Stop the Leakage

Deliver on the core needs of cleanliness, safety and hospitality—and prevent your customers from switching their loyalty to the competition.

Stop the Leakage

January 2020   minute read

By: Frank Beard

Times have been good for fuel and convenience—but don’t get too comfortable. Although it’s true that 2018 delivered a 16th consecutive year of sales growth, according to NACS data, that success was led by a 7.5% increase in fuel margins—which may have contributed to a false sense of security.

The total gallons sold decreased by 0.4%. While in-store sales increased 2.2%, it’s worth pointing out that the c-store customer is shared among many channels—all of which are improving their offer in a battle for relevance. Add to this mix new market entrants, and suddenly the outlook is less clear.

It's a changing, competitive world. Let’s take a closer look and examine where retailers can win.

Behind Enemy Lines

You’d be lucky to find a small town that isn’t within proximity of a Dollar General. The retailer operates more than 15,000 locations across 44 states—reaching customers in areas that have been vastly underserved by Walmart.

The NACS State of the Industry Report of 2018 Data calls the dollar channel the “single greatest immediate threat to the convenience industry.” No other retail channel is opening more stores. Locations have grown 6% to 7% annually since 2012.

The failure of some retailers to keep up with consumer demands for cleanliness, safety and hospitality has put the entire industry in a vulnerable position.

While there have been complaints about the experience inside the stores, dollar stores are becoming more relevant. At Dollar Tree, the Snack Zone concept was added to an estimated 750 stores last year in an effort to move additional cold beverages, candy and snacks. Family Dollar—owned by the same company—is adding alcohol to more than 1,000 locations. (See “The Buck Stops Where?” in the October 2019 issue of NACS Magazine.)

Fortunately, many convenience retailers are moving beyond “gas, Cokes and smokes” and embracing a differentiated offer anchored in foodservice. While foodservice represented 16.02% of the industry’s in-store sales in 2009, its share had risen to 22.60% in 2018—the largest growth of any category. For retailers in the top quartile, it represented 28.29%, according to NACS data. Indeed, Wawa’s CEO stated at the 2019 National Restaurant Association Show that “yes, we’re a convenience store, but we think of ourselves as a restaurant to-go.”

At the same time, this identity shift has brought more retailers into direct competition with QSRs. Some are doubling down on value customers. January 8 and February 28, 2019, saw the launch of McDonald’s McPick “2 for $2” and “2 for $5” menus, respectively, and Burger King launched a coffee subscription last March that provides members with a daily cup for $5 per month.

QSRs also are rethinking one of their largest competitive advantages: the drive-thru. It makes sense. Drive-thrus account for about 70% of their business, but recent years have seen growing wait times.

Last year, McDonald’s acquired personalization start-up Dynamic Yield in a deal reported to be worth more than $300 million—enabling McDonald’s to modify the menu board based upon weather, time of day, local traffic, events and historical sales data, making the drive-thru similar to shopping on Amazon.

Others are using technology to different ends. Starbucks Rewards has been so successful that the program had more than 17.5 million members as of November 2019—up from 16 million at the beginning of 2019. The company recently announced the creation of a Starbucks Pickup location in New York City, modeled after its Starbucks Now cafés in Beijing and Shanghai. It’s a store devoted entirely to mobile ordering and pickup.

“Innovation equals change that unlocks value, and there’s nothing more valuable to shoppers at the moment than their time. Anyone fighting to get to the center of this universe is chasing a differentiated experience with as little friction as possible—this can’t be done without technology,” said Leroy Kelsey, director of research at NACS.

Clean Up Your Act

Fuel and convenience retailers are in a unique position. Unlike their cross-channel competitors, they have to control the customer experience both inside and outside the store. But let’s be honest: There’s a reason why the stereotype of a dirty gas station still exists. The store of the future requires a strong foundation, and that means getting cleanliness right.

There’s nothing more valuable to shoppers at the moment than their time.

“On one key item—the need for a clean, safe environment—the research shows that convenience stores performed more poorly than any other retail channel.” This reads as if it was written today, but it’s from a January 2013 report by NACS and the Coca-Cola Retailing Research Council. According to the aptly named “Playbook for Success,” the failure of some retailers to keep up with consumer demands for cleanliness, safety and hospitality has put the entire industry in a vulnerable position.

“Delivering on the three core needs,” reads the report, “is your minimum cost of entry to even be considered as a retail choice.” Retailers that do this are already seeing results. In first-quarter 2019, for example, GasBuddy found that stations with above-average outdoor lighting ratings drove 25.9% more visits than their below-average counterparts.

Start with Empathy

For naysayers, it’s worth pointing out that the convenience channel has never been more optional.

GoPuff, a virtual on-demand convenience store, actively uses the stereotype of the “dirty gas station” to convince customers to stay home and use its delivery service. Operating in more than 100 markets, the mobile app brings thousands of SKUs to consumers’ fingertips—even alcohol, where permitted. Delivery fees are $1.95 for orders under $49 and free beyond that. For $5.95 per month—about what it costs to deliver one restaurant meal—customers can avoid delivery fees altogether.

Even fuel can be delivered. Consumers who use Filld, for example, can easily have their vehicles refueled at home or work for a small delivery fee. This raises a question, put succinctly by The Outline in a July 2018 article: Will the rise of on-demand fuel mean the poor will inherit gas stations?

“Going to the gas station can be unpleasant,” writes Gavin Jenkins, author of the article, recalling his time working at a station in Pittsburgh. “I rang up customers of every race and class, but soon those who want to circumvent these community hubs will have the opportunity—if they can afford it, that is.”

To remain relevant, retailers must begin by empathizing with their customers. “Yesterday’s dirty, interchangeable store is ill-equipped for tomorrow,” said Mike Zahajko, vice president of sales at CAF Outdoor Cleaning. “To move forward, put yourself in your customers’ shoes and experience your store the way they do.”

Empathy is the first step in design thinking, a human-centered process used by many leading companies to integrate customer needs with business solutions. As Zahajko explained, it also helps retailers self-reflect and identify where they can improve. “Once you’ve empathized with your customers—maybe noticing that lights are out at the forecourt at night, or that your coffee island is cluttered and missing ingredients—define the problem in clear terms. Then, move onto ideation. What can you do? Brainstorm new ideas and determine what you can prototype. Build them into a solution, and test it. Give it some time before analyzing the results and beginning the process over again. Design thinking is a circular process of continual improvement, not a one-and-done start to finish.”

As Zahajko pointed out, a bit of introspection can yield surprising insights. He demonstrated the point with the Shell Deli Select branding initiative. Despite Shell’s strong fuel brand value, its food offering downplays Shell (major oil) and even removes the yellow “shell” logo on employee foodservice uniforms. Foodservice sales increase when the focus is on the food and not the fuel.

It’s also important to focus on known trust busters. Dirty fuel pumps are universally disliked by all, for example. “Even the best retailers slip up. Many chains focus all their energy on the inside experience and neglect the forecourt experience,” said Zahajko. “Get online and see what your customers are saying yesterday. Don’t just wait for that annual mystery shop. The problem is that whatever you ignore once will suddenly become the new normal. Even a single store falling below your standards can implicate your entire brand by association.”

Build a Platform for the Future

With the right foundation in place, the question is what next?

“You have to stand out,” said Kelsey. “Customer experience, foodservice and technology—we know it works. The question is what and how. One retailer’s solution may not necessarily be what works for you, but the point is that you take complete ownership of a product, a category—something—and make it yours. What are you famous for?”

Get online and see what your customers are saying yesterday. Don’t just wait for that annual mystery shop.

For Steve Bollich, owner of College Junction Mudbugs in Eunice, Louisiana, unique, Cajun foodservice was the way forward after new competition led to a decline in fuel sales. “When I first got into the convenience store business, I just wanted to do the easy things,” said Bollich, during a 2018 store visit and interview. “The staples are tobacco, alcohol and gas. I really didn’t want to do food. I didn’t want to do the more intensive part of the business.”

Miles away in Pennsylvania, Swiss Farms takes a different approach by making every store a drive-thru. Two separate lanes pass along both sides of the stores, and floor-to-ceiling windows provide customers with a view of products as they wait in line. It’s an efficient model, CEO Scott Simon told NACS Magazine in 2018 (see “Drivers Welcome” in the October 2018 issue). “The sales we generate per square foot are as good as it gets. One consultant surveyed our operation and said, ‘Don’t change a thing.’” For those who want a “click and collect” experience, Swiss Farms allows customers to order ahead and skip the drive-thru line.

Some of today’s retailers also extend the customer experience beyond the physical store. Sheetz’s social media accounts—especially Twitter—are full of personality, snark and humor. The social media team even plays popular e-sports games with customers and streams the encounters on Twitch. Recently, Sheetz sent dozens of its fans wooden gift boxes with containers of its popular Boom Boom Sauce and retweeted all of the photos these fans shared with their followers.

When a polar vortex sent Midwest temperatures far below zero in early 2019, Anthony Perrinne, owner of Lou Perinne’s Gas & Grocery, filmed a video sitting outside in gym clothes. “I’m here to tell you, we deliver,” said Perinne. “It’s way too cold to be doing what we’re doing.” He then directed customers to visit the company’s website and use a promo code for free delivery. On Facebook, the video was viewed more than 13,000 times, received 50 comments and was shared by 219 people.

“We should know our communities and what they need from us,” Perinne told NACS in November. “It is our job to help eliminate the stigma of gas stations as dirty, dangerous and scary.”

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