speaking at Nielsen's Consumer 360 Conference last month, James Russo, the research firm's economic guru, said while consumers' fear over losing their retirement savings, their jobs and their homes still exists, it is less than it was just a couple of months ago. However, he also pointed out that if we are at the bottom, we may stay there for a while. The national unemployment rate, for example, is expected to climb from the current 8.9 percent to 10 percent in the coming months.
A review of Convenience Store News' 2009 Industry Report (available for purchase at www.csnews.com/research) shows the huge impact gas prices had on 2008 sales and profits. Last year's 11.4 percent industry sales gain was driven by a 15 percent increase in motor fuel sales. However, in-store sales -- where 70 percent of a c-store's profits come from -- were up only 2.5 percent, continuing the slowdown in growth of 3.9 percent in 2007, after in-store sales grew by 9 percent or more in each of the previous two years.
Part of the in-store sales decrease is due to the declining cigarettes category, which 10 years ago represented 40 percent of in-store sales and now represents only 30 percent.
But the dominant impact came from oil prices. When gas prices peaked at $4 a gallon in 2008, it seems consumers finally hit a "tipping point" in regards to their driving habits. By driving less, consolidating trips and using more fuel efficient vehicles, consumers consumed less fuel last year but paid more for it. The result: less discretionary dollars to spend in the store.
If skyrocketing gas prices depressed in-store sales last year, might today's relatively lower pump prices reinvigorate in-store sales in 2009? It stands to reason since the difference in paying $4 per gallon compared with today's price of about $2.25 per gallon is the equivalent of putting approximately $300 billion back into consumers' pockets.
Now that's a better stimulus than anything the Washington politicians have come up with. As of last month, less than 6 percent of the almost $800 billion stimulus bill had been spent. Imagine how bad the economy would be if gas prices were still at last year's levels.
While total in-store sales growth at c-stores slowed last year, foodservice continued to outperform every other category inside the store. Foodservice -- which includes prepared foods and hot and cold beverages -- was up 7.3 percent last year, according to the 2009 CSNews Industry Report. For the second consecutive year, it was the biggest contributor to in-store gross margins.
With results like that, it's easy to see why retailers are getting on the foodservice bandwagon. However, until now, little consumer research has been done on what drives shopper purchases of food at convenience stores. This year, CSNews partnered with Nielsen's Homescan panel-based consumer research firm to find out why Americans shop c-stores, what types of food they buy, and what influences their decision to buy food at a c-store.
A key finding of this "Realities of the Aisle" survey is that consumers are more likely to purchase prepared food at a c-store than you might think, and they probably would buy more from c-stores featuring the right combination of product assortment, quality and efficient operations. The findings are presented in an exclusive, industry-first report in this issue (visit www.csnews.com/research to purchase the extended report).
All indications are that even though gas prices will go up somewhat this summer, they won't be anywhere near last year's peaks. The increased discretionary dollars from lower fuel prices, combined with continued growth of foodservice sales, should put convenience stores' inside sales back onto a faster growth pace in 2009.