C-Stores Target Changing Consumer Needs

What’s happening in convenience stores that matters in your business?

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What do convenience stores and vending and onsite foodservice operators all have in common? All are in the “immediate consumption” business. Over 80 percent of c-store sales are consumed within 15 minutes of purchase. We expect that it’s much the same for vending. Operators in these channels face many of the same challenges and enjoy many of the same opportunities.

Let’s take a closer look at what c-stores are doing lately. It appears c-stores are doing much better than vending and onsite foodservice operators at overcoming challenges and capitalizing on opportunities.

Since c-stores are your toughest competitors, you should be knowledgeable about what they’re doing. We looked at the 2007 State of the Industry (SOI) Report from the National Association of Convenience Stores (NACS).

We have some good news and some bad news for you about c-stores.

First, here’s the good news. C-store operators are under pressure. They face most of the same challenges you do. There are also some unique challenges for these retailers of gasoline, beer and tobacco products.

But there’s bad news for vending and onsite foodservice operators. Especially since these tough competitors are about to get even tougher. Expect to see even more stores – there are about 145,000 convenience stores in the U.S. now. Leading chains are ramping up for growth. Major expansions are in progress. There are lots of acquisitions and consolidations. Some chains are planning to drive store count through franchising (7-Eleven).

And expect to see even better stores. Some are opening convenience restaurants (Sheetz). Foodservice is becoming much more important to the growth plans at convenience store chains (Alon USA).

Fresh food sales are increasingly the point of differentiation for c-store operators (Wawa). And supermarket chains are in the business, too; they are opening convenience stores and selling gas with the full range of products and services (Kroger, Albertsons, Giant Eagle and others).

C-stores are experiencing slower traffic due to fewer visits from customers. The NACS SOI reports that from 2003 to 2006, the number of visits a customer makes is down from 6.87 to 6.69 times in a 30-day period. Fewer visits would mean lower sales. However, c-store operators are learning how to sell more to their customers every time they come inside the store.

Product mix changes in c-stores

High gasoline prices are changing customer behavior. The mix of sales has changed. Many mid-grade and premium grade gasoline users have shifted down to regular grade gasoline. That has hurt fuel margins for c-stores selling gas. And, the rising price of gasoline takes discretionary dollars from potential in-store customers.

To counteract these trends, many c-store operators have dramatically upgraded their foodservice programs. There have also been aggressive moves to enhance the shopping experience through store redesign initiatives. Anecdotal reports from chains where store redesigns were implemented indicate sales increased well above prior year trends.

Merchandise sales for c-stores were reported to be up 8.7 percent in 2006 versus 2005, a total of $144.8 billion in 2006. Foodservice sales at c-stores also showed positive growth, according to 2007 NACS survey – that’s an increase of 5 percent.

Food prepared in-store was 41.4 percent of foodservice sales – up from 28.4 percent in 2002. By comparison, commissary/packaged sandwiches were 5.9 percent of sales in 2006 – down from 14.8 percent in 2002.

What food items are prepared in-store? That might not be the right question. The right question is, “How are c-stores delivering a ‘fresh food perception’ to their customers?” It’s being done by taking the ingredient preparation further back in the supply chain.