Convenience stores getting bigger; building, operating costs going up
Convenience store sales are booming, but some worrisome trends may cast clouds going forward, including higher store operating costs and declining store count.
Total U.S. convenience stores sales surged 8.9% to $654.3 billion in 2018, led by a 13.2% increase in fuel sales, which account for 69.6% of total sales, according to just-released NACS State of the Industry data. In-store sales increased 2.2% to a record $242.2 billion.
Higher gas prices, up 13.7% from $2.37 per gallon in 2017 to $2.69 per gallon in 2018, contributed to the increase in overall industry sales. Fuel margins, which have increased over the last five years, were also higher in 2018, up 7.5% to 23.35 cents per gallon, while gallons sold decreased by 0.4%.
The growth of foodservice, which has grown into a key focus area for the c-store channel, has led to an increase in store size, according to the NACS report. Overall, the average convenience store is 3,230 sq. ft. But the footprint of newer stores, which increasingly feature such elements as touchscreen food-ordering kiosks, open kitchen designs, in-store seating and waiting areas is averaging 4,991 sq. ft. in rural locations, and 4,603 sq. ft. in urban locations.
New business investments are also leading to higher direct store operating expenses (DSOE), which include wages, payroll taxes, health-care insurance, card fees (higher than overall industry pretax profit for the first time since 2014), utilities, repairs/maintenance and supplies, as well as several other categories including franchise fees and property taxes. For the third consecutive year, DSOE has outpaced inside gross profit dollars. Construction costs are also rising.
"The cost of growth, whether it's higher acquisition multiples, new store construction or retrofitting older sites, has never been higher in our industry," said Andy Jones, NACS vice chairman of research and president/CEO of Sprint Food Stores Inc. “For example, the average cost to build a new store has increased over the last five years from $5.6 million to $7 million. These are business trends that convenience retailers should be prepared to address as they continue evolving and growing their businesses."
The industry employed 2.36 million people in 2018, down from 2.38 million in 2017. Part of this decline can be attributed to the slight decrease in the U.S. c-store store count, according to NACS. The number of c-stores declined from a record 154,958 stores in 2017 to 153,237 as of Dec. 31, 2018.
In other NACS findings:
• Foodservice sales accounted for 22.6% of in-store sales. The category is comprised mostly of prepared food (69% of both category sales and profits) as well as commissary foods and hot, cold and frozen dispensed beverages.
• Cigarettes accounted for 31% of in-store sales.
• Wages were up 4.4%. The average wage for a store associate increased to $10.74 per hour.