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Convenience stores drowning in regulations, says new report

C-store profits have tumbled amid government red tape and channel blurring

Canada’s convenience store industry lost an estimated quarter of a billion dollars last year and over-regulation, high credit card fees, contraband tobacco and channel-blurring are among the reasons, finds a report by the Canadian Convenience Stores Association (CCSA).

While 2012 sales for Canada’s more than 23,000 convenience store retailers topped $40 billion–up 3.28% over 2011–losses hit $254 million compared to an estimated $1 billion profit in 2011.

The findings are contained in the CCSA's 2013 annual C-store State of the Industry report released Wednesday in Montreal.

Only 66.2% of traditional c-stores that do not sell gasoline reported a profit last year and those profits tended to be small, said CCSA president Alex Scholten.

One of Scholten’s concerns is channel-blurring–other retailers offering the same product mix or opening hours as traditional c-stores.

“You go to a lineup at a supermarket and you’ve got single-serve soft drinks or confectionary. You go to Canadian Tire and you see single-serve beverages.”

The acquisition of Shoppers Drug Mart by Loblaw is also a threat. In the U.S., Scholten noted, Walgreens has started to focus more on convenience store items and on matching c-store hours of operation.

Scholten added Canada’s credit card fees are among the highest in the world and two years ago cost c-stores $825 million.

“Interac is an untapped gem,” but “we, as retail, haven’t done a good enough job to promote this.”

He noted that while the average credit card rate for c-stores was 2.45% two years ago, debit cards cost only7.5 cents per transaction.

Scholten said the association be working closely with retailers and Interac to raise awareness levels about debit card benefits.

“If just a fraction of credit card transactions are converted to debit card, it can change the entire dynamic of our profitability, going from a loss this year to a profit.”

The report also identified 868 federal, provincial and municipal regulations with a direct impact on c-stores that cost the industry an estimated $225 million annually.

Scholten is asking all levels of government to work with the industry to achieve “smart regulation” –regulation that is deemed necessary and effective by both industry and government.

Despite its problems, Scholten remains optimistic about the prospects for c-stores, especially those that change their product mixes to satisfy aging demographics and ethnic customers and offer food prepared on-site.

He noted 90% of c-stores that sell food prepared in-store make a profit.

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