Photo: Kum & Go
Will Convenience Stores Follow 2022’s Record Year With a Bang or a Bust?
Convenience stores achieved a new record for in-store dollar sales in 2022, according to the NACS State of the Industry report. Whether they can build on that performance is a question facing the industry more than a quarter of the way through 2023.
C-store sales reached $906.1 billion last year and in-store purchases accounted for just over one-third of the total at $302.8 billion. In-store sales grew nine percent during the year.
Several factors contributed to the retail vertical’s strong performance.
Store count was up 1.5 percent to 150,174 stores as the industry reversed four years of declining numbers. NACS said that much of the growth was due to an increase in single-store operators, which grew 1,087 to 90,423. Single-store operators account for 60.2 percent of all convenience locations.
Inflation also drove dollar sales up as merchandise prices were 7.9 percent higher in 2022 and foodservice was up 9.7 percent.
Foodservice was a growth engine, representing 25.6 percent of monthly in-store sales and 36.1 percent of in-store gross margin. Prepared foods represented 67.3 percent of all foodservice sales. Hot dispensed beverages (9.2 percent), cold dispensed beverages (eight percent) and frozen dispensed (six percent) also made contributions.
Consumer packaged goods also contributed to c-store performance with packaged beverages, salty snacks, candy and packaged sweet snacks all posting double-digit sales growth for the year. The average basket for in-store purchases increased by 4.9 percent to $7.52.
A worrying sign for c-stores is that dollar sales growth slowed in the fourth quarter (3.3 percent) compared to the third quarter (4.3 percent), according to IRI (now part of Circana).
Customers by the end of the year, according to a Fortune report, were purchasing 10.3 percent fewer items when they visited a c-store.
Inflation is a crucial factor in a slowdown in c-store purchases as consumers are more reluctant to buy on impulse when prices exceed a certain point. Candy and salty snack prices in c-stores have risen 16.7 percent and 14.4 percent, more than double the current inflation rate. C-stores have been forced to reduce promotions to protect margins, which further pressures unit growth.
Scott Love, senior vice president of retail client solutions at Circana, told Fortune that price increases in c-stores are a bigger deal than in other channels because convenience prices are typically higher from the start.
Discussion Questions
DISCUSSION QUESTIONS: What kind of year do you expect convenience store retailers to have when 2023 is in the books? What can c-store retailers do to drive sales when many consumers are reducing discretionary purchases?
Poll
Loading …BrainTrust
Ron Margulis
Managing Director, RAM Communications
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
I expect convenience stores to have a reasonable year in 2023, but things will be slower and more challenging than last year. I also think there will be a polarization between traditional c-stores, which will struggle a little more, and modern c-stores like Foxtrot which are still growing very strongly because they’re delivering something different and attracting new customers on the strength of their offer.
C-stores are for impulse purchases in many locales but are the only game in town in some rural communities. I believe the price of gas in these more rural settings was a factor in last year’s growth, as the drive to the nearest big box grocer was a more expensive proposition. One-stop shopping will always be in demand, so I see the growth of c-stores as continuing even as gas prices settle. Most c-stores sell gas as well, which will continue to drive more visits.
So the current bull market for c-stores is great, but they need to keep their eyes beyond the horizon. When electric vehicles cross the chasm and pass the gas-powered ones, the time it takes to refuel/recharge will change dramatically. So the growth in foodservice and prepared foods may be even greater with the longer recharge times. Unless, of course, everything works on batteries you change out like an empty propane tank!
Each and every year, all retailers need to give customers new reasons for shoppers to visit their stores, both brick-and-mortar and digital. C-stores are no different. There are several banners that have invested in those reasons, like Wawa and Sheetz, and especially Buc-ee’s. Others, not so much. The c-store retailers re-inventing themselves to differentiate the service offering and separate themselves from trending verticals like deep discount will see sizable revenue gains. Those other ones will lose share not only to the growing ones but also to the deep discounters. Net-net, growth will be marginal for the sector this year.
For c-stores this coming year will be a time of trial and change. They had a fair run the past year, but I think grocery stores are going to up their games in a big way. They have to and, as they do, customers will feel the benefit.
The future of convenience in general and the reinvention of this segment of the market bodes well for c-stores. I foresee continued growth and innovation. Effectively incorporating charging stations will require new thinking and design — but this industry is poised to take on the challenge!
C-stores have had a nice post COVID-19 bounce back. The key to their success lies in the foodservice and fuel arenas. In the foodservice area, the morning and lunch day parts are returning to pre-COVID-19 visits and rings. The continued challenge is the dinner day part. Companies like Wawa have continued to bring innovation to “what’s for dinner.”
Fuel brings both challenges and opportunities. Electric vehicles will minimize the demand for gas. However, fast EV charging stations can drive customers to c-stores and encourage foodservice ordering while customers wait for their fresh prepared meal.
I foresee neither a bang nor a bust for the industry. I do see the volume and profit differential between the stores that depends on smokes and cokes and those that have focused on creating a strong foodservice offer continuing to grow.
I am not sure what the future convenience store will look like, but it will not be the traditional c-store store of past decades. It will scream convenience.
Online grocery is expected to grow at a compounded rate of 12 percent over the next five years. As online grocery grows, the need for quick fill-in trips will grow, and customers won’t be satisfied with the milk on the back wall of the supermarket.
C-stores’ most prominent challenge is the declining need for gasoline stops. With EVs, people won’t leave home without an adequate charge and no need to stop for gas and make that spontaneous purchase. This can be overcome by building a customer habit of stopping “on the way out” in the morning. Can they beat the Starbucks stop?
Was in Tokyo for a week last month, with four Lawson, three FamilyMart, and two 7-11 within a block of my hotel. Shopping each to compare/contrast was so much fun! When 7-11 Stateside finally absorbs Speedway, my hope is that they transplant all the great Japanese innovations from their sister network – then I’d be stopping even outside of needing fuel. (But I’m not holding my breath.)
We saw a sea change during COVID-19 when more people shopped locally and found it not only convenient but more enjoyable. Amid inflation c-stores will always struggle as they are less resilient to fight price increases and this will have slowed their growth over the last year. With fuel being a large part of the c-store environment they will always be affected by the price of fuel as a lot of purchases are impulse buys people make while buying fuel. With the price coming down and people traveling again this should help the c-stores. I think this represents a long-term change and c-stores will see continued growth. Consumers are also less inclined to travel to large out-of-town stores like they did in the past, so the local store can give them what they need for that top-up purchase and do it in a more customer-friendly manner.
There’s no reason for this positive trend not to continue. (No bust.) Customers want what convenience stores offer; convenience in the form of easy in/easy out, smaller footprint than larger stores, easy parking, and multiple locations (meaning there is probably a store nearby.)
Not to be a downer, but a 9% nominal growth sounds like it pretty much tracked inflation…IOW, not much to crow about. On a side note, I’m confused – if not downright baffled – by the remark that “in-store purchases accounted for just over one-third of the total”: how, exactly, were the other two-thirds conducted ?? It’s hard to believe they were online (or are gas sales not considered “in-store”?)
For those C-Store who have changed their thinking from being C-Store to being Convenience Retailers and a great place to grab a bite to eat, 2023 is going to be an excellent year for all of the others, it will be a real challenge.
2023 should be a good year, with net sales up and customer counts up for the convenience stores who differentiate themselves beyond gasoline, snacks and energy drinks. The leaders are upping their game in good and fresh food offerings, expanding products found in grocery stores, digital platforms to save time or get deals, and those upgrading their customer experiences.