March 2018

Feature

This Could Get Interesting

The NACS Consumer Fuels Survey identifies four weak signals to monitor, before they become big challenges.
Jeff Lenard

All the news appeared good as 2018 began. For the 39th straight month, gas prices stayed below $3.00 per gallon, gasoline demand remained at record levels for the third straight year and consumer optimism zoomed to a new high after a full year of highs in 2017.

Things were also looking good for convenience stores, which were one of the rare channels to grow unit counts at a time of overall brick-and-mortar contraction. Customer visits increased, and sales continued to grow inside the store for both traditional offerings and healthy options in 2017.

How do you feel about the economy?

(The previous monthly high for consumer optimism was 61%, reached four months in 2017.)

And the image of the industry as a whole also was on the upswing. Media stories about “Gastronomic Stations” (The New York Times, March 10, 2017) were far more common than stories about price gouging, even following a string of hurricanes that stressed the fuel production and distribution system in September and October of 2017.

Yet with all of the positive news, weak signals are emerging that could significantly impact the industry and could play a role if the current economic climate changes.

Here are four observations from the latest NACS Consumer Fuels Survey, as well as some ideas of what the industry can do to address these challenges now—before they become insurmountable.

“Gas Prices Used to Be High?”

Low gas prices over the past four years have significantly changed how people shop for fuel. Yes, they still shop on price, but much less so (down 13 percentage points) than even three years ago.

Factors most important when buying gas

*Not asked in previous studies

Unfortunately, you may not have to wake up grandpa to hear stories about when gas prices were $3 per gallon—nationally prices were over $2.60 and over $3.30 in California at the start of February, which is considered to be the start of the spring transition to summer-blend fuel. 

(Source: U.S. Energy Information Administration, Gasoline and Diesel Fuel Update, weekly U.S. regular, all formulations)

Over the past decade, gas prices have increased 45 cents per gallon during the spring transition to summer-blend fuel. 

A typical increase this year would push gas prices nationally over $3 per gallon. And that magic number could reawaken the dormant misperception that fuel retailers benefit when prices rise—or that they cause price increases.

Despite history, consumers don’t expect prices to increase during the spring transition nearly as much as they used to. Low gas prices over the past few years have led consumers to believe that gas prices will stay low—and that any price increases would be minor. Consumers today say that the price increase over the course of a year will be less than half of what they said three years ago (30 cents vs. 76 cents). 

Consumers Predict Year-End Gas Prices

Consumers simply expect prices to stay low. But if prices rise beyond expectations, the fuel retailing industry’s image—and sales—could be affected.

Fuel demand, which has remained strong over the past three years, could be influenced by higher prices. To a certain extent, strong fuel demand has been propped up by some drivers adding miles. 

Meanwhile, millennials, in particular, have a more fragile relationship with driving. Nationwide, one in three drivers (36%) said they changed the amount that they drive in 2017. And most of them said they drove less (66%) compared to more (34%). But nearly half (49%) of those age 18 to 34 said that they changed their driving habits, with 45% saying they drove more. 

This is the demographic long-touted as the one most likely to embrace the shared economy. If gas prices rise, will younger drivers seek out alternatives to owning and fueling a car such as mass transit, electric vehicles, on-demand transportation like Uber or Lyft, or other options? Millennials don’t have the same love affair that those a generation ago had with their cars. Besides on the Oldies station, when was the last time you heard a song about cars on the radio?

Fewer drivers mean fewer gallons and fewer in-store sales. That reality could be further exacerbated by perceptions if consumers don’t trust the retailer selling the fuel.

Less than one in three consumers (32%) believe that retailers make profits of about 5 cents per gallon, a sharp 11-point drop-off from the 43% who agreed with that statement just a year ago. Women are particularly skeptical: Only 24% said they feel margins are around a nickel per gallon.

Gas stations only make about 5 cents of profit per gallon sold

*Not asked in previous studies

If concerns are raised about gas prices and profits, c-store retailers in the best position to weather the storm are those with a solid reputation—because your brand matters…

“I Like You”

It could be argued that people don’t buy gas from you because of your price; they buy gas from you because they trust you.

Reputation is playing a bigger role in why people buy gas at certain stations. While most consumers still say they buy gas based on price, they really buy it at a certain location because they believe in that retailer: the reputation for a fair gas price and the quality of site, products and people. Drivers are almost twice as likely as just six years ago (57% vs. 31%) to seek out a fueling station based on brand.

Do you have a preference for a certain gas station or chain?

*Not asked in previous studies

Traditionally, brand meant type of fuel. And that is largely still the case: A reputation for a competitive price, the type of fuel and a proprietary loyalty card all are top connections with a c-store brand. But today, drivers say brand also references how you do business. Look no further than how consumers link your in-store items (14%) and employees (13%) with your brand.

Why do you prefer a gas station or chain?

(Multiple responses permitted)

Because drivers have a sense of where they want to go based on a previous experience—or relationship—with a store, they aren’t as interested as shopping by checking out gas price signs—even among those who care most about price.

How drivers shop based on price

(Among those who shop by price)

*2012 question was open-ended. Coded responses included” “I observe prices while driving” (41%) + “Price sign at store” (25%) = (66%); “I received a loyalty card or other discount there (5%); “Online gas price aggregator / website” (5%); “Reputation” (3%)” “Word-of-mouth” (3%)

Or maybe they aren’t shopping around for price because they value their time more…

“Ain’t Nobody Got Time for That”

Time is money—and that’s why so much money today is invested in “frictionless” customer experiences where customers can save time, whether the cashier-less experience at Amazon Go or apps where you can place and pay for your order online and quickly pick it up at the store, like at Starbucks.

The need for speed, as well as general consumer comfort with low gas prices, has decreased the likelihood that people will change their behavior, whether by changing payments or driving a bit further. Drivers won’t go as far out of their way to save a nickel, compared to four years ago. 

What would you do to save 5 cents per gallon?

There is a reason the morning and evening commutes are called “rush hours”; drivers don’t have much free time and those time pressures are changing patterns for how drivers fill up. Both morning and evening rush times continue to see declines, while more drivers sought out a less harried mid-day fill-up.

When do you most often purchase gas?

Of course, one reason for that increase in mid-day traffic is to get lunch or other drinks and snacks… 

“I’ll Drink to That!”

The findings of the latest NACS Consumer Fuels Survey show that when retailers focus on enhancing their in-store offer they are aligning perfectly with what consumers want. And drivers continue to seek out where to fuel up based on what they want or expect from the store—beyond prices. As a result, this effort to enhance the inside offer has dramatically increased the conversion rate of fuel-only customers.

Did you go inside the store the last time you purchased gas?


While convenience retailers have dramatically upgraded their food offer—more fresh and prepared food, more healthy options, more unique menu items—the convenience industry still leads with its beverage offer. A NACS Consumer Survey from 2016 found that 49% of customers said they came inside the store to buy a drink, compared to 35% who came inside for food and 17% who came for something else. (As with all percentages communicated here, rounding sometimes means that totals don’t add to exactly 100.)

Diving in deeper to the numbers from this year, drinks still dominate why consumers crave convenience stores.

What consumers did when they came inside the store where they filled up

(Multiple responses permitted, list only includes those that were 10% or higher)

But what about more broadly than the last time they went inside the store during a fill-up? Looking at all consumers, drinks dominated in terms of items they purchased over the past 30 days—beverages were 7 of the top 12 items purchased.

Which items did you purchase from a convenience store that sells gas over the past 30 days?

(Multiple responses permitted, list only includes those that were 7% or higher)

That’s not to say that food isn’t also critical—for people on the go, food and beverages go hand-in-hand. (And let’s not forget the 18% who also “go” on the go when they are at your store—as in go to the bathroom. Men are more likely than women to use the bathroom when fueling: 23% vs. 14%.)

But these two numbers below most confirm the move toward in-store excellence, whether diverse food and drink options or clean restrooms:

  • 62% of those surveyed never go inside the store and consider the gas price the most important factor (highest percentage measured)
  • 48% of those surveyed go inside the store and consider the gas price the most important factor (lowest percentage measured)

NACS has two tools to help retailers grow their food and beverage offers, and both are part of the benefits of our agreement with the Partnership for a Healthier America:

NACS is continuing to develop new programs to help retailers best control their own destiny, at least what they can control…

But What If…

There are certainly many interesting findings from the latest NACS Consumer Fuels Survey (and many more to come beyond this article) that can help you learn more about how you can best align with consumer trends and preferences to grow your business.

But what about issues that you can't always control, issues that take place outside your stores—whether related to security concerns or “disruption” in the market as convenience continues to be redefined.

Skimmers

Two out of every three drivers (66%) say that they have heard about skimmers, an amount that is in line with findings each of the past two years prior. Three in four drivers (74%) say they are concerned about having their credit or debit card information stolen by a skimmer. But what should concern every retailer, regardless of brand reputation, is how consumers define skimming: They see it as a “gas station problem.” More than half of all consumers (51%) say that they are most concerned about having their data stolen at a gas pump. 

There are regional variations, however. In the South, which has been hit especially hard by roving criminal groups, 51% say skimming is most affiliated with gas pumps, compared to only 37% who say so in the Northeast. Those least likely to link skimming to gas pumps? Customers who say that they go to convenience stores every day (31%).

Where consumers are most concerned about skimmers

Convenience Disruptions

And then there is the possibility that our very definition of convenience will once again be redefined. These days, every retailer sells many of the same drinks and snacks as convenience stores. Drug stores and dollar stores are obvious competition but what about office supply stores, hobby stress, auto parts stores and home improvement stores? They all look like a convenience store at the register. With so many retail locations selling the same SKUs, how will consumers come to define convenience and why should they choose you? 

And then there are those further out ideas; ideas that seemingly take hold overnight but have incubated for years. Several possibilities could affect how and if customers come to stores, and a majority of consumers are interested in what’s possible.

How interested would you be in the following?

Here’s some good news that will never change: Convenience stores invented convenience and have redefined it over the decades, with self-serve gas in the 1960s, self-serve beverages in the 1970s, a move to 24-hour operations in the 1980s, sandwich-ordering kiosks in the 1990s and a reinvention of store formats to fit customers traffic this decade. With convenience more important than ever, it stands to reason that the channel with convenience in its name will have a major say in how convenience continues to evolve. 

Results are from the annual NACS Consumer Fuels Survey, conducted January 22-25, 2018, by marketing and polling firm PSB (formerly known as Penn Schoen Berland). A total of 1,100 adult Americans who purchase fuel for a vehicle at least once a month responded to more than 100 questions related to fueling, convenience retailing and the products and services they provide. The margin for error for the survey is 2.95 at the 95% confidence level. In many cases, subcategory demographic information also is included or referenced to identify particular challenges or opportunities for retailers.
Jeff Lenard

Jeff Lenard is the NACS vice president of strategic industry initiatives. He can be reached at jlenard@convenience.org.