Wrong Direction? Retailer Operating Expenses Grow

Direct store operating expenses outpace inside gross profit dollars.

December 19, 2023

Direct store operating expenses (DSOE) have been growing at a faster rate than inside gross profit dollars for more years than most retailers would like. Just look at 2022, a year when DSOE growth outpaced inside gross profit dollar growth in 9 of 12 months.

In 2022, nearly all large operating expenses experienced double-digit growth year over year, including the two largest expense lines: wages and benefits and card fees. Combined, these two metrics added $13.9 billion in expenses against the industry’s top line, according to the NACS State of the Industry Report® of 2022 Data.

Two DSOE line items grew at double-digit rates in 2022: repairs and maintenance, the third largest DSOE contributor in 2022, saw a 13.7% increase, while utilities  saw a 16% increase.

Retailers who attended the NACS State of the Industry Summit in April were the first to hear that in 2022, average inside operating profit declined by 50% to $111 per store, per month. This also meant that the $7.52 average basket value experienced a 34 cent loss of inside store operating profit.

“This metric can be unforgiving,” said Lori Stillman, NACS vice president of research and education.

Overall, DSOE is a challenging line item for convenience store operators. In this chart from NACS Magazine, we see that card fees rose 27.6% in 2022 to an average of $12,236 per store, per month, largely due to higher prices (fuel and inside merchandise), more transactions and more customers using cards as their preferred payment method. 

What Will 2024 Bring?

We can go as far back as 2013 to see how DSOE has been trending in the wrong direction. Although c-store industry inside gross profit dollars grew 3.7% that year, DSOE grew 4.4% across almost all categories.

For a 10-year view of how DSOE has been affecting retailer operating expenses, NACS recently launched the State of the Industry Data Archive.

As we near the end of 2023, all eyes are looking at how stores can improve their operational and financial performance in 2024 and beyond. One metric that will continue to be top of mind is DSOE.

Chris Rapanick, managing director of NACS research, shared during a NACS Show education session that DSOE growth slowed in the first half of 2023, although DSOE was still growing at double digits.

“Retailers can see the full picture of how the industry fared in 2023 at next year’s NACS State of the Industry Summit where we’ll reveal how much DSOE grew and what retailers can do to better manage these line items,” said Rapanick.