SOI 2019: Half of the Industry Is a ‘10-Year-Old Business Model’

Evolve now or go the way of Blockbuster, c-store leaders caution.

April 05, 2019

By Steve Holtz

CHICAGO,  Ill. — Considering the big headline of the preliminary NACS State of the Industry data was a third year of record sales, the overall tone of the NACS SOI Summit in Chicago was one of caution. Sure, the industry just topped $654 billion in sales, compared with $601 billion the previous year, but there are concerns to consider at every turn.

Billy Milam presented the topline numbers with restrained exuberance. "In a world where [most other channels of retail] are down, our sales [per store per month] were up 9.9%, but our transactions were down 2.3%," said Milam, chief operating officer for RaceTrac and head of the NACS Research Committee. "So, we're selling more stuff to less people."

Among the challenges, he noted:

Top heavy: Between 2015 and 2019, half of the 20 largest chains in the industry have gone through some sort of merger or acquisition, consolidating a major portion of stores with the largest chains.

Independent retailers: The number of single-store operators declined by nearly 2,200 units in 2018, the first time in nine years that the channel didn’t grow.

Small chains: The number of chains of four or more stores dropped by 155 companies, continuing a trend from the past decade. “Over the past four years, we’ve seen a 19% decline in the number of companies with four or more stores,” Milam said.

Dollar stores: At the same time, dollar stores have grown steadily, from 23,421 units in 2012 to 31,620 in 2018, making it the fastest growing channel in retail, often targeting rural markets where c-stores are the top player. 

Credit-card fees: Credit-card fees outpaced total industry profits ($11.1 billion to $11 billion, respectively) for the first time in four years.

Amazon: With reports that Amazon intends to open 3,000 of its frictionless Go stores in the next three years, the online retailer threatens to become the fourth largest convenience chain in the country. “I know a lot of you think, I don’t need to worry about Amazon; they’re not coming for my market,” Milam said, “but they’re redefining the definition of convenience stores. … The mindset of that customer is being retrained.”

Together, these challenges—what Milam frequently called “attacks” on the convenience channel—have created an S-curve in the trajectory of the industry, making now a key time for retailers to evolve.

“The ‘Cokes and smokes’ business model has crested,” said Charlie McIlvain as he led discussion of the category-specific data presented at the SOI Summit. The chairman and CEO of Coen Markets, Canonsburg, Pennsylvania, noted healthy transitions by the c-store channel into foodservice, which has grown its sales contribution to the channel by 6.58 percentage points from 2009 to 2018, while tobacco sales lost 2.05 points and beer dipped 1.91 points during the same period, according to CSX and NACS SOI data.

However, he noted that a large majority of that transition was led by top-quartile retailers, that is, those retailers who produced total sales in the top 25% of the channel.

Bottom-half retailers, meanwhile, are still clinging to tobacco and beer sales. “The bottom half is still [working with] a 10-year-old business model,” he said.

To that end, both Milan and McIlvain encouraged a paradigm shift for the industry to match the disruption that has become pervasive in the retail channel.

“Other channels of retail are getting product into [consumers’] hands in other ways. They don’t have to come to the store anymore,” Milam said. “There is a different expectation from our customers now than what we’ve seen in the past.”

Among the today-to-tomorrow paradigm shifts suggested during the summit were: 

  • From fuel provider to energy provider
  • From commodity-driven business to service-driven business
  • From limited interaction with consumers (less than four minutes) to best-in-class customer experience—destination that delivers convenience in products, food and services
  • From offers and promotions—one-size-fits-all to tailored and personalized experiences and services
  • From limited assortment (coffee, tobacco, etc.) to hyper-localized or differentiated assortment
  • From traditional buying channels to omni channel, frictionless options 

What happens if the industry does not evolve? McIlvain asked. He held up the specters of Radio Shack and Blockbuster Video, two chains that liquidated and disappeared, as primary examples of retailers that refused to change.

“We have a track record of being relevant and evolving,” he said, “but we cannot rest on our laurels.”

Steve Holtz is the online news director and beverage editor for CSP. He has been covering the convenience-store industry for more than a decade and the beverage category since 2004.