Convenience store industry focuses on value, prices amid inflation

by Kim Souza ([email protected]) 308 views 

With sustained inflationary pressures into early 2024, consensus in the convenience store industry is that the consumer is looking for value with nearly every dollar they spend, according to the Convenience Distribution Association (CDA).

Convenience stores typically do not have the lowest price on consumables such as candy, milk, soda or various sundries. The trade-off on prices is the quick in and out parking at the door.

“I think there’s a lot of headwinds that we’ll face. And I like that. I think that makes us stronger,” said CDA Chair Bill Stein, who serves as executive vice president of enterprise growth at Core-Mark International.

The convenience store segment is focusing on value over price. Loyalty programs where consumers build up points that equal cash savings are another way the segment plans to appease value-conscience shoppers.

“Value-added is everything you do to something from the moment you touch it, transform it or transfer it to someone else,” author Paul Reilly said at a recent CDA convention. “It’s everything we do to enhance and improve the overall customer experience and the total solution, whether it’s seen by the customer or not.”

The industry also noted that supply chains are returning to normal, but the freight industry has slowed. Operators are moving back toward just-in-time inventory, and not stockpiling in warehouses.

Fresh and healthy food and drink demand is on the rise, according the industry leaders. Fresh fruit and salad options are among the latest offerings for convenience stores but analysts warn that given the short shelf life, operators must match supply with demand to avoid waste which works against profits.

Plant-based foods are also trending in convenience stores this year. Conagra Brands unveiled a plant-based chicken tender product for convenience stores. Analysts warn operators to know their market before investing in the limited market for plant-based protein alternatives.

Spicy is also trending among consumer preferences for snacks like jerky, chips and nuts. Industry watchers said Generation Z (ages 11 to 26) is leading the push for spicy snacks. Candy and snack brands are also tweaking long-standing products, Mars Wrigley unveiled a Snickers Pecan option and smaller sizes for Skittles, dubbed Skittles Littles. The candy maker also reduced the sizes of its candy bars to keep the prices from increasing beyond consumer thresholds. The company also began offering “shareable sizes” that are a bit larger and more expensive with the thought consumers might buy one larger pack than two smaller bars.

Other issues of concern among convenience store operators are the higher wages that states like California enacted that raise the cost of running a store. The National Association of Convenience Stores (NACS) recently reported record cumulative sales of $859.8 billion last year. The trade group said $327.6 billion of the total were from in-store sales. The average ticket per visit increased 3.7% to $7.80.

The trade group also reports direct store operating expenses climbed 3.3% to $150.1 billion in 2023, with wages and benefits representing the largest operating cost at $84.2 billion. Average wages for full-time employees increased 30 cents to $14.73 per hour, and part-time employees earned an average of $13.86 per hour. The convenience store industry provided 2.74 million jobs across the United States in 2023, according to the NACS.

Foodservice sales represented about 27% of the total in-store sales last year. The uptick in sales accounted for 37.3% of profits. The convenience store industry sells about 80% of the fuel purchased in the U.S. Lower gasoline prices in 2023, relative to 2022, brought sales and profits down year over year. Fuel sales accounted for 67.3% of revenues in 2023, but only 38.6% of profits.