Convenience retail industry pivots for long-term COVID-19 impact

NACS State of the Industry Summit reinforces the importance of industry’s strong 2019 operational and financial foundation in wake of COVID-19’s new retail shopping behaviour.

Looking back at the U.S. convenience and fuel retailing industry in 2019, in-store sales increased 4.4% ($251.9 billion in 2019 vs. $242.2 billion in 2018), according to newly released NACS State of the Industry data that reflects a pre-coronavirus pandemic climate.

Total industry sales, which include $395.9 billion in total fuel sales, declined by 1.0% ($647.8 billion in 2019 vs. $654.3 billion in 2018), largely reflective of a 4.7% decrease in the price of fuel in 2019. Overall, total convenience store sales in 2019 were 3.1% of the U.S. gross domestic product of $21.4 trillion.

NACS State of the Industry data is released each year at the NACS State of the Industry Summit. Due to the current coronavirus pandemic, however, this year’s Summit was recast as a virtual, on-demand event at convenience.org/SOISessions that launched yesterday for viewing.

Fuel Sales

According to NACS State of the Industry data, fuel sales at convenience stores, which sell approximately 80% of the fuel purchased in the United States, were down 3.9% from 2018 ($395.9 billion vs. $412.1 billion). In 2019, gas prices averaged $2.57 per gallon, compared with $2.70 for the year prior.

Fuel sales accounted for 61.1% of total convenience store revenue dollars and 36.2% of gross profit dollars in 2019. Of the 152,720 convenience stores operating in the United States, per the 2020 NACS/Nielsen Convenience Industry Store Count, 121,998 stores sell fuel.

There were signals that fuel demand would slowly erode in 2020. Even with a lower price per gallon at the pump in 2019, consumers said they were making fewer stops to refuel, which translates to less trips per week to a convenience store

Fuel demand collapsed beginning in mid-March as social isolation practices curtailed commuter and highway traffic. As of April 1, all but five states had issued stay-at-home orders, which will surely translate to significantly fewer vehicle miles travelled, vehicle sales, fuel consumption and trips to convenience stores to refuel in the months ahead.

Workforce Investments

Increases in direct store operating expenses (DSOE) continued to create challenges for convenience retailers, with new business investments contributing to a higher DSOE, which increased 6.4% in 2019 compared with 5.1% in 2018. Credit and debit card fees increased 6.3% to a record $11.8 billion, as more consumers paid by plastic: 74.6% of all c-store sales were with a credit or debit card.

Considerable changes in DSOE are expected in 2020. Many retailers could see added DSOE costs related to more frequent and deep cleaning and sanitation procedures and new safety measures like installing plexiglass guards and other personal protective equipment investments.

Foodservice: 2019 Bright Spot

In 2019, foodservice growth suggested that consumers rely on their local convenience store for snacks and meals. Foodservice sales saw a 4.4% increase in 2019 and represented 25.4% of inside sales—up from 22.6% in 2018. Foodservice also drove overall success at stores: Top quartile performing companies sold 7.7 times more foodservice than bottom quartile performers.

Considered “essential businesses” by the U.S. government during the pandemic, convenience stores are often the only and/or closest location for much-needed fuel and food and grocery items, particularly in smaller towns, where 8 in 10 rural Americans (86%) said in a 2018 NACS consumer survey that a convenience store was within 10 minutes of their homes.

An April 2020 NACS Retailer Member survey found that overall foodservice sales had decreased, while 52% said that grocery sales had increased during the pandemic.