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Monday, January 28, 2019

What's Going on in the Convenience Store Industry?

Source: NRC Realty & Capital Advisors, LLC

Convenience-store retailers are optimistic about the industry for the coming year. According to the 17th annual Convenience Store News Forecast Study, 62.5 percent of the c-store retailers questioned have a positive view about their business in the year ahead. The industry has not experienced the e-commerce disruptions experienced by the overall retail sector. However, there are some trends that will continue to affect storeowners and have many opting to increase sales (and profits) by amping up their gas station convenience store game and income streams.

Mergers and branding

While 60 percent of convenience stores with fuel are independently owned, the convenience store industry has experienced unprecedented consolidation. National and regional gas and convenience store chains, private equity investors and even foreign buyers have been investing in the sector.

Major oil companies such as Marathon, BP and convenience chains Circle K and Casey’s General Stores are seeking economies of scale by buying other chains and companies nationally. Last fall, Marathon Oil and Andeavor Oil merged. Marathon plans on converting many of the Andeavor stores to their Speedway brand and to continue operating Andeavor’s ARCO ampm convenience stores in Southern California and Arizona. The resulting chain will consist of an estimated 4,000 Speedway stores nationwide.

Additional income streams and considerations

Another continuing industry trend is generating income from larger and larger convenience stores. The average new convenience store today exceeds 4,000 sf and some companies such as RaceTrac are building 6,000 sf stores. Here are some ways stores are changing:

  • Food service. A decade ago, no one expected a gourmet lunch off a food truck, and people would have thought lunch at a gas station convenience store would be something microwaveable or roller hot dogs. However, convenience stores that leaped into restaurant-quality, or at least fresh daily, food service have seen a leap in profits. The Convenience Store News forecast indicates that 83 percent of c-store retailers expect their food service sales to increase in 2019. Food sales (including prepared food and beverages) at convenience stores brought in $52 billion, or 22 percent of 2017 U.S. in-store sales. Freshly prepared food and packaged sandwiches made up $35 billion, or more than half, of that total. Many stores now garner profits from custom sandwiches, coffee bars with gourmet coffee and espresso drinks, hot meals to order, pizza, ethnic food and other fare besides fruit and quick-grab snacks. As noted in the CSP 2016 State of the Industry Report, 69.2 percent of total industry sales in 2015 were gas, but gas accounted for only 39.5 percent of profit compared to the 33 percent brought in by food-related items.
  • Car washes. Adding a car wash is a natural way to add value for busy customers. The "In-Bay Automatic" washes cars at an unattended terminal and requires minimal time and attention from station staff. Industry statistics show, based on 20,000 cars washed annually, the average annual profit is $86,531.
  • Offering healthy options. Fitness-savvy and diet-conscious consumers also want to save time and stop in convenience stores, which already sell an estimated 50 percent of single-serve bottled water in the U.S. In 2017, NACS became the first retail trade association to join the Partnership for a Healthier America to promote healthier options in convenience stores, which are noticeably offering more fruit, salads, vegan items and other healthier options. More store owners are now promoting healthy snacks near the water cooler or by the sports drinks to encourage customers to purchase more than a drink.
  • Going green.  About 70 percent of Americans empty their car trash by the pump or on the way into the convenience store. Setting up recycling bins is a small, but easy step. Additionally, the NACS recently partnered with Keep America Beautiful to help retailers deal with litter and encourage more proactive environmental approaches. While these features do not generate revenue, they do appeal to customers, many of whom would rather recycle their empty water bottle when buying a new one.
  • Partnering with community programs. NACS member companies contribute considerable amounts to charity, and two-thirds support nonprofits in their communities. Getting active in community activities fosters good will toward the station and can add sales. For example, sponsoring a car wash promotion for a local charity helps them to bring new people into the store.
  • Selling unique items.  Convenience store businesses are an ideal place to promote and sell newly released drinks and food items, ethnic items catering to local neighborhoods, especially Hispanic customers, and items appealing to professionals in upscale urban areas. While beer and snacks remain big sellers, convenience stores now sell phone chargers and cables alongside the potato chips.

Upgrading brand and image

Branding a convenience store business to stand out from other gas stations or convenience stores in the neighborhood will generate repeat business. If the difference in gas price is minimal, there should be other incentives that encourage people to choose one over the other. That is where offering specialty items, good food, monthly specials, frequent buyer promotions, car washes, specialty coffee offerings and other ways of differentiating the store encourages repeat business.

Buyers considering entering the convenience store industry and gas industry – or capitalizing on the current cycle of convenience-store M&A – should get advice from experts in selling and operating those businesses, such as Chicago-based NRC Realty & Capital Advisors, LLC. Besides facilitating the sale of individual convenience stores and gas stations, NRC provides financial advisory services for buyers of convenience store and gas companies throughout the United States.

To see a list of convenience stores and gas stations for sale, click here.