Wednesday, January 14, 2015
Guest Opinion: Happy Short Hangover
What’s in store for your business in 2015
Source: CSP Daily NewsBy Jeff Kramer, Managing Director, NRC Realty & Capital Advisors
CHICAGO -- Many of us have been talking for quite a while now how low interest rates and easy money have created a firestorm for convenience store properties, and that the market “always reverts to the mean.”
Then Wall Street’s creation of the master limited partnerships (MLPs) took matters and multiples to yet a higher level. This has created value even for wholesale businesses unheard of in the past.
As 2015 starts to unfold, there are some signs that the party may not be over, but some balance should return over the year:
- The drop in oil prices must end eventually and fuel margins will be trimmed. I still believe the industry consolidation will help margins overall from historic levels, but there is no “new normal” that has eliminated competition in what has always been a very competitive retail marketplace.
- The “cure for $100 oil has been $100 oil.” Artificially high prices for oil slowed demand worldwide and increased supply. This has been great for retail margins, but some areas of the United States have seen an economic drilling boom and now they will experience an economic hangover for some time to come. Lower prices will not spur demand as many think, since corporate average fuel economy (CAFE) fuel standards are locked in, and, since oil shale drillers must keep producing to keep their doors open, supply will remain plentiful, at least for now. And what do the Saudis hate more than low oil prices? The answer is ISIS, Iran and Russia, all big losers from low oil prices.
- The biggest trend in the c-store business is foodservice, which is even more revolutionary than the transition from gasoline to convenience. If you don’t believe me, just look at some recent results from McDonald’s and comments from their executives. The big boys in convenience have break-even fuel margins near--or in some cases--below zero cents per gallon. The easiest short-term way to increase food sales is to get cars on the forecourt with low fuel prices. Some things never change. It will be critical to keep up with trends in loyalty promotion and e-communication as how we communicate with our customers will keep evolving.
- In 2014, good and bad economic news anywhere in the world seemed to boost stock prices to record levels, since everyone assumed more financial easing and engineering was on the way; 2015 could bring a reality check wherein bad economic news brings down stock prices, which normally tends to hurt confidence of consumers and bankers. There is plenty of ba