Convenience
Gasoline prices, credit costs and progressive thinking have helped fuel a move toward reinvention among the nation’s savviest c-store operators.
| Channel Leaders* | |
| Chain | Annual Sales (in billions) |
| 1. 7-Eleven | $13.0** |
| 2. Couche-Tard | $8.8** |
| 3. Wawa | $5.0** |
| 4. The Pantry | $4.4 |
| 5. RaceTrac Petroleum | $4.0** |
| *For 2005 **Estimate by Stores Magazine |
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With
140,000-plus stores nationwide and plenty of prime real estate, the
convenience channel is in the right place(s) to satisfy the demands of
impatient, time-stressed shoppers.
But for much of 2005 and 2006, soaring gasoline prices
and margin-deflating credit costs stressed c-store operators. Then there is
the mounting competitive threat from other channels — supermarkets
that have added fuel pumps and drug store chains stocked with all the
grocery fill-in essentials.
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“We hope it’s appealing to women and to
the younger generation because that is the incremental customer that we
want to have comfortable in our stores,” says President and CEO
Robert Buhler. “I don’t think that segment of the business has
been appropriately focused on and catered to.”
So committed to reinvention is Open Pantry that the
chain this summer announced plans to sell off up to 10 of its sites in
order to generate revenue to invest in developing new-format stores. The
new stores will be located in flourishing communities in the corridor
between Milwaukee and Madison, Wis., two cities where the chain already has
a presence.
At press time, seven of the chain’s sites had
been contracted to new owners. “We could sit on them and enjoy the
cash flow, and life would be good,” Buhler reflects. “But the
good retailers, I think, continually look at their portfolio and
continually look at getting out of scenarios that may not be optimal for
growth.”
Forces of change
With gasoline prices in the vicinity of $3 a gallon
for much of 2006, c-store operators faced higher losses as more customers
skipped out without paying, as well as higher credit costs. Not only did
more customers make gasoline purchases with plastic — 45 percent in
2005 vs. 39 percent in 2004, according to the National Association of
Convenience Stores, but retailers’ credit costs spiked because credit
card fees are linked to the dollar value of the purchase. Thus retailers
paid more to credit card companies, while their margins remained the same.
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That scenario is persuading many retailers “that
they must be successful at running their stores and that they cannot rely
on gasoline for the historic profits it brought,” says consultant
Steven Montgomery, president of b2b Solutions LLC, Lake Forest, Ill.
“Many of the changes seen today are the result of this shift —
larger stores, more services being offered, the emphasis on foodservice and
so on,” Montgomery continues.
“More and more retailers are expressing a desire
to be less — or not at all — dependent on gasoline for
profits,” agrees David Bishop, vice president, Willard Bishop
Consulting, Barrington, Ill., and an expert in small-format stores.
“They have to get the in-store business model right” in order
to reduce the pressure for profits at the pump, he emphasizes.
Jim Callahan, director of marketing for Geo. H. Green
Oil, a Fairburn, Ga.-based fuel supplier, which owns about 50 c-stores,
agrees that staying profitable in the convenience business is not a slam
dunk.
One strategy that Green Oil is experimenting with is
developing a large retail space and leasing out portions of it to other
businesses. In Fairburn, the chain rehabbed a 17,000-square-foot building,
in which the company’s c-store occupies just 4,000 square feet. The
rest of the space houses restaurants and other businesses.
Getting the tenants to cover the overhead, has worked
out “really, really well for us,” says Callahan.
“We’re looking at doing more of that.”
Shoppers want value
Although the price of gasoline has recently dropped to
closer to $2 than $3, consumers remain very value-conscious, convenience
retailers report.
“We are noticing that people are starting to
give a second thought as to whether they want to make that additional
purchase,” says Callahan.
To combat that mindset, he has worked extra hard at
coming up with really attractive promotions. One of his favorite strategies
is seeking out candy display shippers on which the product is within 60 to
90 days of the “purchase by” date. It’s a win/win
situation for both retailer and vendor, notes Callahan, and consumers are
big fans as well. “They realize that this is a place where they can
find a bargain,” he says.
Marie Read, candy, snacks and ice cream category
manager for Wawa, Pa.-based Wawa convenience stores, says she’s
noticing more consumer interest in value as well, even among kids and
teens.
“We’re seeing that people are going
more to the value item. … They feel like they’re getting more
value for a peg purchase than they’re getting for a king-size or
standard [candy bar],” she observes.
Consultant Bishop advocates a “fair price
strategy” for c-store operators. “With a fair price strategy,
it’s incumbent not to have the lowest or the highest price so the
consumer isn’t walking away from the store feeling that they’ve
been taken advantage of,” he reflects.
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What’s Ahead
Finally, as for the big picture for the channel,
Montgomery has this take on it. “I believe the trend will continue to
fewer, larger c-stores with an increased emphasis on foodservice and
services,” he says. “We have gone from being the industry where
build it and they will come was the mantra, to realizing that we have to
offer the customer a reason to shop with us.”
Candy's Place in the C-Store
Candy Made the
top 10 List Once Again in the 2006 National Association of Convenience
Stores State of the Industry Report.
Candy was No. 6 on the “Top 10 Product
Categories” list, racking up 3.6 percent of total in-store sales. And
at nearly 45 percent, candy’s profit margin is nothing short of
sweet. In a list of 25 product categories sold in convenience stores, only
ice boasted a higher gross margin, according to the NACS report.
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“Candy is very important strategically,”
says consultant David Bishop. “Its economic importance is clear.
It’s a growing category; it has very strong margins.” What is
more, he continues, “It has the ability to support cross promotions
with drinks — both on the cooler and by the fountain. And with its
impulse nature, we see its value at the front end and its ability to
trigger conversion at the pumps.”
Candy works so well with pump promotions because it
has such powerful impulse appeal, Bishop explains, contrasting it with
cigarettes. When cigarettes are promoted at the pump, he says, retailers
typically use a “price message,” but with candy, it’s not
usually necessary to promote on price. “A lot of retailers have been
able to maintain full margin,” he says, “because it is a growth
category.”
Another bit of bright news with respect to candy
promotion is the fact that consumers respond so well to the “two
for” strategy for both standard and king-size candy bars, and it
doesn’t necessarily require a huge discount for the promotion to work
effectively. Bishop cites the example of putting two king-size bars
regularly priced at $1.19 each on special at 2/$2. It’s not a
dramatic discount, so the margin is still okay, and it also provides an
incentive for a higher ring.
As something of a side note, Bishop says he’s
observed that in some markets, 7-Eleven stores now are pricing
standard-size candy bars at 85 cents vs. a more traditional strategy of
pricing on the “9s” – i.e. either 79 cents or 89 cents.
“It’s splitting the difference, basically,” says Bishop.
“It allows the retailer to take a price increase (vs. 79 cents) that
is more gradual, and thus with a lower risk of alienating shoppers.
Candy is such a mainstream category that sometimes
c-store operators do tend to take it for granted, Steve Montgomery,
president of b2b Solutions LLC, Lake Forest, Ill., reflects.
To maximize its full potential, he notes that,
“The key word is ‘plan.’ Plan what you are going to take,
where the display is going to go, when it goes in, when it goes out, the
price point you intend to use, the promotional materials that you are going
to use to communicate the offer to the customers, how you are going to
track its effectiveness.”
