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SOI 2020: Profit-Challenged
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SOI 2020: Profit-Challenged

Quartile analysis illustrates the importance of fuel profits, dedication to foodservice,

Gas pump

ALEXANDRIA, Va. — It’s all in how you slice it.

By most measures, convenience stores came through 2019 smelling pretty sweet: Record pretax profits, outstanding fuel margins (gallons even grew 1.1%) and a 4.9% burst in in-store sales suggested that retailers are getting their arms around the challenges of the day.

But cut another way–a theoretical analysis presented by NACS–three-quarters of the industry couldn’t draw a profit from in-store sales.

“If we look at operational metrics for the industry, net of any fuel component, you’ll see that only a portion of our firms–namely the top quartile [ranked purely by inside-store operating profit]–would be profitable,” said Charles McIlvaine, CEO of Coen Markets Inc., Canonsburg, Pa., in breaking down the preliminary NACS State of the Industry data. For this analysis, the top quartile represents the top 25% of firms within the NACS State of the Industry sample by store operating profits.

Getting beyond fuel profits is more important than ever, after a year when many retailers saw record margins on gasoline as prices maintained an uncharacteristic stability–and as the industry enters a post-coronavirus reality in which gasoline prices and volumes have crashed, McIlvaine said.

“[This data] is extremely valuable when we think about fuel margins and how those move and may leave a false sense of security for us,” he said. “All of us need to start focusing on: What does our business looks like within the four walls?”

‘Evolve and Adapt’

In his review of category data, presenter Chuck Maggelet, chief adventure guide for Maverik Inc., Salt Lake City, said foodservice shows up as a “key differentiating factor” when reviewing the quartile data.

This is particularly true with hot dispensed beverages, where top-quartile retailers enjoyed a 23-point advantage in margin compared to the bottom quartile, or 69% vs. 46% margin. Maggelet said this suggests that the strongest c-store chains’ willingness to invest in upscale coffee programs is paying off.

“Top-quartile margin on coffee is one-third higher than the bottom [quartile], underscoring the decision to differentiate with a premium coffee offer and collect the commensurate higher margin percent,” Maggelet said. “If you’re going to drive sales, why not do that in the categories [such as foodserivce] where margin is approaching 60%?”

In 2019, the top quartile saw gross profits about twice that of the bottom quartile’s in each of the top six product categories, “but an order of magnitude higher in coffee and prepared foods,” Maggelet said. “In other words, the top quartile is really pulling away from the bottom in foodservice.”

The top quartile’s foodservice sales were about 7.7 times those of the bottom quartile, McIlvaine said. “And if you take a look around these particular sites, you’ll see more promotions for prepared foods, made-to-order coffee, smoothies and merchandise offers that stress value and not just price. I think that’s a distinct marketing difference.”

As a result, top-quartile stores brought in nearly double the inside sales per square foot ($75.43) than that of the bottom quartile ($37.02) in 2019. (See chart, below.)

See Also

“There are other retailers out there that sell higher-ticket items, that have larger revenue per square foot, but you can see in our industry, for what we do, top performers and even the second quartile are doing a very good job,” McIlvaine said. For the rest of the industry, he said, there’s a need to “evolve and adapt” to maintain a strong overall industry.

Top Quartile vs. Bottom Quartile

The size of the top quartile’s c-stores averaged more than 4,200 square feet and drove more than double the sales per square foot compared to the bottom quartile in 2019.

Measure Top quartile average Bottom quartile average Differential
Motor fuel gallons sold 246,865 104,013 3.7X
Merchandise sold $220,553 $84,444 2.6X
Foodservice sold $102,103 $13,219 7.7X
In-store gross margin percentage 39.01% 28.89% 10.12 points
Cigarette gross margin percentage 15.71% 13.73% 1.98 points
Store size (in square feet) 4,266 2,634 1.6X
In-store sales per square foot $75.43 $37.02 2.0X

Source: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2019 Data.

The 2020 NACS State of the Industry Summit Virtual Experience will be available for on-demand viewing through Sept. 1. Access critical benchmarking data, analysis, emerging trends and executive insights at convenience.org/SOISummit.

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