Meyer & Associates
Meyer & Associates
Speaking

                CONVENIENCE STORES INDUSTRY EVOLUTION & OPPORTUNITIES
  20 Years of Observations in 20 Minutes
  by Richard A. Meyer
  for CSP MAGAZINE Outlook 98 Conference, Atlanta, GA
  Tuesday, November 4, 1997


              This presentation was made to c-store chain decision makers and leading industry suppliers. Dick's overview of the industry's evolution, trends and direction are summarized in his handout reproduced below. From Management Horizons' Retailing 2005 publication, he listed his "Top 10" points which he believes are most relevant to the convenience stores industry. Finally, his popular "Two Decades View" of NACS industry data continues to gain attention of all industry observers for its meaningful summary of the industry's growth and obvious challenges. For an editorial summary of Dick's remarks at this CSP Conference, seeThe Changing Face of Convenience.


ITEM

COMMENT

Definitions  

Evolution – a gradual unfolding, as the evolution of a flower from the bud

NACS was 37 years old this year; we’re hardly middle age

Opportunity – a favorable opening for moves to one’s own advantage

Foodservice, ATMs, category management, imagination

Opportunist – one who takes advantage of circumstances

Chapter XI for some, hard work and discipline for others



Evolution – 1950 to 2000  

1950s – traditional c-stores, minimal gas; majors/independents with little grocery

Entrepreneurs/founders, debt leverage, lower costs, inflation

1970s – self-service gas to c-stores; merchandise to majors and petroleum marketers…to protect share of market

Initial "toe in water" approach, then aggressive fuel marketing, many unbranded sites

1990s – reorganizations in early 1990s; Quick Serve Restaurants (QSRs) begin about ’93; "branding up" on gas; EPA

Tired/losing sites closed via XI, national QSR brands gain share, EPA deadlines soon

2 Decades Results – not much to shout about on review of 1976 – 1996, in terms of profit vs risk; top 25% players do well

See "Two Decades View" attached, plus CSP June 1997 SOI coverage

Balance 90s – "bigger games", increased consolidation (including suppliers), strong finances imperative, growth can be had

See "Retailing 2005" overview; need to evaluate your company’s positioning

New Millennium – best sites, best marketers, best funded players, and smartest management will sustain & grow!

Not a "rocket science" formula, but a rare combination! New ways to leverage good management will surface



ITEM

ACTION

Reflections and Opportunities  

Post 1940s – more people were born since 1950 than the total of the prior 4 million years

This reality dramatizes our world economy and its overall dynamics

Blips vs Trends – PacMan came and went, lottery came (may go), foodservice and services will increase, tobacco will remain

A company’s responsiveness to new "trends" or "blips" will differentiate them in the market

Politics – tobacco the latest "goat"; beware of next "cause" by litigators/ ambulance chasers

Push "personal accountability" by clerks and underage minors; push for tort reform too!

Native Americans – license to steal not understood by public as its politically incorrect for the media to report facts

Make the picture clearer; fight fire with fire; get country to hear "representation without taxation"

Virgin Companies – Wal-Mart, Federal Express, Subway, Microsoft, NACS

On the whole, these behemoths aren’t even 40 years old

Virgin Concepts – voice mail, Internet, cellular phones, on-line brokers, smart cards

For the most part, these concepts are at the K-12 levels; smart cards will be major for us!

Leadership Still Counts – General Scwharzkopf, Sam Walton, Roberto Goizueta, Bill Gates

Leaders make the difference; they possess mission, passion, tenacity and a sense of urgency

Arsenal To Succeed – education, information, intelligence, marketing and strategic analysis

You’ll not succeed in a vacuum; those having and using these "tools" will be the new leaders!


 

 
RETAILING 2005 - TOP 10 IDEAS FROM MANAGEMENT HORIZONS REPORT

PREFACE

"Retailing 2005" was published In 1995 by Management Horizons (MH), a consulting division of Price Waterhouse. From their extensive analyses and perspectives of the future of retailing and distribution, the ten conclusions herein are deemed most relevant to the interests of the convenience store industry, particularly in understanding its future opportunities.

MEYER’s TOP TEN

1. About Manufacturers. More manufacturers will sell direct to the consumer, utilizing in-store kiosks, electronic media, or their own bricks and mortar. This routine will evolve as "it will be harder to reach consumers at conventional outlets." Look, too, for a limited number of brands in the stores. C-Stores must plan, pro-actively, for this implication on category management.

2. About Distribution. Under the caption "Wholesale Obsolescence", MH professes that the age of the buyer/seller/low-tech expediter is over. The age of the high-tech marketer/expediter will arrive. In the reinvented supply chain of the future, functions will shift to the parties that can perform them most efficiently. Whereas distributors were an integral part of the go-to-market process in the past "today, the evolving best practice model avoids middle men."

3. About Retailers. Meetings at the salesman/buyer interface will be replaced by cross-functional teams working in tandem at the retailer and supplier. Ideas like "pay-on-scan" and "pay-on-ship" are expected to become widespread practices. Most improvements enabling this will come from improved information flow, and joint planning efforts between retailer and supplier partners. Look for progressive suppliers to embrace the Internet to help convey their "message" uniformly (and timely) to headquarters and stores.

4. About Managing Change. Doing business in the future will be markedly different from doing business in the past. Whereas MH points to an overwhelming number of changes during the past ten years, they say that, "if anything, the forces of change are picking up pace." They espouse that it’s becoming less and less possible to predict the future with any degree of certainty, but "armed with information, foresighted management can plan, and organize to embrace change as it comes." (Retailers recent enthusiasm with viaLink, an Internet-resident Universal Price Book for c-stores, suggests that retailers want information under their control rather than with suppliers.)

5. About Bigger Games. MH’s report states: (a) new concepts will hurdle ever more quickly to maturity (examples include: foodservice offerings, ATMs and other new (competitive-distinguishing) programs), and (b) leading players (Big 4 positioned to gain share = Tosco, UDS, Pantry/Li’l Champ and Emro; each have capital, will travel) will have aggressive growth goals (Tosco’s looking for a "big" acquisition in 1998 (C-Store Central 10/24/97)) and "expertise in concept roll-out." (Effective program execution is, typically, not a strong suit of larger companies; too much bureaucracy.) On the former issue, c-store chains need to be more proactive to challenge the threat of cigarette/tobacco store outlets by implementing marketing programs to protect and/or enhance gross profit dollars. Survivors and/or acquirers need to have their financial house in order (Traditional bank (short term) financing will be replaced by capital market (longer term) funding).

6. About Consumers. They’ll spend less time shopping, make fewer trips and shop more "purposefully." Many will opt to shop from the relative safety of their homes.

7. About Value. Consumers will demand more for less from the shopping experience. They’ll want more quality, choice, consistency, convenience and service (old fashioned "service" a novel/welcome idea – hear two AT&T stories 10/31 & 11/1 of Dick Meyer), for less money, time, effort, and risk. Pricing by retailers and manufacturers will become more clearer, more sensible, and more sophisticated.

8. About Electronic Shopping. Shopping from home via Peapod concepts or seeing "specials" and prices before going to the supermarket, or ordering on line from Sam’s were dubbed as

"the largest single change driver on the long term horizon."

They conclude that it will irreversibly change the way people shop for food and household necessities. By the year 2005, electronic shopping will capture 10% of food store sales.

9. About Delivery Depots. With the warehouse club players (especially Sam’s) expected to dominate this segment, this is a major strategic factor to consider in any retailer’s planning. MH views, not unexpectedly, that these players will orchestrate electronic customer ordering for their current core target market, "small to medium size businesses."

10. About Technology. MH references to a "networked nation" and says, manufacturers will increasingly reach consumers directly in their homes and on the selling floor by the use of technology. This all computes!


 
C-STORES INDUSTRY - A TWO DECADES VIEW

#

STATISTIC

1976

1996

% CHNG

  Industry Totals:      

1

Number of c-stores in Industry

37,200

94,200

155%

2

Total industry merchandise sales

$ 9.5 billion

$ 70.7 billion

645%

3

Total industry gasoline sales

$ 1.2 billion

$ 81.2 billion

6,665%

4

Total industry sales (line 2 + 3)

$10.7 billion

$151.9 billion

1,320%

  "Big picture" per store data:      

5

Average yearly merchandise sales - per store

$ 255,600

$ 751,000

195%

6

Average yearly gasoline sales - per store

$ 122,600

$1,181,000

865%

7

Average yearly total sales - per gas store (line 5 + 6)

$ 379,200

$1,932,000

410%

8

Merchandise customers count per day (excludes gas counts)

566

779

38%

9

Average merchandise sales per customer

$1.24

$2.65

115%

10

Average merchandise sales per week/square foot

$2.05

$5.97

190%

11 Merchandise gross profit % of merchandise sales

30.9%

31.2%

1.0%

12 Average gallons of gas sold per store/year

252,000

984,000

290%

13

Average selling price per gallon 1977>>

$0.57

$1.20

110%

14

Average gas customers per day – line 12/365 (used 8.5 gals)

81

317

290%

15

Average margin for gasoline – cents per gallon

4.2 cents

13.1 cents

310%

  Gross margin $ – per store data:      

16

Average yearly merchandise GP dollars (line 5 X line 11)

$ 79,000

$234,300

195%

17

Average yearly gasoline GP dollars (line 12 X line 15)

$ 10,600

$129,000

1,115%

18

Average yearly total GP dollars per gas store (line 16 + 17)

$ 89,600

$363,300

305%

  Cigarettes profile:      

19

Cigarettes % of total merchandise purchases 1975>>

15.3%

24.5%

60%

20

Cigarettes "going in" gross profit % (excludes RDA allowances)

24% est

23%

(4.2%)

21

Average yearly cigarettes sales - per store (line 5 X line 19)

$ 39,100

$184,000

370%

22

Cigarettes gross profit dollars - per store (line 21 X line 20)

$ 9,400

$42,300

350%

  Other per store data:      

23

Labor dollars per store/year (1996 = line 7 x 8.1%)

$ 29,650

$156,500

430%

24

Pre-tax profit per store per year 1980 >>

$ 14,400

$ 26,100

80%

25

Investment per new urban store (includes inventory) 1978 >>

$225,000

$1,297,600

475%

  Source: NACS 1996 Fact Book & NACS 1997 State of Industry Report      

TOP

For the CSP's coverage of this presentation, see The Changing Face of Convenience
For biographical information on Dick Meyer
As originally presented at the CSP Outlook '98 Conference in Atlanta, GA, 4 November 1997
Copyright © 1997 Meyer & Associates All Rights Reserved