ConvenienceStores

IndustrySnapshot

119NorthCommercialStreet,Suite195Bellingham,WA982254455
phone:(360)7334014fax:(360)7335092www.cevforbusiness.com
IndustrySegments

Aconveniencestoreisaretailbusinesswithprimaryemphasisplacedonprovidingthepublica
convenientlocationtoquicklypurchasefromawidearrayofconsumableproducts(predominantly
foodorfoodandmotorfuels)andservices 1 .

Conveniencestorescanbedividedintotwotypes.Thefirsttypeisconveniencestoresthatincludea
broadmerchandisemix,extendedhoursofoperationsandaminimumof500stockkeepingunits.
Thesestoresexcludegrocerystoresorconveniencestoresthatareattachedtogasolinestations.The
productsegmentationisasshowninthefollowingchart:

Groceries 24%

Cigarettes&OtherTobacco
23%
Other 16%

AlcoholicBeverages 13%

NonAlcoholicBeverages
10%
DairyandBakeryProducts
7%
Candy 5%

Source:IBISWorldPtyLtd.,44512ConvenienceStores.NewYork:IBISWorld.December2,2009.http://www.ibisworld.com.

Thesecondtypeisgasolinestationswithconveniencestores.Themainitemssoldthroughthese
conveniencestoresincludegroceries,tobaccoproducts,meals,snacks,packagedalcoholicbeverage
andotheritemssuchasgardenproducts,booksandhardware.Thefollowingchartshowsa
breakdownoftheclassification:

1
Constitution&Bylaws,NACSOnline,http://www.nacsonline.com/NACS/About_NACS/Constitution_Bylaws/Pages/default.aspx
(accessedJanuary19,2010)

CenterforEconomicVitality Page1

 MotorGasoline 60%

Groceries 12%

TobaccoProducts 9%

Diesel 7%

Other 5%

PackagedAlcoholicBeverages
4%

Source:IBISWorldPtyLtd.,44711GasolineStationswithConvenienceStores.NewYork:IBISWorld.December2,2009.
http://www.ibisworld.com.

IndustryData

AccordingtotheNationalAssociationofConvenienceStores(NACS),thenumberof
conveniencestoreswas144,541asofDecember31,2009,adecrease0.2percent.Thisisthe
secondstraightyearthecounthasdeclinedandonlythefourthtimeinthelast15yearsthat
theindustrysstorecounthasdeclined 2 .
TheUSconveniencestorecombinedrevenueisabout$400billion.Thetop50companies
accountforabout35percentofindustrysales.Averageannualrevenueperworkerisabout
$500,000forgasstationswithconveniencestoresand$150,000forconveniencestoresnot
attachedtogasstations 3 .

ConvenienceStores

Profitsin2009forconveniencestoresnotattachedtogasstationsareestimatedatabout
$339.2millionspreadacross68,900businesses4.
Grocerymerchandiseisestimatedtobethelargestpercentageofconveniencestorerevenues
at24percentfor2009.Thisnumberhasdeclinedovertheyearsfrom33percentin1997to25
percentin20024.

2FactSheetsScopeoftheIndustry,NACSOnline,http://www.nacsonline.com/NACS/News/FactSheets/Pages/default.aspx(accessed
January20,2010)
3
FirstResearch,Inc.2007,ConvenienceStoresAustin,TX:FirstResearch.10/19/2009.http://www.firstresearch.com.Oursubscription
tothisserviceispossiblethroughdonationsmadebyMetcalfHodgesandWellsFargoBank.

CenterforEconomicVitality Page2

 Nearly80percentofconveniencestoressellbeer,accountingfornearlyonethirdofallbeer
purchasedintheUnitedStates,about93percentofwhichissoldcold.Infact,theU.S.
conveniencestoreindustrysellsmorethan2billiongallonsofbeerayear 4 .

GasolineStoreswithConvenienceStores 5

Profitsforgasstationswithconveniencestoresareestimatedat$30.9billion(includinggas
sales).
Whileoilmajorshavebeenbackingawayfromretailingatafastclip,thenumberofgas
stationswithconveniencestoreshasfallenrelativelyslowly,from92,611in2004toan
estimated92,400in2009.
Gasstationswithconveniencestoresarebelievedtohaveliftedtheirsalesvolumesinthe
decadebyanestimated6.3%,partlyattheexpenseofgasstationswithoutconvenience
stores.

SuccessFactors 6

7Elevenisthebiggestplayerinthecategoryofconveniencestoresexcludinggasstations.Itoperates
morethan6,000storesintheUSandCanadaandhas31,000storefranchisesorlicensesworldwide.It
sellsgasolinein2,100stores,whichaccountsfor40percentofoverallsales.Theremaining60percent
ofsalescomesfrommerchandisesales.Amajorityof7Eleven'srevenueisderivedfromtobacco
products(29.1%).Beveragesareanothermajorproductsellerfor7Eleven,accountingfor23.5%of
totalmerchandisesalesin2004.Atthelowerendofthescale,smalleramountsofrevenueare
generatedfromthesaleofdairyproducts(4.4percent)andfreshfood(7.7percent).

Thekeysuccessfactorsforconveniencestoresareasfollows:

Proximitytoresidentialareastoprovideeasyaccess
Accesstoamultiskilledworkforcethatisreadytoworkflexiblehoursandareabletoprovide
friendlyandhelpfulservicetocustomers
Abilitytominimizestockbuilduptokeepcostslow,butalsohavepopularproductsavailable
Storelayout,design,shelfmanagement,service,productrangeandcleanliness

RisksandChallenges 7

Spendingclout,thecostofdebt,sentimentandemploymentlevelsplayalargepartindetermining
thefrequencyandqualityofconveniencestorepurchases.Declininghouseholdwealth,rising

4
IBISWorldPtyLtd.,44512ConvenienceStores.NewYork:IBISWorld.December2,2009.http://www.ibisworld.com.
5
IBISWorldPtyLtd.,44711GasolineStationswithConvenienceStores.NewYork:IBISWorld.December2,2009.
http://www.ibisworld.com.
6
IBISWorldPtyLtd.,44711GasStationswithConvenienceStores.NewYork:IBISWorld.December14,2009.
http://www.ibisworld.com.
7
IBISWorldPtyLtd.,44512ConvenienceStores.NewYork:IBISWorld.December2,2009.http://www.ibisworld.com.

CenterforEconomicVitality Page3

unemployment,tightcreditconditionsandanuncleareconomicpictureareforcingmanyhouseholds
toforgoimpulsepurchases.Weakeningsalesover2008and2009havereducedoverallgrowth,with
fiveyearrevenueexperiencingadeclineof2.5%perannum.Evenpriortothedownturn,convenience
storesrevenuesdeclinedfrom$23.2billionin2005to$21.2billionin2009.

Industrycompetitionisintenseinthisindustry.Operatorsarenotonlycompetingwithother
conveniencestoresbutalsowithgrocerystores,supermarkets,warehouseclubs,superstoresand
kiosks.Also,supermarketsaretakingadvantageoftheireconomiesofscaleandsettinguptheirown
versionofconveniencestores.Thiscompetitionhasexertedpressureonprofitmarginsofthese
companiesandhasalsoresultedinconsolidationoftheindustryintherecentyears.

Trends

Overthepastdecadelargeoilcompanieshavebeendivestingfromconveniencestoresatgasstations
orconvertingcompanyownedstoresintofranchisesordealerships 8 .Thisisduetoseveralreasons.
Onesuchreasonisthehighcostofcreditcardcosttransactionseatingintoprofitsforconvenience
stores.AccordingtotheNACS,creditcardfeesmorethandoubledin2007from$3.2billionin2003.
Also,somestatelawsrestrictthenumberofconveniencestoresanoilcompanycanown.

Annualsalesgrowthforfoodserviceproductsinconveniencestoresrangedfrom10to14percent
between2004and2007,accordingtoACNielsen.Foodservicesalesgrowthwasstrongerthangrowth
fortotalinstoresalesandsalesofallothermerchandise.Conveniencestoresgainedsharefrom
supermarketsanddrugstoresinseveralcategories,includingcarbonatedbeverages,bottledwater,
liquidcoffee,saltysnacks,tobaccoproducts,gum,frozennovelties,andnuts.Conveniencestoreslost
shareinthebeer,juiceandjuicedrink,andcandycategories5.IBISWorldprojectstotalindustry
revenueforconveniencestorestoexperiencemodestgrowthof1%perannum,overthenextfive
yearsto$22.3billionby2014 9 .However,industryrevenueforgasstationswithconveniencestoresis
greatlydependentonthetrendsingasolinesalesandprices.Salesatconveniencestoreswillprovide
stabilitytothisindustry.

8
FirstResearch,Inc.2007,ConvenienceStoresAustin,TX:FirstResearch.10/19/2009.http://www.firstresearch.com.Oursubscription
tothisserviceispossiblethroughdonationsmadebyMetcalfHodgesandWellsFargoBank.
9
IBISWorldPtyLtd.,44512ConvenienceStores.NewYork:IBISWorld.December2,2009.http://www.ibisworld.com.

CenterforEconomicVitality Page4

IndustryRevenueOutlookforConvenienceStores(notattachedtogasstations)

%
5.00%

4.00%

3.00%

2.00%

1.00%

0.00% %
1998 2000 2002 2004 2006 2008 2010 2012 2014
1.00%

2.00%

3.00%

4.00%

5.00%

Source:IBISWorldPtyLtd.,44512ConvenienceStores.NewYork:IBISWorld.December2,2009.http://www.ibisworld.com.

ConsumerDemographics&Expenditures

Heavyconveniencestoreshoppersaredefinedasthosewhovisitaconveniencestoreatleasteight
timespermonthandspend$10ormoreoneachvisit.Theymakeuponly8percentofthetotal
conveniencestoresshoppers,butcontributetomorethan20percentofallconveniencestorevisits
and40percentofthedollarsspent 10 .Singleyoungmalesarethelargestmarketsegmentfor
conveniencestores.Olderfemaleswithchildrenarelessfrequentcustomersofconveniencestores.

10
Researchfirm:Buildabettercustomerbasetobenefitthebottomline,NPNPetroleumandConvenience,www.npnweb.com,
accessedJanuary26,2010

CenterforEconomicVitality Page5

FinancialInformation

Thefollowingchartindicatestheaveragecoststructureexperiencedbyconveniencestoreoperators:

Purchases 70%
Wages 13.50%
Rent 1%
Utilities 1%
Depreciation 1%
Interest 1%
Insurance 1%
RepairsandMaintenance 1%
Advertising 0.50%
Other 8.40%
Profit 1.60%

Source:IBISWorldPtyLtd.,44512ConvenienceStores.NewYork:IBISWorld.December2,2009.http://www.ibisworld.com.

Thefollowingtwotablesrepresentfinancialbenchmarkinformationfortheconveniencestore
industry.Theinformationisbasedon190companies,outofwhich48aresmallcompanies.Thefirst
columnrepresentsaggregatedataforthe190companies.Thesecondcolumnrepresentsthesame
informationforthe48smallcompanies.

CenterforEconomicVitality Page6

 IncomeStatement
Aggregate SmallCompanies
NetSales 100% 100%
GrossProfit 26.0% 26.2%
OperatingIncome 1.8% 2.5%
NetProfitAfterTax 0.9% 1.9%

BalanceSheet
Aggregate SmallCompanies
Cash 7.3% 6.4%
AccountReceivable 4.3% 2.4%
Inventory 14.6% 22.1%
TotalCurrentAssets 27.3% 30.9%
TotalFixedAssets 42.0% 27.2%
OtherNonCurrentAssets 30.7% 41.9%
TotalAssets 100.0% 100.0%
AccountsPayable 13.8% 5.6%
TotalCurrentLiabilities 37.8% 2977.7%
TotalLongTermLiabilities 19.3% 1.7%
NetWorth 42.9% 2879.4%
Source:FirstResearch,Inc.2007,ConvenienceStoresAustin,TX:FirstResearch.10/19/2009.http://www.firstresearch.com.Our
subscriptiontothisserviceispossiblethroughdonationsmadebyMetcalfHodgesandWellsFargoBank.

CenterforEconomicVitality Page7