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Report: 'Convenience' Competition Hinders Projected C-Store Sales Growth

COLUMBUS, Ohio - Deflating gasoline prices, intensifying competition, and fewer new stores will contribute to a significant decline in convenience store industry sales growth through 2006, reports consulting and market research firm Retail Forward in its recently released Convenience Stores Industry Outlook.

Retail Forward forecasts c-store industry sales to grow at an average annual rate of 3.8 percent through 2006, much slower than its rapid pace of 11.3 percent per year for the past five years.

The convenience store industry faces challenges on a number of fronts, according to the report:

-- Alternative formats (including supermarkets) encroaching on the gasoline business have already captured a 6 percent share of the market. Retail Forward projects this number to grow to 12 percent in the next five years.

-- Merger activity among big oil companies is creating headaches for small c-store chains and independent operators.

-- Profits are under pressure, as margins get squeezed both at the pump (dropping from 12 percent in 1998 to 9.2 percent in 2001) and inside the store (31 percent in 1998 vs. 28 percent in 2001).

-- The low-margin cigarette/tobacco category comprises a growing share of in-store sales (41 percent in 2001, up from 29 percent in 1997), but has a declining long-term demand outlook.

Convenience store operators are making a variety of moves to improve operations, enhance performance, differentiate from the competition, and position themselves to retain existing shoppers while attracting new customers, notes the report. Among the trends:

-- Getting Bigger - The changing nature of convenience retailing and the margin pressures brought on by encroaching competitive formats is driving c-store industry consolidation. Five years ago, the top 10 players represented 28 percent of industry sales. Today, the top 10 control 42 percent of sales.

-- Acting Bigger - Newly combined organizations will continue to integrate operations with a single infrastructure and oftentimes under a single brand name to marshal marketing clout.

-- Playing the Name Game - C-stores are building brands at multiple levels of the organization from the gasoline pump to the store to the inside offer.

-- Investing Inside the Store - Store branding efforts, upgrades/remodels, product/service additions, and a focus on healthier "fast food" alternatives are helping c-stores maximize the cube.

-- Redefining "Convenience" - Some c-stores are gravitating toward the "grab-and-go" market, with an increasing emphasis on fresh foodservice offers, upscale coffee programs, and immediate consumption items. More convenience services, e.g., quick oil change, car wash, dry cleaning, and banking, are also in the works.

-- Advancing Technology - Once considered a slowpoke in terms of technological applications, the c-store industry is becoming a pioneer of innovative technologies, including radio frequency identification (RFID), touch screen ordering systems, electronic kiosks, and mobile commerce.

"The challenge for c-store operators is to redefine convenience for their customers," says Sandy Skrovan, author of the report and VP of Retail Forward. "C-stores must decide what form/format convenience should take and must figure out how to differentiate themselves to retain existing customers and attract new ones in a landscape that's becoming increasingly crowded with convenience offers," she concludes.
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