The United States, 12 months ago, was coming off the most tumultuous first quarter in history, with the Russian invasion of Ukraine, the continuing Great Resignation, supply chain challenges, rampant inflation, you name it.

“What a difference a year makes,” said John Benson, partner at AlixPartners LLP, who kicked off the NACS State of the Industry Summit, before adding, “… or not.”

A lot of the challenges that made last year so unique still exist, said Benson. There are also sudden—and unexpected—economic shocks. Last year it was the Ukraine invasion, this year it was the banking crisis caused by the collapse of the Silicon Valley Bank. “The only certainty is uncertainty,” said Benson.

Consumer Spending Slowing?

Consumers are responsible for upwards of 70% of spending, so they obviously play an outsized role in how the economy performs. And up to now, they’ve been incredibly resilient. Consumer spending and confidence has remained high even through the worst of the pandemic. But things may be changing.

Over the past year, the stock market has been flat, at best, and economic stimulus checks are well in the rearview mirror. Consumer savings have taken a dive, with 60% of consumers saying it’s harder to get loans. More than two in five households (41%) are very or extremely concerned about their financial health. And 60% of consumers say they are cutting back.

“Essentially, we have a consumer who’s not feeling so hot. That may not be the best position you want them to be in,” said Benson.

The implication, he said, is that consumers may continue to be more price-conscious, cutting back on trips and impulse items, two things that are integral to convenience store sales.

So how do you get them to the pump—and inside the store, while also increasing market basket under these circumstances? That’s what every retailer should be asking, Benson said.

Essentially, we have a consumer who’s not feeling so hot. That may not be the best position you want them to be in.

Inflation, Inflation, Inflation

“Inflation is at the crux of the matter” of where the economy could be going, said Benson. Interest rates, which are a reflection of inflation, have increased at a faster rate than any time this century. The other three peaks, though less severe, were followed by recessions.

While inflation is not at 9.1% anymore, it’s still an issue. Nearly half of all executives (48%) say their company has been very or severely affected by interest rates.

There is some good news. Inflation trends have reversed over the past few months. Some commodities have seen significant reversals. Coffee prices, which were up 83% last April, are down 33% this April.

There’s probably an opportunity for procurement teams to find savings, said Benson.

Labor: Job Number One

While the labor market may not be white hot anymore, unemployment remains between 3% and 4%. There are some signs that the market is softening. For one, technology has been helpful. Self-checkout, ordering by app and labor-management tools have allowed retailers to reduce or redeploy their workforce. In fact, 47% of executives say they are leveraging technology to become more operationally efficient. But nearly as many (43%) say they will reduce the size of their workforce within the next 12 months.

Consolidation and Channel Blurring

Convenience stores may have introduced channel blurring with the strong embrace of foodservice, but other channels are fighting back and redefining their own offers. Dollar General has introduced new concepts like its DGX stores, which look a lot like convenience stores, and Popshelf, which appeals to a higher-income consumer.

“Dollar store concepts are increasingly going to be a threat to c-stores,” said Benson. “Your advantage is you’re hitting on a lot more breadth than they are, especially around foodservice and fuel.”

But the scope of the dollar store industry is large—and growing. If the top three dollar store brands (Dollar General, Dollar Tree and Family Dollar) were reclassified as c-stores, they would rank as #1, #3 and #4 in terms of store count.

Will they succeed? That’s yet to be settled, but they are demonstrating that they are innovative in thinking about consumers.

Meanwhile, c-store industry consolidation will continue.

“The industry will look different 5 to 10 years from now—while that’s true in all industries, it’s particularly true with convenience stores,” said Benson.

The big will get bigger, and “we think it’s a longer-term trend,” he added.

“Your competitors will be the larger competitors, whether c-stores or dollar stores. The question you increasingly need to ask is ‘How do I change my business model to compete when 61% of executives say that they actively expect to pursue M&A within the next year,’” said Benson.

Forecasting the Future

So, the big question on everyone’s mind: Will there be a recession? Benson said that a recession is likely. After all, there isn’t an example from history where the United States didn’t undergo a recession after having inflation over 4% and employment below 4%. And guess what we have now?

That’s probably why 82% of executives predict a recession. The good news is that the slowdown will likely be mild, according to Benson, likely starting in Q2 or Q3 this year. In other words, right now or very soon.

How Do You Win?

Benson outlined three strategies to navigate all of the uncertainty around us.

First, pinpoint the customer of tomorrow. That begins by aligning your assortment and growth strategy around that customer to meet them on their terms.

“We are dealing with consumers who are increasingly digitally engaged,” said Benson. It’s critical to build out apps and digital loyalty programs that work for them in the way they want to engage.

Second, become recession ready by installing a cost-management mindset. He suggested that retailers ensure that investments are in smart growth initiatives, and that they leverage existing economies of skill and of scale whenever possible.

“High-cash, low-debt companies will be best able to take advantage of conditions if a recession hits,” he said.

Third, Benson said that companies shouldn’t just plan—they need to act. “Disrupted markets create unpredictable dangers and unexpected opportunities. Have a plan, a process and a team ready to adapt and implement,” said Benson.

The Leaders’ Agenda for 2023

“Plan for the worst and hope for the best,” Benson said. And he outlined priorities to meet current challenges—both those that are anticipated and those that are unexpected. Not surprisingly, four of them focused on understanding your customer:

• What do they want? Effective merchandising and category management is more important than ever, given changing buying patterns and growing competition from within and outside the channel.
• Where do they want it? Convenience is more than a convenient location. It’s understanding where they want to order it, acquire it and consume it. And one transaction may involve multiple locations. Benson suggested that retailers explore omnichannel strategies that include in-store, delivery, e-commerce and on-demand.
• What are they willing to pay for it? Understand demand elasticity so that you can strategically price and make decisions related to margin, said Benson. This is particularly important if consumers become more price-conscious during a recession.
• How do they want to be engaged? Having a strong loyalty program and leveraging customer data is critical, Benson said. Explore all the tools at your disposal to engage customers in the unique ways that they prefer.

Uncertainly is scary. But Benson is more comfortable and bullish on the industry’s future than he was when he presented at SOI Summit 12 months ago. Even unexpected obstacles may provide new opportunities for retailers.

“Every challenge has a silver lining,” Benson said.