Strength in Numbers

Resilient, tough and tested. These are just a few of the words analysts and retailers alike used to describe the convenience store and petroleum industry over the past 12 months.

With the economy suffering its most difficult period in some 80 years, convenience stores held up rather admirably considering how consumer confidence plunged and the unemployment rate surged to near-record highs.

Category Focused
Several key categories, such as tobacco, which faced its most difficult legislative year since 1998, foodservice, energy drinks, juices and coffee, all posted sales increases in 2009. Other core categories, such as beer, bottled water, isotonics and carbonated soft drinks suffered modest declines, virtually all attributable to the reduction in consumer spending.

While juices and teas have struggled in the past few years, 2009 was sort of a renaissance year for the category as both segments experienced sales gains. For 2009, juices enjoyed a strong year with a 4.08% increase in sales dollars in U.S. convenience stores to $379.43 million, according to Information Resources Inc., which partnered with CSD to provide the benchmarking data for the 2010 Category Management Handbook.

Like juices, refrigerated teas and coffees experienced a strong year with a 4.46% increase in sales dollars to $166.37 million. Unit sales surged 3.08% to 102.7 million.

Following a decade of steady growth, bottled water sales in convenience retailing declined last year. Sales dollars dropped 6.19% to $2.48 billion in U.S. c-stores, according to IRI.

The dropoff was largely due to the pullback in consumer spending, higher fuel prices and the economic recession, retailers and suppliers said. But many of them still expect significant growth and revenue opportunities ahead for what has emerged in recent years as one of the most profitable packaged beverage segments.

For 2009, carbonated soft drink sales were down 1% to $8.32 billion. Units sold dropped 1.26% to 5.11 billion, but the margin and average price per bottle held strong at $1.63.

Fueling New Sales

While retailers expressed confidence that beverage sales will pick up in 2010, there is also a certain degree of optimism in other crucial areas of the store, specifically at the fuel island and in emerging loyalty programs.

The convenience store industry sells an estimated 80% of the fuels purchased in the U.S., and motor fuels sales continue to dominate industry revenues, accounting for 74.5% of all sales dollars. However, overall fuel gallons sold declined 2.4%, according to NACS. However, because of low gross margins on fuel (5.7%), only 31.7% of all profit dollars came from fuels sales.

But if there is one thing all retailers should have learned about fuel retailing in 2009, it’s that loyalty programs are extremely effective in driving volume. Two-tier pricing was also an effective strategy in certain markets as retailers looked for a way to reduce the outrageous credit card fees they’re forced to pay every month.

“Cash discounts on fuel will increasingly become a cost of doing business as a fuel retailer in the U.S. as an increasing number of retailers offer these types of programs,” said David Bishop, the veteran retail consultant and managing partner at Balvor. “As a result, getting a consumer onto the lot with discounts on fuel will make the most sense if you can convert a larger percentage to buy something from inside the store. To accomplish this you need a strong consumer proposition inside the store.”

Whether this hook is friendly employees, clean bathrooms or fresh food, one constant must prevail. You must do it better than your competition, and the purpose of this Category Management Handbook is to help you do just that.

I would also like to offer a special thanks to all the retailers, suppliers, analysts and associations that contributed trending data to make this Handbook as up to date as possible. As always your input, dedication and hard work is extremely appreciated.

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