Not So Great Expectations

Inflation is pushing dollar sales up, but most retailers don’t expect considerable change in how much consumers will actually buy in the coming months

By Angela Hanson

WHEN ASKED TO share their predictions for the coming year, it seems convenience store operators don’t need to imagine the possibilities because for many, the future is now. 2023 is likely to see the continuation of many 2022 trends, with rising prices and ongoing supply chain snags contributing to differing expectations for dollar sales and unit volume across product categories, according to the 2023 Convenience Store News Forecast Study.

Prepared food is the only category for which the majority of c-store retailers expect to see both dollar sales and unit volume increase. For all others, opinions are mixed, with some categories projected to see an increase in dollar sales but not unit volume, and others projected to remain static in both measurements. Motor fuels and cigarettes have the greatest projected disparity, and cigarettes is the only category for which an outright majority of retailers expect a decrease in unit volume.

As a silver lining, some categories this year are seeing an increased percentage of retailers making positive sales predictions, indicating a level of underlying optimism among some, even if that sentiment isn’t held by the majority.

Here are the individual category forecasts for 2023, according to c-store retailers:

MOTOR FUELS

At first glance, the outlook on motor fuels is rosy: 56 percent of retailers expect average dollar sales per store to increase in 2023, while just 14 percent expect dollar sales to decrease. However, this is largely predicated on increased inflation driving costs up, as only 18 percent expect average gallons sold per store to increase and 34 percent believe gallons will decrease.

Company size makes a clear difference in expectations. More large operators than small operators predict average dollar sales will rise this year (62 percent vs. 52 percent, respectively). When it comes to gallon sales, though, 44 percent of large operators say average gallons sold per store will decrease, compared to 26 percent of small operators.

Study participants pointed to supply chain challenges, geopolitical issues affecting fuel pricing and availability, and evolving consumer behavior as some of the notable trends that will affect the motor fuels category in the year ahead.

“Less miles driven equals less gallons purchased,” summarized one operator.

Category Forecast: Motor Fuels

14%

Decrease

30%

Stay the same

56%

Increase

DOLLAR SALES

34%

Decrease

18%

Increase

49%

Stay the same

GALLONS

Category Forecast: Cigarettes

27%

Decrease

37%

Stay the same 36%

Increase

59%

Decrease

7%

Increase

34%

Stay the same

DOLLAR SALES UNIT VOLUME

Source: Convenience Store News 2023 Forecast Study

Retailers are also in agreement that the movement toward electric vehicles and other more efficient automobiles will continue, and reshape the fuels landscape.

Although customers will continue to be sensitive to gas prices, some operators believe they can stand out by making the fueling-up process smoother and visits more valuable. “Customers increasingly have expectations of automation, ease of use and integrated loyalty programs,” another retailer pointed out.

TOBACCO

C-store operators’ expectations for cigarette sales in 2023 are largely a repeat of their predictions for 2022. Most do not think average dollar sales per store will decline, but they are once again evenly split on whether dollar sales will stay the same (37 percent) or rise (36 percent).

As with motor fuels, pessimism is higher regarding average unit volume per store. The percentage of retailers who say cigarette volume will decrease next year jumped more than 10 points to 59 percent, while just 7 percent expect unit volume to increase.

Small operators and large operators have similar projections for dollar sales, but nearly three-quarters of large operators say cigarette volume will drop, compared to half of small operators. Retailers cited not just the amount that cigarette prices are rising, but also the frequency with which price increases are occurring, as the main reason for these divergent expectations. As a result, 2023 could be a good year for sales of fourth-tier brands.

“They are pricing themselves out of the market by the constant price increases,” one retailer said.

Most operators expect to maintain the number of cigarette SKUs they currently offer and the square footage they devote to the category. However, 29 percent expect to decrease SKUs and 22 percent plan to reduce square footage. Large operators are more likely than small operators to say they will maintain vs. making positive or negative changes.

Retailers listed a wide variety of non-pricerelated trends that will affect cigarette sales in the coming year, including flavor bans and other government regulations; emerging products that will replace traditional ones, such as low/no nicotine products and heat-not-burn items; and a continuation of the long-term decline in smoking.

“If laws pass banning disposable vapes as well as flavored cigars and menthol, I see sales decreasing,” one retailer said. “I also believe it will not change the fact that younger kids are smoking and vaping. It will just punish the adults who enjoy it. I have never smoked, but I believe this to be true.”

Retailers see fewer clouds on the horizon for other tobacco products (OTP). Nearly all c-store operators expect average dollar sales per store to stay the same or increase this year, with just under half predicting growth. Only 6 percent expect dollar sales to decline. They are somewhat

Category Forecast: Other Tobacco Products

6%

Decrease

45%

Stay the same

49%

Increase

19%

Decrease

48%

Stay the same

33%

Increase

DOLLAR SALES UNIT VOLUME

Category Forecast: Prepared Food

6%

Decrease

24%

Stay the same

70%

Increase DOLLAR SALES

7%

Decrease

33%

Stay the same 60%

Increase

UNIT VOLUME

Source: Convenience Store News 2023 Forecast Study

less sunny about unit volume, with fewer than two in 10 retailers expecting average unit volume per store to decline, and a third expecting unit volume to increase.

Small operators and large operators project similar results for both OTP dollar sales and unit volume. Overall, retailers of all sizes expect OTP to be an inflationary category in 2023, with higher dollars generated than units sold. Most operators do not expect to make changes to the number of OTP SKUs they currently offer or the category’s square footage.

Trends expected to affect OTP this year are similar to cigarettes, with rising costs, legislative and regulatory initiatives, and growth in new product types among the most frequently cited.

The category may also benefit from tobacco consumers shifting their usual purchase habits. “More consumers are moving to OTP products to get away from smoking cigarettes,” one retailer remarked.

FOODSERVICE

Foodservice has returned to being a high-growth business in the eyes of c-store retailers, continuing the category’s rebound from the effects of the COVID-19 pandemic. While expectations still remain less than pre-pandemic predictions, seven in 10 operators expect average dollar sales per store to increase in 2023 and six in 10 expect average unit volume per store to increase.

This positive sentiment transcends company size. Although large operators are more bullish than small operators on the prepared food segment, less than 10 percent of either large operators or small operators expect foodservice dollar sales or unit volume to decline.

Operators are mixed on how strongly rising prices will impact prepared food, with one noting that their company is “trending to keep the same offerings by selling at the same price to eliminate the mindset of inflation to the consumer.”

Large operators are more likely than small operators to say that they will invest in more prepared food SKUs in 2023 (60 percent vs. 40 percent, respectively). Large operators are also more likely to be planning increased square footage for the category, although they are still evenly split between adding space and staying the same.

C-store operators are leaning into the channel’s growing reputation for prepared food, planning improvements and expansions such as increased variety and innovation; more limited-time offers; and more healthier and fresh foods. Retailers believe that prepared food innovation and the ability to consistently offer high-value items are key differentiators to combat inflation and supply chain issues.

The c-store industry will also benefit from consumers who don’t have time to cook or don’t like to cook, but desire on-the-go options that offer quality and value, study participants believe. “People that are working will still be pressed for time,” said one retailer. “We offer a price point that is usually less than fast-food outlets with, most of the time, faster wait times.”

Dispensed beverages, which include hot, cold and frozen drinks, are also expected to have a solid 2023, albeit with more tempered expectations. Half of c-store operators expect average dollar sales per store to increase (up 17 points from one year ago), while 40 percent expect dollar sales to stay the same. Thirty-eight percent of retailers expect average unit volume per store to increase, while 51 percent expect it to stay the same.

As with prepared food, large operators and small operators have comparable expectations for both dollar sales and unit volume. Most retailers expect their dispensed beverage SKUs and square footage to remain stable in 2023, although more small operators report plans to increase both.

Category Forecast: Dispensed Beverages

10%

Decrease

40%

Stay the same

DOLLAR SALES

50%

Increase

11%

Decrease

51%

Stay the same

UNIT VOLUME

38%

Increase

Increased prices and the perceived superior value of packaged beverages serve as stumbling blocks for dispensed beverages, according to study participants. However, some expect inflationary pressures to prompt lower-income customers to switch back to the fountain.

Bean-to-cup coffee, sugar-free beverages, seltzer and flavor innovations are cited as this year’s key dispensed beverage trends. Retailers are looking at a wider variety of dispensed options along with new brewing and mixing technology to boost quality.

“[We’ll be] pushing free drinks with rewards programs tailored to the season of the year,” one operator shared.

PACKAGED BEVERAGES

Convenience stores will continue to be a destination of choice for thirsty customers who want to purchase a canned or bottled beverage this year, according to the retailers surveyed.

Fifty-seven percent of operators expect their average dollar sales per store of packaged beverages to increase in 2023, while 36 percent expect dollar sales to stay the same. Unit volume isn’t projected to do as well, with 51 percent reporting that they expect average unit volume per store to hold steady. Only 39 percent expect unit volume to increase.

Large operators and small operators have similar expectations for dollar sales, but more large operators (46 percent) predict increased unit volume, compared to small operators (35 percent). Few retailers expect either category dollar sales or unit volume to decline.

The majority of retailers expect packaged beverage SKUs and square footage to hold steady in 2023, although large operators are more likely to say they will increase both. The 24 percent of small operators and 31 percent of large operators that expect to add SKUs indicate that there is an appetite for variety among their customers.

Retailers expect to see increased packaged beverage innovation, with some expressing concern about the cannibalization of existing brands. Higher foot traffic is likely to benefit the category, but only if c-stores have the beverages customers want in stock. and losers,” said one retailer.

Category Forecast: Packaged Beverages

7%

Decrease

10%

Decrease

36%

Stay the same 57%

Increase

DOLLAR SALES

51%

Stay the same

39%

Increase

UNIT VOLUME

Category Forecast: Beer & Malt Beverages

6%

Decrease

13%

Decrease

38%

Stay the same

56%

Increase

DOLLAR SALES

52%

Stay the same

35%

Increase

UNIT VOLUME

Source: Convenience Store News 2023 Forecast Study

BEER & MALT BEVERAGES

Like the non-alcoholic packaged beverages category, rising costs are likely to push beer and malt beverage dollar sales up, while unit volume

holds steady for the most part. Among retailers that sell alcohol, 56 percent expect average dollar sales per store to increase in 2023 (up 30 points from one year ago), while nearly four in 10 expect dollar sales to stay the same.

These figures are nearly flipped for unit volume, with 35 percent projecting that average unit volume per store will increase and 52 percent expecting it to stay the same. This is still an improvement from last year, when 14 percent of retailers predicted volume would increase.

Small operators and large operators are living in different worlds when it comes to expectations for beer and malt beverage dollar sales. Nearly two-thirds of small operators believe their average dollar sales per store will increase this year, compared to 42 percent of large operators. Their expectations for unit volume are more in line, with 50 percent of small operators and 55 percent of large operators saying they expect volume to stay the same.

Most retailers industrywide expect the number of SKUs they offer and the amount of square footage they devote to beer and malt beverages to stay the same in 2023, but small operators are more open to adding new items, with 31 percent saying they expect to add SKUs.

Projected trends include increased variety and consumers shifting from drinking at bars and restaurants to buying packaged alcohol to save money. Like other segments, inflation is affecting the beer and malt beverages segment, but it may have better defenses against it.

“Alcohol does well in recessionary climates,” said one retailer. “It will be interesting to watch this against the factors that affect the other categories, and costs and retails going up and foot traffic going down.”

CANDY

The candy category is likely to remain static for another year, with most convenience store retailers expecting that sales will neither grow nor decline in 2023.

Nearly six in 10 operators expect average candy dollar sales per store to remain the same. About a third say that dollar sales will increase, but this is again likely due to rising prices, as around two-thirds of retailers predict that average unit volume per store will not change. Small operators expect a bit more stability in dollar sales, with a quarter predicting an increase and 67 percent expecting no change, compared to 49 percent of large operators predicting higher dollar sales and 46 percent expecting no change. Likewise, just 11 percent of small operators expect

Category Forecast: Candy

8%

Decrease

59%

Stay the same

34%

Increase

DOLLAR SALES

14%

Decrease 19%

Increase

67%

Stay the same

UNIT VOLUME

Category Forecast: Salty Snacks

2%

Decrease

9%

Decrease

54%

Stay the same 44%

Increase

DOLLAR SALES

62%

Stay the same 30%

Increase

UNIT VOLUME

Source: Convenience Store News 2023 Forecast Study

unit volume to increase, while large operators are more optimistic with 31 percent projecting higher unit volume.

Both candy SKUs and square footage are largely expected to stay the same this year. Retailers believe that rising prices will cause some consumers to cut back on impulse purchases, as they now view the segment as a luxury rather than an affordable treat. Although, as one operator observed, “people always like candy.”

Zero- and low-sugar products are likely to be on trend, while line extensions, flavor innovation and smart merchandising are projected to spark consumer interest. The state of the supply chain may determine whether candy sales experience growth or remain on hold.

SNACKS

Similar to the candy category, retailers have modest expectations for salty snacks in 2023.

More than half (54 percent) believe average dollar sales per store will remain the same. However, higher prices have prompted a lift in the number of retailers who expect increased dollar sales, with a healthy 44 percent saying they forecast average dollar sales per store to rise. Sixty-two percent of retailers expect average unit volume per store to stay the same, while 30 percent expect it to increase.

Large operators anticipate better results for salty snacks, as 51 percent expect an increase in dollar sales (vs. 39 percent of small operators) and 40 percent expect unit volume to increase (vs. 23 percent of small operators). Few retailers expect dollar sales or unit volume to decline.

Salty snack SKUs and square footage are also likely to remain stable across the industry in 2023, although a notable minority of retailers (23 percent) say they will add SKUs. As a result of inflation, retailers expect to see higher prices and smaller package sizes.

But the continuing shift in how consumers eat could be a boon for the segment, according to study participants. “Salty snacks are improving while hot food sales are declining. People are snacking rather than eating meals,” observed one retailer.

Healthier options, “feel-better” foods and increased variety are cited as trends to

Category Forecast: Alternative Snacks

5%

Decrease

8%

Decrease

60%

Stay the same 35%

Increase DOLLAR SALES

62%

Stay the same 29%

Increase

UNIT VOLUME

Category Forecast: Edible Grocery

13%

Decrease

17%

Decrease

57%

Stay the same 29%

Increase

DOLLAR SALES

63%

Stay the same 20%

Increase

UNIT VOLUME

Source: Convenience Store News 2023 Forecast Study

watch this year, with new options expected to fuel trial. “Everyone has to try the new stuff at least once,” another retailer remarked.

Operators expect a similar performance from the alternative snacks segment. Rising prices again are boosting retailers’ projections for dollar sales compared to one year ago, with 35 percent expecting dollar sales per store to increase, while six in 10 operators expect no change. Most retailers (62 percent) also expect alternative snack unit volume per store to hold steady, while 29 percent expect unit volume to increase, an 11-point lift from a year ago.

Large operators and small operators have similar expectations for both dollar sales and unit volume, with a majority of both expecting little change this year.

Most retailers expect to keep their alternative snack SKUs and square footage stable in 2023. However, small operators are more likely than large operators to report plans to add SKUs (35 percent vs. 9 percent, respectively) and to up square footage (25 percent vs. 6 percent).

Health is expected to be a trend in the alternative snacks category this year, although whether that means items that are lower-calorie, vegan, gluten-free or another better-for-you attribute is likely to vary by retailer and store location.

Retailers report that although rising prices are a current challenge for the segment, they tend to view alternative snacks as a growth area for the future. “Alternative or trending snacks seem to be pushing the lines for growth in 2023,” one study participant concluded.

GROCERY

Several years after many consumers turned to convenience stores for their groceries instead of supermarkets early in the COVID-19 pandemic, shoppers have largely returned to business as usual, which is reflected in the static projections for c-store grocery in 2023.

Fifty-seven percent of retailers expect edible grocery average dollar sales per store to hold steady this year, while 29 percent expect dollar sales to increase. There is only a small difference between these expectations and those for average unit volume per store, as 63 percent expect unit volume to remain the same and 20 percent expect it to increase.

A majority of both large operators and small operators expect edible grocery sales to remain the same this year, although more large operators believe they will see a decrease in dollar sales (22 percent vs. 8 percent of small operators) and unit volume (25 percent vs. 12 percent).

Additionally, a sizeable majority of large operators expect their edible grocery SKU count and square footage to hold steady or decrease this year, yet 30 percent of small operators expect to add SKUs and 28 percent expect to add square footage.

Category Forecast: Non-Edible Grocery

19%

Decrease

66%

Stay the same 15%

Increase

DOLLAR SALES

22%

Decrease

6%

Increase

72%

Stay the same

UNIT VOLUME

Category Forecast: Health & Beauty Care 14%

Decrease

15%

Decrease

64%

Stay the same

21%

Increase

74%

Stay the same

11%

Increase

DOLLAR SALES UNIT VOLUME

Source: Convenience Store News 2023 Forecast Study

C-store operators view dollar stores as their primary competitor that may win greater share of wallet for this category in the coming year. However, several retailers noted that most of their grocery items are purchased with EBT, which could reduce consumers’ price sensitivity.

Opinions vary on the degree to which edible grocery sales will be affected by inflation, but retailers are in agreement that consumers’ preferences for convenience and cheaper products will impact the category. Still, some have optimism. “I see a trend going to support

small businesses in the community,” said one study participant. “People prefer to shop small rather than the large box stores if they can.”

Like edible grocery, expectations for the non-edible grocery category are in line with projections from one year ago, resulting in a category that is viewed as static or declining in 2023.

Around two-thirds of retailers expect non-edible grocery dollar sales per store to stay the same this year, while 19 percent expect sales to decrease. Expectations for unit volume are even more dour: 72 percent of retailers say average unit volume per store will stay the same, while 22 percent expect it to decrease, and just 6 percent believe unit volume will rise.

As such, the vast majority of c-store retailers do not plan to make any changes to either their number of non-edible grocery SKUs or the category’s amount of square footage.

“Disinfectant and sanitizing products have slowed back to normal sales after COVID. Pet products and treats are on the increase,” one retailer pointed out.

HEALTH & BEAUTY CARE

Health and beauty care (HBC) is another category for which retailers expect little change in 2023. The number of retailers who predict more of the same rose from last year’s study.

Sixty-four percent of retailers expect average dollar sales per store of HBC to stay the same this year, up 11 points from one year ago, while 21 percent expect dollar sales to increase. Retailers are even more confident that unit volume will be static, with nearly three-quarters forecasting average unit volume per store to stay the same — a 14-point increase from a year ago.

No news may be good news for this category: although the percentage of retailers that expect both dollar sales and unit volume to stay the same is higher than last year’s study, the percentage that expect health and beauty care sales to decrease fell from last year.

Small operators and large operators have similar expectations around both dollar sales and unit volume. Both groups also expect SKU count and square footage to see little change.

Category Forecast: General Merchandise

13%

Decrease

56%

Stay the same

32%

Increase

15%

Decrease

64%

Stay the same

22%

Increase

DOLLAR SALES UNIT VOLUME

Source: Convenience Store News 2023 Forecast Study

C-store retailers didn’t express enthusiasm for any one particular HBC trend for 2023. However, some noted that this category could continue to do well enough simply by having a reliable offering whenever consumers find themselves in need.

“People do look at convenience stores for health and beauty aids now,” said one retailer. “The more they come in, the more they see what we sell.”

GENERAL MERCHANDISE

Despite rising prices, c-store retailers’ expectations for the general merchandise category in 2023 are close to the same as they were a year ago. More than half (56 percent) expect average dollar sales per store to stay the same, while 32 percent expect dollar sales to increase. Nearly two-thirds (64 percent) expect average unit volume per store to stay the same, while 22 percent expect it to increase.

Although most small operators and large operators alike expect general merchandise dollar sales to remain flat, small operators are more likely to expect stability in unit volume this year, with 69 percent anticipating unit volume to stay the same vs. 55 percent of large operators.

The general merchandise category is forecasted to remain fairly stagnant in terms of SKU count and square footage. Roughly seven in 10 retailers expect to make no change to either, with little difference in expectations between the industry’s small and large operators.

Retailer opinions on the future of this category are mixed, although numerous retailers noted that they see inflation having an impact on general merchandise that will favor c-store competitors. “We can’t compete with big-box price, delivery or availability,” said one retailer.

Other operators, though, are looking to expand into new category segments such as toys, apparel and branded products. “Due to declining traffic, we are more creative adding dollars to the total basket with the general merchandise category,” another retailer shared. CSN