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VIEWPOINT

By Don Longo, Editorial Director

C-stores Chalk Up Solid Grades for 2014 Performance Industry scores big with strong in-store sales and whopping profits

I

t’s become customary for us to view the Convenience Store News Industry Report as a report card on the performance of the c-store retail channel.

Admittedly, giving the industry a grade based on the average overall sales and profit performance of some 150,000-plus stores is somewhat subjective.

There are some key metrics, such as total sales, store count growth and, of course, pretax profit.

But there are other measures that are just as important. Did retailers successfully grow their foodservice business? How good of a job did retailers do controlling expense growth? How did they manage motor fuel margins?

And, of course, nothing occurs in a vacuum. So, we ask: How did the industry fare compared to competitive retail channels? In recessionary economic times, do we grade on a curve?

All good questions, but we try our best to take as many factors as possible into consideration and give the convenience store industry a letter grade.

Two years ago, when the industry’s total sales increased 2.8 percent, we gave c-store retailers a B-plus. We thought the topline growth was acceptable, but were more impressed with the robust 4.7 percent in-store sales increase (outpacing percentage

CSNews has been recognized with more editorial awards, including the prestigious Jesse H. Neal Award for business journalism, in the past six years than any other industry publication.

2013 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2012 2013 Jesse H. Neal National Business Journalism Award Finalist, Best Profile, August 2012 2008 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2007

sales gains in the drug and supermarket channels). Foodservice sales were also up a strong 7 percent that year, and pretax profits increased 4.1 percent.

Last year, we gave the industry individual grades on six metrics we viewed For comments, please contact Don Longo, Editorial Director, as important, from total sales (201) 855-7606 or (down 0.2 percent, a C grade) at dlongo@stagnitomail.com. to foodservice growth that was not as good as 2012 but within the growth pace of the past decade (a B grade). Pretax profits only scored a C-minus (down 1.4 percent on a per-store basis).

Overall, it looked like a C grade.

This year, our Industry Report shows a marked improvement vs. 2013 results. Although industry sales were down 0.3 percent (earning a C grade), in-store sales were up 3.2 percent (earning a B grade) and foodservice sales were up 6.3 percent (also earning a B grade). More importantly, gross profits were up 12.5 percent and pretax profits were up a whopping 34.1 percent — both clearly deserving of an A grade. (See page 36 for our full 2014 Report Card results.)

Overall, convenience store retailers can be very proud of this report card. CSN

2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2013 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2013 2013 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2012 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2010 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Best Single Article, October 2010 2009 Gold Ozzie Award, Folio: magazine Best Use of Illustration, October 2008 2009 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2008 2009 Bronze Eddie Award, Folio: magazine Business to Business, Retail, Website

2013 American Society of Business Publication Editors, Midwest Regional Bronze Azbee Award Best Editorial/Commentary, July 2012 2010 American Society of Business Publication Editors, Northeast Regional Silver Azbee Award Feature Article Design, November 2010 2010 Trade Association Business Publications Intl.

Tabbie Awards Honorable Mention, Front Cover Illustration, October 2009 2009 Trade Association Business Publications Intl.

Tabbie Awards Gold, Front Cover Illustration, February 2008 Honorable Mention, Best Single Issue, October 2008

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 3

CONTENTS JUNE 2015

VOLUME 51/NUMBER 6

Industry

26 | COVER STORY Getting Their Fill

Convenience store retailers capitalized on the low fuel prices of 2014.

Report

15

38 | Mammoth Margins C-store fuel profits enjoyed one of their best years ever.

40 | Operations Overload Direct-store operating expenses hit nearly 11 percent of total sales per store.

42 | Backbar Battle Even though it’s a small percentage of OTP, don’t count e-cigarettes out.

46 | Prepared for Profits Prepared food growth slowed in 2014, but was still the category standout.

50 | Upstarts in the Cooler Traditional favorites have a lackluster year, while smaller segments see significant growth.

52 | Bigger & Better-for-You Larger package sizes in candy and natural ingredients in snacks drive demand.

56 | Milking It No Longer Fluid milk lost its spot in the top 10 in-store categories to non-edible grocery.

60 | Methodology

HOW TO DO WORLD-CLASS FOODSERVICE 70 | Chicken or Pizza: Which Will Sell Best in Your Stores?

70 | Call to Action: Foodservice 101

INDUSTRY ROUNDUP 12 | 7-Eleven Makes Deal for Tedeschi Food Shops Chain 16 | Eye on Growth

72 | Call to Action: Foodservice 201

18 | TravelCenters to Take Minit Mart Banner Chainwide

74 | Call to Action: Foodservice 301

20 | Retailer Tidbits 20 | Supplier Tidbits

Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by Stagnito Business Information, 570 Lake Cook Rd. Deerfield, IL 60015. Copyright © 2015 by Stagnito Business Information. All rights reserved. Subscriptions: One year, $93; two years, $152. One year, Canada, $110; two years, Canada, $175. One year, foreign, $150. Payable in advance with a bank draft drawn on a U.S. bank in U.S. funds. Single copies, $10, except foreign, where postage will be added. Printed in U.S.A. Periodicals postage paid at Deerfield, IL, and at additional mailing offices. POSTMASTER: Send address changes to Convenience Store News, P.O. Box 1842, Lowell, MA 01853.

6 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

INNOVATION IS EVERY DAY.

Consumer-led innovation delivering the

INCREMENTAL CATEGORY GROWTH you’re looking for. Another way we’re committed to creating shared success every day.

SUCCESS IS AN EVERYDAY THING.

hersheysconvenience.com

CONTENTS 111 Town Square Place, Suite 400, Jersey City, NJ 07310 (201) 855-7600 Fax: (201) 855-7373 www.csnews.com

FEATURES 62 | Convenience Under Attack Grocers, big-box retailers and drugstores are going after convenience through concepts like home delivery and at-store pickup.

CATEGORY MANAGEMENT FOODSERVICE

79 | Forward March on Menu Labeling Are convenience store chains ready to embrace compliance?

FOODSERVICE

82 | Turkey Takes Off C-store operators can capitalize on restaurants’ lack of turkey options.

COLD VAULT

84 | Multicultural Malts Hispanics enjoy imports and increasingly craft beer.

MOTOR FUELS

90 | Create a Pumped-Up Brand C-store retailers must draw in consumers everywhere, starting with the interstate.

TECHNOLOGY

92 | Technology’s Time to Shine EMV, mobile payment and beacons are top of mind at 2015 Conexxus Annual Conference.

Chief Brand Officer (224) 632-8171

Korry Stagnito korrystagnito@stagnitomail.com

EDITORIAL Editorial Director (201) 855-7606 Editor-in-Chief (201) 855-7608 Managing Editor (201) 855-7614 Senior Editor (201) 855-7618 Field Editor (201) 855-7619 Assistant Editor (201) 855-7604 Contributing Editor (303) 741-3377 Contributing Editor (201) 280-2614 Art Director (224) 632-8245 Director of Market Research (201) 855-7605

Don Longo dlongo@stagnitomail.com Linda Lisanti llisanti@stagnitomail.com Brian Berk bberk@stagnitomail.com Melissa Kress mkress@stagnitomail.com Angela Hanson ahanson@stagnitomail.com Danielle Romano dromano@stagnitomail.com Renée M. Covino reneek@aol.com Tammy Mastroberte tmastroberte@gmail.com Michael Escobedo mescobedo@stagnitomail.com Debra Chanil dchanil@stagnitomail.com

MARKETING & PROMOTION Audience Development Manager Shelly Patton (646) 217-1045 spatton@stagnitomail.com List Rental The Information Refinery (800) 529-9020 Brian Clotworthy Reprints and Licensing Wright’s Media (877) 652-5295 sales@wrightsmedia.com Subscriber Services/Single-Copy Purchases (978) 671-0449 Stagnito@e-circ.net

EVENTS • MEDIA • RESEARCH • INFORMATION UNITED STATES MARKETS Convenience • Grocery/Drug/Mass Store Brands • Specialty Gourmet Multicultural • Green

DEPARTMENTS VIEWPOINT

3 | C-stores Chalk Up Solid Grades for 2014 Performance Industry scores big with strong in-store sales and profits.

10 | CSNews Online

BRAND MANAGEMENT

22 | New Products

STORE SPOTLIGHT

94 | An Accidental Convenience Store Metro Mart originally set up shop in malls to fill CVS’ void.

EXPERT’S VIEW

96 | ‘It’s Time’ to Change Our Culture More diverse leadership is the key to more diverse customers.

President & CEO Harry Stagnito Chief Information Officer Kollin Stagnito Vice President & CFO Kyle Stagnito Senior Vice President, Partner Ned Bardic Chief Brand Officer Korry Stagnito Vice President/Custom Media Division Pierce Hollingsworth (224) 632-8229 phollingsworth@stagnitomail.com Production Manager Anngail Norris Human Resources Manager Sandy Berndt Strategic Marketing Director Bruce Hendrickson (224) 632-8214 bhendrickson@stagnitomail.com Vice President, Events John Failla (914) 574-5709 jfailla@stagnitomail.com Director of Digital Media John Callanan (203) 295-7058 jcallanan@stagnitomail.com

CONVENIENCE STORE NEWS AFFILIATIONS Premier Trade Press Exhibitor

OUT & ABOUT

98 | The Business of Tobacco Regulations and vaping take center stage at 2015 NATO Show.

OUT & ABOUT

100 | A Golden Anniversary for Eby-Expo Fifty years after its first trade show, Eby-Brown is determined to offer value to all retailers.

8 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

CANADIAN MARKETS Convenience Pharmacy Foodservice

EDITORIAL ADVISORY BOARD Edward Davidson ER Davidson & Associates (7-Eleven Inc., retired) Kyle McKeen Alon Brands Inc.

Richard Mione GPM Southeast Rick Crawford Green Valley Grocery

Ian Johnstone Cenex Zip Trip

Matt Paduano Nice N Easy Grocery Shoppes

Jon Urbanik CST Brands Inc.

Jonathan Polonsky Plaid Pantries Inc.

Roy Strasburger Convenience Management Services Inc. Joe Hamza Tedeschi Food Shops Jack Lewis Village Pantry LLC

The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations.

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CSNEWS.COM ONLINE EXCLUSIVE

TOP 5 Daily News Headlines The most viewed articles online.

1 | CSNews Names More Than 50 as 2015 Top Women in Convenience More than 50 female managers, directors and executives who work in the convenience store industry will be honored later this year in the second-annual Convenience Store News Top Women in Convenience awards program. The Top Women in Convenience program recognizes a diverse array of women in the convenience retail industry, including leaders, mentors and role models.

2 | Celebrations, Giveaways & Donations Mark Wawa Day 2015 Wawa Inc. ramped up the festivities on April 16 — the 51st anniversary of its first convenience store. To mark the milestone, Wawa offered customers a free cup of any-sized Wawa coffee at all locations. The retailer also gave away 416 $20 gift cards.

3) Marathon Petroleum Converts One-Third of Hess Assets Seven months after adding the Hess retail network to its portfolio, Marathon Petroleum Corp. subsidiary Speedway LLC has converted about one-third of the stores to its own banner. The comprehensive transition for each Hess store not only includes the changing of signs and canopies, but also a complete changeover of the back-office, point-of-sale and inventory control systems, as well as integration of Speedway’s Speedy Rewards loyalty program.

4 | Pepsi, Kraft, MillerCoors Among Nielsen’s Breakthrough Innovation Winners Nielsen announced its 12 Breakthrough Innovation winners for 2015 after studying 3,522 consumer product introductions in 2013 and selecting those that met the requirements for distinctiveness, relevance and endurance. The Breakthrough Innovation Project celebrates companies that are changing category dynamics, not just conforming to them.

5 | More Good Times Ahead for C-store Retailers This year’s NACS State of the Industry Summit was one of the most upbeat in memory, with speakers heralding a record turnout of 476 attendees, excellent profit gains in 2014, and the promise of continued strong financial results in the current year.

Virginia Lottery Plays to Win With 7-Eleven Partnership

The Virginia Lottery is taking its relationship with retailers to the next level, partnering with them to drive business on both sides of the equation. In March, the lottery and 7-Eleven launched an exclusive scratch-off ticket that is only available at 7-Eleven outlets and sells for $7 — a deviation from Virginia’s usual $1, $3, $5, $10 and $20 scratchers. The bottom of every 7-Eleven scratch-off ticket is perforated with a coupon attached for a food item.

“It’s a way for lottery players to try one of their food items for free when they buy a ticket,” Virginia Lottery Executive Director Paula Otto told CSNews Online.

For more exclusive stories, visit the Special Features section of www.csnews.com.

PRODUCT HIGHLIGHT The most viewed New Product online.

Swisher Sweets Dulce de Leche Cigarillos

Swisher International’s Swisher Sweets brand introduced Swisher Sweets Dulce de Leche cigarillos for a limited time. Dulce de Leche cigarillos come packaged in resealable 2-count foil pouches with the “Sealed Fresh” guarantee. They are available in “2 for 99 cents” and “Save on 2” price points.

Swisher International Inc. Darien, Conn.

(203) 656-8000 www.swisher.com

POLL

Based on your performance so far this year, what category has you most excited in 2015?

45%

Foodservice

16%

Beer

10 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

13%

Snacks

11%

OTP

10%

Packaged Beverages

5%

Candy

Š2015 Goya Foods, Inc.

* Nielsen Strategic Planner, Total U.S. (unit and dollar sales), 52 weeks ending 3/14/15

INDUSTRYROUNDUP FAST FACT

7-Eleven Makes Deal for Tedeschi Food Shops Chain With fuel prices at their lowest level in years, consumers in 2014 had more money to spend, driving a 3.2-percent increase in in-store sales to a record $203.1 billion.

Source: Convenience Store News 2015 Industry Report (page 26)

QUOTABLES

“Now, many big-box, grocery and drugstores are coming into the smaller format space in large numbers and are able to provide convenient solutions to shoppers whose mission is not only instant consumption, but a fill-in trip as well.”

— Jeff Compo, Catapult Marketing (page 62)

Acquisition includes 182 c-stores in Massachusetts and New Hampshire

S

everal months after talk began swirling that Tedeschi Food Shops Inc. was up for sale, 7-Eleven Inc. revealed on May 18 plans to acquire the New England convenience store chain.

The transaction is expected to close in mid2015, subject to standard closing conditions and regulatory approvals.

Terms of the deal were not disclosed.

“Tedeschi is a respected brand and this acquisition fits in perfectly with 7-Eleven’s growth strategy,” said Stan Reynolds, executive vice president and chief financial officer of Dallas-based 7-Eleven. “This move was made possible by 7-Eleven reinvesting the return from previous successful acquisitions to continue the company’s growth as the world’s largest convenience retailer. These high-volume, high-performing locations complement our existing real estate portfolio in the Boston and New Hampshire area.”

Established in 1923, Rockland, Mass.based Tedeschi Food Shops is a familyowned and -operated convenience store chain with more than $600 million in annual revenue. The retailer operates 182 convenience stores in Massachusetts and New Hampshire. It offers proprietary brands: TD’s Deli, Tedeschi Fresh Foods, Tedeschi

12 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Select and Tedeschi Fuel. Tedeschi is also well known for its strong foodservice offer, as well as its produce program.

According to 7-Eleven, the company expects to extend job offers to most Tedeschi Food Shops employees who are affected by this acquisition upon successful completion of their pre-employment screening process and continued satisfactory performance.

7-Eleven, ranked No. 1 on the latest Convenience Store News Top 100 list of the largest U.S. c-store chains, has acquired more than 1,000 c-store locations in the last four years. 7-Eleven operates, franchises or licenses a total of 10,500 stores in North America, 164 of which are in the greater Boston area and New Hampshire.

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© 2015 The Wonderful Company LLC. All Rights Reserved. THE WONDERFUL COMPANY, WONDERFUL, the accompanying logos, and all other intellectual property are owned by The Wonderful Company LLC or its affiliates. RL13189

INDUSTRYROUNDUP

eye on growth n GPM Petroleum LP and Empire Petroleum Partners

LP filed with the U.S. Securities and Exchange Commission to raise up to $100 million in separate initial public offerings. GPM Petroleum, now a division of Richmond, Va.-based GPM Investments LLC, would operate as a master limited partnership. Dallasbased Empire Petroleum distributes motor fuel to more than 1,300 gas stations.

n Murphy USA Inc.

opened five new convenience stores in a relatively quiet first quarter, and opened three more so far in the second quarter of 2015. n MFA Oil Co. purchased a portion of the dealer fuel

n TravelCenters of America LLC’s recently closed

$27-million acquisition will add 19 convenience store/ gas station locations to its Minit Mart banner. The deal includes locations in Kansas and Missouri.

supply agreements owned by Sunshine Fuels LLC and Sunshine Energy LLC. The purchase includes 30 supplier contracts of dealers in Missouri, Kansas and Oklahoma. n Red Apple Group, parent of United Refining Co., is

n Partners Investors C-stores Ltd. is buying 26 Polk

Pick-It-Up convenience stores throughout east Texas from Brookshire Brothers Inc. Brookshire Brothers will keep its Polk Pick-It-Up locations in Hudson, Central Heights, Central and Wells, Texas.

16 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

acquiring the wholesale petroleum business of PPL EnergyPlus Retail LLC. Once the deal is completed, the business will be conducted under the name United Energy Plus Terminals LLC, and will be a full-service wholesale petroleum supplier/marketer in the Mid-Atlantic region.

INDUSTRYROUNDUP

TravelCenters to Take Minit Mart Banner Chainwide Rebranding to begin at the company’s truck stop travel stores

T

ravelCenters of America LLC continues to expand the convenience store side of its business, now even bringing its Minit Mart c-store banner to its truck stop properties.

During the company’s first-quarter 2015 earnings call on May 7, CEO Tom O’Brien said TravelCenters expects to begin rebranding its truck stop travel stores to Minit Mart. The move comes as TravelCenters is poised to more than triple its standalone c-store footprint within the year.

During the first quarter, TravelCenters acquired 26 convenience stores for $38.7 million and two travel centers, including one it previously operated under a

management agreement, for $8.4 million. As of May 7, the company had acquired 19 convenience stores, primarily in Kansas and Missouri, for $27 million.

As of the same date, the chain also had purchase agreements in place for two transactions comprising two travel centers and 35 c-stores for an aggregate of $82 million, O’Brien detailed.

“Including the sites we currently have under contract, our standalone gas station/convenience store operations will have grown from 34 locations at the beginning of 2015 to 114, principally located in Kentucky and throughout the Midwest,” he said.

“We intend to brand all of the convenience stores as

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Minit Marts and to upgrade the gasoline, food and other customer offerings.”

TravelCenters has not forgotten about its truck stop operations, however. The chief executive foresees continued growth in this area of the business as well.

“While much of our recent acquisition activity has been in convenience stores, we remain committed to continued growth of our truck stop network and a number of opportunities are currently being evaluated,” O’Brien explained. “As previously discussed, we also expect to undertake a limited amount of newbuild truck stop development projects. To date, we’ve broken ground on one new full-service travel center in Texas and we expect to break ground on three others later in 2015 or early in 2016.”

In addition to expanding its footprint, TravelCenters is committed to growing its services, particularly those focused around its competitive

advantages of larger sites and truck repair maintenance services. Reserve-It parking, RoadSquad Connect and RoadSquad onsite each experienced increased interest from customers during the first quarter.

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 19

INDUSTRYROUNDUP

retailer tidbits n Rutter’s Farm Stores in central Pennsylvania added

hometown favorites Whoopie pies and fried sweet bologna to its foodservice menu, as well as the classic American dish macaroni and cheese. The 5-ounce fried sweet bologna bites are made with sweet and savory chunks of Pennsylvania’s own Lebanon sweet bologna.

n Cumberland Farms debuted an exclu-

sive Farmhouse Blend f’real Milkshake.

It is only available at the chain’s newly remodeled locations in the Northeast and Florida. The new beverage combines Cumberland Farms’ signature Farmhouse Blend Coffee with real ice cream and dairy-fresh milk.

n Town Pump Inc.

completed a rollout of the Gilbarco Veeder-Root Passport POS system at all 97 of its convenience stores in Montana.

Town Pump leadership had been searching for a point-of-sale system that would support evolving credit networks, loyalty programs, enable remote management and provide a foundation for pending changes due to the EMV (Europay, MasterCard and Visa) liability shift. n Instead of just one winner, 7-Eleven Inc. named three

winners in its “Operation: Take Command” contest.

The three winning military veterans will receive a waiver of the company’s franchise fee, valued at up to $190,000 each.

n CST Brands Inc. is expanding its partnership with

ATM services provider Cardtronics Inc. to include Canada, specifically Corner Store locations across Quebec, Atlantic Canada and eastern Ontario.

Cardtronics has acted as Corner Store’s sole ATM services provider in the United States since 2012. n QuickChek Corp. was

named one of the Best Places to Work in New York State for the third consecutive year. The New Jersey-based convenience store chain, which has 14 locations in Long Island and the Hudson Valley, is ranked seventh this year, moving up after previously being ranked 13th in 2013 and 16th in 2014.

supplier tidbits n Core-Mark Holding Co. Inc. is partnering with Boyd

Coffee Co. to expand its coffee and beverage-based solutions. The new strategic partnership will enable Core-Mark’s retailer customers to offer the finest-tasting, visually appealing and consumer-relevant product offering in the industry, according to the wholesaler. n Japan Tobacco Inc. is acquir-

ing electronic cigarette company Logic Technology Development LLC. Under the deal, Logic’s executive management team will remain with the JT Group post-acquisition. n Wayne Fueling Systems joined forces with Ascentium

Capital to offer retailers equipment finance options for Wayne products, technologies and setup costs. U.S. retailers are eligible for Ascentium Capital financing for

20 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

products such as the Wayne Ovation2 fuel dispenser, Wayne Helix fuel dispenser, Wayne Fusion site automation server, payment upgrades, media programs, services, Wayne Genuine Parts, and more. n Subway hit an international

milestone with the opening of its 5,000th convenience store and truck stop location in Lima, Peru. n Bazooka Candy Brands, a division of Topps Co., will

unveil a reimagined Bazooka Joe in June after four artists competed in a contest to make over the gum mascot. Fans were able to review the designs online and vote for their favorite.

NEWPRODUCTS FIT Crunch Baked Bars

Slime Licker Liquid Candy

World-renowned chef Robert Irvine and FortiFX founder Sean Perich teamed up to create FIT Crunch Baked Bars. These six-layer, baked, highprotein bars are a first on the market, according to the maker. Containing 94 percent Whey Isolate Protein and low amounts of sugar, FIT Crunch Baked Bars are a healthy, great-tasting solution for fitness-motivated individuals, the company stated.

The maker of Toxic Waste Candy introduces Slime Licker, a sour rolling liquid candy. Slime Licker features a roll-on-your-tongue application and is available in 2-ounce plastic bottles in Blue Razz and Strawberry flavors.

Each point-of-purchase display contains 12 units with a mix of the two flavors, and each bottle has a suggested retail price of $1.99.

Pervine Foods LLC Pittsburgh (908) 216-2161 fitcrunchbars.com

Cold Stone Creamery Sweet Cream Flavored Creamer WhiteWave Foods’ International Delight brand added Cold Stone Creamery Sweet Cream to its line of non-dairy flavored creamers. The new flavor adds a rich, creamy indulgence to coffee and reminds consumers of the taste of fresh, homemade ice cream, according to the brand. International Delight aims to help convenience store operators create a coffeehouse experience at the coffee bar with new Cold Stone Creamery Sweet Cream flavored creamer.

WhiteWave Foodservice Broomfield, Colo.

(888) 620-9910 whitewavefoodservice.com

Candy Dynamics Indianapolis (888) 400-7606 www.toxicwastecandy.com

iSmoke Vapor Products Digital Gadgets’ iSmoke brand launched new products for 2015: the iSmoke OneHitter, iSmoke “3-in-1” and iSmoke Oven. The iSmoke OneHitter is a small, discrete, loose-leaf tobacco vaporizer designed to “heat, not burn” tobacco and comes with a rechargeable battery and cleaning tool set. The iSmoke “3-in-1” device combines a premium, top-fill mini clearomizer, loose-leaf tobacco vaporizer and a clearomizer for waxy oils. The iSmoke Oven is a loose-leaf tobacco vaporizer that features a LED screen, three temperature settings and a large chamber capable of holding 800 milligrams of tobacco.

Digital Gadgets Monroe Township, N.J. www.digitalgadgets.com

GasBuddy Coupon Portal GasBuddy, the price-comparison gas app, launched the GasBuddy Coupon Portal, a tool that enables consumer packaged goods (CPG) brands and convenience stores to move more inventory and increase basket size. The Coupon Portal allows CPGs to easily create highly targeted and custom coupons for consumers to redeem at gas station c-stores. Currently, 10 retailers are participating in the Coupon Portal, including BellStores, Corner Store, Common Cents, Rutter’s Farm Stores and On the Run. Participating CPG brands include products from Quaker Oats, Prestige Brands, ConAgra Foods and Twang Partners.

GasBuddy/OpenStore LLC Gaithersburg, Md. couponportal.gasbuddy.com

22 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

WHAT’S OUT

© 2015 McLane Company, Inc. All rights reserved.

WHAT’S IN

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To learn more, visit mclaneco.com/goto/smsportal

cover story

Industry

Report

15

Getting Their Fill

Convenience store retailers capitalized on the low fuel prices of 2014 A Convenience Store News Staff Report

Q

uestion: When can lower sales be considered good news to a retail channel that continues to add to its already dominant store count in the United States?

Answer: When those lower sales are caused by a sharp decline in fuel prices, which provided convenience store retailers with a pair of benefits that made 2014 a very good year.

With fuel prices at their lowest level in many years, consumers had more money in their pockets to spend on in-store merchandise, driving a 3.2-percent increase in in-store sales to a record $203.1 billion. Consumers continued to spend more on prepared food at c-stores, as overall foodservice sales grew 6.3 percent last year.

The second benefit: Depressed fuel prices were accompanied by generous fuel margins, resulting in a 29.9-percent increase in fuel gross profits on a 2.6-percent volume gain. Lower prices also helped to stabilize falling gas consumption patterns.

All of this pumped up retailers’ gross profits to a solid doubledigit gain of 12.5 percent in 2014.

Total convenience store industry sales dropped slightly last year to $704.5 billion, from $706.4 billion the previous year, according to the 2015 Convenience Store News Industry Report, the longest-running, continuously published annual report on the health and performance of the convenience retail

Illustration by James Shepherd

26 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 27

Fig. 1

Total Convenience Store Sales

Sales (in billions)/percent change Total convenience store industry sales stayed above the $700-billion mark for the third consecutive year, although motor fuel dollar sales were depressed by low gas prices.

Total

Motor Fuel

In-Store

$704.5 -0.3% 2014

$501.4

-1.6%

$203.1 3.2% $706.4 2013

-0.2%

$509.6 -1.1% $196.8 2.1% $708.2

2012

$515.4

2.8%

2.0%

$192.8 4.7% Source: Convenience Store News Market Research, 2015

Fig. 2

Store Growth Analysis

Number of stores/percent change The industry added more than 1,500 net new stores last year, 950 of which were operated by single-store owners.

Total Store Count

Chains

Single Stores

2014

152,794 37.0%

63.0%

2013

151,282 37.2%

2012

62.8% 149,220

37.1%

62.9%

Source: Convenience Store News Market Research, 2015

Fig. 3

Motor Fuel Volume

STORE COUNT GROWTH

Gallons (in billions)/percent change Lower gas prices encouraged consumers to drive more as motor fuel gallons sold increased for the second consecutive year, reaching the highest level since 2007.

2014 2013 2012 Source: Convenience Store News Market Research, 2015

28 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

channel. The sales decline was the second consecutive year that total revenue fell after a three-year surge from 2010 to 2012, when sales rose from $505.7 billion in 2009 to a record high of $708.2 billion in 2012.

Motor fuel sales were down 1.6 percent to $501.4 billion last year, also the second consecutive year of decline. Motor fuel volume increased to 147 billion gallons of fuel, the highest amount of consumption since the 148.2-billion peak in 2007.

The increased profitability achieved by retailers last year is illustrated in the improved motor fuel gross profit margin as a percent of sales of 7.21 percent, a substantial gain over the 5.32-percent gross profit margin on motor fuels recorded in 2013.

October 2014, in particular, was cited by retailers as the beginning of the most profitable period of fuel sales for the entire year. “October was a very good month for fuel retailers,� RaceTrac Petroleum Inc. President Billy Milam said at a recent NACS conference.

Total industry gross profits grew to $89.7 billion last year. Pretax profits increased 34.1 percent to $8.968 billion. On a per-store basis, pretax profits were up 32 percent to $59,889 per store. Both total gross and pretax profits are record highs for the c-store industry.

147.0 2.6% 143.3 141.0

1.6% -1.2%

Despite a high level of merger and acquisition activity last year, the total number of convenience stores in the United States increased by 1,512 to 152,794 stores. Thirtyseven percent of those stores are operated by chains of two stores or more, with the remaining 63 percent operated by single-store

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Industry Sales Mix Fig. 4

owners. The percentage of singlestore owners has remained between 61.8 percent and 63 percent for the past decade, so it is apparent industry consolidation was concentrated among the larger chains.

Among the big mergers of the past year were Circle K parent Alimentation Couche-Tard Inc.’s purchase of The Pantry Inc.; Speedway LLC’s acquisition of Hess Corp.’s retail network; CST Brands Inc.’s general partner purchase of Lehigh Gas Partners (now CrossAmerica Partners), as well as their joint purchase of Nice N Easy; and Energy Transfer Partners’ purchase of Susser Holdings Corp. and Aloha Petroleum Ltd. Convenience stores still outnumber all other types of retail outlets by a wide margin. There are almost twice as many c-stores as category killers (83,959), three times as many as supermarkets (50,645) and more than three times as many as drugstores (41,378). One out of every three brick-and-mortar retail establishments in the United States is a convenience store.

In the cigarettes category, “flat is the new up,” Kevin Smartt, CEO of Kwik Chek Food Stores, remarked at the recent NACS conference.

A declining category the past several years, sales of cigarettes were essentially flat at c-stores last year at $63.2 billion — still the largest sales-producing category in the store.

Packaged beverages had another strong year, increasing 5.1 percent to $25.2 billion in c-store sales in 2014, and prepared food (both commissary- and on-site prepared) came in at $21.2 billion in sales, an increase of 8.9 percent.

Among other major product categories, the biggest percentage sales gains were in edible grocery (up 5.1 percent), other tobacco products (up 4.3 percent), general merchandise (up 7.6 percent) and salty snacks (up 6.3 percent). Among lower-volume categories, strong percentage increases were registered in wine and liquor (up 8.9 percent), alternative snacks (up 9.9 percent) and packaged sweet snacks (up 9.8 percent).

Sales were flat or slightly down for non-edible grocery (up 0.3 percent), fluid milk (down 1 percent), ice cream and frozen novelties (up 1.3 percent), health and beauty care (up 0.3 percent) and publications (down 0.4 percent).

From a profitability standpoint,

CATEGORY HIGHLIGHTS

Total merchandise and foodservice sales per store set a record high of $1,356,301 last year, a 1.6-percent increase. In-store sales broke the $1-million-per-store barrier in 2006.

Industry Gross Profit

Lower gas prices meant motor fuel sales ticked down a percentage point as a share of total industry sales.

Motor Fuel

In-Store

28.8%

71.2% Source: Convenience Store News Market Research, 2015

Gross Profit Dollar Mix Fig. 5

High gas margins lifted motor fuel gross profit dollars to nearly 40 percent of total industry gross profit.

Motor Fuel

In-Store

39.2%

60.8%

Source: Convenience Store News Market Research, 2015

Gross Profit Margin

Fig. 6

Fig. 7

Motor fuel gross profit dollars rose almost 30 percent last year, as high gas margins pumped up retailers’ bottom lines.

(As a percent of sales and profit dollars per store) The gross profit margin on in-store sales remained relatively flat at 26.7 percent, but motor fuel gross profit margin soared to 7.21 percent, from 5.32 percent in 2013. The combined result was a 10.7-percent increase in gross profit dollars per store.

In-store Motor fuel TOTAL

2014 $ billions

2013 $ billions

% change

$54.5 $35.2 $89.7

$52.6 $27.1 $79.7

3.5% 29.9% 12.5%

Source: Convenience Store News Market Research, 2015

In-store Motor fuel Combined

2014 GroSS proFIT MarGIn

$ per STore

2013 GroSS proFIT MarGIn

$ per STore

26.70% 7.21% 12.82%

$363,874 $281,206 $598,942

26.74% 5.32% 11.29%

$357,046 $218,612 $540,894

Source: Convenience Store News Market Research, 2015

30 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

billion of gross profits to c-store retailers’ bottom line.

The biggest percentage increases in profitability were generated by alternative snacks (up 16 percent in gross profit dollars), salty snacks (up 10.7 percent), wine and liquor (up 8.9 percent), packaged

foodservice generated the highest amount of gross profit dollars at nearly $13.8 billion. The other star category in profits was packaged beverages, which generated $8.2 billion in gross profit dollars last year. Prepared food (a subcategory of foodservice) contributed $8.2

Fig. 8

Pretax Profits

On a pretax basis, c-store industry profits ballooned to nearly $9 billion, an increase of 34.1 percent.

2014

Total industry pretax profit Pretax profit per store

2013

$8.968 billion $59,889

$6.687 billion $45,365

Source: Convenience Store News Market Research, 2015

Fig. 9

Total Merchandise & Foodservice Sales

Sales (in billions)/percent change

Total merchandise and foodservice sales grew 3.2 percent in 2014, but it was the foodservice side that continued to shine with sales rising 6.3 percent.

Total

Merchandise

$171.9

Top 10 In-Store Category Ratios Fig. 11

The top 10 in-store sales categories have held steady in accounting for just under 90 percent of total sales for several years. As a percent of gross margin, these 10 top categories grew from 87.5 percent to 88.6 percent of total margin dollars.

Top 10 categories

Foodservice

$203.1 3.2% 2014

sweet snacks (up 8.7 percent), general merchandise (up 8.5 percent), health and beauty care (up 7.9 percent) and frozen dispensed beverages (up 7.8 percent).

Several categories saw declines in gross profitability last year.

These included non-edible grocery (down 9.1 percent), fluid milk (down 8.4 percent) and cigarettes (down 1.4 percent). All three of these categories saw gross profit declines in 2013 as well.

2.6%

all other categories

AS A PERCENT OF SALES

10.3%

$31.2 6.3% $196.8 2.1% 2013

$167.4 1.4% $29.4 6.5% $192.8

2012

$165.2

89.7%

4.7%

4.2%

$27.6 7.6% Source: Convenience Store News Market Research, 2015

Fig. 10

AS A PERCENT OF gROSS MARgIN

11.4%

In-Store Sales per Store

Sales (in billions)/percent change Inside sales per store rose by almost $21,000 last year to $1.36 million, another industry record.

2014 2013 2012 Source: Convenience Store News Market Research, 2015

32 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

$1,356,301 1.6% $1,335,350 $1,320,001

1.2%

88.6%

3.9% Source: Convenience Store News Market Research, 2015

Fig. 12

In-Store Sales by Category

Prepared food propelled a 7.2-percent-per-store sales gain last year to 10.38 percent of in-store sales. Other strong categories included packaged beverages, general merchandise, salty snacks, alternative snacks, and wine and liquor. perCenT oF In-STore SaLeS

2014

2013

aVeraGe STore SaLeS

2014

ToTaL InDUSTrY SaLeS (In MILLIonS)

% change

2014

% change

MERCHANDISE Cigarettes Packaged beverages Beer/malt beverages Edible grocery Other tobacco products Candy/gum general merchandise Salty snacks Non-edible grocery Fluid milk products Wine & liquor Alternative snacks Ice cream & frozen novelties Health & beauty care Publications Ice Packaged sweet snacks All other merchandise Merchandise subtotal

31.13% 12.41 9.67 5.13 4.89 3.26 3.25 2.71 1.91 1.90 1.19 1.05 0.93 0.73 0.53 0.44 0.29 3.18 84.62%

32.09% 12.18 9.69 5.03 4.83 3.26 3.11 2.63 1.96 1.99 1.13 0.99 0.95 0.75 0.55 0.43 0.27 3.21 85.07%

$422,261 168,327 131,157 69,539 66,273 44,262 44,069 36,716 25,898 25,837 16,208 14,258 12,668 9,917 7,186 5,977 3,967 43,167 $1,147,685

-1.5% 3.5 1.4 3.5 2.7 1.6 6.0 4.6 -1.3 -2.6 7.2 8.2 -0.3 -1.3 -1.9 4.8 8.1 0.7 1.0%

$63,231 25,206 19,640 10,413 9,924 6,628 6,599 5,498 3,878 3,869 2,427 2,135 1,897 1,485 1,076 895 594 6,464 $171,859

0.1% 5.1 3.0 5.1 4.3 3.2 7.6 6.3 0.3 -1.0 8.9 9.9 1.3 0.3 -0.4 6.4 9.8 2.3 2.6%

FOODSERVICE Prepared food (prepared on- or off-site) Hot dispensed beverages Cold dispensed beverages Frozen dispensed beverages Foodservice subtotal TOTAL IN-STORE

10.38% 3.23 1.18 0.59 15.38% 100.00%

9.84% 3.30 1.21 0.59 14.93% 100.00%

$140,754 43,821 16,021 8,020 $208,616 $1,356,301

7.2% -0.6 -0.7 2.6 4.6% 1.6%

$21,077 6,562 2,399 1,201 $31,239 $203,098

8.9% 1.0 0.9 4.3 6.3% 3.2%

Source: Convenience Store News Market Research, 2015

Fig. 13

Top 10 In-Store Categories

There was little change in the ranking of the top 10 categories in in-store sales last year, with only Nos. 9 and 10 switching places. On a profitability basis, foodservice remained the strongest category for gross margin dollar contribution, followed by a declining cigarettes category and a rising packaged beverages category. perCenT oF

perCenT oF GroSS

In-STore SaLeS

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Cigarettes Foodservice Packaged beverages Beer/malt beverages Edible grocery Other tobacco products Candy/gum general merchandise Salty snacks Non-edible grocery

2014 31.13% 15.38 12.41 9.67 5.13 4.89 3.26 3.25 2.71 1.91

Source: Convenience Store News Market Research, 2015

34 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

2013 32.09% 14.93 12.18 9.69 5.03 4.83 3.26 3.11 2.63 1.96

MarGIn DoLLar ConTrIBUTIon

2012 32.87% 14.31 11.96 9.72 5.09 4.55 3.23 3.13 2.53 2.04

2014 15.78% 25.30 15.12 6.70 6.00 4.41 5.34 4.68 3.15 2.16

2013 16.57% 24.93 15.00 6.57 6.04 4.47 5.19 4.47 2.94 2.46

2012 17.53% 24.20 14.74 6.62 6.12 4.19 4.99 4.51 2.79 2.58

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4 C-STORES

2014

OVERALL GRADE: B

REPORT CARD AT A GLANCE TOTAL SALES Down 0.2 percent.

STORE COUNT

C B

Industry added 1,512 stores.

Fig. 14

B A

B B

IN-STORE SALES

MOTOR FUEL SALES

PROFITS

FOODSERVICE SALES

Up 3.2 percent.

Revenue down 1.6 percent, but volume up 2.6 percent.

gross profit up 12.5 percent, and pretax profits up 34.1 percent.

Up 6.3 percent.

In-Store Gross Margins by Category

The big gainers in gross margin per store last year were alternative snacks, general merchandise and prepared food. The biggest losers were non-edible grocery and fluid milk. aVeraGe GroSS MarGIn perCenT

2014

GroSS MarGIn per STore

ToTaL InDUSTrY GroSS MarGIn (In MILLIonS)

2013

2014

% change

13.60% 32.67 18.57 31.37 24.20 43.87 38.64 31.17 30.35 16.62 22.29 36.02 34.16 51.65 16.36 51.17 35.86 30.77 23.68%

13.80% 32.91 18.15 32.07 24.71 42.50 38.35 29.93 33.50 17.96 22.31 34.12 34.81 48.00 16.49 51.01 36.24 30.99 23.60%

$57,411 55,001 24,362 21,817 16,041 19,420 17,029 11,446 7,860 4,294 3,613 5,135 4,327 5,122 1,175 3,059 1,422 13,283 $271,817

-2.9% 2.7 3.8 1.2 0.6 4.9 6.8 9.0 -10.5 -9.8 7.2 14.2 -2.2 6.2 -2.7 5.1 6.9 0.0 1.4%

$8,597 8,236 3,648 3,267 2,402 2,908 2,550 1,714 1,177 643 541 769 648 767 176 458 213 1,989 $40,703

-1.4% 4.3 5.4 2.8 2.2 6.6 8.5 10.7 -9.1 -8.4 8.9 16.0 -0.6 7.9 -1.1 6.8 8.7 1.6 3.0%

FOODSERVICE Prepared food (prepared on- or off-site) 38.78% Hot dispensed beverages 50.64 Cold dispensed beverages 62.98 Frozen dispensed beverages 64.78 Foodservice subtotal 44.13% TOTAL IN-STORE 26.83%

39.58% 49.95 62.65 62.67 44.64% 26.74%

$54,580 22,191 10,091 5,196 $92,057 $363,874

5.0% 0.8 -0.2 6.1 3.4% 1.9%

$8,173 3,323 1,511 778 $13,785 $54,488

6.7% 2.4 1.4 7.8 5.1% 3.5%

MERCHANDISE Cigarettes Packaged beverages Beer/malt beverages Edible grocery Other tobacco products Candy/gum general merchandise Salty snacks Non-edible grocery Fluid milk products Wine & liquor Alternative snacks Ice cream & frozen novelties Health & beauty care Publications Ice Packaged sweet snacks All other merchandise Merchandise subtotal

Source: Convenience Store News Market Research, 2015

36 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

2014

% change

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motor fuel

Mammoth Margins C-store fuel profits enjoyed one of their best years ever

F

Fig. 15

or the past several years, many convenience store retailers considered sales at the pump an opportunity to bring customers inside the store to purchase high-margin items. Sure, some profits could be had at the pump, but certainly not enough to sustain a business.

Thanks to lower gas prices, however, fuel profits roared back to life last year. Gross fuel margin dollars per store grew an outstanding 28.6 percent year over year to

Fig. 16

Motor Fuel Sales & Margins

2014 was a banner year for c-stores in terms of gross margin dollars per store, which increased by nearly $63,000 (28.6 percent) year over year to $281,206 per store. Gallons per store and gallons per store per month also increased — although by a much more muted 1.6 percent. As expected, sales per store dropped by 2.6 percent to slightly above $4 million as the average sales price per gallon declined more than 14 cents to $3.41 per gallon.

2014

Sales per store Gallons per store Gallons per store per month Gross margin cents per gallon Gross margin dollars per store Average sales price per gallon

2013

$4,005,592 1,174,356 97,863 23.95 $281,206 $3.411

% change

$4,110,871 1,155,981 96,332 18.91 $218,612 $3.556

-2.6% 1.6 1.6 26.6 28.6 -4.1

Source: Convenience Store News Market Research, 2015

Retail Gasoline Prices by Region

2014 began with high per-gallon average gasoline prices, but the tide began turning in June. In December, the entire country averaged less than $3 per gallon. As in prior years, the West Coast had the highest prices throughout the year, followed by the East Coast. Conversely, the Gulf Coast region enjoyed the lowest prices. east coast

Midwest

gulf coast

Rocky Mountain

West coast

$4.00

Prices include dollars per gallon for all grades, all formulations Source: U.S. Department of Energy/Energy Information Administration

38 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Dec. 2014

nov. 2014

Oct. 2014

Sep. 2014

aug. 2014

Jul. 2014

Jun. 2014

May 2014

apr. 2014

Mar. 2014

Feb. 2014

Jan. 2014

Dec. 2013

nov. 2013

Oct. 2013

Sep. 2013

aug. 2013

Jul. 2013

Jun. 2013

May 2013

apr. 2013

Mar. 2013

Feb. 2013

$2.00

Jan. 2013

$3.00

Stores Selling Motor Fuels, by State Fig. 19

$281,206. This figure is even more impressive when considering that gross fuel margin dollars per store actually declined to the tune of 0.1 percent in 2013 compared to 2012.

In almost every way, the motor fuels category posted its best results in many years, with 2014 perhaps being one of the best years ever.

Digging deeper into the data, the month of May had the highest average pump price per gallon in all five regions of the United States. A change began in June, with the nationwide average gasoline price declining every month through the end of the year.

In all, the average price per gallon declined 4.1 percent (or more than 14 cents per gallon) in 2014 to $3.411 per gallon for all grades, all formulations of gasoline.

The only possible negative in the fuel segment of the c-store industry was a slight decline of 0.2 percent in the number of c-stores selling motor fuels. Last year, 83.5 percent of c-stores sold motor fuels, with the decline coming primarily from single-store operators.

Fig. 17

Stores Selling Motor Fuels

The number of c-stores selling motor fuels saw a slight decline of 0.2 percent to 83.5 percent. Although a minuscule decline, this figure is significant as it marks the first time since 2007 that any descent took place.

Sell motor fuels

Do not sell motor fuels

TOTaL c-STOReS

chains

Single stores

aMOng STOReS SeLLing MOTOR FueLS

16.5% 442.0% 83.5%

58.0%

Source: Nielsen TDLinx, December 2014

Stores Selling Motor Fuels,

by Region Fig. 18

As in past years, the Midwest continued to be No. 1 when it came to the percentage of c-stores selling motor fuels, with the region coming in at 89.3 percent. The Northeast continued to be the laggard, as 69.8 percent of stores in this region sold motor fuels in 2014.

TOTaL STOReS

South Midwest West Northeast TOTAL

71,776 31,297 25,865 23,856 152,794

Source: Nielsen TDLinx, December 2014

STOReS SeLLing MOTOR FueL

61,919 27,920 21,108 16,641 127,588

% OF STOReS SeLLing MOTOR FueL

86.3% 89.2 81.6 69.8 83.5%

Nebraska and North Dakota continue to jockey for the top spot regarding which state has the most c-stores selling motor fuels.

In 2014, Nebraska earned the top spot as 96.6 percent of the state’s c-stores sold motor fuels. Nebraska also had the top spot in 2012, only to be overtaken by North Dakota in 2013. On the flip side, Washington, D.C. had the least percentage of c-stores selling motor fuels at 59.4 percent, followed by New Jersey.

TOTaL STOReS

STaTe

Nebraska North Dakota Kansas Wyoming New Mexico Iowa South Dakota Wisconsin Alabama Indiana Minnesota Colorado Arkansas Idaho Montana Oklahoma Utah Missouri Mississippi Kentucky Arizona South Carolina Georgia North Carolina Louisiana West Virginia Michigan Tennessee Vermont Texas Pennsylvania Nevada Illinois Washington Delaware Alaska Virginia Ohio Florida Maine New Hampshire California Maryland Connecticut Oregon Hawaii Rhode Island Massachusetts New York New Jersey District of Columbia TOTAL

975 445 1,259 346 944 1,813 633 2,747 3,968 2,865 2,337 1,829 1,862 802 561 2,752 1,042 3,107 2,748 2,617 2,214 3,506 6,766 6,301 3,358 1,279 4,907 4,365 610 15,435 4,604 1,150 4,670 2,985 353 200 4,495 5,539 9,810 1,075 905 11,403 1,964 1,658 1,863 526 499 3,267 8,247 2,991 197 152,794

% SeLLing MOTOR FueL

96.6% 95.7 95.7 95.7 95.1 94.9 94.8 94.4 93.3 93.2 93.2 92.9 92.9 92.4 92.3 91.4 91.0 91.0 90.6 90.6 90.3 89.2 88.5 87.5 87.3 86.6 86.3 85.9 85.2 85.0 85.0 84.8 84.5 83.0 83.0 83.0 82.7 82.7 81.2 79.1 76.4 76.0 74.9 71.7 70.4 70.3 68.7 63.3 63.3 61.9 59.4 83.5%

Source: Nielsen TDLinx, December 2014

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 39

operations

Operations Overload Direct-store operating expenses hit nearly 11 percent of total sales per store

A

Fig. 20

s the war over the minimum wage wages on in municipalities and statehouses across the country, convenience store operators are all too familiar with the cost of keeping their stores staffed. Last year saw wages hit $246,394 per store, a 7.5-percent increase over 2013. Even more telling, wages accounted for 41.14 percent of profits — leaving other operating expenses far behind.

Health care benefits are also a hot-button issue on both sides of the coin. In 2014, this line item climbed more than 9 percent to $22,532 per store. The Affordable Care Act may be having an effect: Health insurance costs have increased, but not as much as expected, perhaps showing retailers are hiring more part-time employees instead of full-time workers.

Overall, direct-store operating expenses totaled $514,946 per store in 2014.

C-Store Square Footage Fig. 22

Although many c-store retailers are building bigger prototypes, the industry average last year was only slightly bigger vs. a year ago.

Total store size rose to 3,222 square feet vs.

3,207 in 2013, with the sales area still taking up about three-quarters of the space.

Sales area Non-sales area Total store size Total property size

2014

2013

2,403 819 3,222 27,720

2,392 815 3,207 27,685

Source: Convenience Store News Market Research, 2015

40 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Direct-Store Operating Expenses

The cost of doing business ticked up last year with each segment of direct-store operating expenses seeing increases. Overall, these expenses accounted for nearly 86 percent of a convenience store’s profits — up more than 5 percent vs. the previous year.

DollarS per Store

Wages Payroll taxes Workers compensation Health insurance Other benefits Labor subtotal Credit card fees All other direct-store operating expenses TOTAL DIRECT-STORE OPERATING EXPENSES

aS a percent of profitS

$246,394 14,672 10,505 22,532 5,823 $299,925 74,374 140,647 $514,946

aS a percent of total SaleS per Store

41.14% 2.45 1.75 3.76 0.97 50.08% 12.42

5.24% 0.31 0.22 0.48 0.12 6.38% 1.58

23.48

2.99

85.98%

10.95%

Source: Convenience Store News Market Research, 2015

Fig. 21

In-Store Shrink

There is good news for retailers when it comes to in-store shrink. While the figures were up slightly for all shrink categories on a dollar-per-store basis — except cigarettes — the percentage of sales remained flat on a year-over-year comparison.

2014 DollarS per Store

Cigarettes All other merchandise Foodservice TOTAL

$5,052 $6,198 $7,834 $19,084

2013

% of SaleS

1.20% 0.85% 3.76% 1.43%

DollarS per Store

$5,241 $5,991 $7,579 $18,811

% of SaleS

1.22% 0.85% 3.80% 1.41%

Source: Convenience Store News Market Research, 2015

Fig. 23

Transactions

The number of weekly transactions, inside the store and at the pump, held steady in 2014. As the average in-store transaction crept up by 1.4 percent to $7.95, the average motor fuel transaction dipped by more than 2 percent to $30.46.

In-store transactions per week Motor fuel transactions per week Average in-store transaction Average motor fuel transaction Average gallons per transaction Source: Convenience Store News Market Research, 2015

2014

2013

3,280 2,529 $7.952 $30.46 8.9

3,273 2,533 $7.846 $31.21 8.8

Liggett Vector Brands is the exclusive sales, marketing and distribution agent for Liggett Group and Vector Tobacco. © 2015 Liggett Group MSA PARTICIPANT. Ranking based on the MSAi retail shipment data from January - December 2014.

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tobacco

Backbar Battle Even though it’s a small percentage of OTP, don’t count e-cigarettes out

T

he future of electronic cigarettes depends on who you listen to and on what day. Numbers point to a flattening-out of the segment. And while some see this as an indication e-cigarettes may not be the disruptive product it was once thought to be, others still believe the segment will bypass traditional cigarettes but it may just take a little longer.

E-cigarettes still command attention behind the backbar. True, the segment has seen its tripledigit growth slow to double-digit growth, but it is the only segment to even post double-digit gains.

But traditional cigarettes are not going away anytime soon. The tobacco category leader accounted for 31.13 percent of in-store sales and 15.78 percent of in-store gross margin dollar contribution at convenience stores in 2014.

By comparison, other tobacco products (OTP) — which includes

Fig. 26

Cigarettes Unit

smokeless, cigars, e-cigarettes, papers, pipe and cigarette tobacco, and pipes — accounted for 4.89 percent of in-store sales and 4.41

Fig. 24

Category Analysis: Cigarettes

(31.13 percent of in-store sales; 15.78 percent of in-store gross margin dollar contribution)

Fourth-tier cigarettes took the biggest hit in 2014, posting a 6-percent decrease in average sales per store. However, it’s the smallest of the segments. Premium still dominated cigarettes with $339,306 in average sales per store.

AverAge SAleS per Store 2014

Premium Branded discount Subgeneric/private label Fourth tier Imports TOTAL

Convenience Tobacco Supermarket Drug All other

2014 69% 9 5 5 12

2013 69% 9 5 6 11

Source: MI Connect STARS, week ending 12/27/14

42 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

$339,306 61,044 20,068 1,830 13 $422,261

InduStry totAl (In mIllIonS)

% chAnge

2014

% chAnge

-1.2% -1.7 -4.0 -6.0 -1.6 -1.5%

$50,809 9,141 3,005 274 2 $63,231

0.3% -0.2 -2.5 -4.5 0.0 0.1%

Source: Convenience Store News Market Research, 2015

Percent of Cigarettes Dollar Sales & Unit Volume

Fig. 25

Dollar sales and unit volume highlight premium’s leader-of-the-pack status. Its share of both remained stable among all the cigarette segments in 2014 compared to the previous year. premium

Branded discount

Volume Market Share The convenience channel’s dominance as the go-to place to buy cigarettes continued in 2014. Drugstores saw a slightly lower share, perhaps driven by CVS’ decision to exit the category.

percent of in-store gross margin dollar contribution.

Last year saw the typical players rule the roost in all

Subgeneric/private label

dollAr SAleS

4.8%

Fourth tier

unIt volume

0.4%

0.5% 5.5%

14.5%

16.5%

80.3% Source: Convenience Store News Market Research, 2015

77.5% 77

Imports

tobacco

Fig. 27

Category Analysis: Other Tobacco Products

(4.89 percent of in-store sales; 4.41 percent of in-store gross margin dollar contribution)

segments of tobacco. In cigarettes, premium saw a 1.2-percent dip in average sales per store, but still rang up $339,306 per store. In second place, branded discount paled in comparison at $61,044 in average sales per store.

Similarly, smokeless tobacco and cigars continued to lead OTP, with smokeless taking a 60.6-percent share of dollar sales and cigars taking a 27.9-percent share.

Fig. 28

Percent of Other Tobacco Products Dollar Sales & Unit Volume E-cigarettes posted the biggest increase in dollar share, though the segment is still only a little more than 7 percent of OTP. Cigars saw a 1.1-percent rise in unit volume share.

Smokeless cigars electronic cigarettes papers

Though not racking up triple-digit growth like in 2013, electronic cigarettes are still a formidable force in other tobacco products. Its 14.1-percent increase last year was not yet enough to boost it past smokeless or cigars.

AverAge SAleS per Store 2014

Smokeless Cigars Electronic cigarettes Papers Pipe/cigarette tobacco Pipes Other OTP TOTAL

$40,128 18,498 4,875 1,897 648 100 127 $66,273

% chAnge

3.5% -0.6 14.1 -3.6 -5.5 -7.7 -6.5 -6.3%

% chAnge

5.2% 0.9 15.9 -2.1 -4.0 -6.3 -5.0 4.3%

Source: Convenience Store News Market Research, 2015

Fig. 29

State Cigarette Taxes

Vermont started the year with a state levy of $2.62 per pack, but thanks to a mid-year 13-cent increase, the state jumped to No. 8 on the list. New York still takes the title of having the highest state cigarette excise tax at $4.35.

other otp

2.9%

7.4%

1.0% 0.2% 0.2%

less than 50¢ 50¢-99¢ $1.00-$1.99 $2.00-$2.49 $2.50 or more

27.9% 60.6% StAte (In order oF tAx) UNIT VOLUME

2.3%

2014

$6,009 2,770 730 284 97 15 19 $9,924

pipe/cigarette tobacco pipes

DOLLAR SALES

4.5%

InduStry totAl (In mIllIonS)

0.6%

41.1% 51.5%

Source: Convenience Store News Market Research, 2015

44 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Missouri Virginia Louisiana Georgia North Dakota North Carolina West Virginia Idaho South Carolina Kentucky Wyoming Tennessee Nebraska Mississippi Kansas Nevada Colorado

tAx

$0.17 $0.30 $0.36 $0.37 $0.44 $0.45 $0.55 $0.57 $0.57 $0.60 $0.60 $0.62 $0.64 $0.68 $0.79 $0.80 $0.84

StAte (In order oF tAx)

California Indiana Oklahoma Arkansas Ohio Oregon Florida Iowa Texas South Dakota Delaware Pennsylvania New Mexico Montana Utah New Hampshire Illinois

Source: U.S. Federal Tax Administration, December 2014

tAx

$0.87 $0.995 $1.03 $1.15 $1.25 $1.31 $1.339 $1.36 $1.41 $1.53 $1.60 $1.60 $1.66 $1.70 $1.70 $1.78 $1.98

StAte (In order oF tAx)

Alaska Arizona Maine Maryland Michigan District of Columbia Wisconsin New Jersey Vermont Minnesota Washington Hawaii Connecticut Rhode Island Massachusetts Alabama New York

tAx

$2.00 $2.00 $2.00 $2.00 $2.00 $2.50 $2.52 $2.70 $2.75 $2.90 $3.025 $3.20 $3.40 $3.50 $3.51 $4.25 $4.35

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foodservice

Prepared for Profits Prepared food growth slowed in 2014, but was still the category standout

T

here was good news and bad news for convenience store operators in the foodservice category last year. The good news: Foodservice sales at the average c-store continued to grow. The bad news: The rate of growth slowed for the third consecutive year.

Per-store sales of total foodservice (including prepared food and hot, cold and frozen dispensed beverages) rose by 4.6 percent for full-year 2014. Certainly a respectable increase, but a little worrisome considering sales rose by 5.5 percent in 2013 and 6.8 percent in 2012.

A slight slowdown in prepared food sales growth vs. 2013, combined with another year of declines in hot and cold dispensed beverages, were the culprits behind the deceleration.

Still, compared to other in-store categories, foodservice is by no means a laggard. The category last year accounted for 15.38 percent

Fig. 30

of in-store sales industrywide (up from 14.93 percent), behind only cigarettes. And from a profitability standpoint, foodservice was No. 1, accounting for 25.30 percent of gross margin dollar contribution industrywide (up from 24.93 percent).

The average U.S. convenience store rang up $208,616 in total foodservice sales last year at an average gross margin of 44.13 percent. Per-store gross margin dollars totaled $92,057.

Fig. 31

Percent of Total Foodservice Sales

Prepared food grew its share of the foodservice category, mainly at the expense of hot dispensed beverages. Prepared food is by far the dominant segment in sales at 67.5-percent share. prepared food (on- and off-site) hot dispensed beverages cold dispensed beverages Frozen dispensed beverages DOLLAR SALES

Category Analysis: Foodservice

(15.38 percent of in-store sales; 25.30 percent of in-store gross margin dollar contribution)

The average convenience store rang up an additional $9,232 in foodservice sales last year vs.

2013. Industrywide, U.S c-stores brought in more than $31 billion in total foodservice sales for the year. Prepared food and frozen dispensed beverages propelled the growth.

AverAge SAleS per Store 2014

Prepared food (prepared on- or off-site) $140,754 Hot dispensed beverages 43,821 Cold dispensed beverages 16,021 Frozen dispensed beverages 8,020 TOTAL $208,616

% chAnge

7.2% -0.6 -0.7 2.6 4.6%

Source: Convenience Store News Market Research, 2015

46 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

InduStry totAl (In mIllIonS) 2014

$21,077 6,562 2,399 1,201 $31,239

7.7%

3.8%

21.0%

% chAnge

8.9% 1.0 0.9 4.3 6.3%

67.5%

Source: Convenience Store News Market Research, 2015

foodservice

Looking at the four segments that make up the category, hot dispensed beverages and cold dispensed beverages were on the negative side, while prepared food and frozen dispensed beverages were on the positive side regarding sales growth at the average c-store.

Encouragingly, hot dispensed beverages had a better year in 2014, dropping only 0.6 percent on a per-store sales basis vs. 2.3 percent the prior year. Cold dispensed beverages, however, had a slightly worse year as the segment dropped 0.7 percent vs. 0.5 percent in 2013.

Frozen dispensed beverages saw a positive turnaround, posting a 2.6-percent increase in per-store sales, reversing its 0.1-percent decline in 2013. But it was prepared food that was once again the foodservice category standout despite a slower rate of growth year over year.

Prepared food sales at the average c-store grew 7.2 percent (compared to 9.5 percent in 2013) and the segment grew its share of the

Fig. 32

category by 1.6 percentage points to 67.5 percent. Most of this share increase came at the expense of hot dispensed beverages.

Category Analysis: Prepared Food

The average c-store saw sales gains across all segments of prepared food in 2014, ranging from the highest percentage growth of 11.3 percent for frozen treats (e.g., frozen yogurt, soft-serve ice cream) to the lowest percentage growth of 4.4 percent for soup.

AverAge SAleS per Store 2014

Sandwiches Hot dogs Pizza Chicken Bakery Salads Hamburgers Soup Frozen treats All other prepared food TOTAL

$36,202 23,901 23,320 17,296 9,690 5,650 4,895 3,473 2,578 13,750 $140,754

InduStry totAl (In mIllIonS)

% chAnge

2014

7.8% 5.4 8.2 7.2 6.4 5.5 8.6 4.4 11.3 7.5 7.2%

% chAnge

$5,421 3,579 3,492 2,590 1,451 846 733 520 386 2,059 $21,077

9.5% 7.1 9.9 8.9 8.0 7.2 10.3 6.1 13.1 9.2 8.9%

Source: Convenience Store News Market Research, 2015

Fig. 33

Percent of Prepared Food Sales

Fig. 34

Dispensed Beverages Sales

Dispensed Beverages Sales

Not much changed in prepared food sales share year over year. Hot dogs saw the most significant movement at a 0.3-point decrease, followed by pizza with a 0.2-point increase.

As more c-store retailers add made-toorder beverage counters, it’s not surprising cappuccino/specialty beverages gained share as traditional coffee lost share.

Fountain non-carbonated was the only segment of cold dispensed beverages to gain sales share last year, but it still trails far behind fountain carbonated at 86.1 percent of sales.

Sandwiches hot dogs pizza chicken Bakery

Percent of Hot

coffee (including flavored) cappuccino/specialty hot chocolate hot tea All other hot beverages

Salads hamburgers Soup Frozen treats All other prepared food DOLLAR SALES

1.8% 2.4% 3.5% 4.0%

9.8%

6.9% 12.3%

Fig. 35

Percent of Cold

Fountain carbonated Fountain non-carbonated Fountain sports drinks All other cold dispensed beverages DOLLAR SALES

DOLLAR SALES

1.6% 2.6%

25.7%

1.7%

4.3%

17.1%

4.7%

7.5% 74.4%

17.0%

86.1%

16.6% Source: Convenience Store News Market Research, 2015

Source: Convenience Store News Market Research, 2015

48 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Source: Convenience Store News Market Research, 2015

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cold vault

Upstarts in the Cooler Traditional favorites have a lackluster year, while smaller segments see significant growth

T

he biggest segments of the cold vault struggled once again in 2014. While carbonated soft drinks (CSDs) and premium beer continued to generate the most sales by a wide margin, CSD growth was completely flat and premium beer sales declined by 2.1 percent.

Other beverage products, however, saw a strong increase in sales on a per-store basis. Ready-to-drink iced tea’s 7-percent increase in average sales per store reinforced its growing popularity and status as a segment retailers can capitalize on, while the growth of bottled water and sports drinks indicates consumers are looking for healthier drinks to go with their better-for-you snack selections. Alternative beverage growth was slightly slower at nearly 5 percent, but the segment still makes up a quarter of dollar sales

Fig. 38

Beer

Stores Selling

For c-stores that sell beer, average sales per store rose by 1.4 percent last year, with average gross margin dollars per store increasing 3.8 percent.

2014 Percent of stores selling beer

75.3%

2013

Fig. 36

Category Analysis: Packaged Beverages

(12.41 percent of in-store sales; 15.12 percent of in-store gross margin dollar contribution)

Iced tea saw the strongest growth inside the cold vault, increasing 7 percent in average sales per store, followed by bottled water and enhanced water. CSDs were completely flat, showing no change from 2013.

AverAge SAleS per Store 2014

Carbonated soft drinks $55,521 Alternative beverages (incl. energy drinks) 42,332 Bottled water 16,415 Sports drinks 16,401 Juice/juice drinks 14,258 Iced tea (ready-to-drink) 9,303 Enhanced water 4,908 All other packaged beverages 9,189 TOTAL $168,327

1.6%

4.9 6.3 5.7 0.6 7.0 5.9 10.1 3.5%

6,339 2,458 2,456 2,135 1,393 735 1,376 $25,206

6.5 7.9 7.3 2.2 8.7 7.6 11.9 5.1%

Percent of Packaged Beverages Dollar Sales & Unit Volume

CSDs and alternative beverages together made up more than half of all sales in 2014.

While CSDs decreased by 1.1 percent in both dollar sales and unit volume, alternative beverages increased its share by less than 1 percent in both. Enhanced water increased its share of dollar sales by 2.6 percent. carbonated soft drinks Alternative beverages (incl. energy drinks) Bottled water Sports drinks

Juice/juice drinks Iced tea (ready-to-drink) enhanced water All other packaged beverages

dollAr SAleS

5.5%

Percent of in-store sales 12.8% 12.9% Average sales per store $174,179 $171,792 Percent of in-store gross margin dollars 8.9% 8.7% Average gross margin dollars per store $32,353 $31,173

9.7%

50 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

% chAnge

$8,314

Fig. 37

8.5%

Source: Convenience Store News Market Research, 2015

2014

0.0%

Source: Convenience Store News Market Research, 2015

75.3%

FOr sTOres seLLing beer:

InduStry totAl (In mIllIonS)

% chAnge

unIt volume

2.9% 5.5%

9.8%

2.9% 4.1% 7.3%

33.0%

9.2%

36.9%

9.8% 25.1%

Source: Convenience Store News Market Research, 2015

11.3%

18.5%

and 18.5 percent of unit volume.

Overall, packaged beverages increased average sales per store by 3.5 percent. Industry insiders expressed positive sentiment about the future of packaged beverages and expect energy drinks, new package sizes and innovation to continue as key category drivers.

marked growth in average sales per store, including microbrews/craft (up 22.2 percent), flavored malt beverages (up 16.6 percent), super premium (up 16.1 percent) and imports (up 11.5 percent).

In the beer/malt beverages section, 2014 was a year of ups and downs, with average sales per store increasing 1.4 percent. Premium, budget, popular and non-alcoholic beer all decreased in average sales per store, with budget beer seeing the biggest drop at 7.3 percent.

Other beer types, though, saw

Fig. 41

Packaged & Malt Beverages Competitive Channel Market Share (unit share) Fig. 39

Convenience stores gained some ground in market share last year, increasing unit share by 1 percent in both packaged beverages and beer/malt beverages. Both supermarkets and drugstores saw slight declines.

2014

2013

pAckAged BeverAgeS

drug

Beer/mAlt BeverAgeS

4.5%

Supermarket

3.5% 37.7%

23.9%

38.5% convenience

24.6% 57.8%

3.6% 3.8%

72.9% 71.9%

2.3% 0.1%

7.8%

Source: The Nielsen Co.

Category Analysis: Beer/Malt Beverages

(9.67 percent of in-store sales; 6.70 percent of in-store gross margin dollar contribution)

Microbrews/craft beer had another year of strong growth, increasing average sales per store by 22.2 percent. Flavored malt beverages and super premium also grew by more than 16 percent, while budget, popular, premium and non-alcoholic beer decreased in sales per store.

AverAge SAleS per Store 2014

Premium Imports Budget Popular Flavored malt beverage Microbrews/craft Super premium Malt liquor Non-alcoholic TOTAL

microbrews/craft Super premium malt liquor non-alcoholic

DOLLAR SALES

56.8%

Fig. 40

Premium beer continued to generate more than half of dollar sales and 44.9 percent of unit volume, but its share of dollar sales fell 1.9 percent and share of unit volume dropped 1.5 percent. Imports are a distant second, but its share increased by 1.1 percent in dollar sales and 0.8 percent in unit volume last year. premium Imports Budget popular Flavored malt beverage

3.3%

4.7%

Percent of Beer/ Malt Beverages Dollar Sales & Unit Volume

$68,263 15,727 12,548 11,446 10,278 5,042 4,781 3,005 67 $131,157

Source: Convenience Store News Market Research, 2015

% chAnge

-2.1% 11.5 -7.3 -4.1 16.6 22.2 16.1 3.5 -1.6 1.4%

8.7% 9.6% 12.0%

InduStry totAl (In mIllIonS) 2014

$10,222 2,355 1,879 1,714 1,539 755 716 450 10 $19,640

% chAnge

-0.6% 13.3 -5.9 -2.6 18.5 24.2 18.0 5.1 0.0 3.0%

52.0%

UNIT VOLUME

2.5% 2.8%

6.0%

0.1%

12.9% 44.9%

10.2% 11.1%

9.4%

Source: Convenience Store News Market Research, 2015

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 51

candy & snacks

Bigger & Better-for-You Larger package sizes in candy and natural ingredients in snacks drive demand

T

an increase of 1.6 percent from the prior year, or $695 more per store.

Only bagged/repacked peg candy and novelties/seasonal candy saw growth, on both a per-store and industrywide basis. Non-chocolate bars/packs saw the largest decline, decreasing 4.9 percent in average sales per store.

The growth of bagged/repacked

he candy and snack categories had another good year at convenience stores in 2014, but the segments didn’t perform uniformly well.

Certain product types did much better than others, carrying the load for the categories as a whole.

On the sweet side, candy saw average sales per store of $44,262,

Fig. 42

Category Analysis: Candy

(3.26 percent of in-store sales; 5.34 percent of in-store gross margin dollar contribution)

Bagged/repacked peg candy jumped an incredible 13.9 percent in average sales per store, which industry insiders attributed to the appeal of resealable and sharable packages. Novelties/seasonal also increased 6 percent, while average sales of all other segments dropped.

AverAge SAleS per Store 2014

Chocolate bars/packs Bagged/repacked peg candy Gum Novelties/seasonal Non-chocolate bars/packs Candy rolls, mints, drops TOTAL

$13,997 12,455 7,767 4,601 2,898 2,544 $44,262

% chAnge

-4.1% 13.9 -3.6 6.0 -4.9 -1.8 1.6%

InduStry totAl (In mIllIonS) 2014

$2,096 1,865 1,163 689 434 381 $6,628

% chAnge

-2.6% 15.7 -2.1 7.7 -3.3 -0.3 3.2%

Fig. 43

Percent of Candy Dollar Sales & Unit Volume Although chocolate bars/packs still account for the most dollar sales and unit volume, the segment saw a slight decrease in both. No. 2 bagged/repacked peg candy’s dollar sales rose slightly higher than its unit volume, indicating the more expensive, larger packages sold better. chocolate bars/packs Bagged/repacked peg candy gum novelties/seasonal non-chocolate bars/packs candy rolls, mints, drops DOLLAR SALES

6.6%

5.7%

31.6%

10.4% 17.6%

28.1%

Source: Convenience Store News Market Research, 2015

Fig. 44

UNIT VOLUME

Category Analysis: Alternative Snacks

(1.05 percent of in-store sales; 1.41 percent of in-store gross margin dollar contribution)

Meat snacks bounced back from a lackluster year with a 10-percent increase in average sales per store, or an additional $794 per store in 2014. Overall, alternative snacks grew 8.2 percent in average sales per store, boosted by meat snacks and other products that didn’t fit into a specific classification.

AverAge SAleS per Store 2014

Meat snacks Health/energy bars Granola/yogurt bars Other alternative snacks TOTAL

$8,528 3,940 741 1,048 $14,258

% chAnge

10.3% 3.3 6.1 12.0 8.2%

Source: Convenience Store News Market Research, 2015

52 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

8.6%

13.1%

5.4%

29.9%

InduStry totAl (In mIllIonS) 2014

$1,277 590 111 157 $2,135

% chAnge

12.0% 5.0 7.8 13.8 9.9%

18.8%

24.2%

Source: Convenience Store News Market Research, 2015

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candy & snacks

points in dollar share and 1.7 points in unit share.

In regards to snacks, alternative snacks and salty snacks both turned in another big year in 2014. Natural ingredients are driving growth in order to meet the demand for snacks that are both tasty and healthier. At the same time, flavor innovation and branding is geared toward millennials.

peg candy in particular helped to offset smaller declines in most other segments, leading to a positive growth year for the candy category overall. Bagged/repacked peg candy’s 3-percentage-point dollar share growth and 2.2percentage-point unit share growth also helped it gain on perennial segment favorite chocolate bars/ packs, which decreased by 1.9

Fig. 45

Category Analysis: Salty Snacks

(2.71 percent of in-store sales; 3.15 percent of in-store gross margin dollar contribution)

The salty snacks category had another healthy year, with most product segments increasing their average sales per store by more than 4 percent. Ready-to-eat popcorn had an especially good year, increasing average sales per store by 8.9 percent.

AverAge SAleS per Store 2014

Potato chips Tortilla/corn chips Nuts/seeds Puffed cheese Mixed Crackers Pretzels Popcorn (ready-to-eat) Other salty snacks TOTAL

InduStry totAl (In mIllIonS)

% chAnge

$9,209 6,431 5,102 3,125 2,150 1,736 1,469 1,456 6,037 $36,716

5.0% 7.8 5.6 4.2 0.0 -2.3 -2.4 8.9 4.9 4.6%

2014

% chAnge

$1,379 963 764 468 322 260 220 218 904 $5,498

6.7% 9.6 7.3 5.9 1.6 -0.8 -0.9 10.7 6.6 6.3%

Meat snacks and energy/health bars, segments of the alternative snacks category, grew more popular as consumers sought out sources of lean protein, with meat leading the way. In total, alternative snack sales per store increased by 8.2 percent last year.

Fig. 47

Percent of Salty Snacks Dollar Sales & Unit Volume

Salty snack segments saw few changes in their share of either dollar sales or unit volume. Potato chips remained the most popular salty snack in both dollars and volume share, while tortilla/corn chips came in second for dollar sales share and nuts/ seeds for unit volume share. potato chips tortilla/corn chips nuts/seeds puffed cheese mixed

DOLLAR SALES

16.4%

Source: Convenience Store News Market Research, 2015

Candy Competitive Channel Market Share

drug

Supermarket

convenience

17.5%

5.9%

Supermarkets barely edged out convenience stores in dollar share of the market for candy in 2014, while convenience stores led by more than 8 points in unit share. Drugstores saw slight gains for both in 2014, but remained a distant third.

8.5%

2013

dollAr ShAre

25.1%

4.0% 4.0% 4.7%

Fig. 46

2014

crackers pretzels popcorn (ready-to-eat) other salty snacks

13.9%

UNIT VOLUME unIt ShAre

22.2%

20.9%

21.8%

20.5% 39.8%

35.4%

39.9%

35.5%

38.0% 38.3%

Source: The Nielsen Co.

54 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

43.7% 44.0%

3.7% 3.5% 7.3%

16.1%

24.3% 15.0%

4.3%

8.2%

17.7%

Source: Convenience Store News Market Research, 2015

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other merchandise

Milking It No Longer Fluid milk lost its spot in the top 10 in-store categories to non-edible grocery

Y

ou know what they say: “There’s no use crying over spilled milk.” This is wise advice for convenience store operators who last year saw their fluid milk sales decline by 2.5 percent per store.

In fact, the category fell out of the top 10 in-store categories into the No. 11 spot, replaced by nonedible grocery, which moved into the tenth slot.

The milk category, however, wasn’t alone in seeing spoiled sales in 2014. The ice cream and frozen novelties category, along with the health and beauty care (HBC)

category, also posted declines. Ice cream and frozen novelties suffered from a 10.1-percent loss in sales of frozen yogurt/sherbet/sorbet, ending the year with a 0.3-percent overall dip per store.

Fig. 48

Meanwhile, HBC experienced a counterbalance as cosmetics saw another strong year of growth with a 7.7-percent increase, but was offset by a 7.9-percent drop in sales of energy shots, liquid vitamins and

Category Analysis: Edible Grocery

(5.13 percent of in-store sales; 6 percent of in-store gross margin dollar contribution)

Edible grocery saw a stronger sales increase of 3.5 percent last year vs. a 0.1-percent increase in 2013. The largest subcategory, packaged dairy and deli, saw the largest increase of 8 percent, followed by frozen food with a 5.7-percent rise, reversing flat sales from the prior year.

AverAge SAleS per Store 2014

Packaged dairy & deli Packaged bread Frozen food Perishable (including produce) All other edible grocery TOTAL

$20,355 11,286 9,937 5,910 22,051 $69,539

% chAnge

8.0% 1.0 5.7 1.5 0.4 3.5%

InduStry totAl (In mIllIonS) 2014

$3,048 1,690 1,488 885 3,302 $10,413

% chAnge

9.7% 2.6 7.4 3.1 2.0 5.1%

Source: Convenience Store News Market Research, 2015

Fig. 49

Category Analysis: General Merchandise

(3.25 percent of in-store sales; 4.68 percent of in-store gross margin dollar contribution)

Seasonal items had another strong year with a 17-percent increase in per-store sales, and automotive rebounded by adding $994 in average sales per store. Telecomm hardware saw the most significant growth of 51.1 percent.

AverAge SAleS per Store 2014

Automotive products Phone cards Smoking accessories Seasonal items Batteries Novelties/toys Telecomm hardware Film/photo All other general merchandise TOTAL

$9,610 6,524 4,635 4,167 4,080 2,992 594 240 11,226 $44,068

Source: Convenience Store News Market Research, 2015

56 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

InduStry totAl (In mIllIonS)

% chAnge

2014

% chAnge

11.5% 4.5 3.5 17.0 -2.5 3.0 51.1 -54.0 5.0 5.9%

$1,439 977 694 624 611 448 89 36 1,681 $6,599

13.3% 6.2 5.2 18.9 -1.0 4.7 53.4 -53.2 6.7 7.6%

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Fig. 50

Category Analysis: Non-Edible Grocery

(1.91 percent of in-store sales; 2.16 percent of in-store gross margin dollar contribution)

Even though the category was down 1.3 percent in per-store sales, non-edible grocery edged past fluid milk products to take over the No. 10 spot on the top 10 in-store categories list. Of all its segments, household care was the only one to see a sales gain in 2014.

AverAge SAleS per Store 2014

Paper, plastic, foil products Pet care Household care Laundry care Dish care Other non-edible grocery TOTAL

$9,864 7,219 5,870 2,017 828 100 $25,898

% chAnge

-3.7% -3.3 6.2 -1.6 0.0 -8.3 -1.3%

InduStry totAl (In mIllIonS) 2014

$1,477 1,081 879 302 124 15 $3,878

% chAnge

-2.2% -1.8 7.9 0.0 1.6 -6.3 0.3%

Source: Convenience Store News Market Research, 2015

Fig. 51

Category Analysis: Fluid Milk Products

(1.99 percent of in-store sales; 1.33 percent of in-store gross margin dollar contribution)

While sales declined again last year, the drop was not as steep as the previous year. The largest segment, whole milk, saw a 3.2-percent increase after coming off a 9.1-percent drop in 2013. However, every segment other than whole milk saw a decline in 2014 sales.

AverAge SAleS per Store 2014

Whole 2-percent 1-percent Flavored Skim/nonfat All other fluid milk products TOTAL

$9,817 7,994 2,057 1,730 1,322 2,918 $25,838

InduStry totAl (In mIllIonS)

% chAnge

2014

% chAnge

3.2% -2.5 -8.7 -4.8 -16.0 -7.5 -2.5%

$1,470 1197 308 259 198 437 $3,869

4.9% -1.0 -7.2 -3.4 -14.7 -6.0 -1.0%

supplements. Overall, HBC saw a 1.3-percent sales decline per store.

Happier news could be found in the edible grocery and general merchandise sections of the convenience store. Buoyed by increases in all its subcategories, edible grocery posted a per-store sales increase of 3.5 percent last year compared to 0.1 percent in 2013.

In general merchandise, all but two segments (batteries and film/photo) generated increases.

Seasonal items had another stellar year, experiencing a 17-percent increase, as did telecomm hardware with a 51.1-percent increase and automotive products with an 11.5-percent increase. Overall, general merchandise sales per store increased by 5.9 percent.

Fig. 53

Percent of Edible Grocery Sales The catchall segment of all other edible grocery, which includes boxed food (i.e. cereal, pasta), canned/dry soup, canned fruit/ vegetables, etc., accounted for nearly 32 percent of the category’s sales last year, followed by packaged dairy and deli at nearly 30 percent of overall sales. packaged dairy & deli packaged bread Frozen food perishable (including produce) All other edible grocery

Source: Convenience Store News Market Research, 2015

Category Analysis: Ice Cream & Frozen Novelties

Fig. 52

DOLLAR SALES

(1.90 percent of in-store sales; 1.18 percent of in-store gross margin dollar contribution)

Frozen novelties, which accounts for nearly 57 percent of sales in the entire category, saw essentially flat sales in 2014. The smallest segment, frozen yogurt/sherbet/sorbet, saw the biggest movement with a 10.1-percent drop in sales per store.

AverAge SAleS per Store 2014

Frozen novelties Premium ice cream Ice cream Frozen yogurt/sherbet/sorbet TOTAL

$7,212 4581 741 134 $12,668

InduStry totAl (In mIllIonS)

% chAnge

2014

-0.1% -0.3 -0.7 -10.1 -0.3%

$1,080 686 111 20 $1,897

Source: Convenience Store News Market Research, 2015

58 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

% chAnge

1.5% 1.3 0.9 -9.1 1.3%

29.3%

31.7% 8.5%

14.3%

16.2%

Source: Convenience Store News Market Research, 2015

Industry

Report

15

Methodology

T

is based on UPC sales and other retail conditions that are measured through the use of point-of-sale scan data, as well as from data captured via electronic invoice and sales audits.

Data for competitive channels was also provided

by The Nielsen Co. through its Strategic Planner retail measurement service, which covers supermarkets with sales of $2 million or more and drugstores with more than $1 million in sales.

Additional data for tobacco categories was provided by Altria Client Services.

Government sources include the Census Bureau, Bureau of Labor Statistics, Department of Energy and Federal Tax Administration.

Note: Some past-year results have been restated in order to more closely align with changes in Nielsen category definitions.

he 40th annual Convenience Store News Industry Report features data from a variety of sources in order to provide a complete picture of the convenience store industry.

Preston/Rogers Associates Inc., based in Medfield, Mass., coordinated the various data used in this report. CSNews commissioned a survey among a random sample of c-store retailers on a confidential basis to gather data for 2014 fiscal-year sales and operations. A total of 204 companies representing approximately 20,000 c-stores are included in the results.

Store census data was provided by Nielsen TDLinx, which maintains a national count of both chain and single-store retail locations.

Dollar sales and unit volume data for a variety of categories was provided by The Nielsen Co. from its Convenience Track retail measurement service, which

Index to Tables & Charts Fig.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

TiTle

Total Convenience Store Sales Store Growth Analysis Motor Fuel Volume Industry Sales Mix Gross Profit Dollar Mix Industry Gross Profit Gross Profit Margin Pretax Profits Total Merchandise & Foodservice Sales In-Store Sales per Store Top 10 In-Store Category Ratios In-Store Sales by Category Top 10 In-Store Categories In-Store Gross Margins by Category Motor Fuel Sales & Margins Retail Gasoline Prices by Region Stores Selling Motor Fuels Stores Selling Motor Fuels, by Region Stores Selling Motor Fuels, by State Direct-Store Operating Expenses In-Store Shrink C-store Square Footage Transactions Category Analysis: Cigarettes Percent of Cigarettes Dollar Sales & Unit Volume Cigarettes Unit Volume Market Share Category Analysis: Other Tobacco Products Percent of Other Tobacco Products Dollar Sales & Unit Volume

60 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Page

Fig.

28 28 28 30 30 30 30 32 32 32 32 34 34 36 38 38 39 39 39 40 40 40 40 42 42 42 44 44

29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53

TiTle

State Cigarette Taxes Category Analysis: Foodservice Percent of Total Foodservice Sales Category Analysis: Prepared Food Percent of Prepared Food Sales Percent of Hot Dispensed Beverages Sales Percent of Cold Dispensed Beverages Sales Category Analysis: Packaged Beverages Percent of Packaged Beverages Dollar Sales & Unit Volume Stores Selling Beer Packaged & Malt Beverages Competitive Channel Market Share Category Analysis: Beer/Malt Beverages Percent of Beer/Malt Beverages Dollar Sales & Unit Volume Category Analysis: Candy Percent of Candy Dollar Sales & Unit Volume Category Analysis: Alternative Snacks Category Analysis: Salty Snacks Candy Competitive Channel Market Share Percent of Salty Snacks Dollar Sales & Unit Volume Category Analysis: Edible Grocery Category Analysis: General Merchandise Category Analysis: Non-Edible Grocery Category Analysis: Fluid Milk Products Category Analysis: Ice Cream & Frozen Novelties Percent of Edible Grocery Sales

Page

44 46 46 48 48 48 48 50 50 50 51 51 51 52 52 52 54 54 54 56 56 58 58 58 58

Competitive Watch

Convenience

Under Attack Grocers, big-box retailers, drugstores and more are going after convenience through concepts like home delivery, at-store pickup and express stores

By Renée M. Covino hannel blurring is not a new concept, but the “convenience” aspect of it — unluckily or luckily for the convenience retail channel depending on how it reacts — is getting a lot of new play. Supermarkets, big-box retailers, drugstores and entirely new channels are claiming “convenience” as their own through concepts such as home delivery, at-store pickup, smallformat/express stores and more.

C

While it is still only a small percentage of total grocery sales, home delivery is growing at double-digit rates, according to Nona Cusick, senior vice president of consumer products, retail and distribution for Capgemini, a global provider of consulting, technology and outsourcing services.

“Major metro areas are driving the majority of this growth as they are attracting a lot of new entrants such as Instacart, and established companies such as Google, Amazon, Peapod and Fresh Direct,” Cusick said.

Millennials Driving the trenD

experts contend that small-format/express stores like Walmart neighborhood Market pose the greatest threat to convenience stores.

62 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

The younger generation is creating this convenience evolution.

“Millennials have grown up with the convenience of being able to order anything they want and receive it in two days or less — so, why not groceries?” Cusick explained. As a result, many of the players in metropolitan areas are now targeting same-day delivery.

“Home delivery for packaged goods, cleaning supplies, beauty products and paper products, for example, will continue to grow as the competitive landscape expands and the cost differential over brick-and-mortar continues to decline,” she predicted.

Uber, best known for its crowd-sourced taxi driver app, launched Uber Corner Store in Washington, D.C., this past August. Just months after piloting the new delivery service, Uber expanded and rebranded the program to uberESSENTIALS in December. The service — still a limited-time experiment available only in Washington, D.C. — boasts that it can deliver items (many traditionally found in a convenience store, like candy, snacks and pain relievers) directly to consumers in 10 minutes or less.

According to an uberESSENTIALS blog post, users select and confirm their delivery address and then toggle over to ESSENTIALS in the Uber app and add

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Competitive Watch

weeks after placing the order. When they drive to one of the kiosk stations at the pickup site, they notify an attendant who brings the order to their car.

There are no hidden fees or surcharges, according to the retail giant.

New research released by The Nielsen Co. in late April found that 13 percent of respondents in the United States currently order online for home delivery. However, one-third said they are not willing to try. Meanwhile, one-quarter of global respondents said they currently order grocery products online for home delivery, and 55 percent are willing to use the option in the future, according to the Nielsen report entitled Global E-Commerce and The New Retail Survey.

At this time, curbside pickup outside a store is one of the digital grocery shopping options garnering the least interest in the U.S. According to Nielsen, 39 percent of U.S. respondents to its survey said they are not willing to use online ordering for curbside pickup. express stores: Biggest threat

Currently in testing at one location, the Walmart pickup grocery service enables registered customers to place a grocery order online and schedule a pickup time ranging from two hours to three weeks in the future.

products to their carts. After users check out and place their order, a driver will notify them upon arrival. The service is available 9 a.m. to 9 p.m. Monday through Friday, and 9 a.m. to midnight Saturday and Sunday.

Regarding at-store pickup, Wal-Mart Stores Inc. launched its Walmart Pickup Grocery service in its hometown of Bentonville, Ark., in September. The idea is that registered customers can place an order from the website, which offers approximately 10,000 grocery and consumable products including fresh meat, dairy and common household goods, and then schedule a pickup time. The time can range from two hours to three

64 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Of the three potentially threatening concepts to c-stores — home delivery, at-store pickup and smallformat/express stores — the growth of the latter across all retail channels is the biggest danger to convenience stores, according to experts at Catapult Marketing, a conversion marketing agency that works with its clients to turn shoppers into buyers and buyers into brand advocates via insight-driven marketing.

“The role of convenience has always been to provide instant/on-the-go solutions to the consumer in close proximity to their immediate location,” stated Jeff Compo, vice president of Catapult Marketing.

“Now, many big-box, grocery and drugstores are coming into the smaller format space in large numbers and are able to provide convenient solutions to shoppers whose mission is not only instant consumption, but a fill-in trip as well.”

Even natural grocer Whole Foods Market Inc. plans

Competitive Watch

to introduce a new smaller store format that will offer high-quality foods at value prices.

Geared toward millennial shoppers, the new stores will feature a modern streamlined design, innovative technology and a curated selection of products. The first of these new stores is slated to open in 2016, and Whole Foods expects the standardized design and product assortment should allow for fairly rapid expansion.

The new format is meant to be a complementary brand — not an alternative — to current Whole Foods Market stores. The retailer anticipates shoppers will visit both stores: the traditional, larger Whole Foods Market stores for their typical weekly grocery shopping trip, and the new store format for fill-in shopping trips.

Big-box stores are definitely discovering value in small formats for moving merchandise fast and leveraging their brand recognition, according to Ricardo Belmar, director of product management and marketing for Hughes Network Systems, which provides managed network services for retailers and other businesses. The threat is that “big-box brands have a higher level of brand awareness and affinity than smaller convenience store chains,” Belmar reasoned.

Walmart has several smaller formats in operation today and is in the process of expanding its reach,

including Walmart Neighborhood Market (613 locations as of March 31), Walmart on Campus (five locations as of late April) and Walmart to Go (one location in Bentonville). Target Corp., too, is rapidly growing

extreme Convenience When putting down roots, the millennial generation is gravitating toward “mixeduse residential and commercial properties,” and this could be good news for convenience store retailers. The mixeduse format is said to fit well with c-store operators looking to become even more convenient, incorporating walkability and urban living into new store locations.

“While millennials are strong mobile and online shoppers, they favor shopping experiences that integrate traditional retail tenants with restaurants and leisure amenities,” said Judd Bobilin, president and CEO of Chance Partners, a developer of mixed-use properties.

“Retailers and developers are beginning to see sales-per-square-foot revenue for

mixed-use or urban storefront footprints can be anywhere from 50 [percent] to 100 percent higher than typical suburban locations.”

While previous generations may have considered convenient locations to be within a five-mile radius of their home or along their daily driving route, the millennial definition of convenience is “right downstairs” or “within walking/bik-

66 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

ing distance,” Bobilin added.

The term “extreme convenience” has sprung up as a result of these trends, signaling the need for convenience stores to cater better to this generation accustomed to instant gratification and on-demand everything. Apparently, one of the most common questions residents of urban or mixed-use developments pose is, “Where can I buy groceries?”

The footprint constraints of mixed-use retail space may create a challenge for traditional food retailers and other big boxes, but not so much for c-stores. Thus, this presents another opportunity for savvy c-stores to fight back with what they know best — delivering convenient items in a small space.

Competitive Watch

its small-format TargetExpress concept. In February, Target said eight of the 15 new U.S. stores it will open in 2015 will be TargetExpress locations.

These smaller format/express stores have the opportunity to become “super convenience stores” driving more volume and larger baskets, according to Compo of Catapult Marketing.

is an area most c-stores cannot compete with unless they invest a similar level of spending.”

Buy online and pick up in-store could become an opportunity “for savvy c-store chains looking to partner with big-box brands to provide ‘closer to home’ delivery points for consumers,” Belmar said. “This is what Amazon is doing with its Amazon Locker service for achieving faster home delivery.”

Continued differentiation is a must for convenience hoW C-stores Can Fight BaCk stores today and in the future, according to Cusick Convenience is all about having the right product at from Capgemini. “Convenience stores have to conthe right time for the customer to buy, according to tinue to differentiate themselves from other channels,” Belmar of Hughes Network Systems. “Larger retailshe expressed. “With their neighborhood locations, ers are leveraging store analytics to better understand they are ideally located close to customers, but they their merchandise sell-through and quickly make need to drive a differentiated customer experience that adjustments,” he told Convenience Store News. includes, but is not limited to meal solutions and prod“Convenience stores built their business around this, ucts.” She also pointed to loyalty programs, mobile but do they have the tools necessary to stay competiordering and quick pay as relevant c-store solutions. tive with the fast pace of innovation in this area?”

Jon Fiondella, c-store specialist at Catapult Also, larger retailers are spending more dollars on Marketing, noted c-stores recognize the convenience improving their in-store customer experience with technology and empowering their store associates with threat from other channels and are responding by better product knowledge. Again, Belmar believes “this expanding their offerings from basic prepared foods to healthy meal solutions. “They are expanding the physical footWhat is your level of willingness to utilize the print of their stores to allow for more healthy, fresh foods and cold following digital options for your grocery beverage items,” he explained. shopping if they are available?

“Additionally, we know that most shoppers have a preferred c-store Already using Definitely willing Somewhat willing Not willing they frequent for their staple items like gas, cold drinks and cofUse self-service checkouts to reduce checkout time 13% 17% 28% 42% fee. There is an opportunity for Use online or mobile coupons 18% 23% 31% 27% c-stores to leverage this loyalty to Use online or mobile shopping lists 29% 23% 29% 19% serve more shopper needs.”

Download retailer app or loyalty program app to Like Cusick, Fiondella menmy mobile phone to receive information 32% 25% 27% 16% or offers while in-store tioned loyalty reward programs Order online for delivery to home 13% 32% 26% 29% as being on the rise at c-store Login to store Wi-Fi with my mobile phone to receive chains, offering them a way to 33% 25% 30% more information or offers while in-store 13% directly compete with grocery Scan QR codes with my mobile phone to access 32% 28% 27% 12% and drug stores. more detailed product information while in-store Ultimately, reclaiming their Use a handheld store scanner to purchase 24% 27% 38% products as you shop to avoid checkout lines 11% strength in convenience will be Use in-store computers to view extended ranges of worth it for c-stores.

29% 31% 29% products available from that retailer online 11% “Shoppers’ desire for conveOrder online and pick up inside the store 10% 32% 30% 28% nience is not expected to diminish Use a virtual supermarket 10% 38% 25% 27% anytime soon,” said Compo. “That Use online automatic subscription 45% 23% 23% 9% is especially true considering how Order online and use drive-thru pickup millennials shop today with more 37% 27% 28% Order online and pick up curbside outside the store 8% frequent fill-in trips vs. traditional 39% 27% 26% 8% stock-up [trips].” CSN Source: Nielsen

68 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

HOW TO

Chicken or Pizza: Which Will Sell Best in Your Stores?

By Maureen Azzato

Call tO aCtIOn: Foodservice 101

• Start with hot foods for breakfast and lunch before bridging into dinner.

• Take it to the next level by bringing in someone who knows the food industry. Good professionals are better at perfecting what entrepreneurs start.

• Think about how you can use chicken as an ingredient across all the dayparts, from breakfast and snacks to dinner.

• Study your market and ask customers what they want before adding any hot food program.

• Avoid handling any raw protein in the store.

C

onvenience store operators that have mastered the foodservice basics — including hot and cold dispensed beverages, grab-and-go foods and perhaps even customized cold sandwiches and salads — may be ready to take on hot prepared foods. But where should you begin?

Hot breakfast sandwiches are the first logical step since most convenience store operators with strong coffee programs have busy stores in the morning with the opportunity to build incremental sales. Hot finger foods and snack items, such as jalapeño bites, macaroni and cheese bites and mozzarella sticks, can also help operators build credibility in the hot food segment. (For more in-depth coverage on hot snacks, see “Successful Menu Offerings for the Snacking Daypart” in last month’s issue.)

The next logical step is to look at other typically successful convenience store programs, including fried or baked chicken and perhaps even pizza depending on the local competition and the demands of your customer base, according to the Convenience Store News How To Crew. But keep in mind adding hot food increases the complexity and costs of operations and should be carefully considered before being rolled out.

“The first thing I would evaluate is sales and profits from the current food

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being sold,” said one retailer member of the How To Crew. “If sales are strong and other food programs are being run correctly, it could be a great indication the store is ready to add more food complexity. If operations struggle to manage coffee and fountain, they will really struggle with hot foods.”

Labor, store size and equipment needs are the three biggest challenges hot food programs present to c-store operators, this retailer added. “Labor can eat up all the profits if the sales start off slow. If you already have the equipment to do breakfast and lunch, that will make it a lot easier to jump into [hot food programs]. Most of the equipment should be interchangeable and allow you to expand into hot foods.”

DOIng ChICkEn RIght

Before determining which type of hot foods should be added, operators should fully explore if branded franchise programs or proprietary offerings better suit their operations and the marketplace.

“Doing fried chicken in the South, for example, where it’s practically a religion, can be far more challenging than in areas where it’s less of a staple,” noted How To Crew expert Mathew Mandeltort, corporate foodservice manager for convenience distributor EbyBrown Co. “It’s equally important to understand the key purchase drivers and attributes of a category.”

How To Crew members, however, are equally divided

“All things being equal, I think a chicken program would be the way to go because it is so ubiquitous.”

— Mathew Mandeltort, Eby-Brown Co.

“Ground beef, ham and other [pizza] varieties like Hawaiian chicken, white garlic sauce and other types of specialty pizzas can be a very successful draw.”

— Larry Miller, Miller Management & Consulting Services

“What a [retailer] brings to the offer is as important as the offer selected.”

— Ed Burcher, Burcher Consulting

72 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

on the best direction a hot food program should take in convenience stores Foodservice 201 given the choice • Start with stores that have high volbetween chicken ume and little competition. Having and pizza. While strong stores at the beginning of a some say pizza is program can greatly help the rollout easier, others say later on. chicken is more • Select programs to execute first that versatile and offers leverage existing in-store foodservice more menu options. equipment in order to contain costs, Indeed, 75 perif possible. cent of consumers • Consider all the options, including eat pizza twice a a branded program, for pizza and/or month or more fried chicken. often, and consumers report an average of 3.4 pizza occasions per month, according to Technomic’s 2014 Pizza Consumer Trend Report. Meanwhile, consumers eat chicken an average of 12 times a month and the protein ingredient can be used to make a multitude of menu items from barbecue, baked and fried chicken, to chicken fingers, chicken wings, popcorn chicken, hot chicken sandwiches, and the list goes on.

“All things being equal, I think a chicken program would be the way to go because it is so ubiquitous,” Mandeltort said, noting that 89 percent of people consume chicken during a two-week period, and 70 percent of consumers ate chicken from a foodservice establishment with an average of 2.4 meals or snacks in a two-week period. “From an operational standpoint, fried chicken is probably easier to do and it certainly holds better than pizza over time.”

Operators would have to invest in fryers to execute a fried chicken program if they do not have them already, “but if you are going to do a hot food program that translates across dayparts, in for a penny, in for a pound,” Mandeltort added.

Both Mandeltort and fellow How To Crew expert Larry Miller of Miller Management & Consulting Services pointed to many “ready to fry” quality chicken products available that make it easier for retailers to make fried chicken well and safely, eliminating the need to bring any raw chicken into the stores or maintain breading stations, which increases the chances of cross-contamination. “Then it just becomes a question of maintaining and operating your fryers properly, and cooking the chicken and

Call tO aCtIOn:

FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

merchandising it properly,” Mandeltort said.

Individually quick Foodservice 301 frozen (IQF) chicken • Select high-quality food. Customers has made it much will pay a higher retail in c-stores, and easier for operators to quality is one thing they will come get into the chicken back for. business, according • Invest in the right equipment to to Miller, because it execute a pizza program so you can is available in many effectively compete with neighbordifferent preparahood pizzerias and new fast-casual tions. The chicken pizza chains. is typically pre-cut, pre-marinated and even pre-breaded, and flash frozen so it goes from freezer to fryer without any of the mess and work of dealing with raw chicken. “Handling and dealing with raw chicken can produce much higher margins than purchasing chicken that is IQF, but the food safety issues with raw poultry and potential cross-contamination

Call tO aCtIOn:

that can occur in small areas, like you find in many c-stores, can be difficult to deal with,” he said.

“Salmonella and many other foodborne illnesses are traced back to contamination associated with the handling of raw proteins.”

There are also many turnkey chicken programs for operators to consider such as Chester’s International, Krispy Krunchy and Broaster Chicken, which all “take the ‘scary’ out of a fresh chicken program,” Miller said. “They have the experience, systems and background to make certain that the operators do it the right way all the way through packaging.”

The other beauty of chicken is it has application in every daypart — breakfast, lunch, dinner and snacks, Mandeltort said, noting few operators have optimized chicken as a breakfast offering. While chicken at dinner and lunch are the most popular, 18- to 34-yearolds are more frequently selecting chicken for breakfast and snacks vs. their older counterparts, according to Technomic research.

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Like chicken, there are many options for operators to execute pizza that do not require from-scratch preparation or hand-stretched dough. “Suppliers have a number of formats available — par-baked crusts, pre-proofed crusts, fully-assembled and fully-cooked crusts — that make it easier for operators to select the product type that fits with their current equipment,” according to How To Crew expert Tim Powell of Think Marketing.

Fresh, quality toppings and flavor are the key attributes consumers seek in a pizza pie, 47 percent of which are purchased for carry out and 33 percent for delivery, according to Technomic.

“While having a chef behind the counter handstretching the dough by twirling it over the head and providing theatre can make your program stand out from the crowd, the reality is most folks are looking for a high-quality pie with natural mozzarella cheese, a great-tasting sauce and fresh toppings like tomatoes, mushrooms, onions, olives, peppers and

David Bishop — Balvor LLC Ed Burcher — Burcher Consulting Joseph Chiovera — XS Foodservice & Marketing Jack W. Cushman — Nice N Easy Grocery Shoppes Dean Dirks — b2b Solutions Eric Giandelone — Mintel Foodservice Kane Kulas — CSM Bakery Products Mathew Mandeltort — Eby-Brown Co. LLC Larry Miller — Miller Management & Consulting Services Maurice Minno — MPM Consulting Group Paul Pierce — Pure Plates Tim Powell — Think Marketing Chad Prast — Murphy USA Inc. Bonnie Riggs — The NPD Group Jennifer Vespole — QuickChek Corp.

Jerry Weiner — Rutter’s Farm Stores

high-quality pepperoni and sausage, and other local favorite proteins,” said Miller. “Ground beef, ham and other varieties like Hawaiian chicken, white garlic sauce, and other types of specialty pizzas can

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 75

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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

be a very successful draw.”

Fresh toppings are, in fact, the most important element of a pizza as noted by 84 percent of consumers, according to Technomic

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research. “Rich and flavorful sauce” and “cheese flavor,” which tied for second place, were mentioned by 78 percent of consumers polled. Next on the list in terms of importance is

dough or crust texture/consistency and dough/crust flavor. The variety of toppings offered has moved up in importance, noted by 74 percent of consumers, up from 70 percent in 2012. But today’s discerning consumer also wants to know how the pizza is made, with 45 percent saying pizza cooked in a brick oven tastes better than pizza cooked in an electric oven, and 32 percent saying the same for wood-fired pizza.

“So, if you want to deliver a pizza that people are going to want to eat, are you willing to build and bake one the right way? You need to check to see if you have the operational capability to pull off the program,” Mandeltort said. “Do you have room for additional equipment? Additional inventory? You also need to consider how the marketplace is evolving. You may be all gung-ho to do a pizza program, but you need to realize that the fastgrowing fast-casual pizza segment is changing how people view pizza.

“Customization, speed of service and an affordable price point are the core attributes of the newest fastcasual pizza concepts,” Mandeltort pointed out. “Made-to-order preparations, a wide variety of ingredients and artisanal quality typify the menu. Can your pizza do that?”

Whether c-store operators choose chicken or pizza, the offering must attract and retain customers, according to How To Crew expert Ed Burcher of Burcher Consulting.

“There are a lot of alternatives in the food-to-go category and what a [retailer] brings to the offer is as important as the offer selected,” he said. Importantly, “what are the ways the convenience store operator is going to bring unique value to the customer for the menu items served?” CSn

FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

Forward March on Menu Labeling Are convenience store chains ready to embrace compliance?

By Renée M. Covino

T

he calorie-count countdown is on for convenience store menus, among others. How retailers prepare now can make all the difference moving forward.

In November, the Food and Drug Administration (FDA) released its finalized rule on menu labeling, requiring caloric information to be clearly and conspicuously listed on menus and menu boards in chain restaurants, similar retail food establishments (including c-stores) and vending machines with 20 or more locations by Dec. 1, 2015.

More specifically, businesses that must comply are those that are: part of a chain with 20 or more locations, do business under the same name regardless of ownership, and offer substantially the same menu items.

So for c-stores, this would include 7-Eleven franchisees, for example, that even operate just one store.

It is important to note menus do not have to be identical to fall under the rules, only “substantially” the same. The FDA stated it is not going to set a specific percentage of menu items that must be the same to qualify. Borderline retailers are advised to play it safe and follow the rules.

As for the food that falls under the ruling, retailers must determine if they serve “restaurant-style food,” broadly defined by the FDA as food that is served for immediate consumption or processed/prepared primarily in a retail establishment and usually eaten on the premises, while walking away or soon after arriving at another location.

Only standard menu items apply; exempt foods include custom orders, temporary menu items available for less than 60 days in a calendar year, food that is part of a customary market test for less than 90 days, and condiments offered for daily use.

Once a retailer determines it is part of the menulabeling mandate, it must then consider the signage that falls under the FDA regulation. Menu boards,

signs behind the counter, table tents and website menus generally qualify. On the other hand, storefront posters, billboards, mailings, coupons and circular advertisements generally do not qualify.

COnSumERS Want tRanSpaREnCy

While the convenience store industry has strongly opposed the menu-labeling issue for years, a recent Associated Press-Gfk poll found a majority of consumers are in favor of the mandated move. More than 50 percent of Americans favor requiring prepared-food counters at stores to post calorie amounts on menus (the percentage in favor was slightly higher for both fast-food restaurants and sit-down restaurants).

This and other positive consumer response to transparent nutritional information begs the question: Is the menu-labeling mandate moving forward just as it should? Some experts believe it is par for the course for an industry that is vastly improving its foodservice.

“Five years ago, c-stores were not providing prepared foods the way they are now,” Fred Brown, a partner managing the food and beverage practice at Beachwood, Ohio-based innovation consulting firm Kalypso LP, told Convenience Store News.

“Today, c-stores are becoming more like quick-serve

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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

restaurants, so part of this whole declaration is catching up with them.”

Along with this is a new kind of customer.

“Millennials buy in small quantities; they like quickserve, and smaller but multiple meals throughout the day, and this fits in the c-[store] space,” Brown added.

“So more customers than ever before are buying prepared foods in c-stores.”

And more of them read labels and want transparency. thE COmmOn SEnSE aCt

Quick-service restaurant (QSR) chains recognized this trend and reportedly got the ball rolling on FDA menu labeling in order to avoid having different regulations governing different cities.

Once the FDA did get involved with the menu mandates for QSRs, it expanded them to include other entities including grocery and convenience stores. This is where retail industry trade groups such as NACS,

Getting ‘On Board’ With the New Rules Under the new menu-labeling rules, each standard menu item will require the following on menu boards (and other menu signage and postings, including online): • Calorie count — The actual calorie declaration must appear by the name or price of the item in a type size no smaller than the name or price (whichever is smaller) and in the same color (or a color at least as conspicuous) as the name on the menu item.

The background must also be the same or at least as contrasting. In the case of menu items where the calorie information is more difficult to determine, such as a pizza or combo meals, retailers can list the calories by piece or list a calorie range.

• The daily calorie statement — This statement, “2,000 calories a day is used for general nutrition advice, but calorie needs vary,” is to help consumers understand the significance of the caloric information in the context of a total daily diet.

• The availability of nutritional information statement — This statement must read: “Additional nutritional information available upon request.”

• The actual additional nutritional information in written form — This includes total calories, total fat, calories from fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrates, fiber, sugars and protein.

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the Association for Convenience & Fuel Retailing, and the Food Marketing Institute (FMI) say the rules fall short and don’t fit as well.

Both NACS and FMI support the recently introduced Common Sense Nutrition Disclosure Act of 2015 (there was a previous version in 2013), which would clarify certain aspects of the menu-labeling regulations and also extend their effective date to two years after the final rules implementing the bill were issued. Also known as H.R. 2017, the legislation would “provide the reasonable accommodations that will make it possible for members of our industry to comply, without creating an undue business burden,” according to NACS. As of press time, the chairman of the Energy Congressional Committee, one of the co-sponsors of the original bill, had just signed on, which “bodes well for getting this bill moving,” said NACS Senior Vice President of Government Relations Lyle Beckwith.

“We’re pushing for Congress to get this resolved by Labor Day — people have to prepare.”

In the meantime, Beckwith and other industry experts are encouraging c-stores to prepare now. “We encourage retailers to check with their franchisor or suppliers to see what level of [menu labeling] data is going to be supplied to them,” Beckwith stated.

“However you get prepared foods or products, these same suppliers should be supplying the information.”

Brown of Kalypso encourages c-stores to take a proactive, positive approach. “If you look at quickserve restaurants today, they use this transparency as a weapon. They openly state it and brag about reducing calories and making some items healthier choices. So they embrace the issue, rather than try to get around it,” he said.

He acknowledges there will be a cost issue for c-stores, but doesn’t believe it will be one tied to understanding the nutritional content on the backend.

“Organizations know what’s in their products today, they just haven’t made it public,” Brown said.

The real expense will be getting the information out to the market. “There’s going to be a big training effort and cost to ramp up stores initially to comply,” he said. And then they need to have processes in place that manage change — how they will redistribute that information when entirely new products come along.

Kalypso is one firm that stands behind technology to facilitate these processes for retailers — technologies that can create “labels on the fly,” as Brown put it, or electronic labeling distribution for changes in nutritional values and for consumer-requested labels.

The other aspect of embracing the menu-label change for c-stores, as Brown sees it, is product choice.

“If c-stores want to be successful moving forward with this, they have to offer a broader choice in prepared foods to include healthier options,” he said. “They

have to monitor their consumers to see how they’re impacted by the transparency of the information, and then see how they can offer new choices for them.” CSn

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FOODSERVICE Category Trends + Insights from

TRENDSIGHTS

Turkey Takes Off C-store operators can capitalize on restaurants’ lack of turkey options

I

t’s time to talk turkey. According to Technomic’s Turkey Club Pretzel Sandwich. Tedeschi Food Shops MenuMonitor database, turkey mentions in entrées also introduced two turkey handhelds recently: a on convenience store menus increased 11.7 percent Blackened Turkey Pepper Sandwich and a Bold in the first quarter of 2015.

Blackened Turkey Caesar Wrap.

Turkey dishes are popular among conTurkey-based substitutes are also appearing on sumers for their perceived healthfulness. c-store menus. Earlier this year, GetGo debuted Technomic found in its 2015 Center of the flatbread sandwiches with fewer than 300 calories, Plate: Poultry Consumer Trend Report that 61 percent of respondents consider turkey to be healthier than beef or Perceived healthfulness of turkey pork, and 30 percent think it’s healthier than chicken. compared to other proteins Despite turkey’s better-for-you

By Donna Hood Crecca Age 18-34 35+ % overall Senior Director, perception, frequency of consumption Technomic Inc. is low. Only 51 percent of custom55% Turkey is healthier than dcrecca@technomic.com 61% ers eat turkey at least occasionally beef or pork 64% compared to 88 percent for chicken, 82 percent 29% Turkey is healthier 30% for beef and 62 percent for pork. The reason: 30% than chicken turkey is not offered at the restaurants they visit.

25% Chicken is healthier MenuMonitor data shows only 47.8 percent of 21% than turkey 19% restaurants offer turkey.

While not menued at all restaurants, turkey Base: Approximately 750 consumers (chicken) and 425 consumers (turkey) Source: Center of the Plate: Poultry Consumer Trend Report, Technomic, 2015 is offered at the majority of convenience stores (60 percent). The most commonly menued turkey option at c-stores is sandwiches, likely due to the item’s portability and popularity at lunchtime.

Percentage of customers who Several c-store operators have added turkey agree or agree completely that... sandwiches in the last few months. RaceTrac debuted two turkey sandwiches in March: a Most types of chicken dishes would be Southwest Turkey Ciabatta Sandwich and a 47% just as good made with turkey

If it was offered, I would be likely to order turkey-based substitutes for meats menued at lunch/dinner If it was offered, I would be likely to order turkey in place of chicken, beef or pork in my entrée It is important that restaurants offer turkey-based substitutes for breakfast meats Base: Approximately 425 consumers Source: Center of the Plate: Poultry Consumer Trend Report, Technomic, 2015

82 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

33%

31%

28%

available with proteins such as turkey and turkey sausage.

Many customers want turkey: The Poultry Consumer Trend Report found that about a third of customers would order turkey-based substitutes for lunch and dinner, and 28 percent believe restaurants should offer turkey-based substitutes for breakfast.

C-store operators should capitalize on restaurants’ lack of turkey options by menuing turkey dishes to attract turkey-seeking and health-minded customers. An original turkey item or substituting heavier protein options with turkey can ramp up the options and the health perception of convenience store foodservice offerings. CSN

Penetration of turkey on menus

Convenience Stores Restaurants

60%

48%

Source: MenuMonitor, Technomic

Turkey mentions in

entrĂŠes on convenience store menus increased 11.7 percent in the first quarter of 2015.

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COLD VAULT Beer + Wine + CSDs + Energy + Water + Sports + Juice + Dairy

Multicultural Malts The Hispanic demographic is engaging more with craft beer, but still enjoys imports

By Melissa Kress

L

ast year proved to be a good year for craft beer as craft brewers reached a double-digit volume share of the marketplace, according to data released by the Brewers Association.

Retail dollar value increased 22 percent and was estimated at $19.6 billion, representing 19.3 percent of market share, said the Boulder, Colo.-based trade association that represents small and independent American craft brewers.

The fact that craft beer is performing well is not news to the beer industry, but what is coming to light is the increasingly wide range of the consumer

Where Hispanics Purchase Adult Beverages

How often do you purchase alcoholic beverages (e.g, beer, wine, spirits, malt beverages, etc.) at each of these types of establishments?

(Top-two box = nearly every time or every time) Hispanic consumer

General population

48%

Liquor or wine store Warehouse club Convenience store Specialty food store Mass merchandiser Upscale or fresh-format supermarket Traditional supermarket Drugstore

65% 20% 13% 19% 14% 18% 14% 18% 14% 18% 11% 17% 12% 14% 8%

Hispanics consumers purchase adult beverages from a wider array of retail stores than members of the general population do. General-population consumers primarily visit liquor or wine stores.

Base: Varies depending on the percentage of consumers who visit each location Source: Technomic Special Trends in Adult Beverage Report: Hispanic Consumer Insights, 2013

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pool for craft beer.

“Craft beer appreciators are becoming as diverse as craft beer itself,” the Brewers Association noted.

In addition to the growing number of households and women purchasing craft beer, Hispanic consumers “are demonstrating increased engagement as well.”

Market research firm Technomic Inc. has observed the same trend. Three in 10 Hispanic consumers (31 percent) drink craft beer at home and 43 percent order craft beer in restaurants and bars at least once a month, Technomic research has found.

“Hispanics are engaging with craft beer both as consumers and as producers, and they’re poised to influence the direction of the craft beer industry,” Donna Hood Crecca, senior director of Technomic, wrote in a blog posting this past summer.

Hispanic consumers certainly have the spending power to put behind their beverage pallet. The buying power of the U.S. Hispanic market tops $1.2 trillion annually, the latest Nielsen Share of Wallet Study showed. The survey, which was fielded between September and November, revealed this demographic spends $51 per shopping visit on adult beverages such as beer, wine and liquor compared to $39 per visit by the total market.

Drilling down even further, Hispanic millennials may represent the best opportunity for craft beer sales.

According to New York-based Nielsen, the median age of Hispanics 21 or older in the United States is 28.

Among non-Hispanics, the median age is 42.

“When you think about Hispanics, it’s almost synonymous with youth,” said Maria Monistere, senior manager with Nielsen’s Hispanic Center of Excellence.

Hispanic millennials are picking up some of the traits associated with the average craft beer drinker: they’re more likely to have a college education than the generations that preceded them, leading to a greater chance of landing white-collar employment. This, in turn, leads to higher income, and higher income is one

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COLD VAULT Beer + Wine + CSDs + Energy + Water + Sports + Juice + Dairy

of the more pronounced characteristics of the average craft beer drinker, according to Monistere.

Hispanics’ growing affinity for craft beer has not escaped the attention of some of the big-name brewers.

Chicago’s Blue Moon Brewing Co. recently introduced Blue Moon Cinnamon Horchata Ale into select cities in Texas, California, New York and Colorado. The offering is inspired by the traditional and popular Latin American drink known as horchata.

Anheuser-Busch InBev, meanwhile, continues to expand upon its successful “Rita family” line of beverages, which began with the launch of Bud Light Lime-A-Rita in 2012. The St. Louis-based beer giant now offers Raz-Ber-Rita, Straw-Ber-Rita and Mang-ORita, to name a few. The entire line is on pace to be a $1-billion brand in year three, which is this year.

Factors Infuencing Hispanics’ Adult Beverage Decisions

How important was each of the following factors in determining what drink you consumed on this most recent occasion?

(Top-two box = important and extremely important) Male

Female

The person or people I was with The cost of the alcohol Suggestion of a friend/family member Meal or type of food I was eating Bought for friends/friends favorite brand/drink Had tried it in a bar or restaurant previously Sample or taste offered in-store A promotion

% Overall

35% 44% 35% 36% 26% 35% 25% 32% 22% 28% 25% 22% 22% 19% 17% 19%

40% 35% 30% 29% 25% 23% 21% 18%

Two-fifths of Hispanics said the person or people they were with were highly important in determining their beverage of choice on their most recent at-home occasion. Women are particularly influenced by the presence or opinions of others when consuming alchohol at home.

Base: 424 respondents ages 21+ who have purchased alchohol for at-home consumption in the past 30 days Respondents indicated their opinion on a scale of 1-6 where 1= not important at all and 6 = extremely important Source: Technomic Special Trends in Adult Beverage Report: Hispanic Consumer Insights, 2013

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TRADING UP

“The Hispanic popuMyth: hispanic consumers lation is growing and do not drink craft beer. is expected to exceed 100 million by 2050.

Reality: Consumers who purchase craft beer away The buyer power of from home once a week or this influential conmore and have four sumer base is now or more drinks per visit worth $1 trillion and skew toward: is forecast to grow 50 > hispanics percent in the next > Men five years,” noted > Millennials & Gen Xers Gustavo Guerra, > Northwest residents brand director of Source: Technomic 2014 On-Premise Tecate, citing Nielsen Craft Beer & Cider study data. Tecate beer is part of White Plains, N.Y.-based Heineken USA’s brand portfolio.

“This phenomenal growth is having a profound effect on American culture from food and beverage to music, sports, film, fashion and much more,” Guerra continued.

As the economy stabilizes, consumers overall are trading up to premium beer offerings, specifically imports. And the imports segment, he explained, has a greater appeal among the multicultural/Hispanic consumer segment, which is forecast to account for nearly 70 percent of future beer category growth. “[Imports] demonstrate higher loyalty and repeat purchase rates as compared to the regionality and trial-only nature of crafts,” Guerra said.

Heineken USA is seeing a growing movement among Hispanic consumers toward the more full-flavored imported light alternatives. Specifically, Guerra said, Tecate Light consumption “has exploded among bicultural, Mexican-American men in the Sunbelt region.” Heineken Light is also seeing double-digit growth among millennials and Hispanic consumers.

In regards to trading up to premium beer offerings, Mexican imports are driving a significant part of that growth, the Heineken USA executive stated. The latest data showed absolute dollar growth of Mexican imports was 50 percent higher vs. the previous year’s gains.

“As the Hispanic segment grows in size, their influence on the American culture is palpable,” Guerra said. “Brands such as Dos Equis and Desperados are embraced by multicultural and mainstream Americans alike, while Tecate appeals to the bicultural MexicanAmerican segment.” CSN

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EDITOR’S VIEW

Create a Pumped-Up Brand C-store retailers must draw in consumers everywhere, starting with the interstate

T

he days of trying to win customers over at the pump by simply offering the cheapest gasoline prices are over. Websites and apps have made it easy for motorists to find cheaper gasoline elsewhere at nearly all times.

And even if a

By Brian Berk, convenience store Managing Editor retailer truly can offer the lowest gas prices on the street, margins are squeezed and it does not mean consumers will come into the store and buy merchandise after their tanks are filled.

Hence, c-store retailers should not strive to offer the lowest gas prices.

Instead, they should focus on becoming a destination via branding and the customer experience.

Fortunately, or unfortunately depending on which way you look at it, convenience stores have plenty of room for improvement when it comes to branding and brand equity. C-stores ranked “below average” in the retail category of the 2015 Harris Poll EquiTrend brand equity survey, which studied the brand health of more than 1,400 brands across 150 categories.

The reasons why c-stores performed poorly in this poll are surprising. Because several c-store chains are franchised as opposed to being wholly corporateowned, the experience for customers is not the same from store to store of the same chain, leading consumers to have an inability to “bond” with c-store brands and ultimately lose their faith in a brand, explained Joan Sinopli, vice president of consulting, Nielsen Consumer Insights, North America. Nielsen is parent company to Harris Interactive, which presented the

90 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

survey findings during a recent webinar.

In his book, “Pour Your Heart Into It: How Starbucks Built a Company One Cup at a Time,” master brand innovator and Starbucks Corp. CEO Howard Schultz wrote: “Mass advertising can help build brands, but authenticity is what makes them last.

If people believe they share values with a company, they will stay loyal to the brand.”

Of course, there are some c-store retailers that already have the essence of branding down pat. But for others, there are plenty of ways to improve their branding so that consumers find their way to the pump and then from the pump to inside the c-store, according to Joe Bona, retail division president at New York City-based branding agency CBX. For c-store retailers looking to create a new brand, or for those looking to improve upon an unsuccessful brand, the first step is to focus on things consumers might immediately recognize, Bona told Convenience Store News. What’s the name of the store? What does

the logo look like? What are the colors? What is the architecture? “Those are the tangible things people see and remember when they walk away from the store,” he explained.

Once these questions have been answered, an emphasis should be placed on something the c-store is known for. If your c-store isn’t known for anything yet, it’s a good idea to brainstorm ideas about how to separate yourself from your competitors.

Regional powerhouses Wawa Inc. and Sheetz Inc. are great examples of c-store retailers that have become famous in the minds of their customers. Both retailers have excellent conversion rates in terms of attracting consumers from the pump to inside the store.

“Wawa is known for its hoagie sandwiches. Sheetz is known for its extensive menu items and restaurant kitchen-quality food,” said Bona. “These retailers truly have a point of difference that they are passionate about and can defend in a competitive marketplace.

Their whole mission of being is this thing they are going to be famous for. That’s where companies have to start.”

Former Wawa CEO Howard Stoeckel wrote in his 2014 book, “The Wawa Way: How a Funny Name and Six Core Values Revolutionized Convenience,” that Wawa dominates the landscape because the c-store retailer is a “habit-forming, ritualistic” type of brand. “Remember the TV sitcom Cheers, set in the fictional Boston bar and restaurant where ‘everyone knows your name?’ We’re the Cheers of convenience stores,” Stoeckel wrote.

Whatever you choose to be known for, Bona stressed retailers must make all aspects of the experience desirable from as early as seeing a billboard on the interstate, to driving into the parking lot, reaching the forecourt and ultimately reaching the c-store itself.

Consumers draw conclusions about c-stores right away, he added, from the design of the canopies and pumps, to payments processing, to the types of fuels available.

Once an identity is established, retailers must execute day after day and year after year.

THINKING OUTSIDE THE BOX

While taking tips from successful c-store retailers is an excellent approach, Bona acknowledged the c-store industry tends to look within for help and take a “metoo” approach too often.

Outside the convenience channel, Virgin Airlines and its founder Sir Richard Branson are a great source

of inspiration, CBX’s retail division president believes.

Sure, some of his ideas are considered far out, but c-store retailers need to move the needle.

“At Virgin, they start to manage your experience right when you park your car,” Bona said. “Not when you check in at the airport, but the moment you drop off your car. That commitment to understanding the customer experience and what it takes to win is incredible.”

Imagine what a Virgin gas station would like. “It wouldn’t look like any you see today. Yes, there would be gas pumps and a canopy and some building that sells things behind it, but it would be done in such a different and compelling way that there would be nothing like the experience,” continued Bona.

Dashboard-mounted RFID chips enabling members of a loyalty program to fuel up might be something a Virgin gas station would incorporate. These RFID chips could analyze a customer’s preferences and send customized messages to their smartphone, encouraging them to walk inside the store and purchase their favorite product at a discount.

Bona prefers billboards as a way to draw customers to the c-store, but he’s quick to point out that the messages presented should not be generic. Quick-service restaurant chain Chick-fil-A is clever at drawing in consumers with quirky billboards, he relayed. “[Consumers] almost have to do a double-take to understand these billboards sometimes,” the CBX exec concluded. “It doesn’t cost any more money for a c-store to have a billboard like Chick-fil-A as opposed to a [generic one]. Even if it’s bad advertising, it becomes part of your personality and part of who you are.” CSN

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 91

TECHNOLOGY Enterprise + POS + Digital + Payment Systems + Business Intelligence

Technology’s Time to Shine EMV, mobile payment and beacons are top of mind at 2015 Conexxus Annual Conference

By Brian Berk

E

MV (Europay, MasterCard and Visa), mobile payment and beacons are all technologies expected to dominate convenience store retailer conversations for years to come.

EMV is foremost in retailers’ minds as the liability shift deadline for in-store point-of-sale (POS) transactions is fast approaching on Oct. 1. On this date, c-store retailers that do not upgrade their POS equipment to accept EMV-enabled credit and debit cards could be responsible for fraudulent transactions.

Attendees of the 2015 Conexxus Annual Conference, held April 26-30 at the Loews Annapolis Hotel in Maryland, debated the merits of EMV based on the cost to upgrade equipment, as well as the effectiveness of the technology when it comes to thwarting data breaches.

This year’s conference was the first since Conexxus took on its new identity, rebranding last April from PCATS, the Petroleum Convenience Alliance for Technology Standards.

Jenny Bullard, chief information officer for The Jones Co. subsidiary Flash Foods Inc., offered a firsthand account of what it takes to upgrade to EMV-ready readers at the POS. Flash Foods will have EMV-capable readers in place by Oct. 1, but the total cost of the in-store implementation companywide was $200,000, she explained.

Upgrading to EMV-ready equipment was a difficult decision for the operator of 171 stores in Georgia and Florida, Bullard acknowledged, as in-store fraud averages about $20,000 per year chainwide, or about one-tenth the cost of the implementation. “It will take many years to see a ROI [return on investment] on that,” the CIO said.

Still, these costs pale in comparison to those associated with making Flash Foods’ fuel pumps EMV-ready.

In order to meet the forecourt liability shift deadline of Oct. 1, 2017, Flash Foods will need to replace 384

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Brad Van Otterloo, Jenny Bullard and Parker Burke (L to R) explained why beacons could be worth the investment for c-store operators.

older pumps and retrofit an additional 220 pumps.

The total price tag for this implementation: $9 million, reported Bullard.

Fraud is not omnipresent at Flash Foods’ pumps, she noted, making it another tough decision whether or not to make the necessary forecourt upgrades. One reason in favor of making the outdoor EMV upgrade is consumer perception, she reasoned. “[If we do not upgrade], will consumers stay away because of security [reasons]?” Bullard asked. “That’s our biggest concern.”

As for the effectiveness of EMV technology, Conexxus Executive Director Gray Taylor noted there are several misperceptions today. “EMV became a miracle cure. It’s now as American as apple pie,” Taylor said as he delivered the event’s opening address.

“Politicians have been told it’s simple to upgrade to [EMV],” which is untrue.

Another misperception is that EMV would have prevented data breaches, such as the one suffered by Target Corp., he added.

GOING MOBILE

In addition to talking about EMV, Bullard discussed mobile payment technology, the most-used feature on Flash Foods’ GoBlue mobile app.

The biggest reason to offer mobile payment is the use of automated clearing house (ACH) payment, which remits interchange fees that are much lower than other options, she said.

Taylor believes mobile payment usage will increase in the coming years. He predicts the payments landscape will change dramatically in the future, with cash usage declining significantly. About 30 percent of retail transactions currently involve cash, but that figure is expected to drop to 25 percent by 2018, he cited.

Even further out in the future, the head of Conexxus predicts the day will come when cash will become extinct in its current form.

A HOT NEW TECHNOLOGY

Perhaps the hottest new technology that can help retailers boost the bottom line is beacons. In fact, Conexxus dedicated two back-to-back educational sessions to the topic.

Available for both in-store and outdoor forecourt applications, beacons receive shopper visit data, allowing convenience store retailers to send targeted offers to customers’ smartphones in order to increase loyalty and frequency of visits. They often cost about $25 to $30 each and are powered by four AA batteries.

Beacons are especially important at the pump, as two-thirds of customers drive off after they fill up without ever entering the c-store, noted Parker Burke, director at Gilbarco Veeder-Root, who spoke during the educational session entitled “Beacons: How Will Beacons Drive C-store Business and Improve the Customer Experience.”

Video offerings at the pump are crucial to driving in-store sales and correlate directly to beacons, which will soon become an integral part of the forecourt experience, Burke said.

“Our research shows that [when filling up their tanks], people often go on their phone to look at other things,” he said. “They are consuming other content, not your content.”

Burke was joined in the session by Brad Van Otterloo, vice president of product development for Koupon Media, who offered tips on implementing beacons.

At first, only offer targeted coupons involving private label products, he advised. “This way, you

A Technology TribuTe

Two inducted into Conexxus Hall of Fame

Conexxus executives Gray Taylor (left) and Ann Zecca (right) honored its newest Hall

Conexxus’ Hall of Fame inducof Famers, the late Ann Seki (represented

by Chevron’s Ron Hilmes) and Ann Dozier. tion is always a highlight of the annual conference, and this year was no different. Ann Seki, former PCI program manager for Chevron Corp., and Ann Dozier, senior vice president and chief information officer at Southern Wine & Spirits of America, were welcomed into the exclusive group.

Seki, who passed away in 2014, created Conexxus’ (then PCATS) Technology Standards Committee, which attracted an impressive 45 people when it hosted its first meeting.

She was remembered as a “bulldog” who would never take “no” for an answer.

Dozier, who served The Coca-Cola Co. for 19 years before joining Southern Wine & Spirits of America, was integral in the creation of PCATS and sat on its first board of directors.

She was hailed for bringing technology to the forefront in the c-store industry.

“I want to tell you how honored I am to be here,” Dozier said upon accepting her award. “The 19 years I spent with Coca-Cola were a huge part of my life.”

She concluded her acceptance speech by naming every prior Conexxus Hall of Fame member and specifically focused on two of her greatest influences: John Hervey and Terri Richman, former NACS executives who were inducted posthumously as the first Conexxus Hall of Famers in 2011.

“John was always like a father to me,” said Dozier. “Terri always pushed me to go further.”

can adjust your coupon offers so you can get to your ‘sweet spot,’” the Koupon Media executive recommended. “Then, you can start looking at CPG [consumer packaged goods] offers.”

Another recommendation from Van Otterloo is to implement four or five beacons per c-store. In most cases, the entrance, coffee bar, register, pump and beer cave are the best places to install the technology. CSN

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 93

STORESPOTLIGHT Metro Mart

An Accidental Convenience Store Metro Mart originally set up shop in malls to fill CVS’ void

By Melissa Kress

S

even years ago, John Jacobs and his sister Adrianna Jacobs set out to fill the void in New York metropolitan shopping malls when CVS drugstores began pulling out. In a clear example of channel blurring, the partners soon found themselves evolving their business into a convenience store concept catering to mall employees.

Metro Mart began as a “mini-CVS concept,” but soon evolved into a convenience store business. The chain currently operates stores in four shopping malls.

“We never planned to do convenience stores,” said John, who previously ran a chain of cell phone stores in shopping malls. “The No. 1 complaint our employees had was they couldn’t find decent food in the mall that was reasonably priced. They couldn’t find snacks in the mall. They couldn’t find essentials they needed and most of them worked in the mall four or five days a week.”

The original idea behind Metro Mart, he said, was to model the business after the CVS concept.

According to John, many of the drugstores were pulling out of their mall sites because the company wanted

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stores that could include drive-thru pharmacies.

“That’s how Metro Mart started, as a mini-CVS concept. But very quickly we realized we were selling a lot of drinks, a lot of snacks and some essentials.

[And] people weren’t buying detergents, or much makeup or skin care or oral care,” he recalled. “We realized we needed to change the whole concept. We did most of our sales around snacks and drinks, so [we said] let’s put more emphasis on those items.”

And so began the journey of Metro Mart. The first store opened in Roosevelt Field Mall in Garden City, N.Y. However, it was by no means an immediate success. Metro Mart opened in a basement store and saw zero traffic in the beginning.

“It was difficult trying to figure out how to get people downstairs. I had a conversation with a vendor who said to me: ‘You know John, you are not putting enough emphasis on food. You sell food, people will come. Get graphics, promotions on food,’” he recounted. “As we started selling food, we started to see more and more people come in.”

The chain currently operates four convenience stores. Its other three locations are at Smith Haven Mall in Lake Grove, N.Y., The Mills at Jersey Gardens (formerly known as Jersey Gardens Mall) in Elizabeth, N.J., and Staten Island Mall in Staten Island, N.Y. Of the four c-stores, The Mills at Jersey Gardens location is the most successful and more than half of its business comes from the mall employees. “We’ve nailed it there. We have exactly what people want.

We’re priced right and the size is right,” John said.

A TAILORED APPROACH

“Nailing it” at one location, though, is not a recipe for success at every location. One of the biggest challenges has been trying to figure out the demographics of each mall and what products move well there.

The business partners now tailor each store to the

Sheetz Offers New Loyalty Program, Whole Pizzas The fast-growing chain also continues to test its Sheetz Bros. Creamery concept

By Barbara Grondin Francella

The foodservice offering and product mix at each Metro Mart store is tailored to the demographics of its respective shopping mall.

market demographics, Adrianna noted. For example, The Mills at Jersey Gardens Metro Mart sells a lot of hot dogs and chicken, while the Roosevelt Field Mall and Staten Island Mall locations share similar demographics and a similar menu: healthier options, such as salads.

“We opened the Staten Island store in October 2013. We spent a month getting to know [Staten] Island. We spared no expense on this store. We got the best lighting. We didn’t cut any costs. Everything we did was the best equipment and then, we couldn’t sell food. We started selling hot dogs and hot foods typically found in convenience stores. We couldn’t sell 10 hot dogs a day. In our other stores, we can sell 300 hot dogs,” John said. “[We learned that the people there] wanted something healthy.”

Another challenge Metro Mart has had to overcome is competing against the food courts in the malls, which are typically known for high prices and a lack of healthy food.

“We want to take that model and turn it upside down. We want to sell healthy food as much as we can, to the extent the market allows us to, and be price conscious,” John said. “We also do loyalty programs and discounts for mall employees. The POS [point-of-sale] system tracks their purchases. We are very focused on making sure the mall employees come in every day.”

Keeping with the emphasis on healthy — something John and Adrianna embrace themselves — Metro Mart does not sell cigarettes (by choice) or beer (not allowed) at any of its locations.

“We want to have a healthy image. It makes business sense for us. I don’t think you can sell cigarettes

[and] then next to it you have a salad. They just don’t go together,” John said. “You have to make a decision on who you want to be. It may hurt sales in the beginning, but image is important to us.”

Although the business partners did not start out with the intention of becoming convenience store operators, they have jumped in with both feet. Not only have they done their homework on the markets they’ve entered, but they have done their homework on the industry as well.

“Most convenience stores are mom-and-pop stores.

The owner works in the store. They don’t have the time to go to all the [industry trade] shows,” Adrianna said. “We are different. We go everywhere, we talk to everyone. We are very proactive.”

This openness may lead to some new possibilities for the future of Metro Mart.

“We’ve been in the business now for seven years and I’ve probably been in hundreds of convenience stores. Wawa, Sheetz, QuikTrip and QuickChek,” John added. “We’ve learned so much in this business.

We can even take our Metro Mart concept and partner up with an oil retailer. It could be on the street. I don’t think we want to limit ourselves to just malls.”

The brother-sister team said they would love to partner up with someone who feels they know how to do petroleum well, but don’t really know how to pick the right coffee or how to sell food. “Food is probably the best driver in this business right now,” said John.

Food, he added, is where c-stores have a phenomenal opportunity to grow. “It’s easy to see it because you see the success that chains like Sheetz and Wawa and QuikTrip have. When you go there, you know it can be done.” CSN

WWW.CSNEWS.COM | JUNE 2015 | Convenience Store News 95

EXPERT’SVIEW

‘It’s Time’ to Change Our Culture more diverse leadership is the key to more diverse customers

W

orking with the Convenience Store News Top Women in Convenience Advisory Board has me reminiscing about my early career as the publisher of CSNews.

Attending the NACS Show, I was fortunate to meet inspiring women leaders, including Sonja Hubbard of E-Z

By Joan Toth, Mart, Jenny Bullard of Flash Foods, Kris Network of Kingsbury of Rotten Robbie and Jennie Executive Women Jones, now with S&D Coffee.

As young professionals in the c-store industry, we understood the innovation, customer service and hard work needed to excel in convenience retailing. We also understood what it was like to be one of just a few women in the room.

Today’s industry leaders are more diverse. One of the most effective — Betsy Hosick of Chevron Corp. — serves as board chair of the Network of Executive Women (NEW). But despite these gains, outdated stereotypes and gender bias exist in too many corporate cultures.

C-store/petroleum headquarters remain among the most male-dominated in retail. It’s no coincidence most store operators’ efforts to lure women beyond the gas pumps have fallen short.

Consider this: Women control 70 percent of household spending and make or influence 93 percent of all food purchases. Yet nearly 60 percent say food marketers don’t understand them.

‘It’s tIme’ to Change that

The disconnect between female customers and the mostly male-led teams making the majority of merchandising, marketing and operations decisions couldn’t be clearer. Beyond this disconnect is a huge opportunity to grow sales and profits. Which is one reason why the Network of Executive Women

96 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

launched our “It’s Time” movement for women’s leadership and workplace change.

The advancement of women in the retail and consumer goods industry — including the c-store segment — has stalled. The reason is simple: We’ve been focusing on the wrong thing. High-potential women do not need fixing. And guess what? The men don’t either.

We need to change our corporate culture and workforce policies to create a more inclusive, flexible and collaborative workplace for everyone. This new workplace culture will attract and leverage the best talent — including millennials, now the nation’s largest generation of workers and consumers. It will spur innovation and create the new products, services and This is the first in a four-part series of exclusive educational columns by the Network of Executive Women (NEW), leading up to the 2015 Convenience Store News Top Women in Convenience awards in October. In addition to being a presentation sponsor for the Top Women in Convenience program, NEW and CSNews have partnered to develop this series of columns directed at helping corporate leaders drive more inclusive company cultures. More than 50 of the convenience store industry’s top female executives, managers and mentors will be honored at the secondannual Top Women in Convenience awards presentation, being held during the 2015 NACS Show in Las Vegas.

SPONSORED BY:

store experiences needed to make c-stores a destination for today’s diverse customers.

Transforming the industry’s leadership won’t be easy.

NEW has developed an action agenda that will help create a new corporate culture that advances women leaders, builds business and strengthens your workforce: • Change the culture and the way we look at women, who are often viewed as either “too nice” or “too bossy.”

• Change the organization to eliminate the countless subtle barriers to advancement, including a lack of role models, sponsors and access to senior leadership, and career paths and policies that favor men.

• Engage men and treat them as partners instead of problems to be fixed. We need to enroll men in this movement and turn them into mentors, sponsors and supporters of women.

• Engage senior leadership. The commitment of senior leadership is decisive. For example, at PepsiCo, where top leaders have taken a strong stand on women in the workplace 31 percent of U.S.-based executives are women.

• Achieve critical mass. Too many organizations advance a few high-profile women and then rest on their laurels. To achieve the benefits of women’s leadership — and make these gains sustainable — organizations must have targets in place that advance women. What gets measured gets done, and what gets done must be tied to executive reviews and compensation.

NEW is doing its part by expanding our existing learning programs, events and research, adding infrastructure and outreach, and launching new leadership initiatives like the NEW Executive Institute, NEW Career Accelerator and NEW Rising Stars to help transform leaders at every level.

Now, it’s up to you. We need strong leadership to leverage these new programs and champion women’s leadership and workplace change.

To enlist in our “It’s Time” movement and find out how you can create a more inclusive corporate culture, visit newonline.org/itstime. CSN Joan Toth is president and CEO of the Network of Executive Women, Retail and Consumer Goods, a learning and leadership community representing 9,000 members, 750 companies, 100 corporate partners and 20 regional groups in the United States and Canada.

Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

OUTABOUT &

Spotlighting major industry events

The Business of Tobacco Regulations, vaping and category trends take center stage at 2015 NATO Show

By Melissa Kress

F

or the second time since taking over as director of the Center for Tobacco Products (CTP) at the Food and Drug Administration (FDA), Mitch Zeller addressed NATO Show attendees at the 2015 event, held in Las Vegas in April.

According to Zeller, there are two key discussions taking place NATO Show at the FDA. One discussion April 21-23, 2015 takes aim at keeping tobacco Las Vegas products out of the hands of minors — a top priority for all stakeholders — while the second conversation centers around looking at nicotine differently. As he noted, the majority of adult cigarette smokers started as minors and by the time they were adults, the addiction had taken hold. Nicotine creates and sustains the addiction, but does not cause death.

“It’s not the drug, it’s the delivery method,” Zeller said. “E-cigarettes have become the poster child for this debate, so it’s about time to look at nicotine differently. We need to recognize that there is a continuum of nicotine-containing products.”

Nicotine Class of Trade Shares Convenience stores

45%

Tobacco outlets

447%

Dollar stores

29%

All other outlets

662%

1% 8% 5% 3%

% of Stores

% of Volume

Source: Retail Shipment Data, Past 52 weeks through 2/21/2015; Management Science Associates Inc.

98 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

On the subject of electronic cigarettes, tobacco retailers and manufacturers are still waiting for answers on when and in what form pending FDA regulation will take. In April 2014, the FDA released its proposed deeming regulation that would give it authority over electronic cigarettes, cigars, pipe tobacco and certain dissolvable products.

A final deeming rule could be revealed by the end of June, according to Zeller. But that will not mean the end of regulations. The deeming regulation is “a foundation jurisdictional step” and the industry should expect other regulations to follow.

Electronic cigarettes burst onto the scene several years ago, followed recently by more advanced products to form a new segment of the tobacco category: vapor. The past few months have seen growth in the vapor segment moderate, but convenience store retailers should not count it out.

Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, told NATO Show attendees that the vapor segment continues to grow, albeit moderately.

She still sees vapor consumption surpassing combustible cigarette consumption in the next decade.

There are some curious trends that could affect the segment. For instance, combustible cigarette volume only declined by 3.2 percent in full-year 2014 and posted a 0.5-percent increase in the first quarter of this year, she pointed out. These numbers raise a question: Why are adult tobacco consumers still smoking cigarettes if vapor is growing?

Also, the public perception of the vapor segment is diminishing. According to Herzog, the number of people who believe vapor products and e-cigarettes are just as harmful as combustible cigarettes doubled in 2014 to 15 percent.

The 2015 NATO Show also shared data on the current tobacco retail landscape. Convenience stores account for 47 percent of tobacco retailers and 62 percent of volume. CSN

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OUTABOUT &

Spotlighting major industry events

A Golden Anniversary for Eby-Expo Fifty years after its first trade show, Eby-Brown is determined to offer value to all retailers

By Angela Hanson

C

onvenience distributor Eby-Brown Co. LLC celebrated the golden anniversary of its EbyExpo trade show in April by bringing together more than 1,200 registered attendees at the Blue Chip Casino, Hotel & Spa in Michigan City, Ind. The 50th anniversary installment of the event marked a major change from its first incarnation decades ago.

“It’s huge for us,” Senior Vice President of Merchandising John Scardinas told Convenience Store News. “We basically held our first show in a cattle barn.”

The Naperville, Ill.based company was the first wholesale distributor to Eby-Expo 2015 host its own trade show five April 23-24, 2015 decades ago, Scardinas said, Michigan City, Ind. and the event back then was a much smaller affair. In contrast, the 2015 Eby-Expo was bustling as soon as its doors opened as retailers came to seek out the latest products and services.

At the show, Eby-Brown focused on offering retailer attendees value, and showcasing its category management technology and foodservice offerings that are designed to assist convenience store operators on multiple levels.

“There are a lot of different retailers that we service, everything from a small one-store operator that does a great business in a great local community that doesn’t need expanded programs, to others that want to be in sophisticated and complicated programs,” Scardinas explained. “We have to be the experts in what we do and what they do, and I think that’s one of the biggest values that we provide.”

On the show floor, Eby-Brown displayed its fourpart proprietary foodservice program:

100 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

• Aroma Bay Café: This coffee and hot beverage program features popular flavors like Pumpkin Spice cappuccino and adventurous combos like Toffee Nut Brownie coffee. Signage includes a “Now Brewing” section to highlight limited-time offerings.

• Savory Corner Café: This hot food program comes in the form of Hot-To-Go, a heated merchandising unit; a roller grill with the option of a sliding cover to improve the look of items on the grill; and Heat & Eat, a combination of countertop refrigeration, microwave and condiment/chip rack.

• Wakefield Sandwiches: These “fresh, never frozen” sandwiches and wraps particularly appeal to female shoppers through their paper-style packaging.

• Crisp Acres: The newest component of EbyBrown’s proprietary offerings, this fresh wholefruit program includes best-selling whole fruits such as apples, oranges and bananas; a product handling guide; and multi-tiered basket display.

The Chiquita To Go program ships bananas in a vacuum-sealed Stay Fresh Pack that extends the storage and shelf life, helping c-store operators balance their weekly delivery needs with an appropriately ripe offering.

Foodservice has become “critical” for all retailers, Scardinas said, but success in the category requires a consistent product and a consistent experience for customers. CSN

HOTPRODUCTS Special Advertising Section

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Goya

salesinfo@goya com

11

The Hershey Company

67 43,61

7

Home Market

www rollerbites com

47

Imageworks Display

www imageworksdisplay com

59

InLine Plastics Corp

www inlineplastics com

78

Innovative Control Systems

www icscarwashsystems com

97

Liggett Vector Brands

877 415 4100

Logic Technologies

www logicecig com

41 4-5

Mars Chocolate North America

www mars24seven com

23

McCain Foods USA

www mccain4cstores com

35

McKee/Little Debbie

www littledebbiecstores com

76-77

McLane Co Inc

www mclaneco com

24-25

National Tobacco

800 331 5962

Orion Food Systems

www info hotstuffpizza com

Paramount Farms

65 71 13,14,15

Perfetti Van Melle

800 283 5988

Petrosoft Inc

www petrosoftinc com

The Procter & Gamble Co

55

Ned Bardic Senior Vice President/Partner 224-632-8244 nbardic@stagnitomail.com Korry Stagnito Chief Brand Officer 224-632-8171 kstagnito@stagnitomail.com Terry Kanganis Account Executive & Classified Advertising 201-855-7615 tkanganis@stagnitomail.com Kevin McKay Western Regional Sales Manager 224.632.8246 kmkay@stagnitomail.com Kim Hansen Midwestern Regional Sales Manager 847-726-1590 khansen@stagnitomail.com Rachel McGaffigan Northeast Regional Sales Manager 508-385-2524 rmcgaffgan@stagnitomail.com

88-89 57,116

ProFoods/Champs Chicken

www champschicken com/CSN

73

R J Reynolds Tobacco Company

www engagetradepartners com

9

Save-A-Lot

www save-a-lot com

Society Insurance

www societyins com

115 99Regional

Subway

www subway com

37

Swisher

www swisher com

45,87 63

Tillamook Country Smoker Inc

www tcsjerky com

Trimino

www drinktrimino com

Universal Merchant

www nynab com

The Wm Wrigley Jr Company

74 Outsert CV1

Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by Stagnito Business Information, 570 Lake Cook Rd Deerfeld, IL 60015 Copyright Š 2015 by Stagnito Business Information All rights reserved Subscriptions: One year, $93; two years, $152 One year, Canada, $110; two years, Canada, $175 One year, foreign, $150 Payable in advance with a bank draft drawn on a U S bank in U S funds Single copies, $10, except foreign, where postage will be added Printed in U S A Periodicals postage paid at Deerfeld, IL, and at additional mailing offces POSTMASTER: Send address changes to Convenience Store News, P O Box 1842, Lowell, MA 01853

114 Convenience Store News | JUNE 2015 | WWW.CSNEWS.COM

Steve Lichtenstein Vice President/Southeast Regional Manager 201-855-7613 slichtenstein@stagnitomail.com Roz Gilman Ad Manager 224-632-8243 rgilman@stagnitomail.com

Stagnito Business Information U.S. brands:

#1 Hard Discount Grocery Designed for Independent Retailers Save-A-Lot has been developed with the independent retailer in mind.

Contact us to learn why leading independent grocery and convenience store retailers have chosen Save-A-Lot as part of their expansion plans.

Minimum $200,000 fnancial incentive.

Comprehensive support including training, operations and marketing.

Dedicated distribution of fresh meat, produce and exclusive private label brands.

To learn everything you need to know about opening Save-A-Lot food stores visit save-a-lot.com/own or call 314.592.9446

QUIT

2X

more absorbent* so you can

SELLING BRANDS!

NO-QUIT

USE LESS.

TM