By John Lofstock, Editor
Convenience store sales climbed 20.2% to reach a record $474.3 billion in 2005, the third straight year of revenue growth of at least 16%, according to National Association of Convenience Stores’ State of the Industry (SOI) report.
The results were announced last month at the NACS SOI conference in Chicago.
“In a year of record high gas prices, we grew in-store sales,” said Greg Parker, a member of the NACS Board of Directors who presented the SOI data on behalf of the association. “This goes to prove the theory that customers would be turned off by high gas prices and not come into the convenience store is not true.”
Parker is president of The Parker Cos., a 20-store chain based in Savannah, Ga.
A 26.2% hike in gasoline prices led to a 25.5% increase in motor fuels revenues to $329.5 billion in 2005. The average margin was approximately 16 cents. In-store revenues also showed strong growth increasing 9.6% to $144.8 billion, with merchandise revenues rising 9.7% to reach $127.6 billion and foodservice revenues growing 8.8% to $17.2 billion.
On a per-store basis, combined in-store sales topped $1 million per store for the first time in history, reaching $1.036 million per store.
The industry’s numbers are based on a survey of convenience and petroleum retailers that cumulatively represent more than 21,000 U.S. retail locations. What is impressive is that the industry grew in-store sales by a strong 9.6% even after factoring in a 1.8% bump in store count to more than 140,000. Moreover, the sales jump surpassedvirtually every other competing channel, according to U.S. Department of Commerce data. The only channel that saw growth surpass that of the convenience store industry was warehouse clubs/ superstores, which grew 12.2%.
“The numbers, particularly the foodservice numbers, don’t surprise me at all,” said John Rowe, owner of Speedy’s Convenience Stores, an eight store chain based in St. Louis, Mo. “What surprised me is that they’re saying our average fuel margins are 16 cents. Mine are more like 8 cents, 5 cents of which then gets eaten up in credit card fees.”
Credit Card Fees Outpace Growth
While industry profits showed a strong increase of $840,000 million in 2005, credit card processing fees increased to an even greater extent. Fees last year cost the industry $5.3 billion, a staggering 39.5% hike over the $3.8 billion in 2004.
In 2005, card fees accounted for 7.8% of all gross margin dollars, up from 6.1% in 2004 and 5.8% in 2003. Only labor costs and rent exceeded processing fees in 2005, but the gap between rent and credit card fees narrowed from 3.9 percentage points to 2.1 percentage points. “This is a problem we are addressing and we will fix,” Richard Oneslager, president of Balmar Petroleum and NACS vice chairman of research and technology, said in the SOI opening general session. “Visa and MasterCard are profiting almost as much as we are and they don’t even operate convenience stores.”
In examining the impact on motor fuels, credit card fees contributed an estimated 3.7 cents per gallon sold in 2005, including purchases paid for with cash. As wholesale gasoline prices have remained high, the problem of escalating card fees is expected to be significantly worse in 2006, since fees increase as prices rise, while at the same time more customers use plastic to pay for the higher cost of fuel.
Motor Fuels Dominate Revenues
The industry’s motor fuels sales jumped 25.5% to reach $329.5 billion. While motor fuels sales accounted for more than twothirds of sales dollars (69.4%) in 2005, motor fuels accounted for just over one-third (35.5%) of stores’ gross margin dollars. Gasoline sales accounted for 94% of all motor fuels sales; diesel accounted for 5.9% of sales and kerosene accounted for the remaining 0.1%.
Customers continue to purchase the vast majority of their fuel at c-stores, which sell an estimated three-quarters of all fuel purchased in the U.S., but there are substantial shifts in how that fuel is bought. As motor fuels prices rose to record levels in 2005, customers continued the trend of trading down octane levels. Sales of regular fuel accounted for 83.5% of all gasoline sales in 2005, an increase from 81.4% in 2004. Premium sales dropped from 7.7% to 7.6% and mid-grade sales dropped from 10.9% to 8.9% of sales in 2005.
Overall, retailers were pleased with the industry’s performance in 2005. “The [SOI] numbers just made me feel comfortable about the process we go through every day as convenience store owners,” said Jerry Westage, co-president of WESCO, Inc., a 52-store chain based in Muskegon, Mich.
Cigarettes Top In-Store Categories
Once again, cigarettes dominated in-store sales, accounting for more than one in every three dollars spent in stores. The top 10 categories in terms of percentage of in-store sales were:
- 34.4% Cigarettes (of in-store sales)
- 13.3% Packaged beverages
- 11.9% Foodservice (including hot, cold and frozen dispensed beverages)
- 11.7% Beer (but 14.3% when only considering stores selling beer)
- 3.8% Other tobacco products
- 3.6% Candy
- 3.2% Salty snacks
- 2.3% General merchandise
- 2.2% Fluid milk
- 1.9% Packaged sweet snacks
Cumulatively, the top 10 categories accounted for more than 88% of all instore sales. Of the top 10, packaged beverages, other tobacco products, general merchandise and packaged sweet snacks all gained in terms of percentage of overall sales.