The Supply Side: Growth, challenges expected in convenience store sector in 2025

by Kim Souza ([email protected]) 158 views 

The convenience store segment faced economic challenges in 2024 with shifting consumer preferences, consolidation, inflation and labor management hurdles, according to a report from Placer.ai. The good news is foot traffic was 16.1% higher than five years ago.

The report noted that many category leaders — including Circle K, Casey’s, Kwik Trip, Maverik and Buc-ee’s — are outperforming the wider segment with year-over-year growth thanks largely to aggressive expansion strategies. Maverik is in the process of rebranding the Kum & Go brand it purchased in 2024, and many are working to elevate food, beverage and experiential offerings, according to market analytics firm Placer.ai.

“While inflation may stabilize compared to the extreme levels of 2022-2023, there is a strong likelihood that prices will remain elevated along with costs – particularly labor, creating ongoing challenges for our industry,” said Peter Rasmussen, CEO of c-store consulting firm Convenience & Energy Advisors.

“C-store retailers should prepare for a continued need to adapt quickly to macroeconomic shifts and any new federal or state-level regulations that could emerge in response to changing political and social landscapes. Specific actionable areas include loyalty, labor-saving technologies, private label [trade down] and premium [trade up] opportunities,” he added.

He said higher-income consumers may continue to spend, but middle- and lower-income households will likely be more discerning in spending, favoring needs over wants.

Casey’s General Store ranks third by store count according to CSP’s 2024 rankings behind 7-Eleven and the Circle K brand. El Dorado, Ark.-based Murphy USA ranks fourth on the list. Casey’s continues to grow through acquisition with the purchase of Fikes Wholesale in late 2024, adding 198 stores, 148 in Texas and 50 in Alabama, Florida and Mississippi. The Fikes deal brings Casey’s store count to 2,900 to start 2025. Casey’s also recently closed its acquisition of WOW, which includes seven convenience stores, one travel center and four liquor stores in central Kentucky.

Casey’s reported solid growth in 2024, and the company expects one-time charges between $15 million and $20 million in integration costs in 2025. Casey’s expects the Fikes deal to be modestly accretive by the fourth quarter. Interest expense is expected to be $35 million higher because of acquisition financing. Casey’s expects to add about 270 stores in 2025 with same-store sales growth between 3% and 5% and food margins on par with 2024.

Tight labor markets and rising wages have prompted more convenience stores to add self-check stations and Casey’s recently added an automated voice assistant for ordering pizza. Circana reports that large and small convenience store chains are turning to artificial intelligence to aid in the hiring process.

GLP-1 IMPACT
A concern in the food retail business is the impact of GLP-1 drugs initially taken to treat diabetes and now being widely used to help consumers lose weight. Circana reports that GLP-1 drug use is having a profound impact on how consumers allocate their food and beverage spending. The research firm adds that the food and beverage industry is at an inflection point in how the new drugs will shape spending patterns for convenience stores that have invested heavily in prepared food offerings.

The medications are designed to aid and slow digestion which promotes the feeling of fullness longer, curbing how much users eat and drink as they seek to eat small high-protein meals and drink mostly water, virtually eliminating snacks and sugary beverages which are mainstays at convenience stores, Circana reports.

Studying receipt data from GLP-1 medications for weight loss, Circana reported on changing behaviors around snacking and eating in general. The main findings included consumers becoming more educated about their overall health. Consumers are eating less, buying less and also looking for retailers and foodservice to offer smaller, high-protein entrees. In the first year of active GLP-1 use, monthly sales declined 5.2% in convenience stores, according to the Circana data. The mass retail segment saw sales dip by 3.9%, while traditional grocery store sales dipped by 1%.

Another report from Wells Fargo in late 2024 found the rise in GLP-1 medication use is having some impact on how much consumers purchase.

“Overall, what we are currently seeing is that weight loss GLP-1 shoppers are buying more compared to a year ago, while diabetes GLP-1 shoppers appear to be buying less over that same period. We also see differences by users when they started taking the medicine,” Wells Fargo noted.

The report notes that weight loss GLP-1 users are also eating out less and cooking more at home, which could be a hurdle for convenience stores selling ready-to-eat lunch and dinner options.

Among weight-loss users, total unit spending in food stores increased 20% in the first three months of taking the drugs, but purchases decreased to 3.5% in months four through six and to 5% between seven and 11 months of use. Conversely, people with diabetes taking the GLP-1 drugs bought just 1% more units in the first three months of use. Spending rose to 2% between four and six months and declined 10% between seven and 11 months.

Wells Fargo reports the high cost of the branded GLP-1 drugs which can top more than $1,000 a month without insurance has led to more weight-loss users opting for direct-to-consumer compounded versions. But consumers are spending disposable income on the medicines because 2% of insurers cover the drugs for weight loss.

The Wells Fargo report found that GLP-1 shoppers also appear to be more intentional about purchases, choosing products and supplements with health attributes such as brain health, muscle health and microbiome benefits. They also prefer products that are sugar-conscious, carbohydrate-free and low in sodium.

Convenience stores can respond to the changing consumer trends by offering more fresh fruit snacks, small deli sandwiches or wraps with whole grain and low-carb options, protein drinks, and non-alcoholic wine and beer, which were the categories that saw the biggest boost in sales from GLP-1 users for weight loss, Wells Fargo reported.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics, and is sponsored by HRG.