ALEXANDRIA, Va.—Convenience retailers proved to be both essential and resilient during a disruptive 2020 that impacted operational and financial aspects of the U.S. convenience and fuel retailing industry.
Total industry inside sales increased 1.5% to a record $255.6 billion in 2020 as customers frequented their local convenience stores to fulfill daily shopping needs, newly-released NACS State of the Industry data indicate. While total transactions declined 13.9% for the year, basket sizes increased 18.4% compared with 2019. The average basket size was $7.34 in 2020 vs. $6.20 in 2019.
The in-store increase also came despite a 1.6% decline in the number of convenience stores, which totaled 150,274 stores at the start of 2021. Deep declines in transactions counts, particularly in April 2020, were mitigated with an upswing throughout the remainder of the year, particularly the fourth quarter when transaction counts approached those of previous years.
NACS is presenting industry operational and performance metrics today during the NACS State of the Industry Summit, a live and immersive digital experience that features informative sessions, deep-dive regional breakout discussions and opportunities to engage one-on-one with industry partners.
Foodservice Bright Spot: Commissary
The broad category of foodservice took a hit in 2020, dropping from 38.9% of the in-store gross profit dollar sales mix in 2019 to 34.5% due to pandemic restrictions and protocol adjustments. The foodservice category includes prepared food, commissary, hot dispensed beverages, cold dispensed beverages and frozen dispensed beverages. For convenience retailers operating in multiple states and jurisdictions, navigating myriad state and local regulations regarding self-serve programs like roller grill, coffee and fountain was and, in some areas, continues to be daunting.
Prepared food sales declined 7.4% in 2020, and as expected, the pandemic had a huge impact on self-serve beverages. Hot dispensed sales fell 33.4%, and cold dispensed beverages declined 7.9%, reflecting the drop in footfall amid stay-at-home orders and work-from-home schedules. Commissary, the only foodservice category that generated sales growth during the second quarter of 2020, ended the year with a 13.3% category sales contribution. Commissary is largely prepackaged foods, which conveyed a sense of safety and confidence among c-store shoppers concerned about COVID-19 during the early days of the pandemic.
In-Store Merchandise Remains Strong
The pandemic highlighted how gaps in the global supply chain added a sense of urgency to keep up with high-demand products in non-traditional c-store categories. Customers relied on the channel for daily essentials like grocery items, paper products and cleaning supplies.
“Convenience stores that kept these items in stock likely experienced fast turnover of these products and strong margins, largely due to high demand,” said Charlie McIlvaine, chairman and CEO of Coen Markets Inc. He added that moving forward it may not be necessary to allocate additional shelf space to perishable grocery, but it will be important to keep these products in stock given the increased attention from previously infrequent shoppers who relied on their local c-store for these everyday items.
Other in-store growth came from alcohol and tobacco product sales, which saw an uptick in April 2020 that continued throughout the year.
Beer experienced unprecedented growth because of on-premise restrictions at bars and restaurants, limited personal travel and demand for larger pack sizes. More consumers relied on the convenience channel for flavored-malt beverage (FMB) innovations, notably hard seltzers. FMBs are now the second-largest beer subcategory behind premium beer, which continues to drive nearly one-third of category sales.
The cigarette category saw a pandemic sales boost as consumers shifted to a “stock-up” mentality, representing 27.8% of in-store sales in 2020, an increase of nearly 1 percentage point (0.93 pts) from 2019.
“Our industry saw significant shifts in purchasing patterns in 2020 and these changes will likely accelerate in 2021, both in what products are sold and how they are purchased, especially as mobile ordering, home delivery, curbside pickup and contactless payment continue to gain in popularity. The successful retailers will be those who continually adjust their offers as their customers redefine how they seek convenience,” said NACS Vice Chairman of Research and Technology Andy Jones, president and CEO of Sprint Food Stores.
Fuel Volatility and Demand Destruction
Convenience stores sell approximately 80% of the fuel purchased in the United States and saw steep demand declines in 2020. With roughly 25% of the U.S. workforce telecommuting during the height of pandemic restrictions, state-wide lockdowns and fewer vehicle miles driven contributed to historic declines in fuel consumption. Demand destruction was so severe that fuel consumption contracted 45% in the second quarter among retailer subscribers of the NACS CSX database until slowly rising during the summer.
Total industry fuel sales in 2020 declined 26.1% to $292.6 billion, compared with $395.9 billion in 2019. This decline was from both a 16.2% decrease in fuel prices (from $2.59 in 2019 to $2.17 in 2020) and a decrease in volumes. Per store/per month fuel gallons sold declined 12.4% to 161,807 gallons per store/month.
Prior to the pandemic, there were already signals that fuel demand would erode in 2020. Even with a lower price per gallon at the pump in 2019 ($2.56 in 2019 vs. $2.70 in 2018), consumers said they were making fewer stops to refuel, which translated to less trips per week to a convenience store.
Combining fuel sales with in-store sales, total convenience store industry sales were $548.2 billion in 2020. While total sales declined because of lower fuel sales, overall industry sales are still more than double of what they were at the beginning of the century; in 2000, total convenience store sales were $269.4 billion.
Credit card swipe fees remain one of the highest operating costs for convenience store retailers. Consumer preferences for more touch-free transactions and the coin circulation challenge in summer 2020 led to record debit and credit card usage at convenience stores. In 2020, 74.6% of all transactions were paid by plastic, and overall card fees paid by the convenience store industry were $10.7 billion.