CSN - Jan 2017 by ensembleiq

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VIEWPOINT By Don Longo, Editorial Director

Crystal-Balling the New Year Foodservice, demographic shifts and technology will be among key drivers for c-stores in 2017

ith the New Year comes many predictions about what trends and developments will impact retailers in 2017. We get inundated with news releases from all sorts of research firms and consultants about how the coming year will be different from the one just past. The challenge, of course, is to sort through all the different predictions and make some educated guesses about the ones most likely to be relevant to convenience store retailers. Tom Cook, principal of the KingCasey store design and branding firm and a member of the Convenience Store News How To Crew of foodservice experts, joins many others in predicting that the c-store industry will begin to make inroads into For comments, please contact the business of quick-service Don Longo, Editorial Director, and fast-casual restaurants. at (201) 855-7606 or dlongo@ensembleiq.com. “Foodservice will be the primary area of focus for c-stores looking to build their brands and bottom lines,” says Cook. “Concentration will be placed on providing prepared foods, made-to-order sandwiches, fresh ingredients, healthy options, quality baked goods, and barista-style coffee, espresso and tea drinks.” An increased focus on foodservice is hardly a new trend. However, the percentage of companies in the c-store industry that excel at prepared foods and beverages is still relatively small.

Other King-Casey c-store predictions are: Demographic shifts: Significant improvements in foodservice offerings and store design and environment will change customer demographics. More women — with and without children — will visit, says Cook. I expect a battle royale among c-stores, drugstores, dollar stores and other new channel entrants for the convenience-oriented female shopper in 2017. Drive-thru growth: Although only Sheetz, Wawa, Parker’s and a handful of other c-store brands currently offer drive-thru service, Cook foresees dramatic growth as savvy brands realize that drive-thrus offer the best way to meet the customer demand for convenience, as well as a way to differentiate themselves and generate incremental foodservice sales. I’m a little less bullish on drive-thrus because I think drive-thru success depends heavily on location, and many current c-store sites won’t easily handle a drive-thru. However, I expect more c-store retailers will experiment with technologically enabled forms of convenience, such as advanced mobile ordering and curbside pickup, and other as-yet-to-be tried technology like the checkoutless store that’s being piloted by Amazon.com. There’s no denying we’re in for more change in 2017. Technology is giving consumers more power to set their own rules for engagement with retailers and brands. Retailers that focus on fulfilling their customers’ needs, while investing in enhancing their foodservice and technology expertise, will be the long-term winners.

CSNews has been recognized with more editorial awards, including the prestigious Jesse H. Neal Award for business journalism, in the past nine years than any other industry publication. 2013 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2012 2013 Jesse H. Neal National Business Journalism Award Finalist, Best Profile, August 2012 2008 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2007

2016 Trade Association Business Publications Intl. Tabbie Awards Silver, Front Cover Illustration, June 2015 2010 Trade Association Business Publications Intl. Tabbie Awards Honorable Mention, Front Cover Illustration, October 2009 2009 Trade Association Business Publications Intl. Tabbie Awards Gold, Front Cover Illustration, February 2008 Honorable Mention, Best Single Issue, October 2008

2016 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2015 2016 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single/Series of Articles, August 2015 2015 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2014 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2013 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2013 2013 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2012 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2010 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Best Single Article, October 2010 2009 Gold Ozzie Award, Folio: magazine Best Use of Illustration, October 2008 2009 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2008 2009 Bronze Eddie Award, Folio: magazine Business to Business, Retail, Website

4 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

2016 American Society of Business Press Editors, National Azbee Awards Gold, Best How-To Article, March 2015 Bronze, Best Original Research, June 2015 2016 American Society of Business Press Editors, Midwest Regional Azbee Awards Gold, Best How-To Article, March 2015 Silver, Best Original Research, June 2015 2015 American Society of Business Press Editors, Midwest Regional Azbee Awards Gold, Best Special Supplement, November 2014 Silver, Best Profile (long form), February 2014 2015 American Society of Business Press Editors, Midwest Regional Azbee Awards Best Profile (long form), February 2014 2013 American Society of Business Press Editors, Midwest Regional Azbee Awards Bronze, Best Editorial/Commentary, July 2012 2010 American Society of Business Press Editors, Northeast Regional Azbee Awards Silver, Feature Article Design, November 2010

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CONTENTS JANUARY 2017

VOLUME 53/NUMBER 1

36 | COVER STORY Forecast 2017

LEGISLATIVE & REGULATORY FORECAST

It is still a very good time to be a convenience store retailer thanks to low gas prices, high consumer confidence, and a stable economy — for now.

60 | Issue of Importance These legislative and regulatory matters will be most impactful to c-stores in 2017. TRENDS FORECAST

RETAILER FORECAST

64 | 2017 Trends Forecast Researchers and consultants offer up a variety of predictions.

38 | Full Steam Ahead C-store retailers see foodservice, loyalty program efforts as drivers for 2017. BUSINESS FORECAST

42 | Healthy Economy, Healthy Consumer The U.S. is operating near full employment and consumer confidence is high. SUPPLIER FORECAST

56 | Supplying a Positive Outlook Wholesalers and suppliers forecast a good year ahead for the convenience channel.

INDUSTRY ROUNDUP

CATEGORY MANAGEMENT & FEATURES

14 | Couche-Tard Gets Cooking on Key Initiatives

TOBACCO

16 | Convenience Store News Hones Total Industry Focus for 2017

66 | The Watch List What to expect as cigarettes, cigars, smokeless and vapor roll into the year. OPERATIONS

18 | Eye on Growth

72 | Are You Doing Enough to Secure Your Stores? Theft and robbery continue to rise, but new technology and planning can deter.

20 | People on the Move

TECHNOLOGY

22 | Supplier Tidbits 22 | Retailer Tidbits

80 | Serving Up Retail Tech CSNews & sister company EKN host inaugural C-store Technology Leadership Dinner.

Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by EnsembleIQ, 570 Lake Cook Rd. Deerfield, IL 60015. Copyright © 2017 by EnsembleIQ. All rights reserved. Subscriptions: One year, $93; two years, $152. One year, Canada, $110; two years, Canada, $175. One year, foreign, $150. Payable in advance with a bank draft drawn on a U.S. bank in U.S. funds. Single copies, $10, except foreign, where postage will be added. Printed in U.S.A. Periodicals postage paid at Deerfield, IL, and at additional mailing offices. POSTMASTER: Send address changes to Convenience Store News, P.O. Box 1842, Lowell, MA 01853.

6 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

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CONTENTS 570 Lake Cook Road, Ste. 310, Deerfield, IL. 60015 (224) 632-8200 Fax: (224) 632-8266 www.csnews.com Direct Mailing Address for Convenience Store News: 111 Town Square Place, Suite 400, Jersey City, N.J. 07310

BRAND MANAGEMENT Group Brand Director (330) 840-9557

Ron Lowy rlowy@ensembleiq.com

EDITORIAL

28 84 DEPARTMENTS VIEWPOINT

4 | Crystal-Balling the New Year Foodservice, demographic shifts and technology will be among key drivers for c-stores in 2017. 12 | CSNews Online

Editorial Director (201) 855-7606 Editor-in-Chief (201) 855-7608 Senior Editor (201) 855-7618 Associate Editor (201) 855-7619 Associate Managing Editor (201) 855-7604 Assistant Editor (201) 855-7614 Contributing Editor (303) 741-3377 Contributing Editor (201) 280-2614 Art Director (224) 632-8245

Don Longo dlongo@ensembleiq.com Linda Lisanti llisanti@ensembleiq.com Melissa Kress mkress@ensembleiq.com Angela Hanson ahanson@ensembleiq.com Danielle Romano dromano@ensembleiq.com Chelsea Regan cregan@ensembleiq.com Renée M. Covino reneek@aol.com Tammy Mastroberte tmastroberte@gmail.com Michael Escobedo mescobedo@ensembleiq.com

EVENTS • MARKETING • DIGITAL • RESEARCH • CIRCULATION

32 | Strategic Pricing Considerations for Your Store A change of a few cents can profoundly impact both sales and profit.

Vice President/Custom Media Division Pierce Hollingsworth (224) 632-8229 phollingsworth@ensembleiq.com Strategic Marketing Director Bruce Hendrickson (224) 632-8214 bhendrickson@ensembleiq.com Director of Production Kathryn Homenick (973) 358-4875 khomenick@ensembleiq.com Director of Events Pat Benkar (973) 607-1330 pbenkar@edgellmail.com Director of Market Research Debra Chanil (201) 855-7605 dchanil@ensembleiq.com Audience Development Manager Shelly Patton (646) 217-1045 spatton@ensembleiq.com List Rental The Information Refinery (800) 529-9020 Brian Clotworthy Reprints and Licensing Wright’s Media (877) 652-5295 sales@wrightsmedia.com Subscriber Services/Single-Copy Purchases (978) 671-0449 Stagnito@e-circ.net

STORE SPOTLIGHT

CORPORATE OFFICERS

24 | New Products SMALL OPERATOR

28 | Good Things, Small(er) Packages Small operators are feeling optimistic about 2017, but wary of the election’s effect. SMALL OPERATOR

84 | Mission: Convenience Downtown L.A.’s new Mission Market puts emphasis on the customer experience. EXPERT’S VIEW

Executive Chairman President & CEO Chief Financial Officer Chief Customer Officer

Alan Glass aglass@ensembleiq.com Peter Hoyt phoyt@p2pi.org Chris Stark cstark@ensembleiq.com Ned Bardic nbardic@ensembleiq.com Korry Stagnito korrystagnito@ensembleiq.com Joel Hughes jhughes@ensembleiq.com

88 | Green Lights & Stop Signs Don’t let common career barriers hold you back.

Chief Business Development Officer

EXPERT’S VIEW

CONVENIENCE STORE NEWS AFFILIATIONS

Chief Digital Officer

94 | How to Compete at the Drive-Thru Operators must go beyond speed of transaction and order accuracy.

Premier Trade Press Exhibitor EDITORIAL ADVISORY BOARD

GETTING TO THE CORE

114 | New Year, New Resolutions C-store shoppers resolve to make changes to their diet and lifestyle in 2017.

8 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

Brett Atherton Bolla Management Rick Crawford Green Valley Grocery Edward Davidson ER Davidson & Associates (7-Eleven Inc., retired) Ray Johnson Speedee Mart

Jack Lewis GPM Midwest

Jonathan Polonsky Plaid Pantries Inc.

Danielle Mattiussi Maverik Inc.

Greg Scriver Kwik Trip Inc.

Kyle McKeen Alon Brands Inc.

Roy Strasburger Convenience Management Services Inc.

Richard Mione GPM Southeast

Jon Urbanik CST Brands Inc.

The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations.

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TOP 5 Daily News Headlines The most viewed articles online. 1 | Investor Calls for Marathon Petroleum to Spin Off Speedway Marathon Petroleum Corp. (MPC) is defending itself against a call by a shareholder group to spin off its retail network, Speedway LLC. In a letter to MPC’s board of directors, Elliot Management Corp. said MPC is “severely undervalued and that there are readily available steps by which the board can unlock $14 billion–$19 billion in value for shareholders.” 2 | Retailers Get Some ‘Breathing Room’ on EMV Visa Inc., MasterCard Inc. and American Express have pushed back the deadline for installing EMV chip-card readers at gas pumps in the United States, following discussions with retailers who stated they did not have enough time to complete the multibillion-dollar upgrades. Merchants now have until Oct. 1, 2020 to adopt the technology. 3 | Casey’s Pursuing Growth on Three Fronts Casey’s General Stores Inc. is up at bat and swinging for the bleachers on three major growth initiatives: store count growth, 24-hour formats, and pizza delivery. In its second quarter of fiscal year 2017, Casey’s opened 11 new store constructions, completed nine replacement stores, acquired three stores, and completed 15 major remodels. 4 | Amazon’s First C-store Begins Testing in Seattle The 1,800-square-foot store, known as “Amazon Go,” uses technology to allow customers to walk in, pick out items, and walk out without hitting the checkout area. The store features ready-to-eat meals and snacks prepared by on-site chefs or local bakeries, in addition to pantry essentials such as bread and milk. 5 | QuikTrip Stores to House Amazon Lockers QuikTrip Corp. is the latest convenience store chain to add Amazon Lockers to its offering. The company plans to install the lockers at locations in Missouri and Kansas, and has already installed them in markets such as Charlotte, N.C.

The Key Challenges to C-store Merchandising Excellence

Today’s convenience stores present challenging environments in which to achieve merchandising excellence in the consumer packaged goods retail world. Those that succeed, though, will reap significant sales and share gains as the 154,195 convenience stores in the U.S. market account for more than 34 percent of all retail outlets tracked by Nielsen. In a three-part series, Justin Behar of Quri, a provider of retail performance intelligence, breaks down the key challenges to merchandising excellence in the convenience channel and provides practical advice on how to overcome them and win at the shelf, every day, in every store. For more exclusive stories, visit the Special Features section of www.csnews.com.

PRODUCT HIGHLIGHT The most viewed New Product online.

Smirnoff Spiked Sparkling Seltzer

Diageo’s Smirnoff brand introduces Smirnoff Spiked Sparkling Seltzer to the malt beverages category. The product has a 4.5 percent alcohol by volume content and comes in three fruit flavors: Orange Mango, Cranberry Lime, and Watermelon. Each variety has 90 calories per can and just 1 gram of carbohydrates. The beverages do not contain any sugar or artificial sweeteners. Smirnoff Spiked Sparkling Seltzer is available in six-packs of 12-ounce cans for a suggested retail price of $8.99 per pack. The Smirnoff Co. Norwalk, Conn. (866) 547-1544 www.smirnoff.com

ANALYSIS: Why Amazon Won’t Succeed at Brick & Mortar Amazon is famous for its personalization engine: You book something online, and you immediately get personalized offers based on your purchase history. The company knows what is relevant to you, what related products you may want to buy, and the likelihood that you’d purchase the product on offer, based on what you’ve bought before. But that’s not all there is to the story. When Amazon translates its virtual stores into physical ones, it will suddenly face the importance of location, location, location. It will face the realiza12 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

tion that customers are not always engaged; that they see supermarket shopping as a chore, not a leisure activity; that they need high levels of service, right now. The list of issues Amazon is going to face is long, says Chez Katz of Sagarmatha, a marketing solutions company.

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INDUSTRYROUNDUP FAST FACT

Couche-Tard Gets Cooking on Key Initiatives This year, 88.6 percent of convenience store retailers expect their average sales per store to increase year over year. Last year, this figure stood at 82.1 percent of retailers. Source: Convenience Store News 2017 Forecast Study (page 36)

QUOTABLES

“Many of our competitors seem to neglect the in-store experience, content with having great locations. Instead, Mission Market aims to be a ‘one block more kind of store,’ where urban consumers will gladly walk past competitors, including drug and grocery stores, to shop here.” — Roland Foss, Progressive Convenience (page 84)

Food program expansion leads the way for the chain in its fiscal second quarter By Melissa Kress

n addition to building up its physical footprint and rolling out the new global Circle K brand, Alimentation Couche-Tard Inc. is gaining traction around its new foodservice initiatives. The Canada-based convenience store retailer has rolled out its Simply Great Coffee program to more than 400 locations in its North America network. In all, Couche-Tard plans to introduce the dispensed offering to 750 North America stores this year. “The Simply Great Coffee concept recently won the Convenience Store News Innovator of the Year Award for 2016, which adds to our confidence that we’re doing the right thing for this category,” said CEO Brian Hannasch. “…[We’re] seeing this potential come to life.” (Circle K was honored as Best Hot Beverages Innovator in the 2016 CSNews Foodservice Innovators Awards program, sponsored by Tyson Convenience.) Citing locations in Quebec, Hannasch reported that the program’s results have been stronger in some areas than others. “We may be a little early, but we certainly think [this is] where the younger consumer is headed as evidenced by the success of McDonald’s and Starbucks with their offers,” he said, emphasizing that Couche-Tard is committed to the rollout. “We plan to be aggressive in the context of our balance sheet in the coming year on coffee.” And this isn’t the only foodservice initiative the retailer has cooking. Couche-Tard’s logistics solution of supplying fresh offerings

14 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

like fresh sandwiches, pastries, salads and fruit cups to its Circle K stores continues to expand. The solution had reached 1,285 locations as of the second quarter of its 2017 fiscal year. Plans call for it to reach an additional 200 stores before the end of the 2017 fiscal year, according to Hannasch. Couche-Tard has also launched an initiative to add fresh bakery items to a greater percentage of its retail network, and the chief executive explained that its freshprepared food program — which he referred to as “foodvenience” — is operational at approximately 10 sites. The company is “excited” about its pending acquisition of Corner Store parent CST Brands Inc. and what it will mean for the “foodvenience” offering once the integration begins. “They’ve been on the same journey with regard to foodvenience or made-to-go type offer. And I think they’ve got an offer that fits very well for the southern half of the U.S.,” Hannasch said, explaining Couche-Tard is anxious to get the experts together from both retail chains “in the coming years, as I’m confident that it can accelerate our journey.”

ÂŠ2017 Goya Foods, Inc.

* Source: Nielsen Strategic Planner (Grocery Outlets), Total U.S. (unit and dollar sales), 52 weeks ending 12/17/16

INDUSTRYROUNDUP

Convenience Store News Hones Total Industry Focus for 2017 Continues to evolve to better serve the whole convenience channel

tarting this month, Convenience Store News has added to its circulation more than 20,000 additional readers, consisting mostly of smaller operators who formerly read our Convenience Store News for the Single Store Owner spinoff. After serving the unique information needs of owners of single convenience stores for the past 11 years, Convenience Store News for the Single Store Owner has ceased publication as a standalone, freestanding magazine. The December 2016 issue was the last installment. “We’re incredibly proud that for more than a decade, Single Store Owner magazine provided the convenience store industry’s single-store owners with access to industry trends, best practices, research, and information on distributors and new products. It’s time to not only continue providing unique small retailerfocused content, but also provide these operators with a broader perspective on the overall c-store industry, allowing them to take advantage of insights and practices followed by the bigger chains,” said Convenience Store News Editorial Director Don Longo.

“It’s time to not only continue providing unique small retailer-focused content, but also provide these operators with a broader perspective on the overall c-store industry, allowing them to take advantage of insights and practices followed by the bigger chains.” — Convenience Store News Editorial Director Don Longo

Published monthly, Convenience Store News magazine now provides expert coverage and analysis for ALL convenience industry participants — global convenience retail chains, major petroleum brands, franchisers, franchisees, wholesalers and distributors, medium- and small-sized chains, and independent single stores. For more than 40 years, Convenience Store News magazine has been the No. 1 source of news,

16 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

competitive intelligence and professional networking for the key decision-makers in the convenience and fuel retailing industry. Because we still recognize that the issues facing small operators and single-store owners are unique, we will devote dedicated content in every issue of Convenience Store News to targeted information that helps these small operators be more successful (see page 28). In addition to providing the industry with the most comprehensive content through our print magazine and robust, mobile-friendly website (www. csnews.com), Convenience Store News is also launching several new digital newsletters with content targeted toward specific critical areas of the business, including a new weekly newsletter aimed at small operators. In addition, all of our existing newsletters are being refreshed with a new, smartphone-friendly design and increased frequency. The convenience store industry is currently undergoing one of the strongest periods of profitable growth in its history. Convenience Store News will continue to track that growth and provide the news, analysis and insights to help all participants in this robust industry be more successful.

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INDUSTRYROUNDUP

eye on growth n Casey’s General Stores Inc. acquired five Guppy’s convenience

stores located in and around Cedar Rapids, Iowa. The stores were formerly owned by Fauser Energy Resources of Elgin, Ill. n 7-Eleven Inc. opened four new stores in Palm Beach

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County, Fla., in the closing weeks of 2016. The retailer plans to open five additional new stores in the county, and a total of 20 stores in Southeast Florida, in 2017. n Global Partners LP opened two new

Alltown Market locations featuring its Centre St. Kitchen concept. The stores are in Peterborough, N.H., and Middlebury, Conn. The Middlebury store marks the first Centre St. Kitchen in Connecticut. n Love’s Travel Stops & Country Stores added 47 new

stores to its 40-state footprint in 2016. The portfolio expansion was the largest in a single year in Love’s history. The retailer now operates more than 400 locations. n Fuel City cut the ribbon on its third location, opening in

Haltom City, Texas. Fuel City’s other locations are in downtown Dallas and Mesquite, Texas. n Parkland Fuel Corp. acquired two truck stops and one convenience store

in Wyoming from 7-Eleven. Two of the sites are in Cheyenne and one is in Laramie. n PetroServe USA bought Valley Dairy’s nine conve-

nience stores in North Dakota and Minnesota, marking Valley Dairy’s exit from the channel. The stores are expected to continue operating under the Valley Dairy name. n The Parker Cos., operator of Parker’s c-stores,

entered the vacation rentals business. The company converted its former corporate headquarters into luxury lofts, which are now available as short- and long-term vacation rentals. n Sheetz Inc. recently expanded its presence in

central Pennsylvania. In December, it opened new stores in Manheim, HummelstownDerry Township, and York.

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INDUSTRYROUNDUP

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When he takes office at the end of the month, President-elect Donald Trump will nominate former Exxon Mobil Corp. CEO Rex Tillerson to be Secretary of State, calling him one of the most accomplished “international dealmakers in the world.” Trump pointed to Tillerson’s ties to Russian President Vladimir Putin and his experience dealing with foreign governments as points in his favor. “Rex Tillerson’s career is the embodiment of the American dream,” Trump said in a released statement. “Through hard work, dedication and smart dealmaking, Rex rose through the ranks to become CEO of Exxon Mobil, one of the world’s largest and most respected companies.” Tillerson stated in an accompanying release that he is honored by the selection and shares Trump’s “vision for restoring the credibility of the United States’ foreign relations and advancing our country’s national security.” Tillerson’s connections to Putin and the CIA’s recent assessment that Russia interfered with the presidential election are likely to come under scrutiny during the confirmation process, according to senators such as Florida’s Marco Rubio and South Carolina’s Lindsey Graham. Tillerson, who also served as chairman of Exxon Mobil, retired from the company at the end of 2016. Darren W. Woods, who served as president of Exxon Mobil, took the reins as chairman and CEO effective Jan. 1.

Little Debbie products are the sales leader*. In fact, 4.7 million Little Debbie products are sold every day – that’s 55 every second for more cash-register-ringing action. Plus, when your customers stop by for a beverage, they’ll appreciate that you have Little Debbie snacks to go along with their drink. To learn more, call (800) 315-6208 or visit LittleDebbieCStore.com. Little Debbie products are sold DSD by wholesale distributors. *Nielsen ScanTrack, Convenience Stores channel of trade, 52 weeks ending July 30, 2016.

INDUSTRYROUNDUP

retailer tidbits n Global Partners LP is selling 13 proper-

ties in the Northeast and Mid-Atlantic regions. Of the locations, seven are former convenience stores and six are vacant retail sites. n CrossAmerica Partners LP inked an

agreement with an institutional real estate investor for the sale and leaseback of 20 properties acquired as part of its State Oil acquisition. The deal will result in net proceeds of approximately $29 million.

n As of Dec. 1, Thorntons Inc.

started offering Square Donuts at its Indianapolis-area stores. The doughnuts are made fresh and delivered to the stores daily. n Mirabito Holdings Inc. extend-

ed its partnership with distributor McLane Co. Inc. to include the 29 Xtra Mart locations it recently acquired. McLane began servicing the Xtra Mart locations in central New York and northeast Pennsylvania on Jan. 1.

n Wawa Inc. selected Gilbarco Veeder-

Root as its exclusive dispenser and payment-terminal provider for forecourt EMV acceptance. Installation will begin with Wawa’s Florida network of more than 100 convenience stores.

n United Pacific chose Cardtronics as the exclu-

sive ATM provider for its more than 300 gas station and convenience store locations. Cardtronics also has expansion rights to provide ATM services to United Pacific in potential future locations.

supplier tidbits n Philip Morris International submitted a Modified

Risk Tobacco Product (MRTP) application for iQOS with the Food and Drug Administration’s Center for Tobacco Products. It anticipates the agency will take a minimum of 60 days to complete an administrative review of the application. n Dr Pepper Snapple Group Inc. is acquir-

ing Bai Brands LLC for a cash purchase price of $1.7 billion. Bai is expected to generate approximately $425 million in net sales in 2017. n The Food and Drug Administration

issued warning letters to Swisher International Inc., Cheyenne International LLC, Prime Time International Co., and Southern Cross Tobacco Co. Inc. for selling flavored cigarettes that are labeled little cigars or cigars. The products are under the Swisher Sweets, Cheyenne, Prime Time, and CrissCross brands.

22 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

n The Hot Stuff Pizza brand

from Orion Food Systems LLC marked the 30th anniversary of its first licensed location, which opened in Webster, S.D., on Dec. 17, 1986. Today, Hot Stuff Pizza has 1,000-plus licensed locations in rural and metro areas, serving pizza and other food items across all dayparts. n Altria Group Inc.’s U.S. Smokeless Tobacco Co. took a

list price increase of 7 cents per can on its core SKUs. At the same time, it decreased the list price on Skoal Tobacco Blends by 77 cents per can. Altria also took list price increases on the more “value” end of its smokeless platform. n Hunt Brothers Pizza is celebrating

its 25th anniversary by rewarding 25 of its small-business retail partners with a pizza-program upgrade. Once completed, the company’s investment will total $375,000.

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NEWPRODUCTS Krave Bar

Lucid Series Backless Bench

Krave Pure Foods’ Krave Bar is the first departure for the brand outside of its flagship line of jerky products. Made with simple ingredients that do not contain nitrites or artificial ingredients, the Krave Bar features pork, beef or turkey combined with quinoa and dried fruit for a sweet and savory flavor profile. Varieties include Chipotle Cherry Beef, Cranberry Thyme Turkey, Mango Jalapeno Pork, and Wild Blueberry Beef. Each bar has a suggested retail price of $2.39. Krave Bar signifies the brand’s attention to the rising favorability of meat sticks, the maker stated.

The Lucid Series Backless Bench from Paris Site Furnishings gives convenience store operators promotional, branding and messaging opportunities, according to the company. The 5-foot steel, powder-coated bench includes a large area to accommodate a logo or messaging along the bench seat. Logos applied onto Lucid benches are laser-cut to prevent chipping, peeling, fading or discoloration. One-piece, ready-to-install Lucid benches are available in standard colors — including red, blue, white, gray, green, yellow and beige — as well as customizable colors.

Krave Pure Foods Inc. Sonoma, Calif. (877) 891-1481 kravejerky.com

Warheads Extreme Sour Smashups Warheads Extreme Sour Smashups Hard Candy takes the original Warheads candy and “smashes” two flavors into every piece. Flavor combinations include lemon berry, strawberry grape, orange pineapple, mango melon, and cherry lime. Warheads Extreme Sour Smashups Hard Candy comes in 2-ounce and 3.25-ounce peg bags with a suggested retail price of $1.49 to $1.99, respectively, varying by market. Each peg bag contains all five flavor combinations. The bags are packed 12 to a case. This is the first time the Warheads brand has introduced a new flavor variety, maker Impact Confections stated. Impact Confections Inc. Littleton, Colo. (303) 626-2222 impactconfections.com

Paris Equipment Manufacturing Ltd. Ontario, Canada (519) 458-4882 peml.com

Milka Oreo Choco-Mix Snack Mix Bag The Milka Oreo Choco-Mix Snack Mix Bag is the final installment in the Milka Oreo Chocolate Candy Bars line. The snack mix features mini Oreo chocolate sandwich cookies, mini Golden Oreo sandwich cookies, Milka chocolate candy buttons, and candy-coated chocolate pieces. The product rolls out nationwide this month, and comes packaged in a 6.1-ounce bag for a suggested retail price of $3.69. The Milka Oreo Chocolate Candy Bars line also includes the Milka Oreo Big Crunch Chocolate Candy Bar and the Milka Oreo Chocolate Candy Bar. Mondelez International Inc. East Hanover, N.J. (855) 535-5648 mondelezinternational.com

OneLid Lid Dispensers OneLid is a simple and low-cost drink lid dispenser that features an enclosed, sanitary environment for lids, while offering one lid at a time to customers. OneLid dispensers come in all standard size lids and are available in two different on-counter models. The units are manufactured using durable and fingerprint-resistant styrene plastic. The patented design delivers a fashionable, high-tech look, according to the company. OneLid dispensers can be customized by adding multiples of one size, or adding a vertical condiment/straw organizer or straw box to the dispenser stand. OneLid saves money by reducing lid waste and minimizing employee time used to pick up unused lid trash, the company noted. The dispensers are available exclusively through OneLid and select distributors. OneLid LLC Miami Beach, Fla. (608) 838-8781 1onelid.com 24 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

NEWPRODUCTS Oscar Mayer Pumpkin Pancake Sausage

Mistic 2.0 Cosmic Fog Pods

The Oscar Mayer Pumpkin Pancake Sausage is the newest roller grill innovation from the Oscar Mayer brand. Capitalizing on the seasonal flavor craze, Pumpkin Pancake Sausage features a classic Oscar Mayer sausage wrapped in a flavorful, pumpkin spice pancake. Applicable for both breakfast and lunch menus, the product satisfies consumer demand for a convenient, on-the-go protein, according to the company, and is cost-effective for foodservice operators since there’s no need for buns or condiments.

Cosmic Fog Pods are now available for Mistic E-Cigs’ Mistic 2.0 Pod-Mod. Through a strategic partnership with Cosmic Fog Vapors, the most popular flavors are being made available in 10-milliliter child-resistant, tamper-proof pre-filled pods and 30-milliliter glass bottles exclusively designed for use with the Mistic 2.0 Pod-Mod. The Cosmic Fog pre-filled pods come in a 4-milligram nicotine strength. The available varieties are: Krypto Melon, Milk & Honey, Neon Cream, Sonrise, and Sugarfruit. The 30-milliliter bottles are offered in a 3-milligram nicotine strength. The five varieties are: Krew Berry, Krypto Melon, Milk & Honey, Neon Cream, and Sonrise. These exclusive Cosmic Fog products, packaged in specially co-branded boxes, will be in more than 20,000 stores in 2017, according to the companies. Mistic E-Cigs Charlotte, N.C. (855) 282-3700 misticecigs.com

The Kraft Heinz Co. Pittsburgh, Pa. (412) 456-5700 kraftheinzcompany.com

Modernwash Custom Structures Modernwash, a fabrication/design studio and shop, uses built-in marketing tools to create custom car wash and specialty retail structures for car wash operators. Modernwash utilizes aesthetically pleasing elements, proportions, shapes and colors to resonate with target audiences. Structures are designed to become part of an operator’s overall marketing strategy. Starting with an i-5 bolt-together steel frame system, the company combines that with innovative roof designs and in-housebuilt cladding/exterior systems for a complete package. According to the company, advantages of this type of construction include: tax advantages, speed of construction, code compliance, and fast fabrication. Modernwash Inc. Bowling Green, Ky. (800) 511-7208 info@modernwash.net modernwash.net

Chex Mix Spicy Varieties Chex Mix introduces two new varieties — Jalapeno Cheddar and Hot & Spicy — that were developed to capitalize on the “spicy adventure” trend. “Spicy adventure” is the third-largest and fastest-growing category in convenience store salty snacks, according to Chex Mix maker General Mills Convenience. Amping up the heat, Chex Mix Jalapeno Cheddar delivers a hotter, cheesier flavor, while Chex Mix Hot & Spicy is “really freaking hot,” the company said. Both varieties come in 3.75-ounce packaging for a suggested retail price of $1.69. General Mills Convenience & Foodservice Minneapolis, Minn. (800) 243-5687 generalmillscf.com

McLane Direct Store Delivery App McLane Co.’s Direct Store Delivery (DSD) tool is now available for Android mobile devices. DSD works in conjunction with the company’s Premium Order Management Suite applications and Grocery Mobile platform, and enables users to manage their entire supply chain in real time from any Android mobile device. Features include: DSD credits that allow customers to scan and validate purchased products against the retailer’s approved pricebook; and DSD label printing to instantly print shelf labels for non-McLane items in response to price changes without going through a back-office system, or waiting on vendors to supply labels. With DSD images, users have access to a library of more than 10,000 product images and they can scan and view a picture of what’s in the box upon delivery without opening it. Users can also see exactly where a pictured item belongs on the shelf by referencing the store’s planogram directly from the DSD app. McLane Co. Inc. Temple, Texas (254) 771-7500 mclaneco.com

26 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

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SMALLOPERATOR

Good Things, Small(er) Packages Small operators are feeling optimistic about 2017, but wary of the election’s effect By Melissa Kress

hether you are a convenience store retailer with one location, 10 locations or hundreds of locations, many of the issues you face are the same. However, how you view the impact of these issues on your business differs. For instance, small operators (those operating one to 10 stores) are starting off 2017 slightly less optimistic than their larger counterparts. To take the pulse of the convenience store industry heading into 2017, Convenience Store News recently surveyed retailers across the convenience-channel spectrum on what they foresee for sales and profits in 2017. An overwhelming majority forecast an increase in sales this year; however, small operators are a little less confident. According to the survey, 73.3 percent of small operators expect to see an increase vs. 88.6 percent of total respondents. Conversely, roughly one-quarter of small operators (26.7 percent) believe their sales will stay the same, vs. 11.4 percent of total retailers. No respondents, regardless of store count, predict their sales will decrease, reflecting the strength of the convenience store business. Looking at the issues that will have the biggest impact on sales and profitability for their c-stores in 2017, small operators rank motor fuel prices (74.6 percent), labor issues (61.5 percent), healthy eating trends (46.2 percent), health care costs/regulations (38.5 percent), and tobacco and electronic cigarette regulations (30.8 percent) as their top five. With all the changes in tobacco regulations that came last year — notably, implementation of the deeming

28 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

Do you expect your 2017 average sales per store to: Increase

Decrease

Stay the same

Net change: 4.9%

26.7% 73.3% NOTE: Results are based on small operator respondents, one to 10 stores Source: Convenience Store News Market Research, 2017

rule extending the Food and Drug Administration’s regulatory authority to other tobacco products including e-cigarettes and cigars — it’s no surprise that these changes are weighing on retailers’ minds. State excise tax increases are also top-of-mind for small operators, particularly voter approval of California’s ballot measure to hike its state excise tax on cigarettes by $2 a pack. This is just one of several tobacco cost increases on the horizon. “The $2-per-pack tax rate on tobacco will reduce sales. The $1-per-hour minimum wage raise will increase labor costs. Fuel prices will impact everything if they increase,” commented one respondent to the CSNews survey. TAKING THE INITIATIVE

To drive their sales and profits up in 2017, convenience store retailers across the board seem to think alike. Small operators, like their larger brethren, are looking to increase business by offering more customer perks. For example, some respondents pointed to loyalty programs and other customer appreciation incentives as efforts on tap for 2017. Others are exploring ways to increase their store selection, and considering offering a proprietary gas card.

SMALLOPERATOR Which will have the biggest impact on sales and profitability for your convenience store(s) in 2017? Motor fuel prices Labor issues Healthy eating trends Health care costs/regulations Tobacco and e-cigarette regulations Competition Emerging technologies Demographic changes Mobile commerce/marketing

74.6% 61.5% 46.2% 38.5% 30.8% 15.4% 15.4% 6.2% 4.1%

Multiple responses accepted NOTE: Results are based on small operator respondents, one to 10 stores Source: Convenience Store News Market Research, 2017

How will your store count change in 2017? We plan to increase our store count

We plan to decrease our store count

Our store count will remain the same

27.3% 63.6%

9.1%

But not all initiatives may be doable. “We would like to add liquor, but are getting stifled by the city,” one retailer responded. As for footprint growth, 27.3 percent of small operators expect to increase their store count in the coming months, while 63.6 percent expect their footprint to remain the same. Only 9.1 percent of small operators expect to decrease their store count this year. These figures lag behind the total industry, where 50 percent expect a store-count increase, 43.3 percent anticipate it will remain the same, and 6.7 percent expect to decrease their portfolio size. CONFIDENCE BOOST

Small operators see several reasons to be optimistic about the convenience store business in 2017. According to the survey, they are feeling good about their staffs, their offerings, and the current and future state of the U.S. economy. “Freeway travel is increasing because of steady fuel prices. Locals are using our auto repair services more because of a slightly better economy,” one survey participant explained, adding: “Definitely see a change in higher sales of healthier snack options.” Plus, c-stores can be a destination point in more ways than one. As one small operator put it: “Confident in my crew, positive attitude, and this town needs a better place to visit.” That being said, there are some concerns. Chief among them are labor costs, gas prices rising, and uncertainty surrounding the change in the Oval Office. CHANGE OF POWER

NOTE: Results are based on small operator respondents, one to 10 stores Source: Convenience Store News Market Research, 2017

On a scale of 1 to 5, how optimistic do you feel about your business in 2017?

28.8% 30.0% It’s going to be our best year ever!

41.2%

0.0% 0.0% Terrible, wake me when it’s over

NOTE: Results are based on small operator respondents, one to 10 stores Source: Convenience Store News Market Research, 2017

30 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

As President-elect Donald Trump prepares to be sworn in, small operators have mixed feelings about what changes lie ahead under his administration. Some foresee less regulation, and tax breaks. “He is on the business owners’ side,” one retailer said, adding that he does not expect to see new environmental regulations. Others are more skeptical about the change in power leading to positive changes. In fact, when asked what will be the greatest positive changes under the Trump administration in 2017, responses included: “Can’t think of a single thing;” “I have no idea;” and “Waiting for surprises.” When asked what will be the greatest negative changes under the Trump administration, small operators pointed to changes immigration policy and the loss of customers as a result. Still, when all is said and done, CSNews found that retailers on the smaller end of the c-store spectrum are largely optimistic about their personal business prospects in 2017. On a scale of one to five — with one being the worst and five being the best — 41.2 percent of small operators are feeling a three, 28.8 percent are feeling a four, and 30 percent are feeling like a five. CSN

SMALLOPERATOR

Strategic Pricing Considerations for Your Store A change of a few cents can profoundly impact both sales and profit

here are many influences that affect profitability and the bottom line for your convenience store. Pricing is a critical source of influence over shopper purchase behavior, and the pricing decisions you make directly affect category sales, inventory positions, and category profitability. By Sue Nicholls, A change of a few cents can profoundCategory Management ly impact both sales and profit for your Knowledge Group categories, and your stores. So, there’s an opportunity to become more strategic in your pricing for your store, ultimately driving sales and profit. There are three important areas you need to consider in order to move to more strategic pricing: • Develop your pricing strategies and guidelines; • Set regular and new item pricing; and • Set promotional pricing. Each of these three components is important to understand for your c-store. Each will give you the foundations to make the right decisions for pricing in your convenience store. DEVELOP YOUR PRICING STRATEGIES & GUIDELINES

Retail pricing strategies strongly influence who shops within your store. Some of the most common pricing strategies in convenience stores are: High/low pricing: This most common c-store strategy focuses on temporary price reductions as a means to advertise products and draw traffic to the store. Competition-oriented pricing: The retailer reviews competitive pricing in their market and sets their prices accordingly. Under this strategy, you may make competitive pricing decisions through price matching on known value items or KVIs. This allows you to price competitively within your market on the most important items for your shoppers. Or you can set pricing rules relative to your competition. This strategy allows you to price specific items within a certain percentage or dollars and cents vs. competitors. Manufacturer or supplier suggested retail price:

32 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

The amount of money for which the supplier of a product recommends that it be sold in stores. This includes items that are pre-priced by the supplier. This price strategy takes away decision-making from the retailer and also promotes “sameness” in the market. Once you define the overall pricing strategies for your store, you need to define other guidelines for how you will establish prices, including: • Consider Your Target Shopper — You need to determine the most important items for your shopper and establish what they are willing to pay for each item. • Flexible Margin Strategies — If you have margin strategies, they shouldn’t be the same across categories, nor should they be the same for the brands and items within a category. • Profit Objectives by Category — You will need to establish profit objectives for each category (and then develop a plan of how to attain the gross margin dollars). • Develop Pricing Strategies by Category — This will help you achieve your category sales growth and profit goals. • Understand Price Elasticity for Your Categories and Key Items — This will help you respond most effectively when you need to respond to pricing changes. Because changes in price up or down

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SMALLOPERATOR can significantly increase the quantity sold, have no effect on demand or significantly decrease the quantity sold, price elasticity is a very important analytic when making price decisions. SETTING ITEM PRICING

Now that you have determined the pricing strategies for your stores and categories, it’s important to have a process for setting prices in your store. This process should be based on things like gross margin or markup percent, manufacturer suggested retail price, competitive pricing, and psychological pricing guidelines. When establishing regular retail prices, you need to first know how to calculate retail price using your gross margin percent or markup percent objectives as part of the retail strategies and guidelines you have already established. Remember, not all items in a category should have the same objectives based on shopper acceptance to prices, market pricing, and the role the category plays for your store. Understand the difference between gross margin and markup: • Gross margin: You can easily calculate profits from a sales total. If the margin is 38 percent, then 38 percent of the sales total is profit. If the markup is 38 percent, the percentage of sales profit will not be the same. • Markup: You may use markups because it is easier to calculate a sales price from a cost using markups. If the markup is 63 percent, the sales price will be 63 percent above the item cost. If the margin is 38 percent, the sales price will not be equal to 38 percent over cost. Make sure you have a strong understanding of not only how to calculate these important numbers, but also the proper interpretation of them. DETERMINING NEW ITEM PRICING

You also need to know how to set new item pricing. You are introducing new items into your mix frequently, and you need to have guidelines for consistency in pricing practices. Here are some of the ways you can determine new item pricing: Line extension pricing: If the new item is part of

34 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

a line extension and is the same cost of current items being carried. Competitor pricing: If your competitors already carry the item and you want to price it competitively. Key value items: If the item is one that drives price perception for your store, you may need to price it more competitively. Margin and markup objectives: So that the items reflect the pricing strategies and objectives you’ve established for the category. Pre-priced or MSRP. If products like books, newspapers and candy have pre-priced or manufacturer suggested retail price (MSRP) that can be used. Retail pricing is a very important component of your c-store strategy, and you need to take the time to be strategic in how you set your pricing now more than ever. Keep an eye on your KVI pricing vs. your competition; establish gross margin objectives that result in acceptable prices for your shoppers; generate enough margin for you to be profitable; and continue to evolve your strategy by never taking your eye off your pricing strategies. NEXT STEPS

Develop some overall pricing strategies and guidelines for your store. This should include both overall store strategies, as well as ones specific to your categories. Once you’ve developed these strategies, you should share them with your store staff and provide them with an understanding of some of the considerations I’ve shared with you above. This will help them make better pricing decisions for your stores. Once you’ve defined your pricing strategies and guidelines, you should complete some pricing analysis on your categories to reflect some of the new considerations. Start to understand price elasticity for your key items, considering how you may want to adjust margin and markup objectives on some categories/brands/items based on shopper perception and market pricing. CSN Sue Nicholls is founder and president of Category Management Knowledge Group (CMKG), based in Calgary, Canada. She is a speaker and consultant, working with business partners to bring category management training solutions to different areas of retailing like the convenience channel. Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

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cover story

FORECAST

2017

It is still a very good time to be a convenience store retailer

A Convenience Store News Staff Report

ast year at this time, the cover story of Convenience Store News explained why now may be one of the best times in history to be a convenience store retailer. The outlook for 2016 was strong, with not one of the in-store categories included in the CSNews Forecast Study predicted to see a drop in per-store dollar sales or unit volume in the year ahead. This year, as the c-store industry’s retailers and suppliers jump into 2017, the good news is that it is still a very good time to be in the conForecast 2017 Snapshot venience store business. The bad news PER STORE DOLLAR SALES UNIT VOLUME — or should we say, less-than-good news Other Tobacco Products 6.1% 3.8% — is that this year’s forecast does have a Salty Snacks 5.0% 2.8% few weak spots. Packaged Beverages 4.5% 4.1% Now in its 15th year, the exclusive Alternative Snacks 4.0% 1.3% CSNews Industry Forecast Study proCandy 1.8% -0.3% vides dollar and unit volume projections Beer/Malt Beverages 1.4% 0.0% in key c-store product categories based Edible Grocery -0.6% -0.8% Cigarettes n/a -0.6% on data from various sources, includSource: Convenience Store News Market Research, 2017

36 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

ing Nielsen for category sales history; TDLinx for store counts; and government sources for motor fuel volume and pricing data. The data is then run through a sophisticated projection model and presented here in summary form. CSNews’ consulting economist Maureen Maguire, founder and CEO of New York-based ThinkResearch, oversees the Forecast Study process. Along with the individual forecasts for the product categories of most importance to c-store retailers — alternative snacks is a brand-new addition to our report this year — the CSNews Forecast Study once again provides an overall U.S. economic and consumer outlook. “Barring any unforeseen circumstances such as terrorist activities, geopolitical disruptions or weather-related effects, which would cause the consumer to pause or slow down spending, the consumer is healthy,” Maguire said, when asked for her overall consensus on 2017. “Consumer confidence is high, which translates into healthy consumer spending — not what I would call robust, but healthy — and the unemployment rate is historically low.” As in years past, we’ve also brought back our Retailer Forecast Study, asking c-store retailers to predict results for their average store sales this year in the major categories and to provide reasoning for their answers. They were also asked to rate issues that are expected to have a major impact on the business, and share initiatives they are planning to increase sales and profitability. Also back again is our Supplier Forecast Study, which we introduced just last year. This survey is fielded among convenience industry suppliers and wholesalers to gauge their outlook and how it compares to that of the retailer side of the c-store business. Of course, the best-laid plans on the part of both industry retailers and suppliers are at the mercy of external factors — one of the biggest being legislation and regulation at the federal, state and local levels. With this in mind, our Forecast 2017 report provides a look at the top legislative and regulatory issues that could significantly impact the industry over the next 12 months. Turn the page to discover much more about what the year ahead has in store for your business.

WWW.CSNEWS.COM | JANUARY 2017 | Convenience Store News 37

Retailer Forecast

Full Steam Ahead

C-store retailers see foodservice, loyalty program efforts as drivers for 2017

he mantra of real estate has long been: Location, location, location. When it comes to 2017, the mantra of convenience store retailers appears to be: Increase, increase, increase. The third-annual Convenience Store News Retailer Forecast Study finds that 88.6 percent of c-store retailers expect their average sales per store to increase in 2017 vs. 2016. Only 11.4 percent believe sales will stay the same. And in the good news column, no respondents anticipate a decrease. In last year’s study, 82.1 percent of retailers expected their sales to rise. Several factors, however, will have to come into

Retailer forecast for 2017 total store sales Increase

Decrease

Stay the same

Net change: 4.6%

11.4% 88.6% Source: Convenience Store News Market Research, 2017

What will have the biggest impact on sales and profitability for your convenience store(s) in 2017? Motor fuel prices Labor issues Competition Health care costs/regulations Healthy eating trends Tobacco and e-cigarette regulations Demographic changes Emerging technologies Mobile commerce/marketing Multiple responses accepted Source: Convenience Store News Market Research, 2017

38 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

63.6% 57.6% 39.4% 36.4% 33.3% 21.2% 12.1% 12.1% 9.1%

play in order to turn this rosy forecast into reality. C-store retailers (63.6 percent of them) point to motor fuel prices as having the biggest impact on sales and profitability in the coming months — not surprising since the industry sells about 80 percent of all the gasoline purchased in the United States. “Fuel always has the biggest impact,” one retailer noted. Added another, “Fuel prices drive the number of customers.” A majority of the c-store retailers surveyed also cited labor costs as having the next biggest impact on their expected bottom line in 2017 (at 57.6 percent). With the new federal overtime rule winding its way through the courts, and the Affordable Care Act under the microscope, only time will tell what the exact impact of these costs will be. Rounding out the top three factors that c-store retailers say will most impact their sales and profitability in the year ahead is competition (cited by about one in four respondents). Interestingly, in last year’s study, competition ranked fifth on the list of factors. “I think with the ever-evolving trends in the c-store business, such as the Amazon revolution of brickand-mortar stores, companies need to consistently stay ahead of competition,” one retailer remarked. “I believe this will either make a company grow or make them disappear.” Competition, though, doesn’t only mean cross-channel. Some c-store retailers are wary of increased local and state legislation and the effect this will have on border stores. For example, one retailer anticipates his beer sales will be affected once surrounding states implement new laws. Adult tobacco consumers heading out of state is likewise a concern as new excise-tax increases took hold in a handful of states Jan 1. PLAN OF ATTACK

To offset these challenges and any others that may come their way, convenience store retailers have a host of new initiatives on tap, aimed at increasing sales and profitability. At the top of their 2017 to-do lists are: expanded

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Retailer Forecast

Retailer forecast for 2017 store count change We plan to increase our total store count

We plan to decrease our total store count

43.3%

Our store count will remain the same

50.0%

6.7% Source: Convenience Store News Market Research, 2017

How optimistic do you feel about your business in 2017? (Rate on a scale of 1 to 5)

40.7%

37.0%

22.3%

0.0% 0.0%

It’s going to be our best year ever!

Terrible, wake me when it’s over

1 Source: Convenience Store News Market Research, 2017

How does your company view the overall conditions for the U.S. economy in 2017?

61.1%

27.8%

Source: Convenience Store News Market Research, 2017

11.1%

foodservice offerings and capabilities; mobile app development; and loyalty program introductions. It looks like the convenience channel landscape will also be growing in the coming months. Of those retailers surveyed, half indicated they will increase their total store count in 2017, while 43.3 percent expect their count to stay the same, and only 6.7 percent plan to downsize. Discipline, strategic planning, the economy, growth in population, and growth in footprint are among the key reasons cited by retailers to explain their largely optimistic outlook. Another rationale: the effect President-elect Donald Trump will have on their business. “New president says he is looking out for smallbusiness owners — I hope,” one retailer said. And another commented, “New president equals increase in jobs equals increase in country morale equals increase in spending. America is back.” Interestingly, retailers pointed to a few of the same reasons — namely, the economy and the new president — as foremost concerns for business conditions in 2017. C-store operators also voiced concern about competition and channel blurring, regulations, higher minimum wages, and higher costs in general (labor, credit card, energy costs, etc.). Among the biggest positive changes retailers think can come about under President Trump and the new Congress are better health care, regulatory relief, tax benefits, and less political gridlock. One retailer expressed hope in “a ‘breath of fresh air’ in all of the promises made, and that [Trump] really will be able ‘to drain the swamp’ in Washington, D.C.” Not everyone is as hopeful, though. “I really don’t know what positives will come out of his administration,” another respondent stated. As for the biggest negative changes retailers think may come about under President Trump, they can be summed up in two words: uncertainty and division. One retailer expressed concern that customers are scared and not spending money, while another noted people are divided between those who like Trump vs. those who don’t. Still, overall, the convenience retailer community is feeling good heading into the next 12 months. On scale of one to five, with five being the most optimistic, nearly one-quarter checked off the No. 5 box, saying, “It’s going to be our best year ever.” In addition, 40.7 percent checked the No. 4 box, and 37 percent checked the No. 3 box. — Melissa Kress

40 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

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Healthy Economy, Healthy Consumer

The U.S. is operating near full employment and consumer confidence is high

onvenience store retailers are feeling pretty good about the overall conditions for the U.S. economy in 2017, and the industry’s suppliers are feeling even better. More than 60 percent of the c-store retailers surveyed for this year’s Forecast Study and 73 percent of the c-store suppliers surveyed said they view economic conditions for 2017 as positive. Our consulting economist Maureen Maguire agrees with their assessment. The consumer is “healthy,” leading to high consumer confidence, which translates into healthy consumer spending, she explained. The economy is operating near full employment, inflation

Industry Forecast: Motor Fuels Average retail price per gallon 1 Gasoline (all grades) Diesel National billions of gallons C-store billions of gallons National sales of gasoline ($ billions) C-store sales of gasoline ($ billions)

2015 ACTUAL

2016 ESTIMATED

2017 FORECAST

$2.57 $2.51 $2.71 187.3 151.9 $481.4 $390.4

$2.27* $2.25* $2.31* 187.5* 152.1 $424.9 $344.6

$2.49* $2.41* $2.70* 189.2* 153.5 $471.3 $382.2

1 Weighted average price of all grades and diesel fuel *Prediction from EIA/Department of Energy, Short-Term Outlook, December 2016 Source: EIA/Department of Energy; Convenience Store News Market Research, 2017

Retailer Forecast: Motor Fuels 2017 sales per store will:

Volume will increase

Volume will decrease

Volume will stay the same

Net change: 3.2%

23.3% 13.3%

63.3%

Source: Convenience Store News Market Research, 2017

42 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

is low, and interest rates are relatively low. At the same time, the stock market continues to push new highs, which translates into positive wealth effects and circles back to a healthy consumer. The 15th annual Convenience Store News Forecast Study provides dollar and unit volume projections in key c-store product categories based on data from various sources, including Nielsen for category sales history; TDLinx for store counts; and government sources for motor fuel volume and pricing data. The data is then run through a sophisticated projection model and presented here in summary form. Maguire, founder and CEO of New York-based ThinkResearch, oversees the Forecast Study process (see page 52 for full methodology). Here are the category projections for 2017: MOTOR FUELS

Low gas prices will continue to be the chief storyline in “The Tale of Motor Fuels” in 2017, but the ending of this year’s chapter should be even happier than previous ones. The last time the average U.S. retail price per gallon (all grades) tipped the $3 mark was in 2014. Since then, the average price has remained in the $2 range, and that is forecasted to again be the case in 2017, with the average price for the year projected at $2.49 per gallon. Although this is 10 percent higher than 2016’s estimated per-gallon price of $2.27, this year’s Forecast Study results show 2017 consumption of motor fuels will be up slightly — both on a national level and a convenience store-specific level. Consumption was relatively flat in 2016. Nationally across all outlets, the forecast calls for a total of 189.2 billion gallons of gasoline to be sold in 2017, up from 187.5 billion in 2016 (estimated) and 187.5 billion in 2015 (actual). At the c-store level, the forecast calls for 153.5 billion gallons to be sold in 2017 — 81 percent of the national total — up from 151.9 billion in 2016 and 152.1 billion in 2015. Because of the increased consumption, combined with

Business Forecast

the slightly higher 2017 per-gallon prices that are projected, national and c-store sales of gasoline should see a rise dollar-wise. C-store sales are forecasted to be $382.2 billion, while national sales are forecasted at $471.3 billion. The c-store dollar figure for 2017 equates to a 10.9-percent improvement vs. a year ago. 2016 estimated dollar sales fell by 11.7 percent compared to 2015. Based on this positive forecast, it makes sense that c-store retailers surveyed are more optimistic on the fuels category than they were a year ago. More than six in 10 operators expect their per-store fuel volume to increase in 2017 (up from 52.9 percent of retailers a year ago). Lower prices, new technologies at the pump, and new payment methods are among the top reasons c-store retailers give for why they are bullish on the fuels category.

Industry Forecast: Cigarettes (% change) Industry unit volume Unit volume per store

44 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

2016

0.0% -0.6%

0.2% -0.5%

2015

1.1% 0.2%

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

Retailer Forecast: Cigarettes 2017 sales per store will:

Increase

Decrease

Stay the same

Net change: -0.6%

31.4%

37.2%

31.4%

TOBACCO

There’s no denying that tobacco retailing experienced a positive 2015. The numbers tell the story — cigarette industry unit volume grew 1.1 percent and unit volume per store ticked up 0.2 percent during that 12-month timeframe. But, as tobacco industry insiders predicted, the cigarette segment will return to normal levels when the final numbers for 2016 are crunched. CSNews estimates industry unit volume will see a nearly flat 0.2-percent increase and unit volume per store will dip 0.5 percent. The forecast for 2017 calls for cigarette industry unit volume to remain flat and unit volume per store to continue on a downward trend, decreasing by another 0.6 percent. A majority of convenience retailers are not expecting a repeat performance of 2015 any time soon. Only about a third say their cigarette sales per store will increase in 2017 — an equal amount to the percentage of retailers who say they per-store cigarette sales will decrease. Then, there’s 37.1 percent of retailers who anticipate their business will remain the same. Tax increases — especially California’s recently approved $2-per-pack levy increase — are among the issues retailers expect to have the biggest impact on the segment this year. Less usage, fewer smokers and an increase in vapor users are also expected to hit cigarette numbers. The other tobacco products (OTP) category, on the other hand, continues to perform well for convenience store retailers, with expected 2017 growth to be only slightly off from 2015. According to the research,

2017

Source: Convenience Store News Market Research, 2017

Industry Forecast: Other Tobacco Products (% change) 2017

6.8%

2016

7.7% 6.1%

6.0%

2015

6.8%

6.8% 5.3%

5.2% 3.8%

Industry Dollar Sales

Dollar Sales per Store

Unit Volume per Store

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

Retailer Forecast: Other Tobacco Products 2017 sales per store will:

Increase

Decrease

Stay the same

Net change: 4.6%

37.1%

48.6%

14.3% Source: Convenience Store News Market Research, 2017

Business Forecast

Industry Forecast: Electronic Cigarettes (% change) 2017

2016

Retailer Forecast: Foodservice 2017 sales per store will:

Increase

2015

33.3% 5.2% -5.5%

Industry Dollar Sales

-6.2%

Dollar Sales per Store

Stay the same

23.5%

5.1%

0.5% 4.3%

1.2%

Decrease Net change: 6.8%

3.0%

-0.1%

73.5%

Unit Volume per Store Source: Convenience Store News Market Research, 2017

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

industry dollar sales for 2015 increased 7.7 percent, followed by an estimated 6 percent in 2016. This metric is forecasted to rise 6.8 percent in 2017. As for per-store dollar sales, OTP saw a 2015 increase of 6.8 percent. Its 2016 performance is estimated to be up 5.3 percent, with a 6.1-percent increase forecasted for 2017. The stats for unit volume per store are similar. The 2015 increase was 6.8 percent and 2016’s estimated growth is 5.2 percent. The forecast for 2017 calls for a 3.8-percent increase. Retailers’ outlook is on par with the forecast: 48.6 percent say their sales per store for OTP will increase, 14.3 percent say sales will decrease, and 37.1 percent say they will stay the same. One retailer told CSNews there is “not much in [OTP] sales worth noting.” On the other end of the backbar is the electronic cigarette segment. In 2015, industry dollar sales rose 5.2 percent, dollar sales per store rose 4.3 percent, and unit volume per store rose by a whopping 33.3 percent — a possible result of lower pricing and supplier consolidation. 2016 estimates are noticeably lower: increases of 1.2 percent in industry dollar sales, 0.5 percent in dollar sales per store, and 5.1 percent in unit volume per store. The forecast for 2017 is gloomier, too. Industry dollar sales for the segment are forecasted to decrease 5.5 percent this year, dollar sales per store are forecasted to decrease 6.2 percent, and unit volume per store is forecasted to dip 0.1 percent. FOODSERVICE

Is the foodservice category cooling off a bit? It would appear so based on the fewer number of convenience store retailers who expect their foodservice sales to increase in 2017, vs. the number who held a positive

46 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

Industry Forecast: Packaged Beverages (% change) 2017

2016

2015

7.6% 6.7% 5.2%

4.5%

4.2%

4.1%

3.5%

2.2% Industry Dollar Sales

Dollar Sales per Store

3.1%

Unit Volume per Store

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

Retailer Forecast: Packaged Beverages 2017 sales per store will: Increase

Decrease

Stay the same

Net change: 3.3%

26.5% 2.9%

70.6%

Source: Convenience Store News Market Research, 2017

outlook in last year’s Forecast Study. Heading into 2017, 73.5 percent of retailers polled believe their foodservice sales — which include prepared food and hot, cold and frozen dispensed beverages — will increase in the next year. This compares to 82.4

Business Forecast

percent who felt the same way heading into 2016. Another year-over-difference that suggests a category cool-off is that this time around, there is a small contingent of retailers (3 percent) who anticipate their foodservice sales will decrease in 2017. There were zero respondents the previous year who expected a sales decline. And even among those who hold a positive 2017 outlook on foodservice, the net change in per-store sales they project is lower in this year’s study: 6.8 percent vs. 9.1 percent for 2016. When asked what trends will have the biggest impact on the category in the year ahead, c-store retailers repeated three words: fresh, healthy and quick. Several also said their focus for 2017 will be on offering a wider selection, and building loyalty among their customers. “People on the go still need their quick food fix,” one retailer commented. COLD VAULT

While convenience stores are evolving in terms of the products and services they offer consumers, they remain a primary destination for those who want to make a quick beverage purchase. Seven in 10 retailers

Industry Forecast: Beer/Malt Beverages (% change) 2017

2016

3.7% 2.1% 2.5%

1.4%

Industry Dollar Sales

1.9%

2015

2.8%

2.6% 2.4% 0.0%

Dollar Sales per Store

Unit Volume per Store

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

Retailer Forecast: Beer/Malt Beverages 2017 sales per store will: Increase

Decrease

Stay the same

Net change: 2.7%

36.4%

57.6%

6.0% Source: Convenience Store News Market Research, 2017

48 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

(70.6 percent) expect their packaged beverage sales to increase in 2017, and only 2.9 percent expect sales to decrease. The projected net change is 3.3 percent. C-store operators are right to be optimistic. According to the CSNews Forecast Study numbers, dollar sales of packaged beverages — which includes carbonated soft drinks, bottled water, sports and energy drinks — will increase 5.2 percent across the total industry. On a per-store basis, dollar sales are expected to increase 4.5 percent and unit volume is expected to increase 4.1 percent. All of these figures are above the estimated results for 2016. Although they still take up the most space inside convenience store cold vaults, carbonated soft drinks are likely to see another year of status-quo growth in 2017, with an expected rise of 0.9 percent in dollar sales per store and 1.3 percent in unit volume per store. Perhaps reflecting consumers’ growing interest in healthy eating and drinking habits, or even concern over the safety of tap water following national coverage of the water crisis in Flint, Mich., bottled water will see more growth in dollar sales per store (up 4.4 percent) and unit volume per store (up 2.3 percent), although this marks a slowing compared to 2016. As for alcoholic beverages, price increases are likely to boost beer dollar sales in 2017, which are expected to rise 1.4 percent per store and 2.1 percent for the total industry. Unit volume is forecasted to be flat. C-store operators believe the biggest impact on beer will come from states implementing new laws regarding beer sales, such as Pennsylvania did in 2016. The continued popularity of craft beer is a likely contributor to higher prices. Dollar sales of microbrews are expected to increase 12.6 percent while unit volume increases 11.1 percent, both on a per-store basis. This marks another year of slowing growth for the segment, but retailers note it remains “hot,” with some reducing their stock of domestic brews in favor of craft. One retailer stressed the importance of “stay[ing] relevant with evolving brands in craft.” CANDY

Following a year of lower expectations, retailers are more willing to count on candy. The percentage of c-store operators that expect their candy sales to increase in 2017 rose to 57.1 percent, a jump up from the 46.2 percent who said the same one year ago. Additionally, 42.9 percent expect sales to stay the same, and no respondents believe their candy sales will decrease. The net change they expect is 1.9 percent,

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Business Forecast

just under the 2.2 percent predicted last year. According to the CSNews Forecast Study projections, however, 2017 could potentially be bittersweet for the candy category despite retailer optimism. Dollar sales per store are forecasted to grow 1.7 percent, a slight uptick from the estimated 1.1-percent growth of 2016. Unit volume per store, though, is expected to see a slight decline of 0.3 percent, marking very little change from the estimated 0.7-percent drop of 2016. This slowdown in unit volume may be due to changes in the way U.S. consumers approach their diets, some c-store operators speculate. “Sugar is really becoming a big influence on healthy thinking,” said one retailer. Chocolate candy is expected to decline in both unit volume and dollar sales, continuing a multi-year downward trend. Unit volume of chocolate is expected to fall 1.9 percent in 2017, albeit this is an improvement over the estimated 2.3 percent it dropped in 2016 and 7.1-percent decline in 2015. Dollar sales per store are forecasted to decrease 0.2 percent, piggybacking on an estimated 0.5-percent decrease in 2016.

Industry Forecast: Candy (% change) 2017

2016

2015

3.6% 2.7%

2.5%

1.8%

1.7%

1.1%

-0.3% -0.7% -3.1%

Industry Dollar Sales

Dollar Sales per Store

Unit Volume per Store

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

Retailer Forecast: Candy 2017 sales per store will:

Increase

Decrease

Stay the same

Net change: 1.9%

42.9%

57.1%

Non-chocolate candy, meanwhile, will have flat unitvolume growth and increase 4.5 percent in dollar sales per store, according to the Forecast Study projections. Mints are predicted to have a better year, with 0.5-percent growth in unit volume compared to an estimated 2.3-percent decline for 2016. Also after a flat 2016, dollar sales of mints are forecasted to see growth of 1.2 percent. Gum faces a rockier 2017, with an expected 1-percent increase in unit volume but a 0.8-percent decrease in dollar sales. SNACKS

If the snacks business could be defined by convenience store retailers in one word, it would be “hot,” according to this year’s CSNews Forecast Study. Widely viewed as an afternoon indulgence, salty snacks — which includes potato chips, tortilla chips, pretzels, ready-to-eat popcorn, nuts and seeds — experienced 4.3-percent growth in total industry dollar sales in 2016 (estimated). This metric is forecasted to increase 5.7 percent in 2017. On a per-store basis, unit volume is forecasted to rise, however at a slower pace; by 2.8 percent in the upcoming year vs. an even 2 percent in 2016. Popularity of potato chips and price hikes in salty snacks are anticipated to drive a boost in dollar sales per store, by 5 percent. Still, this isn’t as strong as the growth experienced in 2015, when salty snack dollar sales reached 5.5-percent growth — the largest growth over the three-year period. In the alternative snacks segment, there’s continuing good news. This segment has seen significant growth over the past few years as consumers search for more wholesome between-meal fillers and portable, on-the-go snacks. In 2017, the alternative snacks category — encompassing meat snacks and health, energy, protein and granola bars — is predicted to grow by 4.7 percent in industry dollar sales, according to CSNews projections. C-store operators are optimistic about their salty and alternative snack prospects for the upcoming months. In the salty snacks arena, 73.5 percent of retailers surveyed expect their dollar sales per store to increase. There’s similar sentiment for alternative snacks, with 71.4 percent of retailers foreseeing sales growth thanks to the rising interest in healthy eating in America, popularity of jerky, and consumers opting for healthier alternatives. GROCERY

Source: Convenience Store News Market Research, 2017

50 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

As more convenience stores offer an expanded selection, grocery items are becoming more noticeable to

Business Forecast

Industry Forecast: Edible Grocery (% change)

Industry Forecast: Salty Snacks (% change) 2017

2016

2015

2017

5.6%

6.4%

5.7%

3.7% 2.8%

Industry Dollar Sales

Dollar Sales per Store

3.1% 2.0%

Unit Volume per Store

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

2015

4.9%

4.7%

5.5%

5.0%

4.3%

2016

0.1% 1.3%

1.1%

-0.6% 0.7%

Industry Dollar Sales

-0.8%

Dollar Sales per Store

Unit Volume per Store

2015 figures are actual; 2016 are estimated based on nine months; 2017 are forecasted Source: Convenience Store News Market Research, 2017

Retailer Forecast: Salty Snacks

Retailer Forecast: Edible Grocery

2017 sales per store will:

Increase

Decrease

Stay the same

Increase

Decrease

26.5% 57.6%

73.5% Source: Convenience Store News Market Research, 2017

c-store customers. That being said, all signs are pointing to a flattening of the edible grocery category in 2017 when it comes to three major stats: industry dollar sales, dollar sales per store, and unit volume per store. The predictions for 2017 call for a slowdown, with industry dollar sales forecasted to be flat (up a negligible 0.1 percent) and dollar sales per store declining slightly by 0.6 percent. Unit volume per store could dip 0.8 percent, according to CSNews projections. Retailers’ expectations are in line with the forecast. The majority of retailers surveyed expect edible grocery to run even in 2017 — 57.6 percent predict their edible grocery sales per store will stay the same for the year vs. 33.3 percent who think their sales will increase. Conversely, 9.1 percent of retailers expect their sales of edible grocery to fall. According to one respondent, it “cannot compete because of the limited space available for these types of items.”

52 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

Stay the same

Net change: 2.2%

Net change: 4.2%

33.3% 9.1%

Source: Convenience Store News Market Research, 2017

Methodology Convenience Store News partnered with ThinkResearch to produce the 15th annual Industry Forecast Study. The forecast models are developed by looking at past monthly sales and unit performance, along with outside economic factors such as disposable income, employment, etc. Final models are selected for each category and then aggregated to obtain total industry and per-store figures for dollar sales and unit volume. The Nielsen Co. provided sales and unit data for convenience, as well as for total food, drug and mass for in-store categories. Nielsen TDLinx provided monthly store counts, which were used to forecast the annual average number of stores. The forecast shows an increase of 0.7 percent in store count for both 2016 and 2017. Government data sources include the Department of Energy for gasoline price and volume; the Bureau of Economic Analysis, National Income and Product Accounts for data on disposable income; and the Bureau of Labor Statistics for unemployment rates and Consumer Price Index (CPI) data. The Retailer Forecast and Supplier Forecast are based on the results of a survey fielded in November 2016. Retailers, wholesalers and suppliers were asked to predict 2017 sales per store for a variety of categories, as well as to share their opinions on overall business and economic trends. A total of 152 responses are included in these results.

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Business Forecast

Straight From the Economist’s Mouth A Q&A with Convenience Store News’ consulting economist Maureen Maguire CSNews: Last year at this time, we said: “Now is one of the best times in history to be a convenience store retailer.” Does this still hold true? Why or why not? Maguire: It is still a very good time to be a convenience store retailer. The consumer is healthy and there is no reason to think otherwise. The economy is operating near full employment, inflation is low, and interest rates are relatively low. The stock market continues to push new highs, which translates into positive wealth effects. The issues to focus on are questions surrounding a fiscal stimulus package that may be passed in the new Congress, which would most likely make the economy run stronger and, while we are at full employment, will cause inflation to increase and hence cause interest rates to climb. Generally, one of the most important features of convenience stores is “convenience.” As long as retailers continue to listen to their customers and provide what they are looking for, whether that’s a good and unique experience, a “hometown” or “local” feel, or a broad offering including edibles, they will continue to benefit from the loyalty of their customers. CSNews: In general, will the c-store business in 2017 be better, worse or the same as 2016? Maguire: There are several issues to consider here. Barring any unforeseen circumstances such as terrorist activities, geopolitical disruptions or weather-related effects that would cause the consumer to pause or slow down spending, the consumer is healthy. Consumer confidence is high, which translates into healthy consumer spending — not what I would call robust, but healthy — and the unemployment rate is historically low. Investment spending has been weak, which is a concern. The new administration has said it wants to lower corporate taxes, which would help investment spending and eventually work to flow through into new jobs. The new administration also wants to rethink or renegotiate trade deals. However, trade has helped to keep inflation low. By limiting trade, at least in the short run, disruptions will occur and cause market volatility. Markets generally dislike volatility and in times of uncertainty, spending both at the corporate and consumer levels may slow. The administration also would like to lower personal income taxes, which should act to provide more discretionary income for consumers. With interest rates increasing, and perhaps increasing faster given any stimulus package, the cost of financing

54 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

expansions and new store creation will increase. So, while the environment is healthy, the cost of financing will start to increase very soon and perhaps increase faster given any fiscal stimulus. CSNews: What is your overall U.S. economic outlook for 2017? Maguire: Generally, the forecast is for steady, albeit moderate growth and a continuation of job growth. However, we need to see more detail about the new administration’s policy details. If there is an infrastructure package passed, which is a big “if” given the Republican-controlled Congress, will the package be a net stimulus or a net neutral? If the package is a net stimulus, inflation would likely increase and interest-rate increases will follow. Another policy question that has to be answered is who will be affected by the proposed tax cuts. Will the proposed tax cuts be targeted outside of the highest tax bracket and to the middle class so that there is more discretionary spending for the average convenience store customer? CSNews: What economic factors could benefit the c-store business in 2017? Maguire: Lower corporate tax rates seem to be the policy element that would be most beneficial to the c-store business directly and indirectly. If corporations are facing political tailwinds, in the form of lower taxes or other benefits, then job creation will be sustained and perhaps increase. CSNews: What economic factors could hurt the c-store business in 2017? Maguire: A downturn in the economy caused by almost any factor would hurt the c-store business. Examples would be a consumerled recession or a global downturn. The recovery is almost eight years old and while expansions generally don’t die of old age, they expire because of policy mistakes or an unforeseen event (e.g., an act of terrorism/war). The recovery is older than the average of all expansions since 1945. The price of oil, which in the recent past has been historically low, should remain low due to lack of robust global demand. The low price of natural gas, due mostly to the lower cost of shale drilling, does nothing to incent oil exploration. Given that, low gas prices act to keep consumers away from the pumps [on a more frequent basis] and hence out of the convenience stores.

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Supplier Forecast

Supplying a Positive Outlook

Wholesalers and suppliers forecast a good year ahead for the convenience channel How does your company view the overall conditions for the U.S. economy in 2017?

73.0%

13.5%

Source: Convenience Store News Market Research, 2017

For your particular product category, how do you view the upcoming year?

81.0%

13.5%

5.5%

Source: Convenience Store News Market Research, 2017

Rate conditions in each of the retail channels your company works with: Convenience Grocery Mass Drug

POSITIVE

NEUTRAL

NEGATIVE

86.1% 63.3% 50.0% 39.3%

8.3% 30.0% 42.9% 50.0%

5.6% 6.7% 7.1% 10.7%

Source: Convenience Store News Market Research, 2017

56 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

he convenience store industry’s suppliers, wholesalers, distributors and brokers are fairly optimistic about 2017. When asked to consider the upcoming year for their particular product category, 81 percent reported a positive outlook, while just 5.5 percent hold a negative outlook, and 13.5 percent say they are neutral. The c-store industry’s ability to thrive contributes to their sentiment. Compared to the other retail channels they serve, 86.1 percent view the convenience channel positively, compared to 63.3 percent for grocery, 50 percent for mass merchandisers, and 39.3 percent for drugstores. Numerous factors were cited for the positive outlook: Consumer spending growth was the most named at 27.8 percent, followed by retailer unit expansion (22.2 percent), new product development (19.4 percent), and retailer consolidation (13.9 percent). New market trends, new product and foodservice offerings, strong consumer demand, and a change in the presidential administration were other cited reasons for optimism. “We have foodservice and retail business. When one gets weaker, the other gets stronger,” said one Supplier Forecast Study participant. “Our brand and products are all about customization — a general characteristic popular with today’s consumer.” Conversely, among the top-listed reasons to be concerned about business conditions in 2017 are economic instability, cost of regulations, taxes, and raw material costs. Following the presidential election, Supplier Forecast Study participants express mixed feelings about the new Trump administration taking the helm this year. Among the expected positive changes are economic growth, easing of regulations, and lower taxes. One participant hopes to see President Trump “focus on running this country like a business and changing the way politics works for the people, not besides the people;” and making the government “more service focused, lean and productive.”

TASTE

VALUE

SALES

Supplier Forecast

What do you believe will be the biggest factor in your company’s success in 2017? Consumer spending growth Retailer unit expansion New product development

5.6% 11.1% 13.9% 19.4%

On a scale of 1 to 5, how optimistic do you feel about your business in 2017?

Retailer consolidation Increasing regulation Raw material costs

43.3%

26.7%

10.0%

20.0%

27.8%

0.0%

It’s going to be our best year ever!

Terrible, wake me when it’s over

22.2% 5

Source: Convenience Store News Market Research, 2017

Other respondents, though, raised concerns about the elimination of health care for low-wage workers, immigration policies that might negatively affect their employees, and the sheer unpredictability of the incoming administration.

1 Source: Convenience Store News Market Research, 2017

“Yes, the country needs change from status quo, but his administration is not the change we need,” said one participant. “His disruption will ruin the economy and the nation’s status.” — Angela Hanson

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Legislative & Regulatory Forecast

Issue of Importance

These legislative and regulatory matters will be most impactful to c-stores in 2017 By Renée M. Covino

hile they are clearly not the fun part of a forecast, legislative and regulatory issues are often at the heart of what can make or break a convenience store’s bottom line for a month, a quarter or even for the year. So, without further ado, here are what the legislative experts are chatting up, regulatory-wise, for the next 12 months: Interchange Fees Because president-elect Donald Trump and his allies in Congress have made numerous references to repealing or significantly altering the Dodd-Frank law, “the important progress the industry has made with regards to interchange-fee limits on debit cards could be in jeopardy,” Joe Kefauver, managing partner of Align Public Strategies, told Convenience Store News. “The industry will have to redouble its efforts to protect the Durbin Amendment and, once again, educate lawmakers regarding its importance to retailers.” State & Local-Level Activism Since the door is shut to organized labor in Congress and now with the new administration, “I think you will see a significant increase in activity at the local level pushing for a $15 minimum wage, paid leave, wage theft, restrictive scheduling and other

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issues important to the labor community,” added Kefauver. At both the state and local levels, he expects activists will continue to pursue these issues through ballot initiatives. The national dialogue on a $15 minimum wage will continue to escalate — look for labor organizers, the social justice community and other proponents to expand their efforts to more cities. State and local-level activism is also at the heart of tobacco issues that are affecting c-stores. One of the recent local regulatory trends is a ban on the sale of flavored tobacco products, according to Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO), which also supports convenience stores. “These bans can force retailers to remove 70, 80 or more product SKUs from store shelves including flavored cigars, flavored smokeless tobacco, e-cigarette and vapor-flavored products and virtually all pipe tobacco,” he said. “The result is that loyal customers will travel to a neighboring suburb or town to buy not only their favorite tobacco products, but their gas, snacks and beverages, resulting in further sales declines.” In addition to the flavor legislation, an increasing number of cities have adopted an age 19 or 21 requirement to purchase tobacco products. A minimum age of 21 results in about a 3-percent decline in tobacco sales for an average store, according to Briant. Some cities have also prohibited the sale of tobacco products within 500 or 1,000 feet of schools, playgrounds, churches and other youth-oriented facilities. Then, there are other cities or counties limiting the number of retail tobacco licenses that will be issued, “effectively curtailing any new retail store

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Legislative & Regulatory Forecast

development in the city or county,” he explained. The way Briant sees this escalating problem, “the agenda now clearly is to usher in a new era of prohibition.” And it is being felt at the local level. Therefore, it will become increasingly important in 2017 and beyond for local retailers/c-stores to participate in efforts to oppose tobacco ordinances. “This is critical because local elected officials need to hear from their local businesses,” Briant stressed. “Local retailers have much more influence on the action of a city council or a county board than outside industry members. At NATO, we provide retailers the tools they need to become engaged and contact elected lawmakers.” National Labor Relations Board The Trump Administration will have the opportunity to fill two vacant seats on the National Labor Relations Board (NLRB) later in 2017. “But it will be quite a while before the new appointments will be able to stem the tide of anti-employer decisions at the NLRB, especially with regard to joint employer decisions and the use of independent contractors,” Kefauver said. Regulatory Reform As a result of the election, the industry will have the opportunity to revisit numerous anti-employer rules and regulations promulgated by the Obama Administration, Department of Labor, Department of Justice, and the Equal Employment Opportunity Commission. The new federal overtime standard, looming equal pay provisions, and excessive litigation with regards to the Americans with Disabilities Act may be addressed early in the new administration, Kefauver predicts. Labor Organizing With limited legislative and political opportunities in front of them, look for organized labor to refocus their attention on traditional organizing, Kefauver stated. He envisions them taking advantage of favorable

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rulings out of the NLRB with regards to “leveraging new technology and mobile device apps to interface directly with workers, unions, and building on their successes in health care and the sharing economy to target traditional retailers.” Carryover Issues Finally, some carryover issues from 2016 — internet lottery, menu labeling, the Supplemental Nutrition Assistantance Program (SNAP), and trying to change the predicate date of tobacco — are all cited by Lyle Beckwith, senior vice president, government relations for NACS, the Association for Convenience & Fuel Retailing, as important regulatory and legislative concerns for this new year from the trade group’s perspective. “But it’s interesting, with Trump at the helm, no one in D.C. really knows what’s coming up first, whether we’ll have repeal of Obamacare, global tax reform, immigration issues, etc.,” Beckwith relayed to CSNews. “Hopefully, we’ll get these carryover issues dealt with, but it really hinges on what the new administration’s top priorities are.”

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Trends Forecast

2017 Trends Forecast

Researchers and consultants offer up a variety of predictions

Foodservice Flurry Innovative convenience stores like Sheetz have led the way in improving their foodservice offerings. The rest of the industry has taken notice, with the result being that foodservice will be the primary area of focus in 2017 for c-stores looking to build their brands and bottom lines, predicts Tom Cook, principal of retail consulting and design firm King-Casey. Concentration will be placed on providing prepared foods, made-to-order sandwiches, fresh ingredients, healthy options, quality baked goods, and barista-style coffee, espresso and tea drinks. According to Cook, c-stores will begin to make serious inroads into the business of quick-service and fast-casual restaurants this year as the historical lines between them blur more than ever.

The Convenience of Technology

More Evolution of Meal Occasions People arenâ&#x20AC;&#x2122;t adding new eating occasions to their day, but how meal and between-meal occasions are composed will continue to evolve in 2017, predicts market researcher The NPD Group. Whether packaged goods or foodservice offerings, foods with the flexibility to compose an eating occasion to fit a specific need at a given time will grow. Consumers will make their choices based on price point, portion control and portability, or whatever lets them craft a snack or full meal, spend a little or a lot, take a break or eat on the run, depending on their need at that time, according to NPD.

Technology is quickly making inroads into how consumers acquire their foods and beverages While it represents a small portion of food acquisition today, it has the potential to grow if consumers are convinced the extra cost of technology saves time in other areas of their lives, market researcher The NPD Group explained. Technology is also helping consumers avoid the brick-andmortar store entirely by enabling them to purchase their groceries online and have the order delivered to their homes. Based on growth patterns for this behavior, NPD expects to see more people using technology (retailer websites, third-party sites) to acquire foods and beverages.

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The Blended Meal It’s becoming more common for consumers to make meals at home while also using dishes sourced from restaurants and other foodservice outlets. Purchased components are more likely to be appetizers or side dishes, indicating consumers use these items as quick ways to round out or complete their meals. As younger consumers (who already consume fresh foods at higher rates) age, market researcher The NPD Group forecasts that their demand for freshness in a hurry will only increase. Opportunity exists all along the preparation spectrum, from meal kits to delivery.

Plant Power In 2017, the food and beverage industry will welcome more products that emphasize plants as key ingredients, predicts Mintel global food and drink analyst Jenny Zegler. More packaged products and recipes will leverage fruits, vegetables, nuts, seeds, grains, botanicals and other plants as a way to align with consumers’ nearly omnipresent health and wellness priorities. Their preference for natural, simple and flexible diets will drive further expansion of vegetarian, vegan and other plant-focused formulations.

Experiences, Not Transactions

Competing against a multitude of ever-evolving physical and digital store formats, retailers must create attractive destinations to drive in-store traffic. In 2017, traditional definitions of categories can no longer dictate the journey through the store, according to retail services company Daymon. Shoppers want tailored solutions that lead to experiences — not just transactions. Retailers should continue to focus on creating branded destinations with products and services that establish authority in high-volume areas of the store, while also finding innovative ways to deliver differentiated solutions and shareable experiences, Daymon advises.

Dramatic Drive-Thru Growth Functionality at Night The increasingly hectic pace of modern life is creating a market for functional foods and drinks designed to help people calm down before bedtime, sleep better, and restore the body while they rest. Research firm Mintel predicts that in 2017, evening will be tapped as a new occasion for functional food and drink formulations. Products can leverage the reputation of the tea category and use chamomile, lavender and other herbs as a way to achieve a sense of calm, while chocolate could be positioned as a way to wind down after a stressful day, notes Mintel global food and drink analyst Jenny Zegler.

Only a handful of convenience store operators currently offer drive-thru service, but King-Casey principal Tom Cook believes the number will grow significantly in 2017. “We see dramatic growth in this area as savvy brands realize that drive-thrus offer the best way to meet the customer demand for convenience, as well as a way to differentiate themselves and generate incremental foodservice sales,” he explained.

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TOBACCO Cigarettes + Cigars + Smokeless + E-Cigs + Other OTP

The Watch List What to expect as cigarettes, cigars, smokeless and vapor roll into the year By Renée M. Covino

here is no doubt that tobacco is a more complex endeavor for convenience stores these days, thanks to legislation and regulation. But the overall category and its varied segments still reign as a major key to c-store profits. And so far, the outlook for 2017 is cautiously positive. Convenience store retailers “will welcome what comes out of a Republican Congress and this Republican president,” according to political commentator and reporter David Gregory. Still, tobacco industry experts are advising retailers to keep active in the year ahead, encouraging them to get behind an emerging federal proposal to help ease the Food and Drug Administration (FDA) deeming regulations — or more specifically, the Cole-Bishop Amendment to the House Agricultural Budget Bill, which would ease FDA application requirements for newly deemed products, such as electronic cigarettes, vapor and cigars, brought to market after 2007. The amendment would move the so-called “predicate date,” or cutoff point, for new products to undergo the onerous FDA application process from Feb. 15, 2007 to possibly Aug. 8, 2016. If passed, the measure would grandfather in many products, especially those in the vapor category, providing them with a less-complex path to FDA approval. The industry awaits this vote in 2017 under a new president who some hope might even repeal the FDA’s authority over vaping products. “One might argue that it is unlikely that an administration would completely repeal an agency regulation that is already in force,” Boston University School of Public Health Professor Michael Siegel stated in his online tobacco blog this November. “However, President-elect Trump does not seem timid about threatening to completely repeal other health statutes and regulations, so I don’t see any reason why he would be reluctant to do that with the FDA’s ill-

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advised e-cigarette regulations.” Also on the tobacco watch list for 2017, retailers are strongly advised to focus on proposed ordinances at the state and local levels. Anti-tobacco efforts are increasingly being felt at the small-town level to create precedent for larger campaigns. Groups have been pushing to raise the legal age to buy tobacco products to 21, ban flavored products, and restrict business permits for tobacco retailers. Such ordinances are only expected to get harsher in the coming year, according to Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO). In 2015, there were 450 local tobacco ordinances proposed across the country. “[For 2016], if the numbers hold, we are looking at almost 650 — that’s 200 more than just a year ago,” he noted. NATO started its “Local Project” — an effort focused on helping retailers fight local legislation against tobacco — in 2012 because “we saw a shift in the anti-tobacco strategy,” explained Briant. Now, with the anti-tobacco efforts exponentially worse, the Local Project has become the thrust force of NATO. In 2017, NATO is hoping more local retailers at the c-store level will reach out for help. The association has simplified the process for retailers to call and email their elected officials to express an opinion on a tobacco proposal; testify at local and state hearings on tobacco legislation; or encourage customers to stand up and be heard when an excise tax increase or other tobacco restriction is proposed.

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THE OUTLOOK FOR CIGARETTES

In the cigarettes category, solid pricing and increases are expected to offset expected cigarette volume deceleration in 2017. In November, several cigarette brands followed Altria Group Inc.’s lead after it hiked the prices of its Philip Morris USA portfolio by 8 cents per pack. Reynolds American Inc. (RAI), ITG Brands LLC and Liggett Vector Brands took wholesale list price increases of 8 cents per pack — an increase equal to approximately 2 percent to 3 percent — on their key cigarette brands. ITG Brands took a 16-cent-per-pack increase on its other brands, according to Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC. These list price changes were effective starting Nov. 11. The pricing moves also follow the passage of Proposition 56 in California, which increased the state’s cigarettes excise tax by $2 per pack. Known as the California Healthcare, Research and Prevention Tobacco Tax Act of 2016, the proposition will also place an equivalent tax increase on other tobacco products and electronic cigarettes containing nicotine. Three other states had proposed similar moves, but they were rejected on Election Day. “These price increases are positive, indicating the industry’s pricing power and its ability to offset any volume declines associated with the coming tax increase in California” and with the overall decelerated cigarette volumes expected for fiscal 2017, Herzog stated. The coming months will see some convenience store operators get more aggressive with private label and control-label cigarette brands. Circle K, a division of Canada-based retailer Alimentation Couche-Tard Inc., is a proponent of both, recently focusing on the latter with its Traffic brand, which is now featured in the backbar of its convenience stores in 40 states. Circle K already carries its own private-label cigarettes, Crown, which parent company Couche-Tard launched across its retail brand in 2012.

were effective with shipments on or after Dec 6. “We expect other smokeless tobacco manufacturers — RAI, Swedish Match, etc. — to follow suit with similar list price changes,” Herzog said. “On balance, we believe the list price changes reflect the industry’s continued strong pricing power, which remains a critical driver of revenue and earnings growth.” In 2017, smokeless tobacco sales trends are expected to continue to see a lift from brand extensions, “reflecting strong consumer acceptance of recent line extensions, but also limited ‘uptrading’ into combustible cigs,” according to Herzog. The national expansion of Copenhagen Mint earlier this year is expected to continue to “resonate,” as she put it. And Herzog expects Grizzly to gain ground with its Dark Mint style, which just launched in the third quarter. A recent report from the Gallup-Healthways WellBeing Index showed that the smoking rate among U.S. adults aged 18-29 has declined 12 percentage points to 22 percent over the past decade, a steeper decrease than any other age group. It reasoned that this could be related to young adults switching to non-cigarette tobacco alternatives, including smokeless tobacco, which is consumed by 5.4 percent of adults aged 18-29, higher than any other age group. Curiosity, appealing flavors, peer influences, high cigarette taxes, and smoking bans may be leading young adults now and in the years to come to use alternative tobacco products, market researcher Gallup and healthcare company Healthways concluded. THE OUTLOOK FOR E-CIGARETTES/VAPOR

THE OUTLOOK FOR SMOKELESS

Smokeless tobacco continues to lead the other tobacco products (OTP) category in the convenience channel with nearly a two-thirds share of dollar sales, according to recent industry data. As with cigarettes, list price changes are affecting the smokeless segment. Altria recently announced a 7-cent to 12-cent increase per can on most of its core smokeless tobacco brands, and a 77-cent-per-can list price decrease on certain Skoal tobacco blends. These list price changes

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The most recent Nielsen numbers show that e-cig dollar sales are on the rise by more than 25 percent, led by Reynolds’ VUSE and Altria’s MarkTen XL. VUSE is reportedly maintaining its dollar share leadership at just over 35 percent, vs. roughly 17 percent for blu, its nearest competitor. MarkTen XL “continues to make inroads from distribution gains most likely driven by couponing,” Herzog cited. “In a post-deeming regs environment, we expect competition to intensify,” she said. “VUSE’s ability

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to maintain strong volume/pricing is a testament to clouds and build big-old batteries and coils. That’s its strong competitive positioning. We expect further part of the market, and it’s where the negative hype gains as new VUSE formats (VUSE Vibe and later, unfortunately comes from. There’s still a large part VUSE Port and VUSE Pro) start to hit store shelves.” that just wants to stop smoking. They use it and it Of course, as of Aug. 8, 2016, vapor products works for them, and they’re not out posting it on are considered tobacco products and officially operFacebook or Twitter.” ate under FDA control. Gregory Conley, president With 9 million vapers in the United States and 45 of the American Vaping Association, called Aug. 8 million smokers, “we still haven’t touched the surface “the beginning of a two-year yet,” Wiesehan maintains. “If countdown to FDA prohibition we can provide product conRetailers are strongly advised to venience that can help replace of 99.9 percent-plus of vapor products on the market.” He focus on proposed ordinances at cigarettes, that’s what we’re trysays that “if we do not succeed ing to go after — to give smokthe state and local levels. in changing the FDA’s arbiers a device that actually works trary predicate date of Feb. 15, to help them stop smoking.” Anti-tobacco efforts are 2007, the vapor industry will increasingly being felt at the shrink to almost nothing beginTHE OUTLOOK FOR ning Aug. 8, 2018.” MODIFIED RISK & MORE small-town level to create In addition to the Big Expect to hear more about precedent for larger campaigns. “modified risk” in 2017. Big Tobacco contenders, another “survivor in progress” is Mistic Tobacco is soaring into the E-Cigs. Timing has been on the New Year with modified risk company’s side. Looking to appeal to the mass smokexpectations. Philip Morris recently filed a Modified ing population, as well as the vaping population with Risk Tobacco Product (MRTP) application with the an improved experience/easier-to-use device, it released FDA for its highly anticipated iQOS “heat-not-burn” its 2.0 POD-MOD in late July, in advance of the FDA tobacco product. deeming rule deadline (the concept was in the works for If approved, the tobacco giant would be able to months before the news of the finalized deeming hit in market iQOS in the U.S. with a health claim (i.e., as May). The system is akin to the popular K-cup coffee a modified exposure or modified risk product). The machine experience; the Mistic 2.0 is a closed system FDA reportedly has 60 days at minimum to accept the with change-out flavor pods. application for substantive review, and then up to one The product “gives the experience, flavor profiles year to make a final decision (early 2018). and vapor production that mod users are accustomed “While this designation could be very powerful to, and also provides ease of use to cigalike users from a global public health standpoint, Philip Morris who haven’t upgraded because they didn’t want to will need to file a PMTA [premarket tobacco applideal with the hassle of bottles and tanks,” according cation] to actually commercialize the product in the to Justin Wiesehan, vice president of marketing for U.S. via an exclusive licensing agreement with Altria,” Mistic. But it is the latter group that this product is according to Wells Fargo’s Herzog. intentionally targeted toward. She added that Philip Morris is planning to file a “In our sales data, cartridges are still our bestPMTA in the first quarter of 2017, with a decision selling items for four years. That consumer is still expected as early as July 2017. “A PMTA would allow out there, and they’re not as in-front of this industry iQOS to be marketed in the U.S. without a health claim, as the mod users,” said Wiesehan. “They’re not on similar to how iQOS is currently being marketed in Instagram; they’re not going to vape shows. [The] many countries, including Japan, with great success. We demographic is primarily in the 45-70 age range and remain bullish on iQOS given the overwhelming success the majority of them for us are women — all they of the product in Japan; its strong margin profile since want to do is use Mistic instead of Marlboro, and they it is taxed 20 percent below conventional cigs there; don’t make a big fuss of it.” tax benefits in other markets; growing consumer accepHe goes on to say that “everybody thinks this tance/conversion rates in other key markets; and the industry is made up of hard-core vapers that blow potential to ‘break the mold’ once again.” CSN

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OPERATIONS Store Ops + Labor + HR + Real Estate + Financial + Field Ops

Are You Doing Enough to Secure Your Stores? Theft and robbery continue to rise, but new technology and planning can deter By Tammy Mastroberte

hether it’s violent crime, robberies, shoplifting or employee theft, convenience stores have been dealing with store security issues for years. New technology is allowing operators to amp up prevention and react faster to incidents, but in many cases — in c-stores and the entire retail industry — the situation continues to worsen. “I’ve been involved in the convenience store industry for 40-plus years and the risk of loss has not changed. The most worrisome is robbery, and as c-stores evolved into 24 hours, the violence level increased,” Chris McGoey of McGoey Security Consulting told Convenience Store News. Robberies are up all-around, specifically in convenience stores, as the latest released FBI statistics show robbery up 16.8 percent in c-stores/ gas stations from 2014 to 2015. Rosemary Erickson, researcher, forensic sociologist and president of Athena Research Corp., based in Sioux Falls, S.D., says this is the largest increase she can remember in all the years she has been studying crime. Erickson has helped NACS, the Association for Convenience & Fuel Retailing, develop many of its security resources. “The word to the industry is double-down on your security measures because robberies are increasing,” she told Convenience Store News. Additionally, in 2015, industry shrinkage across all retail averaged 1.38 percent of sales, or $45.2 billion. This was up by $1.2 billion from 2014, according to the 2016 Retail Security Survey by the National Retail Federation. Of those retailers surveyed, 47 percent reported increases in overall inventory shrink, with shoplifting accounting for the greatest amount (39 percent).

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“Loss by employee theft and shoplifting are still [at] the top of the list when it comes to profit loss,” McGoey explained. “Even though armed robbery and violence gets more attention, the dollar loss from that activity is relatively low.” In the c-store industry, in-store shrink was up by 2.2 percent to $20,270 per store in 2015, with the largest amount attributed to foodservice ($8,759), and $5,080 attributed to cigarettes, according to the 2016 Convenience Store News Industry Report. Although shoplifting is reported as the highest, internal theft is responsible for the majority of profit loss, followed by shoplifting, according to McGoey. He attributes these losses to a lack of control, organization and a security plan, and said those who believe their highest profit loss comes from shoplifting may not be paying close enough attention to their employees. “You show me the store that complains about shoplifting, and they probably have a higher internal theft problem they are blaming on shoplifting,” he said.

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PREVENTATIVE MEASURES

While profit loss from internal and external shrink is top-of-mind for convenience store retailers, robbery and violence continue to be an issue, especially with the recent FBI statistics showing these incidents increasing. “We made really great strides in reducing robbery, but that was in the ‘80s, ‘90s and early 2000s,” Erickson noted. “As we moved back toward dealers for Big Oil and franchisees for corporate companies, we started moving more into the mom-and-pop operation and they don’t want to spend money on technology to address many of these problems.” While most operators put in cameras to deter internal theft, there are other benefits of cameras in deterring other types of crime. For this reason, cameras should also be placed outside, covering the parking lot along with the gas pumps, she explained. And both the front and the back of the store should be monitored. “Surveillance cameras are critical, not because they will necessarily prevent a robbery — although there will be some deterrent — but it also helps in identifying people for arrests and convictions,” said Erickson. The cameras available today are significant upgrades from what the industry used in the past, providing higher resolution and crisper images. At least 720p or HD cameras are the minimum of what most chains are using. Cameras today are also much more cost-effective to implement than in the past, according to Hedgie Bartol, retail business development manager for Axis Communications, a manufacturer of security and surveillance cameras. “In the old days, news stories would ask if people could identify someone based on a surveillance image and you couldn’t even tell it was a human being. Now, you can get actionable images,” Bartol said. “There are even intelligent devices so I could have a camera in the carport of my home and put a rule that between 10 p.m. and 7 a.m. if there is motion detected, a white light will go on and announce people are trespassing, and then send me six to eight images.” This could apply in a c-store, too, for activity at the back door, cooler, the pump and more during off-hours, he noted. Also, for employee protection, many companies use a panic button. But with point-of-sale (POS)

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integration, employees can now hit a button on the POS to alert the alarm company to look at the cameras and possibly call the police, according to Bartol. Still, c-store companies struggle to find a way to stop robberies and violence before they occur, and a big issue is many robbers wear masks to conceal their identities. “There are over 100 armed robberies in the country weekly right now and the lion’s share of those are guys with masks on,” explained Joseph Spiess, senior partner at Blue Line Technology, based in Fenton, Mo., which offers facial recognition video surveillance. PERMISSION TO ENTER

At Riverview Moto Mart, owned by FKG Oil Co. based in Belleville, Ill., robberies occurred several times in a matter of months. The chain approached the store manager with a solution that might help, especially since many of the robberies included masked men. “We had gentlemen with masks coming in and robbing the store, and after several incidents the home office started looking at avenues to help the situation,” said Chad Leemon, store manager at the location. “They showed me a packet of information from Blue Line Technology about its First Line surveillance products that require facial recognition in order for customers to enter the store, and after several issues here we decided we wanted to move forward.” At the entrance to the store, there is a sign telling customers they must look up at the camera to gain entry into the store — which the location activates in the evening hours from 8 p.m. to 6 a.m. There is also a large LED light that changes from red to green once the facial recognition occurs and that is when the door unlocks. If someone tries to enter wearing a mask, they are denied entry by the camera. There is also a monitor by the POS so employees can view who is approaching the store, and flip

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a kill switch so the doors won’t open, if necessary, according to Lindsey Silva, application engineer at Blue Line Technology. “We lock our other entrance as soon as it gets dark to funnel everyone through the one door, and the camera looks for 350 points on the face before it will unlock the door,” Leemon explained. The new system went into place this past August and the store has not had any robbery incidents since implementing it. Also, the fact that customers know they must show their face to a camera before entering has deterred crime, according to Leemon. “We see people coming up to the door and then shaking their head and walking away,” he noted. “We also have flagged one person who we caught stealing on camera so he can’t get in the store at all during those hours. We love the capability of locking out the individuals who make it challenging to run a business.” Employees feel safer with the technology, as well. Those who were afraid to work nightshifts are now volunteering. Based on the initial results, FKG Oil is looking into rolling out the technology to other Moto Mart locations, said Leemon. INTERNAL THEFT CONTROL

With the integration of cameras and the POS, retailers are finding they have more control over employee theft than in the past. With exception-based reporting, managers can flag sweethearting, under ringing, over ringing, voided transactions, and more. They can even make sure employees are asking for IDs when it comes to age-restricted products. “The loss from robbery is not that big of a number — usually under $100 because chains are trained to keep the cash count down — so internal theft is having the biggest impact on the bottom line,” said Erickson. “With improved POS innovation, a store operator can monitor employees from home in real time and when exceptions come through.” Spending the money to have the technology in place, though, is only half the battle. Operators need to be monitoring it and using it, while letting employees know they are actually being watched, McGoey emphasized. Those who think employees will be deterred by a camera are mistaken because employees will figure out if they are truly being

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monitored or not. “Employees can find out quickly if the video footage is working and if anyone is really watching or doing periodic audits, and they will take advantage of that,” he said. It starts with putting together a loss prevention plan, and hiring and training employees on detailed shift procedures. Then, monitor employees via the video surveillance to make sure they are following them, McGoey outlined. Those who stop following the procedures are the ones who need to be watched closely. But it’s also important to call out things seen on video to let employees know they are being watched. “Operators need to be checking the POS reports for trends, patterns and exceptions, and they need to question employees about things to let them know they are being monitored,” he said. “They could even make it a training exercise on how to bag better or the frequency of dropping money.” INEXPENSIVE PREVENTION

Crime and security are usually site-specific issues, and there needs to be a plan for each location in a chain. However, there are a number of measures and considerations that are universal when it comes to protecting a store, its employees and its customers. Having fencing around a property and limiting the number of exits from both the store and the parking lot can be helpful in reducing crime, especially in the late-night hours, Erickson said, adding that bright lighting in the parking lot and all around the sides of a store is essential. “It’s also important to keep the windows clear and increase the visibility for employees. There are still so many infractions on that security rule,” she noted. “You want a clear line of sight for police that drive by or potential witnesses to be able to see in, and for the robber or criminal to feel like he or she is fully visible when standing there.” Many stores fill the windows with merchandise and signage, or display racks and coolers, and it affects security in a negative way. McGoey believes there are four ways of attacking security issues in a store. These include: • The design of the store; • Where it’s located and how it faces the street; • The visibility it has; and • The hardware and equipment, such as video cameras, alarms and more. Some of these are more controllable than others, he acknowledged.

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“Don’t build a store in a bad neighborhood,” he said. “Sometimes, marketing and real estate will make a selection based on high traffic rather than looking at the fact that it’s a high crime area. There are also ways to design a store for safety, such as where the counter is located and what visibility is offered.” In cases of new construction, c-store operators can add lighting, video cameras, a door announcer and more. For those with a store already in place, it’s important to know the neighborhood and have a plan in place. “Where the store is located will determine what the traffic is, so if you are next to a bar or nightclub, you will get intoxicated people and have more violence, beer theft and beer runs. In this case, you have to hire people to work that shift who are capable of dealing with that, and this is all part of the planning,” McGoey said.

Training employees is key and when it comes to robberies, making sure employees are doing cash drops into a safe makes a big difference. Employees should be trained to drop every $20 bill immediately and in front of the customer. People who rob a store often come in to see how it is run before robbing it. When they see that they won’t get any money because employees are getting rid of large bills, they will go to the store down the street instead. “NACS has a lot of training materials available for safety and security, and so many of these things don’t cost any money,” Erickson pointed out. “Keeping visibility and the windows clear doesn’t cost any money, although it’s often an argument between marketing and security, or vendors and security. But the priority has to stay high for safety — not just for customers, but also for the employees.” CSN

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TECHNOLOGY Enterprise + POS + Digital + Payment Systems + Business Intelligence

Serving Up Retail Tech CSNews & sister company EKN host inaugural C-store Technology Leadership Dinner By Melissa Kress

hen it comes to innovation in the convenience store industry, technology often takes center stage as retailers try to stay one step ahead of their competition both inside and outside the channel. At the inaugural C-store Technology Leadership Dinner, hosted by Convenience Store News and its sister company EKN Research, technology executives from across the convenience channel gathered to share their insights on where the future of retail tech is

The changing role of the c-store industry IT executive was a topic of discussion.

headed. The event took place the evening of Oct. 17 at Atlanta’s City Winery restaurant. Hot topics around the dinner table included Amazon, mobile, EMV, and loyalty programs. While many commended Amazon’s efforts to meet the demands of today’s increasingly tech-savvy world, all of the retailers in attendance agreed that customer service still reigns supreme in the convenience store

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industry. “At the end of the day, it comes down to the people, and the experience for the consumers,” one attendee remarked. “The c-store experience is something you can’t put in an Amazon box,” another retailer added. The customer experience can be enhanced using technology, though. Mobile technologies, in particular. One attendee pointed to the Pilot Flying J chain as a top mobile performer in the industry. Pilot Flying J’s app “flows seamlessly” with what the Knoxville, Tenn.-based travel center operator’s customers can do inside the store, the retailer commented. For example, the app lets professional drivers reserve a shower or a parking space. Not all regions of the country, however, are as quick to embrace the use of mobile — or even credit/ debit cards — when shopping at a convenience store. One Mississippi operator explained that its rural stores still ring up 80 percent of transactions in cash. With the goal of keeping customers coming back to the store, loyalty programs are among the key initiatives being worked on by convenience store retailers’ technology departments across the United States. Participants in the C-store Technology Leadership Dinner agreed that it’s not only about capturing the loyalty data, but also finding the opportunities within the data. A successful strategy is to keep it simple, but keep customers engaged. Another key initiative keeping c-store technology teams busy is EMV upgrades. EMV is an acronym for Europay, MasterCard and Visa, the three companies that originally created the security standard. Under EMV liability shift deadlines, c-store retailers need to

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CSNews Editorial Director Don Longo presented QuickChek’s Maria Fidibus with the 2016 Technology Leader of the Year award.

Kwik Trip’s Tom Colbert (left) and Yesway’s Doug New were among the participants.

upgrade their point-of-sale, ATM and forecourt to joining the 140-store chain, QuickChek’s use of techEMV-ready readers to avoid being held financially nology has evolved — particularly around the growth responsible for fraudulent transactions. of the foodservice category, mobile applications and One participant quesordering, and its entry into the fueling side of the busitioned how the conveness. QuickChek also continues to pioneer self-checknience channel’s singleout stations in select stores in partnership with NCR. Hot topics around store owners and small The C-store Technology Leadership Dinner fostered the dinner table operators will be able to discussion about the changing role of the c-store industry IT executive, and posed the question: Operational included Amazon, meet the new requirements, especially given the or strategist? The consensus among the group was that mobile, EMV, and financial commitment. it’s not one or the other, but rather both. “Getting them from “You are seeing a convergence of IT and marketloyalty programs. Point A to Point B is very ing,” one participant explained. “Is it more IT or more tough because of the finan- marketing? And who is going to win?” These quescial outlay,” she noted, but added that she hopes they tions are playing out now. CSN don’t stop at the new mandates and instead allow the EMV upgrades to “catapult them” into other areas of tech implementation. The C-store Technology Leadership Dinner, sponsored by Axis Communications and Petrosoft, also honored Maria Fidelibus, QuickChek Corp.’s vice president of information technology, as the 2016 Technology Leader of the Year. The annual award honors a convenience store retailer executive who demonstrates vision and innovation, and leads the way for his/her company and the industry as a whole to take full advantage of technology solutions. Fidelibus joined Whitehouse Station, N.J.based QuickChek in December 2003 as vice president of information technology. Since Atlanta’s City Winery served as the backdrop for the event.

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STORESPOTLIGHT Mission Market

Mission: Convenience Downtown L.A.’s new Mission Market puts emphasis on the customer experience By Danielle Romano

os Angeles is commonly perceived as a hustling city with its sprawling trafficked freeways, but Mission Market, a convenience store concept from Progressive Convenience Inc., has set out to dispel any preconceived notions that convenience can’t be found amongst the chaos. Mission Market recently opened the chain’s third location in downtown L.A., which is densely packed with offices, lofts and apartments, retail and nightlife. Situated at 544 S. Broadway St. in L.A.’s Theater District, the c-store is located in the historic Spring-Arcade Building, the only locale in the city with a pedestrian arcade span-

ning the length of an entire block. It is with this unique positioning that Mission Market is using its Southern California roots and urban concept to draw customers from the bustling city into the 1,770-square-foot atmosphere where they can find solace, value and convenience. Mission Market’s first two locations are in Fullerton (opened June 2013) and Anaheim, Calif. (opened December 2014). “Downtown L.A. is rapidly growing and changing, and we’re so excited to be a part of retooling the retail infrastructure there,” Roland Foss, founder of Mission Market and president of Progressive Convenience, told Convenience Store News. EMPHASIS ON MERCHANDISING

Staying true to its Southern California roots, Mission Market’s third location is situated near Los Angeles’ Theater District.

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Opened in April and built over the bones of a defunct Famima c-store (the Japanese chain withdrew from the United States in October 2015), Foss drew aesthetic inspiration for Mission Market from the “merchandising perfection” of natural and organic grocer Whole Foods Market. Aesthetically, Mission Market puts great emphasis on its merchandise. Lighting plays a key role in this strategy as it warmly spotlights the store’s offerings. Mission Market’s windows are also clear of any extra signage so customers and passersby can see through the store. Aisles, walkways and checkout counters likewise remain clutter-free. To set the tone of a “market,” Foss chose dark brown and burgundy colors to make Mission Market inviting and approachable to busy downtown L.A. workers and inhabitants. Countertops and cabinets are stained dark, and the floors are made of faux wood. “[I want] a customer to come away with the feeling that this is not a typical c-store,” said Foss. “We also try to position ourselves around grab-and-go food, but with the promise of a market — think wide product selection. This is the ultimate in convenience: picking up a meal or snack along with the essentials and sundries you need to tide you over until the next grocery store visit.” According to Foss, successful c-stores appeal to all

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demographics and drive sustainable traffic through all dayparts. To accomplish this, Mission Market offers high-quality, prepackaged, grab-and-go food like salads, sandwiches, sushi, and fresh-cut fruits and vegetables. Then, switching gears to more gourmet menu items, customers can find made-to-order salads, chicken wings, Belgian fries, fried Brussels sprouts, and hand-squeezed limeade from the store’s POV Snack Shop, a partnership with local artisanal pizza joint Pizza of Venice (POV). In the coming months, Mission Market will transition its grab-and-go business to POV as well, with the local vendor producing and packaging most, if not all, of the c-store’s vendor-sourced grab-and-go products, Foss disclosed. Additionally, Pizza of Venice will begin selling its own pizza prepackaged in a take-and-bake format exclusively at Mission Market. Foss also reports that Mission Market is in the process of finalizing a deal with an Asian fresh-food supplier to offer more than 20 SKUs of fresh, graband-go Asian foods like dumplings, sushi and salads. “No other c-store in L.A. will be able to touch the selection Mission Market will have in the grab-and-go category,” Foss insists. Other amenities at Mission Market include: • A bitcoin ATM. Mission Market is the only store in Los Angeles County that allows customers to buy and sell bitcoin using U.S. currency. • A traditional ATM; • Bimbo bakery products; • An “exploded” produce section with tomatoes, bagged lettuce, onions and ginger root; • California Lottery;

Many of our competitors seem to neglect the in-store experience, content with having great locations. Instead, Mission Market aims to be a ‘one block more kind of store,’ where urban consumers will gladly walk past competitors, including drug and grocery stores, to shop here. We do that through attractive store design and layout, great employees, and relevant products that match the needs of our local consumers.

”

— Roland Foss, Mission Market

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The store’s POV Snack Shop is a collaboration with local artisanal pizza joint Pizza of Venice.

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Online ordering and delivery play a significant role in Mission Market’s business model. Delivery is a “tremendous” need-state, especially in the downtown L.A. market, according to Foss. That is why Mission Market offers delivery through partnerships with multiple third-party delivery apps: Postmates, Door Dash, GrubHub, and Eat 24. More than 1,500 of the store’s products are available for online ordering. Delivery is promised within one hour — at the same retail price as in-store — with no minimum order required and only a small delivery fee charged to the customer. “Convenience stores have a unique ability to act like mini distribution centers, satisfying the needs of consumers well beyond our traditional footprint, as long as we have partners with the right logistical capabilities,” Foss explained. “That’s a huge value that we offer.” When asked what he wants customers to think of when they think of Mission Market, Foss told CSNews he hopes they perceive Mission Market as a “progressive” c-store; an improvement from the more conventional stores in the convenience channel. “Many of our competitors seem to neglect the instore experience, content with having great locations. Instead, Mission Market aims to be a ‘one block more kind of store,’ where urban consumers will gladly walk past competitors, including drug and grocery stores, to shop here,” Foss said. “We do that through attractive store design and layout, great employees, and relevant products that match the needs of our local consumers.” The downtown L.A. Mission Market will not be a one-off. Foss’ plan is to open more Mission Markets in downtown L.A. “imminently.” He is currently in talks with POV to replicate the joint concept elsewhere, if future locations meet the c-store operator’s criteria. CSN

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EXPERT’SVIEW NEW Horizons

Green Lights & Stop Signs Don’t let common career barriers hold you back

ach year, I log tens of thousands of miles to meet with women and men at every job level throughout the retail and consumer goods industry. No matter where I go, I hear this same question: “The business case for more women leaders in By Nancy Krawczyk, retail is clear, so why aren’t there Network of more women in senior roles?” Executive Women The short answer: built-in bias — in society, in our corporate cultures and in the choices women are forced to make. Women of every age, circumstance and job level experience barriers that frustrate their career goals — and dampen business results. But here’s the good news: By working together, the convenience store industry’s talent and the companies they work for can absolutely create workplaces that allow everyone to reach their potential. Change is happening. We see progress toward gender equality at companies like The Coca-Cola Co., PepsiCo Inc., The Hershey Co., and many others. But change is not happening everywhere and not nearly fast enough.

Convenience Store News is pleased to continue this series of exclusive educational columns by the Network of Executive Women (NEW), coinciding with the annual CSNews TOP WOMEN IN CONVENIENCE Top Women in Convenience awards given out each fall. More than 60 female managers, executives and directors who work in the convenience store industry were honored in our 2016 program. In addition to being a presentation sponsor for the Top Women in Convenience program, NEW

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NEW’s latest special report, “Green Lights and Stop Signs: The Road to Gender Parity in Retail and Consumer Goods” (written with the Center for Creative Leadership), uncovers three critical support factors that women say drive their careers forward: organizational commitment to gender diversity, developmental support through business relationships and company initiatives, and support from a professional network.

and CSNews have partnered to develop this series of columns directed at helping corporate leaders drive more inclusive company cultures. Sponsored by:

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EXPERT’SVIEW NEW Horizons

The report, based on insights gathered from more than 900 NEW members, also identifies three unyielding career barriers that women say impede their careers: conflicting work/life priorities, being overlooked and undervalued, and being undermined. Here are just a few more of our findings: • Women perceive they must sacrifice life outside of work to hold a senior leadership position. Nearly one in 10 of the women surveyed identified competing work/life priorities as a reason they have held back from pursuing leadership positions. • Women are often overlooked — not C-store operators and developed for leadership positions — and suppliers must ask perceived as having less themselves: What career leadership potential or hurdles do women in our career commitment. • A significant perorganization encounter? centage of women say their career goals have been undermined, intentionally and unintentionally. They report their qualifications are routinely questioned. • Women of color face more career barriers and experience less career support. The two best predictors of career satisfaction, we found, are the level of an organization’s devel-

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opmental support and the degree to which women experience being overlooked and underappreciated. C-store operators and suppliers must ask themselves: What career hurdles do women in our organization encounter? “Green Lights and Stop Signs” doesn’t just report on the state of women at work; it lays out a blueprint for industry leaders that want to advance women and boost their business, and for women who want to blow past the stop signs that have stalled their careers. The report advises women who want to take more control of their careers to adopt these strategies: • Ask for assignments that can advance your career. • Reach out to senior leaders and get their feedback. • Find people who can mentor and sponsor you, and participate in formal mentoring programs offered by your company. • Voluntarily participate in further education, training and career-supporting events. • Read career-related books and articles and participate in leadership webinars. NEW members can attend the NEW Leadership Academy, NEW Summit Speaker Series, and NEW Small Business Leadership webinars for free. (Learn more about NEW’s learning options at newonline.org.) • Build a diverse network of influential people inside your organization. Volunteer for projects that give you an opportunity to meet leaders outside of your function. • Start a group of men and women who actively promote and support each other. • Know your personal values, interests, abilities and areas for development — and try to see yourself through others’ eyes. One strategy presented in the report is a piece of advice I’ve given other women throughout my career: “Believe in yourself — and go for it.” For detailed action plans for women, men and industry leaders working toward gender parity, download the full “Green Lights and Stop Signs” report at newitstime.com. CSN Nancy Krawczyk is vice president, marketing and corporate partnership for the Network of Executive Women, Retail and Consumer Goods, a learning and leadership community representing 10,000 members, 750 companies, more than 100 corporate partners and 20 regional groups in the United States and Canada. Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

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How to Compete at the Drive-Thru Operators must go beyond speed of transaction and order accuracy

s a convenience store operator, you may already have a drivethru at your stores, or you may be thinking of adding one. In either case, my intention here is to provide you with insight and direction on how to get a leg up on your competition and better compete at the drive-thru. Most quick-service, fast-casual and other food-centric brands with drivethrus concentrate on speed of transaction and order accuracy. This is because historical research studies have indicated these to be the stron- Instead of thinking about the drive-thru as a whole, Starbucks views it as distinct customer gest needs of drive-thru cus- zones requiring different strategies. tomers. However, consumers’ attitudes and behaviors have shifted tremendously in recent years, and continue cant premium on the overall experience. What’s noteto do so. Yet, the typical drive-thru remains worthy is that virtually all of the customer-experience By Tom Cook, largely unchanged from when it was introenhancements and restaurant makeovers take place in King-Casey duced in 1947 by Red’s Giant Hamburg on the interior and not in the drive-thru. Route 66 in Springfield, Mo., and transformed consumers’ dining habits. WHAT YOU CAN LEARN FROM STARBUCKS Five years ago, Starbucks’ drive-thrus were nothing special, not even at parity with industry standards. CUSTOMER EXPERIENCE IS THE KEY The story of their rise to industry drive-thru leaderThe key to success at the drive-thru is the customer ship includes adopting a new way of looking at their experience; going beyond speed of transaction and drive-thru business through individual customer zones, order accuracy to deliver a customer experience that a commitment to developing solutions based on their transcends these and leapfrogs your competition. customers’ needs and behaviors, and incorporating The process begins by clearly and thoroughly proprietary brand and design elements. understanding what consumers want and need at the Several years ago, by their own admission, drive-thru in general, and from your convenience store Starbucks’ drive-thrus had “hit a wall.” They lacked drive-thru in particular. This coupled with your key differentiation, and customer communications were brand attributes, equity elements and brand essence limited to poorly designed menuboards. Their vision will form a strategic framework, from which you can was to find ways to think differently about the drivedevelop a differentiated, proprietary and branded thru. What could be done to speed throughput, increase drive-thru experience. transactions, provide better service, and grow ticket? Today, when it comes to dining, no matter if it’s What could be done to differentiate the Starbucks drivequick-service, fast-casual or casual-dine restaurants, thru experience and dazzle customers? consumers (millennials, in particular) place a signifi-

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EXPERT’SVIEW Addressing these questions is testament to a market leader willing to change in order to generate significant and meaningful improvement. Starbucks asked King-Casey to evaluate the drivethrus and make recommendations. The first step was to conduct an audit and assessment of the drive-thrus, looking at them through the lens of their customers and utilizing King-Casey’s COZI (Customer Operating Zone Improvement) methodology. King-Casey was accompanied on the audits by a small team of Starbucks executives to whom the results were eye-opening. By the third site visit, the Starbucks team was leading the audit, pointing out how little consideration was being given to their customers at the drive-thru (e.g., “There aren’t even any signs to indicate where the drive-thru is.”). The audit provided the first “aha” moment for Starbucks — that their drive-thru was something more than just order and pickup points.

“Pickup and pay” is one of the Starbucks drive-thru customer zones.

The COZI audits enabled Starbucks to hone in on meaningful solutions. COZI is a methodology that treats stores not just as branded retail boxes. Each store is actually a collection of many individual “customer operating zones,” with customers behaving differently in each one. Their needs and expectations are different. Their attitudes and mindsets are different. Each of these unique zones is right for one communications and merchandising strategy, and dead-wrong for another. In this case, Starbucks needed to identify each of their drive-thru zones. These included: approach, entry, pre-order, order, pickup and pay, and exit. Following the identification of zones, Starbucks needed to understand how their customers behave in each zone, what their needs are, and then establish specific business and improvement goals for each zone. CUSTOMER-CENTRIC SOLUTIONS

Customer zones was a breakthrough moment for Starbucks. Instead of thinking about the drive-thru as a whole, Starbucks started thinking about the different

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and distinct customer zones. Being able to dissect the drive-thru into key customer operating zones helped Starbucks think through and identify many different improvement opportunities. New zone-specific strategies were developed for the different customer zones. Communications and messaging were now cognizant of customer needs, attitudes and behaviors, and were tailored to meet specific, zone-appropriate business objectives. These changes alone made a big difference in sales performance and customer satisfaction that exceeded expectations. But Starbucks didn’t stop once they had optimized their zone-specific customer messaging. They set out to identify what else they could do to deliver to their drive-thru customers a superior and memorable experience like their customers enjoy inside the store. That took some creative ideation, focusing on clearly understanding their drive-thru customer needs and even inventing new technological solutions. What follows are a few examples: • The “Digital Barista.” The key element in replicating Starbucks’ interior customer experience at the drive-thru is the addition of a 46-inch digital screen that allows customers to interact live via twoway video with the baristas who serve them. The innovative digital display also serves as an order confirmation communicator, and promotes (in real time) available bakery items and suggest-sell promotions to increase incidence of food attachment to beverage orders. Customers love it, particularly the unique ability to see and chat with their barista. The “digital barista” illustrates another object lesson that is less obvious. It capitalizes on Starbucks’ greatest asset: its people, and their engagement with customers. This is an insight and opportunity that would have never surfaced from a typical research study on the drive-thru. • Branded Wayfinding at the Drive-Thru. Customers had difficulty identifying Starbucks stores that had drive-thrus, and smoothly navigating through them. To alleviate this, Starbucks added unique branded signage with chevron arrows and “Starbucks green” pavement stripes to help customers quickly find and easily navigate the drive-thru. • Optimized Customer Communications. One area of significant opportunity — increased food sales at the drive-thru — was initially imperiled by an internal cultural concern that images of food on the menuboard would cheapen the Starbucks image. But positive customer feedback and test

EXPERT’SVIEW

results convinced Starbucks that food images were helping drive food sales at the drive-thru. Starbucks now prominently utilizes visuals on its interior menuboards as well. Another key insight involved their drive-thru merchandising. There is a saturation point for messaging within individual customer zones. Depending upon the zone and how customers use it, there’s an ideal maximum number of messages the customer can digest. Going beyond that saturation point is a waste of money, and it also frustrates the customer and slows down throughput. So, zone-specific merchandising guidelines were developed to help Starbucks with “message management” within the drive-thru. DRAMATIC BUSINESS RESULTS

Average store sales are approximately 50 percent greater in Starbucks locations that have a drive-thru. The dramatic business results Starbucks achieved through reinvention of its drive-thrus have initiated the largest capital expenditure in the company’s history. In fact, Starbucks’ stated goal is to have drive-thrus in

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half of its stores by 2020. This is positive proof of the continued and growing importance of drive-thrus to today’s busy and time-starved consumers. CSN Tom Cook is principal of King-Casey, where his primary responsibility is to oversee and direct the strategic and operations management of the retail consulting and design firm. This entails King-Casey’s core business processes: client service delivery, client business development, design and implementation delivery, new service development, and new business development. Cook’s expertise in branding, marketing and strategic retail design spans a broad range of clients and industries. Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

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Why not?... 50% of your customers own a dog. Gross profit margins average 40%. Our retail prices are 30-50% below the big box pet stores. Our product variety and quality offers a selection for any type of dog. Our wooden display case is handmade in our Michigan workshop and brings attention to itself.

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It pays to be Different. Please contact your distributor, Michael or Rick at 877-715-4555

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3302 Associates Dr. Burton, MI 48529

CLASSIFIED Credit Card Processing / Merchant Services

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CLASSIFIED Cash Registers / Scanning / Sales

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CLASSIFIED General Merchandise

ATMs

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CLASSIFIED Air Vacs

Equipment / Supplies

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CLASSIFIED Plastics

Pre-Paid/Cellular Products

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CLASSIFIED Air Vacs

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CLASSIFIED ATMâ&#x20AC;&#x2122;s

Age Verifier / POS

Age Verifier

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CLASSIFIED Services

Financial Services

Scales

General Merchandise

DAVY CROCKETT HATS SELL BY THE TENS OF THOUSANDS AT $5.00 EACH. Silver Fox tails are a good seller!

You Can Scan We have: Red Fox tails, Coyote tails, White tails, Racoon tails, etc.

Leopard Rabbit Skin

Rabbit Skins come in White and Ivory for $2.00 and Leopard for $8.00

LARGEST FUR TAIL DEALER WITH OVER A MILLION TAILS AT LOW WHOLESALE ONLY PRICES. $100 MIN. FREE PRICE LIST.

Strips Inc. Tel.: (718) 786-3381 Fax: (718) 786-0203 http://stripsinc.tripod.com

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CLASSIFIED Petroleum/Equiment

Looking for ideas to promote your product or services? Need help creating an ad that fits your needs without spending a fortune with an advertising agency?

We are here to help you, whether it be in the classified ad section, an ad in the main pages, or online. Call or email with any questions or for pricing. We can handle all aspects of your ad from conception to print in a fraction of the cost that agencies charge!

Our ads get results! CALL TERRY KANGANIS TODAY-

201.855.7615

tkanganis@stagnitomedia.com

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CLASSIFIED Financial Services

Check Guarantee Services

Equipment / Supplies

Sunglasses

Wholesale Refrigeration

of retailers

who read Convenience Store News do so because they want to find out about new products. Reach those important hard to reach retailers by advertising here in the Hot Products Section of Convenience Store News by contacting:

Terry Kanganis EnsembleIQ at:

201-855-7615 for more details 112 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

ADINDEX Advance Pierre ................................................................... 31 Altria Group Distribution Company ................................. 2-3 Bake’nJoy............................................................................ 79 BIC........................................................................................ 13 Blu Cigs ............................................................................... 63 Campbells ........................................................................... 116 Cash Depot.......................................................................... 58 Cenex................................................................................... 98 Regional Cheyenne International .................................................... 45 Cookies United ................................................................... 91 Goya Foods,Inc. .................................................................. 15 Hershey’s ............................................................................ 7 Home Market Foods ........................................................... 115 ITG........................................................................................ 93,95,97 John Middleton................................................................... 27 JT International U.S.A,Inc. ................................................ 51,67 J&J Snack Foods Corp........................................................ 81 JTM/JJ’s Bakery.................................................................. 75 Kretek .................................................................................. 49 Liggett Vector Brands ........................................................ 33 Logic Technologies ............................................................ 10-11 McKee/Little Debbie .......................................................... 21 McLane Company............................................................... 23 Mondelez International..................................................... 17,53,73 MTI/Autofry ........................................................................ 18 National Confectioners Association................................. 61 National Restaurant Association...................................... 89 Omegaflex ........................................................................... 20 Perfetti Van Melle............................................................... 85,87 Phillips................................................................................. 55 Procter & Gamble............................................................... 83 Renewable Energy Group................................................. 77 RJ Reynolds Tobacco Company ....................................... 9 Stout Brewing Company, LLC........................................... 43 Subway................................................................................ 39 Swedish Match................................................................... 19,35,69 Swisher International Inc. ................................................ 57,59,71 Tillamook Country Smoker, Inc........................................ 29 Tyson ................................................................................... 25,47 Universal Merchant Services............................................ Outsert White Castle ....................................................................... 41 The Wonderful Company/Halos....................................... 5

570 Lake Cook Road, Suite 310, Deerfield IL 60015 Phone (224) 632-8200 Fax (224) 632-8266 www.ensembleiq.com

Ron Lowy Group Brand Director 330-840-9557 rlowy@ensembleiq.com Michael Hatherill Business Development Manager 201-855-7610 mhatherill@ensembleiq.com Terry Kanganis Account Executive & Classified Advertising 201-855-7615 tkanganis@ensembleiq.com Erika Cann Southeast Regional Sales Manager 330-357-9207 ecann@ensembleiq.com Rachel McGaffigan Northeast Regional Sales Manager 508-385-2524 rmcgaffigan@ensembleiq.com Dian Melius Western Regional Sales Manager 949-387-1451 dmelius@ensembleiq.com Roz Gilman Ad Manager/Production 314-403-4753 rgilman@ensembleiq.com

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GETTINGTOTHECORE

New Year, New Resolutions C-store shoppers resolve to make changes to their diet and lifestyle in 2017

ore than eight in 10 U.S. consumers say it is extremely or somewhat important for them to maintain a healthy diet and lifestyle, and about half are making resolutions for 2017 to improve their health or diet. Carbonview Research, sister company of Convenience Store News, recently surveyed 500 U.S. consumers who shopped at a convenience store in the past month about their attitudes and behaviors around health and making New Yearâ&#x20AC;&#x2122;s resolutions tied to health.

Convenience store shoppers who purchase foodservice items at least once a week are more likely than overall c-store shoppers to be making 2017 resolutions to improve their health or diet.

54.6% vs.

3ta8ge.of2co% nvenience store

The percen solution at shoppers who made a re prove their the start of 2016 to im health or diet.

58.1 %

The perc shoppers wehntage of c-store resolutions t o say their 2016 health or die o improve their t went well or excweell, very llent.

48.6ge %of c-storaere

ta ey o ercen ho say th or 2017 t p e h T pers w tions f r diet. shop ng resolu health o maki ove their impr

48.6%

How does the importance you place on maintaining a healthy diet and lifestyle today compare to one year ago? A year ago, it was more important A year ago, it was less important It was the same a year ago

TOTAL

BY AGE: 18-24

25-34

35-44

45-54

55-64

65+

9.8% 47.2 43.0

13.6% 49.4 37.0

9.8% 51.8 38.4

9.1% 46.6 44.3

8.8% 43.1 48.0

9.8% 45.1 45.1

5.7% 45.7 48.6

More than half of c-store shoppers aged 25-34 are placing more importance on healthy living today vs. a year ago.

Base: 500 respondents who shopped at a convenience store in the past month Source: Convenience Store News Market Research, 2017

How important is it for you to maintain a healthy diet and lifestyle? Want to collaborate and share expertise with your peers? The Council of Retail Experts (CORE) is an exclusive network of convenience store retail leaders who do just that. For more information on how to join CORE, please visit www.cvcoreinsights.com.

Survey respondents sourced via ProdegeMR, a leading provider of data collection solutions for the research industry. Visit www.prodegemr.com for more info.

114 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM

TOTAL

Extremely important Somewhat important Neither important nor unimportant Somewhat unimportant Not at all important

BY GENDER: MALE

Female c-store shoppers place more importance on healthy living, but not by as wide a margin as some might think. FEMALE

33.2% 51.0

32.3% 50.4

34.1% 51.6

9.0 5.2 1.6

9.8 5.5 2.0

8.1 4.9 1.2

Base: 500 respondents who shopped at a convenience store in the past month Source: Convenience Store News Market Research, 2017

*not a low-calorie food