A Lukewarm Reception for 2023

C-store retailers are largely neutral about their business prospects this year

By Linda Lisanti

HEADING INTO 2023, the current state of the U.S. economy is not instilling a great deal of confidence in the nation’s convenience store retailers. Nearly seven in 10 retailers who participated in the 2023 Convenience Store News Forecast Study said they have a negative outlook on the U.S. economy for 2023 — an increase of 22 points vs. a year ago.

On account of this, and other challenges the c-store industry is facing, retailers are largely neutral on their overall business outlook for the year. On a scale of one to five — where 1 represents “Terrible, wake me when it’s over” and 5 represents “It’s going to be our best year ever!” — the largest percentage of retailers (44 percent) rated their expectations for 2023 at a 3. Last year, the foremost rating was a 4.

Given the less optimistic outlook among retailers this year, it’s not surprising that fewer operators are planning to expand their store networks in 2023. The percentage who said they will increase their store count this year dropped by 13 points to 46 percent.

Last year, 94 percent of the large operators surveyed said they planned to increase their store count. This year, just 78 percent of large operators indicated the same, down 16 points.

Issues of Concern

As in past years, the 2023 CSNews Forecast Study asked retailers to weigh in on the factors that will have the biggest impact on their sales and profitability in the new year.

For the second consecutive year, c-store operators anticipate that labor turnover and hiring will have the greatest impact. Nearly three in 10 operators pegged this as their top concern, while 63 percent put it in their top three.

According to respondents, the labor problem is multifaceted and encompasses difficulty in finding workers with the necessary skillset; increased costs to attract high-quality candidates; high turnover; increased resources needed to

Company View of U.S. Economic Conditions in 2023

VERY/SLIGHTLY NEGATIVE NEUTRAL VERY/SLIGHTLY POSITIVE

66% 21% 13%

Overall Outlook for Business in 2023

Terrible, wake me when it’s over

1

NEGATIVE NEUTRAL POSITIVE

3% 13%

1 2 44%

3 5

It’s going to be our best year ever!

35%

4 5%

5

Expectations for Average Sales Per Store in 2023 Expectations for Average Profi ts Per Store in 2023

14%

Decrease

69%

Increase

17%

Stay the same

30%

Decrease

42%

Increase

29%

Stay the same

Source: Convenience Store News 2023 Forecast Study

constantly train new employees; poor customer service; inferior site quality; and low team morale.

“I’m going to have labor flow issues to the point of having to close one or two days a week,” one retailer said. Another noted: “Customer service is an important aspect of our brand and high turnover depletes the standard we set since we have to constantly train new employees.”

Inflation and economic issues came in a close second, with 21 percent of convenience retailers identifying this as their chief concern and 63 percent ranking it in their top three.

Rising prices are a double whammy for retailers as they affect what cash-strapped consumers are willing to buy and how much profit the operator makes on purchased items.

C-store operators expect rising prices to have a negative impact on their bottom line this year. While 69 percent project that their total average dollar sales per store will rise year over year, just 42 percent project that their total average profits per store will increase — marking a decline of 14 points compared to a year ago.

“Prices go up weekly. It’s hard to stay on top of the increases. I have to raise my prices or I will go out of business. The consumer believes it’s the greedy business owner raising prices,” one retailer lamented. Another added: “At some point, our prices could be high enough to force consumers to go to grocery stores.”

Supply chain issues also continue to plague convenience retailers and affect their sales and profitability. More than 50 percent of operators cited this as one of their top three concerns and 14 percent identified it as their No. 1 issue. Comments from retailers included:

• “Currently suffering from constant substitutions on popular products”; • “Difficulty sourcing products across the board"; • “Constant out-of-stocks require additional time to substitute brand or product”; and • “Out-of-stock issues will remain, causing customers to go elsewhere.”

Conversely, worries around the COVID-19 pandemic have lessened considerably. The top-ranked issue of 2021 and third-ranked issue last year now sits in ninth position.

“It seems finally the COVID scare is over. We hope people will be tired of staying at home and will begin to go out more often. We are making our convenience stores more friendly so that our clients feel encouraged to stop by,” one retailer shared.

C-store operators this year are also less troubled by the rise in e-commerce, which was driven by the pandemic. Ranked fifth last year, e-commerce dropped to the 10th position this year.

However, retailers are still very much concerned about cross-channel competition.

Nearly seven in 10 operators expect cross-channel competition against the convenience store industry to increase in 2023. Likely due to inflation and the effect of rising prices on consumers, convenience retailers perceive dollar stores as their biggest competitive threat this year. Delivery sites for both groceries and foodservice are on their radar as well.

Anticipated Impact of Issues on Sales & Profitability in 2023

(% of Total Retailers identifying as "Biggest Impact" and in Top 3)

Ranked Biggest Impact Ranked in Top 3

Labor turnover and hiring Inflation and economic issues Supply chain issues Motor fuel prices 26% 63%

21% 63%

14% 54%

16% 45%

Tobacco and e-cigarette regulations

7% 20% Declining foot traffic 3% 17% Changing consumer expectations of "convenience" 3% 10% Emerging technologies 0% 7% COVID-19 pandemic 4% 6% Rise in e-commerce 3% 5% Brick-and-mortar competition Demographic changes Industry consolidation 1% 3%

1% 3%

0% 3%

Source: Convenience Store News 2023 Forecast Study

Areas of Opportunity

Despite the challenges facing the convenience channel, operators are bullish on the industry’s ability to weather tough times. One described it as “dedication to survival.”

Several retailers pointed out that the industry has proven itself time and again to be resilient to various economic situations, whether it be a pandemic or a recession.

“The c-store industry is very resilient due to its importance to the local community and neighborhoods. We provide food, drinks, fuel and many other necessities of life in a quick, convenient way at a reasonable cost,” one operator stated.

Forecast Study respondents also noted that the c-store industry is constantly changing and adapting. The industry is full of “smart people making good decisions and adjusting as needed due to changing market conditions,” according to one retailer.

Case in point: C-store operators are eying various initiatives to boost their sales and profitability in 2023. The top "enhanced convenience" services they plan to add are at-pump ordering for in-store items, contactless shopping via app and drive-thru service.

Foodservice expansion is also on many retailers’ to-do list for 2023 now that the convenience channel has established itself as a trusted destination for fresh food and beverages.