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Convenience Store Owners—Drive Consumers Beyond the Pump to Keep Profits Flowing

October 29, 2018  - C-store & Gas Stations
Photo of man in convenience store with gas station outside

The U.S. convenience store industry is facing the challenging truth that Americans are changing the way they shop for snacks and drinks. The 150,000 plus convenience stores in the nation are being pressured from all sides. Fast-food restaurants and supermarkets are engaging in price wars, and dollar stores continue popping up and Amazon.com offers quick delivery for basic items.

These combined factors are putting pressure on gas-station retail chains to closely examine how they can stand out in the crowd. Last year, the $550 billion convenience store industry recorded its weakest merchandise sales growth since 2013. Businesses are rushing to launch or improve loyalty programs, offer better food options, and some are expanding to online ordering and delivery. Stores are facing more competition for convenience than ever before. Owners must figure out how to remain competitive in the world of e-commerce. Let's explore some concepts that have been successful in driving customers beyond the fuel pump and inside the store.

Expand Coffee & Beverage Offerings – Capitalize on Coffee!

Coffee is considered by many a necessity, and in the past several years, convenience stores have been busily building java programs that even a coffee connoisseur could gulp down. Wawa and 7-Eleven have launched premium Reserve lines, and several retailers have made sustainability commitments. With this innovation, the average price for a cup of coffee has increased by 13% since 2016, according to the 2018 Beverage Category Menu Insights report. Still, c-store customers only pay $2 on average for a cup of joe. C-stores have also been growing their specialty coffee offerings, with espresso drinks making up the fastest-growing beverage items.

picture of coffee cup with dollar sign design in foam

Just in time for National Coffee Day on Sept. 29, GasBuddy recognized c-stores' work in the category with the top-rated gas-station coffee in every state. Over the years, gas-station c-stores have increased their coffee quality to a level where they compete with the most well-known coffee shops, even Starbucks. C-store coffee is also more affordable, drawing in tens of millions of consumers a day. Jazz up the joe to draw more customers inside!

Expand Food Offerings - Prepared Food is Key

While you may think of Slim Jims®, Twinkies® and watery coffee as three of the only gas station food options, some remarkable food and drink is coming out of those convenience stores. The place where you pump your gas may not seem like the ultimate dining destination, but there's history of gas station restaurants being loved in America. Afterall, KFC started inside a gas station. While gasoline drives about 60% of sales at a typical c-store, what customers buy inside accounts for about two-thirds of profit.

  • Photo of man in chef hat serving food to man and womanIn addition to snacks and beverages, companies are increasing sales by beefing up the prepared food offerings, which also provides a cushion against long-term threats such as the rise of fuel-efficient cars and falling cigarette consumption.
  • Convenience stores are offering more healthy options and snacks so good that people are seeking them out as foodie pit stops rather than quick places to use the restroom. Consumers no longer must settle for a sad rotating weenie under a glass-cased heat lamp.
  • Retailers are expanding food offerings to include anything from Indian food to salads, sandwiches, and tacos prepared fresh by an onsite chef.

At QuikTrip Corp., an Oklahoma-based chain with more than 700 stores, shoppers can choose from wraps and salads and made-to-order flatbreads and burritos. Wawa Inc.'s hoagies drew crowds to its new location in Washington. After adding Swirl World frozen dessert bars a few years ago, Georgia-based RaceTrac Petroleum Inc. now makes sandwiches on demand in 95 of its 475 outlets across the Southeast.

“We're giving them an alternative so they don't have to make another stop in their day,” said Dayna Reed, RaceTrac's executive director of reporting and insights. “The entire industry is looking at what food service means and how we can grow the food-service business.”

Convenience stores have responded to competition with price cuts, rewards and loyalty programs, and private-label products. Some are offering a discount on gas to customers who buy food.

  • Amazon's foray into food and its cashier-less convenience store Amazon Go is also pushing the industry to improve digital tools and adjust to e-commerce.
  • Customers can order online from Casey's or Pennsylvania-based Wawa, with limited delivery options.
  • 7-Eleven is testing a delivery platform in Dallas after experimenting with drones and has lockers for Amazon and UPS parcels in 10 percent of its 8,900 stores.

Although, convenience stores' assortment of single-serve products such as energy drinks and ice cream that can be consumed right away offers them some protection from online retail. Many expect that Amazon and e-commerce growth will have more of an impact on channels outside of c-stores since they impact the planned purchase faster than the impulse and gratification purchase. One of the industry's biggest assets remains the time it saves customers, who spend an average of 3 minutes and 33 seconds for their purchase from the moment they leave their car to when they return, according to the National Association of Convenience Stores.

To maximize that advantage, c-stores need to:

  • Better curate food selection with more healthful or locally made products tailored to consumer preferences.
  • Emphasize the quality of prepared food and beverages as fast-food restaurants tout improvements such as antibiotic-free chicken.
 photo of people at coffee counter in convenience store

C-store owners must rethink the convenience store and what it means to be convenient. With people smoking less and cars being more efficient, these key revenue drivers continue to decrease. Food and food service have become a necessity, perhaps even more so than good old-fashioned customer service. As fast-food restaurants race to announce value menus, convenience stores are finding it harder to get customers to grab a slice of pizza or a sandwich after filling their tank. Finding something different to sell can draw customers and keep them coming back. Do some market research on the upcoming trends and new products and try stocking something new that other stores aren't carrying yet. Most importantly, talk to customers about what they'd like to buy but don't see on the shelves.

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The mention of or links to third-party information, services, products or providers does not imply endorsement or support by Ascentium Capital. Individual research should be done before use of any product, process or service mentioned.
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