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Monday, March 11, 2019

What are the top Convenience Store trends for 2019?

Source: NRC Realty & Capital Advisors, LLC

With industry observers believing that 2018 earnings for convenience stores were at a cyclical peak, the rapid consolidation of the convenience store industry in 2019 is expected to continue.

The changing domestic political environment may give pause to some smaller operators, but offshore investors eager to source new platforms should continue to drive c-store prices higher. In the past few years, integrated oil companies, convenience store chains, PE firms and foreign investors have been the principal players driving the M&A market higher.

Consolidations will be more prevalent

With an expectation for a slowing U.S. economy in 2019, there will be a continued focus on maximizing revenue from existing operations for existing convenience stores. Larger companies who have access to low-cost sourcing for product and technology that can streamline operations will be the relative beneficiaries if the economy does stagnate.

This suggests that there will be additional consolidation and large merger activities in 2019.

Foreign interest in convenience stores remains strong

Many offshore buyers have a lower cost business model and can survive at lower volumes. If the economy slows as expected, low-cost operators will have comparatively strong staying power and should emerge even stronger in the next up-cycle in the economy.

Succession and continued inventory supply

Not all disposition activity is based on operating concerns. Family-owned c-store companies will continue to come on the market due to the increased competition from large players, and estate and succession issues. As the cost of undeveloped land and construction remains high in most metropolitan areas, and 2019 is expected to be a relatively flat year in terms of bringing new stores to the market.

In an uncertain political environment, interest rates will likely not drop below current levels.

Product assortment trends

In keeping with innovation in the QSR space, food service offerings will continue to expand for c-store operators. Offerings like ready-to-eat meals, flame-grilled chicken and hamburgers will expand and be of higher quality than ever before.

As a food service category, coffee is growing in terms of quality and breadth of offerings. Convenience store operators are responding to the growing sophistication among coffee consumers and are bringing a broader assortment of coffee beverages into their units.

There is also a firmly established connection between where customers buy their coffee and where they purchase their fuel. Compelling coffee offerings consequently have a multiplier effect in terms of overall revenue.

The shopping experience

Operators who implement technology will have a first-mover advantage in terms of providing a frictionless shopping experience. Apple, Amazon and Google have all introduced pay systems that do not require cash registers to be staffed.

And in some instances, there is no cash register required: purchases are electronically recorded, and the customer simply leaves the shop with their bag. As electric charging stations become more prevalent, convenience stores are also incorporating these into their locations.

Some observers are noting that the basic footprint of the c-store is becoming inverted, with the store and food becoming the "front of the house," with fuel and charging offerings being flipped to the back at least in regards to what draws customers in.

At NRC Realty & Capital Advisors, we can provide guidance on the c-store industry and help you with your investment decisions. We welcome your questions and inquiries.

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