Another Record Year for Sales

Sales grow as labor remains a challenge and operating expenses increase.

Another Record Year for Sales

June 2024   minute read

By: Chrissy Blasinsky

Labor markets will still be tough. Inflation will be less than it was last year, but at the end of the day it will still be a thing. Try to manage your expenses so you don’t need to dig into the fuel pot for gross profits.” Chris Rapanick, guest editor.

The convenience industry broke records last year, clocking impressive growth and profits across many categories. At the same time, stores grappled with inflationary pressures and cost increases, and not every aspect of the channel thrived.

These were themes Varish Goyal, CEO of Loop Neighborhood Markets and previous NACS chairman of research and technology, unpacked during “Financial and Operational Lessons from 2023,”—the NACS State of the Industry Summit session that reveals all the topline operational and financial performance metrics from 2023.

Here’s a quick look at some of the year’s most important numbers:

• Total industry sales hit $859.8 billion in 2023, $327.6 billion of which were from inside sales and $532.2 billion from fuels.

• Inside sales increased for the 21st consecutive year.

• Prepared food, which grew 12.2% to $51,500 per store, per month, was the No. 1 category for in-store sales.

• Foodservice represented 26.9% of in-store sales, up 1.3 percentage points from the year prior.

• The average basket increased 3.7% from $7.36 in 2022 to $7.80 in 2023.

• Industry store count increased 1.5% for the second consecutive year to reach 152,396 stores.

• Fuel sales decreased from $603.2 billion in 2022 to $532.2 billion, largely due to lower gas prices, which decreased 11.2% to an average of $3.53 per gallon.

• Direct store operating expenses (DSOE) increased 3.3% to $150.1 billion, with wages and benefits being the largest operating cost at $84.2 billion.

• Average wages for full-time employees increased 30 cents to $14.73 per hour and $13.86 for part-time.

• The U.S. c-store industry paid or collected $208 billion in taxes, which is 24% of total sales dollars at convenience stores.

• On a per-store basis, taxes collected averaged nearly $1.4 million. It is estimated that stores also paid $4.4 billion in swipe fees on these taxes collected for the local, state and federal governments.

Monthly DSOE has increased by 40% in just two years.”

How Top Performers Stack Up

Store operating profit across the board was largely in the black for 2023. But the difference between the top and bottom performers, and their fuel verses inside sales, was stark.

If you’re not familiar with the NACS State of the Industry Report®, but you’ve seen the data broken out by the top quartile at the Summit, here’s what that means:

The top quartile is the ranking of all the top 25% of companies by their store operating profit, which is sales minus the cost of goods, facility expense and DSOE. This calculation includes fuel gross profit dollar and expenses, but all corporate income and expenses are not included (e.g., administrative expenses, asset sales, income from other operations).

Top decile performers are firms in the top 10% of the SOI survey sample ranked by store operating profit. These retailers differentiate themselves with merchandise and foodservice sales, which drives higher margin fuel sales—and guess what? “Their employees stay longer, are more productive and more efficient,” said Goyal.

By ranking the top 10% against the top 25%, we can start to see the best of the best in the industry emerge, which in turn delivers better benchmarking opportunities.

In 2023, all deciles reported positive store operating profit. However, we start to see the deciles shift when we remove the impact of fuel margins and focus just on the inside store operating profit.

“When the impact of fuel margins is removed, the performance of the same companies looks much different. The companies in the bottom decile move from $7,248 of inside store operating profit to a loss of just under $15,000—a swing of over $22,000,” said Goyal.

“Even more impactful is the swing in the top decile companies,” he continued, noting that the top decile profit went from over $106,000 per store, per month to around $13,500 without fuel—a difference of about $93,000 per store, per month.  

Of the 150 companies that participated in the SOI survey this year, “only about one-third would be profitable when fuel gross profit dollars are removed from their profit and loss,” said Goyal.

At the end of the day, Goyal noted that the top performers earn 84 cents of inside store operating profit per transaction, which is 16.8 times the national average of 5 cents.

He encouraged companies that are in the bottom decile to act now to move up.

“Moving from the bottom decile to the ninth will generate over $17,000 in inside store operating profit per store, per month,” said Goyal, adding, “Make a plan to move one decile in 2024!”

Fuel sales decreased from $603.2 billion in 2022 to $532.2 billion in 2023.

Operating Expenses Are Expensive

There’s one number worth digging into from this year’s report: $150.1 billion for direct store operating expenses (DSOE), which have been growing … and growing—meaning they’re trending in the wrong direction.

“If we index DSOE back to January 2021, we see that monthly DSOE has increased by 40% in just two years,” said Goyal. Two expense lines are notable: wages and benefits, up 38.8%, and repairs and maintenance, up 38% during this timeframe (January 2021-December 2023).

In 2022, DSOE growth outpaced inside gross profit dollar growth in 9 of 12 months. For 2023, after three years of double-digit growth of DSOE, a 5% increase is a welcome change; however, the increases the industry experienced over the past few years have likely created a ripple effect that will continue for several years.

Our People Are Our Best Asset

“Labor is consistently a top concern for convenience retailers,” said Goyal, noting that 2023 was another challenging year.

National unemployment remained low at 3.7% as of last December, and 11 million jobs remain unfulfilled. The labor environment is not improving.

Additionally, the labor force participation rate only increased by a tenth of a point in 2023. “This metric has been essentially static since the fourth quarter of 2022, adding to the challenges for convenience retailers to become fully staffed,” said Goyal.

Like 2022, convenience retailers continued to outspend other retail channels to get and keep employees, with total compensation (wages and benefits) increasing at a much higher rate than the average of all retail channels.

Average wages for full-time employees were $14.73 per hour and $13.86 per hour for part-time employees.

For convenience stores, average wages for full-time employees were $14.73 per hour and $13.86 per hour for part-time employees in 2023. With 25 of 50 states increasing or planning to increase their minimum wage in 2024, higher wage concerns will impact more than just convenience.

There’s good news and bad news. The good news is that the quit rate for overall retail, not just convenience, declined 15.7% from 2022-2023. But here’s the bad: Almost 8 of 10 separations were voluntary. “This is definitely a reflection of culture in our offices and in our sites,” said Goyal.

“There are companies in our channel that have built a reputation as being great retailers and great employers. These companies keep their turnover rates well below 100%, even in this environment, which is an amazing feat considering the industry average for associates hasn’t been under 100% since 2015,” he said.

Recapping 2023, Goyal cited a bright spot that is worth focusing on in 2024 and beyond: investing in your workforce. Employees were more productive—inside gross profit increased by 7.8% while labor hours only increased by 4%.

“It’s clear that the additional investment to keep employees also pays out in productivity,” said Goyal.

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