(This article first appeared in the July 2023 issue of NACS Magazine.)
After hitting a four-decade high of 9.1% in June 2022, inflation has slipped each month over the past year. Despite the downward trend, inflation’s ripple effects will be felt for months and even years to come. But the convenience store industry is strong and fluid, having adapted to a changing consumer, and some industry experts see a light at the end of the inflation tunnel.
Soaring Food Prices
Foodservice sales at convenience stores grew in 2022 over the previous year, with sales now representing 25.6% of average in-store sales and 36.1% of in-store gross margin, according to the NACS State of the Industry Report of 2022 Data. However, the foodservice consumer price index increased 9.7% last year, a large obstacle to overcome.
Michelle Weckstein, director of food and beverage brands, SunStop, saw the pinch of food inflation firsthand throughout the retailer’s 79 locations. SunStop’s foodservice program features made-from-scratch Southern comfort food. The chain is known for its chicken, potato logs and mac and cheese. A couple years ago, the company’s margins began to suffer because costs were rising and SunStop hadn’t raised its prices.
“We didn’t want to turn off the customers, because they were just starting to come out of the house after COVID,” Weckstein said. “So, we made incremental increases in our pricing.”
SunStop customers let the retailer know they were not happy with paying more for their favorite foods.
“Every time we would raise our prices, the customers certainly vocalized their opinion,” she said. “A lot of it was right at the counter where they would, let’s just say, be very expressive to some of our employees, unfortunately.”
On top of raising prices, SunStop added another tool to its inflationary defense. It found a new broadline distributor that has a partnership with a group purchasing order (GPO), and it’s given the company “significant” savings on food prices.
“We are getting phenomenal buying power because we’re part of this GPO,” said Weckstein. “We can, of course, share the [savings] with our customers.”
SunStop is also sticking to its core food items, the “things we do best,” Weckstein said. These foods require simple preparation, meaning the company can spend less on labor.
We wanted to use our private label as a way to drive awareness of who CEFCO is.”
“We’re really just focusing on consistency of availability and quality products and making sure things are convenient,” she said. “If we can really master those things as an industry, I think we can remain competitive.”
Tough Times for High-Priced Cigarettes
Another in-store category hit particularly hard by inflation is tobacco. While consumers are not leaving the cigarette and other tobacco products categories completely, they are trading down within categories and out of certain subcategories. According to Bill McCloskey, chief operations officer, RMarts, which has 13 stores in the Chicagoland area, cigarette sales are plummeting because they are the most expensive tobacco option by far. A pack of cigarettes in the chain’s operating region can range in price from $11-$14, while a can of moist smokeless tobacco is $7-$8 on average. But moist smokeless prices have been hit by inflation, too—up around $2 on average over the past couple years, says McCloskey—so many consumers are moving to a newer tobacco subcategory, modern oral.
“The modern oral [sub]category is benefiting from both cigarette and snuff users because that price point is still around $4 or $5,” said McCloskey. “What you have is cigarette smokers moving into that category.”
According to McCloskey, RMarts has seen 85%-90% sales growth in the company’s modern oral subcategory over the past two years, while moist smokeless tobacco sales have declined by 3%-4%, and cigarettes are down 6%-8% in the same time period.
McCloskey says RMarts is using SKU rationalization to manage any declining subcategories. The company’s category managers watch the movement of their brands closely so RMarts doesn’t hold onto SKUs that are no longer selling.
“If we normally carry nine or 10 [flavors of moist smokeless], maybe we’re only carrying five or six now,” he said. “But on the other hand, in the [brands] … that are growing, we’re making sure that we have all the SKUs … because that customer is looking for something, and we don’t want to miss an opportunity to sell it to them.”
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