C-stores look for more red wine, less red tape
The latest state of the industry report about Canada’s convenience store industry is enough to turn convenience store owners to drink. But with the exception of c-stores in Quebec and Newfoundland, owners will have to turn elsewhere than their own stores to get beer and wine.
The inability of most of Canada’s c-stores to sell booze is just one of many problems that besets an industry that actually lost money in 2012 ($254 million collectively) despite sales of $40 billion, according to the Canadian Convenience Stores Association (CCSA).
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“A number of things are impacting the industry, including channel blurring, credit-card fees, the issue of contraband tobacco, a sluggish economy and regulations,” notes CCSA president, Alex Scholten.
Scholten’s organization estimates that only two-thirds of so-called “traditional” c-stores in Canada (those that don’t sell gasoline) made a profit last year, despite an overall, industry-wide sales increase of 3.3%.
The reasons c-stores are suffering are numerous. One is the wave of new and larger rivals arriving. Whether it’s extended hours at Walmart or single-serve soft drinks at Canadian Tire, mass merchants now offer features more traditionally associated with convenience stores.
Channel blurring will only get worse. Loblaw’s takeover of Shoppers Drug Mart will likely see Shoppers drugstores looking “more like mini-Loblaw’s stores,” says the CCSA.
Scholten points to the example of pharmacy chain Walgreens in the U.S., which is stocking more convenience store items, fresh food and matching c-store hours. As Walgreens president and CEO, Gregory Wasson, told Forbes: “It’s OK with me if you enter a Walgreens store and it looks more like an upscale sushi bar or a grocery store than a pharmacy.”
Canadian c-stores are also walloped by what the CCSA says are some of the highest merchant fees in the world for credit cards. As a result of heavy promotional efforts by credit-card companies, credit cards are being used more often for small transactions. That’s costing stores profit.
The CCSA says Canadian c-stores pay an average fee of 2.45% for credit-card transactions while each debit-card transaction with not-for-profit Interac costs 7.5 cents. A $50 transaction costs a store an average of $1.23 in credit-card fees and only 7.5 cents for debit.
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Contraband tobacco, meanwhile, is costing c-stores as much as $2.5 billion in lost sales annually. Stifling government bureaucracy is hitting mom-and- pop stores hard, too.
Small wonder that c-stores say bring on the beer and wine. Selling liquor would help ensure c-stores’ future success, Scholten says. In the U.S., nearly 80% of c-stores sell beer and, not surprisingly, the industry is outperforming Canada.
How likely is it that booze will make it into convenience stores? The B.C. government seems more open to the notion, recently saying that it would start to allow beer and wine in grocery stores. But Ontario has flatly rejected the idea in grocery or c-stores.
However, the CCSA believes beer and wine in c-stores may not be too far away in Canada’s biggest province. An Angus Reid study found that 60% of Ontarians now support such sales by more types of retailers.
The industry also aims to encourage more debit-card use. If only a fraction of credit-card transactions were converted to debit card, it would transform an industry loss to a profit, Scholten says.
Meanwhile, the situation with illegal tobacco might improve. In November, Ottawa announced a bill that would create new penalties for tobacco smuggling. And it would establish a 50-officer, anti-contraband RCMP task force.
Booze sales and battling illicit tobacco would certainly help the average convenience store’s fortune. But Scholten also sees inherent strength in the format.
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“We are located near our customers,” Scholten says, something retailers such as Canadian Tire are trying to replicate.
According to a Nielsen report, proximity to home is the No. 1 reason consumers visit c-stores. As a result, prospects are strong for c-stores that adapt their product mix to satisfy the growing ethnic and aging demographics.
On the senior front, the 65-plus age group will make up 28.5% of the population by 2021.
As their mobility decreases, seniors may opt for nearby c-stores as opposed to shopping further away, provided the stores carry the right product mix (foodservice, household items, over-the-counter pharma products and incontinence), easy access (parking, automatic doors) and reasonable prices.
In addition, c-stores that can provide fresh food appear to have bright futures: 91% of convenience stores that sell food prepared on-site were profitable in 2012, while only 66% of the stores that do not were able to post a profit.
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Only 31.6% of c-stores offered fresh food in 2012. But those that did sold an average $157,000 of food prepared on-site, generating more than $67,000 in gross margin (or 43%).
That is a higher profit than for dispensed beverages and packaged or prepared foods combined.
Couche-Tard has seen the fresh food light, Raymond Paré, vice-president and chief financial officer, told analysts at the company’s first quarter 2014 earnings announcement. “Fresh food is going well. It is clearly a catalyst and will continue to be for years to come.”
And in October, Dave Carpenter, chairman of NACS, the Association for Convenience and Fuel Retailing in the U.S., told an industry show that although “it’s easier to sell a candy bar than to make a great sandwich,” exceptional foodservice can work. “I believe it’s our greatest opportunity yet.”
So despite the industry’s litany of problems, Scholten is optimistic about the future if c-stores adapt to meet changing circumstances.
“The industry is very resilient. We always react to threats and challenges and come out on top.”