Convenience store retailers know how to cope with gas price volatility; it’s a must-have skill for operators in the segment. Another skill quickly turning into a must-have is adapting to the price volatility of items inside the store.
It used to be that convenience stores could rely on a certain percentage of drivers to go inside. Now, when they must factor in geopolitical instability in key food production regions and inflation, which is particularly steep with gas prices, that percentage erodes faster than operators’ margins.
Even if it surprised many when the American Automobile Association (AAA) reported that a record 42 million Americans planned to drive over the Fourth of July weekend, it doesn’t mean the segment wasn’t impacted by double-whammy woes already known to the c-store operator: inflation and reduced buying power. Demand at the pump may have been healthier than expected, but it doesn’t necessarily mean that drivers were rushing inside.
This means convenience stores must manage price expectations both at the pump and in the convenience store to drive total basket. However, just as with most challenges, there are abundant opportunities to help overcome them.
How Did Convenience Stores Get Here?
The first prong, gas price increases, aren’t unique to this period. But generally, volatility in prices is cause for concern for convenience stores. It’s typically related to higher-than-usual prices, but even during oil’s contango period of 2020 when gas prices plummeted, consumers were equally surprised.
These volatilities drive away customers and create a double-edged sword for the operator: if gas prices are too high, then shoppers may not have enough disposable income to spend inside. Even if they had more income to spend inside, as they may have in 2020 because of lower gas prices, that didn’t necessarily translate to more sales inside. This also could have been because of the early stages of the pandemic, when drivers may have been nervous about going inside, and the shift to working and schooling from home sharply reduced overall miles driven.
The second prong, inside the convenience store, comes amid the convenience channel’s ongoing pivot to increase sales of categories such as foodservice, coffee, select grocery categories, and on-trend general merchandise items. These efforts at diversifying the sales mix also stem from ongoing pressures on the tobacco category, which accounts for roughly 30 percent of the U.S. convenience channel’s in-store sales — a sizable secondhand exposure to a category with negative trends.
Tobacco usage is declining with cigarette smoking among adults down to 12.5 percent of the population in 2020, compared to nearly 21 percent in 2005, according to data from the Centers for Disease Control and Prevention (CDC).
With the traditional trip drivers of gas and tobacco under pressure, some leading c-store operators have made artificial intelligence (AI) driven store planning and category optimization a priority, recognizing that the traditional concept of a c-store is evolving to fit a new definition of convenience based on lifestyle trends and evolving shopper preferences.
A select group of c-store operators has ascended to a new place in the consumer psyche where their stores are destinations for a broader range of needs, but they also happen to sell gas.
Maximizing the Space Inside
To solve this, retailers must create enticing store layouts that are easy to shop. They must stay true to the convenience value proposition, but provide compelling merchandising presentations of spot-on product assortments, and intelligent promotions that make convenience stores an important destination.
Such an environment requires excellent agility on the part of retailers, whose processes must accommodate dynamic and continuous planning to move with the market.
Using AI for category planning and optimization is key for realizing the maximum value from the available space, especially given recent ebbs and flows in fuel prices in the U.S. and globally.
These changing dynamics of the convenience channel require retailers to leverage AI in new ways to make optimal decisions about store and shelf layouts, category space allocations, and assortments. This will ensure convenience stores can turn into a destination for multiple reasons beyond fuel, and encourage customers whose trip was motivated by the need to fill up to venture inside for additional purchases.
Gina Hargrave serves as head of category planning at SymphonyAI Retail CPG and has 20 years of experience in FMCG retail, focused on category and space management business processes and solutions. For more information, visit symphonyretailai.com.
Editor's note: The opinions expressed in this column are the author's and do not necessarily reflect the views of Convenience Store News.