What We Saw and Heard at the NACS SOI Summit

By Henry O. Armour, Ph.D.   read

2022 industry performance metrics shed light on the future of convenience retail.

May 01, 2023

June23-SOI-Henry-Armour-Closing-2.jpgThis year’s NACS State of the Industry Summit was one of the best we’ve had in the event’s 21-year history.  

What makes the SOI Summit unique is that we do something no other retail industry does. We share our data. We share our top line industry benchmarks in gross profit dollars and sales, our inside merchandise and foodservice metrics, and our operating expenses and labor costs. It’s all on the big screen—retailer data submitted through our proprietary CSX database and our annual State of the Industry survey. And yes, it’s all anonymous.

It can take weeks to sort through all the data we delivered in just one and half days, which our research team is compiling for the NACS State of the Industry Report® of 2022 Data. But there’s definitely some compelling takeaways that stood out to me.

The last 13 years was an aberration in economic history. Zero interest rates, tremendous amount of financial liquidity—it’s never happened before and it’s not going to happen again.  We saw a lot of proof of concepts but very little proof of commercialization. Let me give you one example. In 2019, at our NACS Convenience Summit Asia in Shanghai, the CEO of Bingo Box shared insights on the company’s unmanned convenience stores. At the time they had 200 unmanned stores in China and the plan was to have 20,000 Bingo locations in five years. Today, there are zero. The technology was there but it wasn’t commercially viable.  

The conversations around inflation. I may have been one of the oldest in the room who remembers what it was like to operate convenience stores in the early 1980s when inflation rates were 12%—and my business still made money. You have to run a business very differently in an inflationary environment, and you learn quickly that focusing on dollar metrics was the fool’s errand. The focus has to shift to units.

One of the most optimistic things we learned was our trips are increasing again, because in an inflationary environment you can be fooled when the dollars look great. If you have fewer people coming into your stores, you have a problem. So looking at trips are really important.

Next is what I call the demographics of volume declines. We know how many 60-year-old people are going to be in the U.S. in 10 years because we know how many 50-year-olds there are today and we know the fatality rate of 50- to 60-year-olds. It's the same thing with vehicles and subsequently your fueling business.

With electric vehicles, the conversation is over-hyped in terms of the impact EVs will have on fueling demand—that’s not the threat to your fuel volumes in the next decade. The threat is the fuel efficiency of internal combustion engine vehicles. The average age of vehicles on the road is 12 years. A brand-new Ford F150, which is the most popular vehicle sold today, is 38% more fuel efficient than the 12-year-old model it’s replacing. We will continue to see declining fuel volumes based on the increased fuel efficiency of newer vehicles.

There’s no denying our stores have a labor-intensive model, and there's a lot of angst in our industry around labor availability and increases in labor costs.

There are a few ways that I see people looking at how to reduce labor costs, whether it’s reducing labor hours out or paying people more. I recommend “The Good Jobs Strategy,” a book written by Zeynep Ton.

NACS partnered with the Good Jobs Institute in 2020 to bring the Good Jobs Strategy to our industry. What you’ll find through this transformation is that if you can increase labor productivity, you can afford to pay your people more, which means you get higher quality people and you increase labor productivity and you can increase their pay even more. It’s a virtuous cycle.

The secret is you have to re-engineer your entire operation at store level—every task and process to drive more labor productivity.

Let’s also keep in mind that we have two enduring competitive advantages in our industry. One is our real estate. We have the most ubiquitous footprint in the United States. Second is the unique personal relationships we have with our customers.  There is no other industry that touches more people—160 million per day—at the volume that we do. That’s about half of the U.S. population coming to our stores each day. Convenience stores are closer to our customers than any other retail channel of trade.

While we have our challenges, we also have amazing opportunities. I can’t think of any other industry in its entire history that is as nimble and innovative as ours. The sun is rising on convenience retailing.

Henry O. Armour, Ph.D., is the president and CEO of NACS. He grew up working in his family’s retail business, Armour Oil Company. He later founded West Star Corporation, which grew to include 59 NOW! Convenience stores, truck stops and quick-service restaurants in the Pacific Northwest until he sold the company in 2004. Armour became president and CEO of NACS in July 2005, having also served as the association’s chairman in 2002 and 2003.