Convenience Store Decisions March 2017 by WTWH Media LLC

Volume 2819 • Number 3 • Volume • Number 6 MARCH • JUNE 2017 2008

Business Solutions for Retail Decision Makers

® A

2017

P U B L I C AT I O N

Keys to Success

Category Management

Driving Foodservice

Outlook

In this issue CSD examines 38 c-store categories, highlighting new product lines, technological advances, industry trends and best in sales.

HARBOR COMMUNICATIONS

Boosting Beverage Sales

Managing New Technology Tracking Tobacco Trends

Capturing Candy Profits Satisfying Snack Demand Measuring Operational Areas Pizza Slices Through Foodservice ....28 Energy Drinks Chugging Along ........50 Smokeless Sales Grow Strong ........74

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Volume 28 • Number 3 • MARCH 2017

Business Solutions for Retail Decision Makers

Welcome A

HARBOR COMMUNICATIONS

P U B L I C AT I O N

to the World of Turkish

CIGARETTES

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Welcome

to the World of Turkish

The Smoother Side of Camel CIGARETTES

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BRIAN W. QUIGLEY PRESIDENT & CEO

Dear Valued Trade Partner: Thank you for your help during the recent voluntary recall of some of U.S. Smokeless Tobacco Companyâ&#x20AC;&#x2122;s products. Together, we were able to remove over 99% of the products within 7 business days. I know this was disruptive, but we felt it was in the best interest of our consumers, our brands and you, our valued trade partners. Our manufacturing team has been working around the clock, and I am proud to say that we are now almost done replenishing retail and wholesale inventories with new product. On behalf of all our employees and sales force representatives, thank you very much for your patience and we appreciate your continued partnership. Thank you,

Brian Quigley

ALTRIA HEADQUARTERS ANNEX

6603 WEST BROAD ST. RICHMOND, VA 23230

ÂŠ U.S. Smokeless Tobacco Brands Inc. 2017| For Trade Purposes Only

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DEPARTMENTS 8 Editor’s Memo: Building Relationships for

Success

10 On Location: Mach 1: Breaking Barriers 14 Front End: CSD’s Quick Bites 15 Front End: Industry News 16 CM Leadership Awards: Gehrts Reinvents

Tobacco at Kum & Go

18 CM Leadership Awards: Cumberland

Farm’s Flint Influences Industry

20 Convenience Store Solutions: Bettering

Beverage Offerings

22 2017 Category Management Outlook 24 Foodservice: Chicken 26 Foodservice: Hispanic Foods 28 Foodservice: Pizza 30 Foodservice: Sandwiches 34 Foodservice: Roller Grill 36 Foodservice: Bakery 38 Foodservice: Coffee

MARCH 2017 • Volume 28 • Issue 3

InsidethisIssue 22 Cover Story: 2017 Category Management Outlook In this issue CSD examines 38 c-store categories, highlighting new product lines, technological advances, industry trends and best in sales.

28 Pizza Slices Through Foodservice In its “2017 State of the Industry Pizza Report,” PMQ Pizza Magazine said that in the U.S., pizza is a $44 billion business. Consumer demand rose 26% between 2015 and 2016. More and more, convenience stores are earning a bigger slice of this growing market.

40 Beverages: Carbonated Beverages 42 Beverages: Cold/Frozen Dispensed 44 Beverages: Juices & Teas 46 Beverages: Bottled Water & Sports Drinks 48 Beverages: Beer & Adult Beverages 50 Beverages: Energy Drinks 51 Beverages: Energy Shots 54 56 58 59

Snacks: Meat Snacks Snacks: Seeds & Nuts Snacks: Chips/Salty Snacks Snacks: Sweet Snacks & Bars

60 Confections: Chocolate 62 Confections: Gum & Mints 64 Ice Cream & Dairy 65 HBA: Health & Beauty Aids

74 Smokeless Sales Grow Strong According to Nielsen data, reported by Wells Fargo Securities, Copenhagen’s dollar share rose to 31% during the four weeks ending Jan. 28, 2017. Grizzly recorded an impressive 26.8% in dollar share during the same period.

66 Tobacco: Cigarettes 68 Tobacco: Cigars 74 Tobacco: Smokeless 76 Tobacco: Roll Your Own 78 Tobacco: E-Cigarettes 80 Tobacco: Vaping Products 82 Tobacco: Tobacco Accessories 84 Technology: Loyalty 86 Technology: Prepaid Cards 87 Technology: POS 88 Technology: Security & Cash Management 89 Technology: Electronic Payment 90 Operations: Fuels 92 Operations: Car Wash 93 Operations: Lighting 94 Operations: ATMs 95 New Stuff! 99 Quick Shop 101 Ad Index 102 Industry Perspective: Fostering a

Pro-Business Climate

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Convenience Store Decisions

A H A R B O R C O M M U N I C AT I O N S L L C C O .

EDITORIAL

CONTRIBUTING EDITORS

Editor-in-Chief,Vice President John Lofstock jlofstock@csdecisions.com Senior Editor David Bennett dbennett@csdecisions.com Senior Editor/News & Online Erin Rigik Del Conte edelconte@csdecisions.com Associate Editor Howard Riell hriell@csdecisions.com Associate Editor Marilyn Odesser-Torpey mot@csdecisions.com

ART

ADVERTISING

Anne Baye Ericksen Pat Pape Brad Perkins Jeff Steele Lisa White

President, Harbor Communications Dan Ramella dramella@csdecisions.com (440) 250-1583

COLUMNISTS

Group Publisher Tom McIntyre tmcintyre@csdecisions.com (440) 250-1583

PRODUCTION

Publisher John Petersen jpetersen@csdecisions.com (440) 250-1583

Jim Callahan Mark Radosevich

Production Manager Barbra Martin bmartin@csdecisions.com Webmaster Dave Miyares dmiyares@csdecisions.com

Vice President, Sales Tony Bolla tbolla@csdecisions.com (773) 267-1897

Creative Director Erin Canetta ecanetta@csdecisions.com

EDITORIAL ADVISORY BOARD

NATIONAL ADVISORY GROUP BOARD

Robert Buhler, President and CEO Open Pantry Food Marts • Pleasant Prairie, Wis.

Peter Tamburro, Board Chairman Clifford Fuel Co. • Utica, N.Y.

Jim Callahan, Director of Marketing (Retired) Geo. H. Green Oil Inc. • Fairburn, Ga.

Tony Harris, Past Board Chairman Louisville, Ky.

Brad Call, Executive Vice President Maverik Inc. • Salt Lake City

Mary Banmiller, Director of Retail Operations Warrenton Oil Inc. • Truesdale, Mo.

Greg Lorance, Dispensed Category Manager Cumberland Farms • Framingham, Mass.

Joe Hamza, Chief Operating Officer Nouria Energy Corp • Worcester, Mass.

Kyle McKeen, President and CEO Alon Brands • Dallas

Brent Mouton, President and CEO Hit-n-Run Food Stores • Lafayette, La.

Billy Milam, President RaceTrac Petroleum Inc. • Atlanta

Robert O’Connor, President and CEO O’Connor Petroleum Co. • Hales Corners, Wis.

John Kelly, Chief Operating Officer and Vice President, Operations Mountain Empire Oil Co. • Greenville, Tenn.

John Schaninger, VP, Sales & Merch. QuickChek • Whitehouse Station, N.J.

Scott Zaremba, President and CEO Zarco 66 • Lawrence, Kan.

Convenience Store Decisions is a three-time winner of the Neal Award, the American Business Press’s highest recognition of editorial excellence.

SUBSCRIPTION INQUIRIES To enter, change or cancel a subscription: Web (fastest service): www.ezsub.com/csd Phone: (844) 862-9286 (U.S. only, toll-free) Fax: (440) 333-1892 Mail: Convenience Store Decisions P.O. Box 986, Levittown, PA 19058 Copyright 2017, Harbor Communications, LLC 6 Convenience Store Decisions

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Vernon Young, President and CEO Young Oil Co. • Piedmont, Ala.

YEO BOARD OF DIRECTORS Jared Sturtevant, Board Chairman CST Brands, Director of Marketing

Alex Olympidis, Board Vice Chairman Family Express Corp., Director of Operations Alli Bixler, Assistant to the President The Kent Cos. Sharif Jamal, Corporate Training Manager Chestnut Petroleum Distributors Lindsay Lyden, Vice President, Development Truenorth Energy Dana Moloney, Food Service Director Warrenton Oil Co. Jeremie Myhren, Vice President, IT Road Ranger Bart Stransky, Executive Director, Merchandising RaceTrac Petroleum Inc.

OFFICE LOCATIONS

Headquarters

19111 Detroit Rd., Ste 201 Rocky River, OH 44116 (440) 250-1583 (440) 333-1892 (fax)

Editorial and NAG

1420 Queen Anne Rd., Ste 4 Teaneck, NJ 07666 (201) 837-2177 http://twitter.com/CStoreDecisions www.facebook.com/CStoreDecisions

Convenience Store Decisions (ISSN 1054-7797) is published monthly by Harbor Communications, LLC., 19111 Detroit Rd., Suite 201, Rocky River, OH 44116, for petroleum company and convenience store operators, owners, managers. Qualified U.S. subscribers receive Convenience Store Decisions at no charge. For others, the cost is $80 a year in the U.S. and Possessions, $95 in Canada, and $150 in all other countries. Single copies are available at $9 each in the U.S. and Possessions, $10 each in Canada and $13 in all other countries. The annual Sales Trend Handbook can be purchased for $75. Periodicals postage paid at Cleveland, OH, and additional mailing offices. POSTMASTER: Send address changes to Convenience Store Decisions, P.O. Box 986, Levittown, PA 19058. GST #R126431964, Canadian Publication Sales Agreement No: #40026880. Materials in this publication must not be reproduced in any form without written permission of the publisher. Direct requests to: Editorial Department, 1420 Queen Ann Rd., Teaneck, Suite 4, NJ 07666. Phone: (917) 601-9623. Copyright 2016, Harbor Communications LLC. All rights reserved. Circulation audited by Business Publications Audit of Circulation, Inc.

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EDITOR'SMEMO

Building Relationships for Success

JOHN LOFSTOCK Editor-in-Chief (201) 837-2177 jlofstock@ csdecisions.com Follow me on Twitter @CSDEditor

HE YOUNG EMPLOYEES OF today are the future business leaders of tomorrow. As leaders, we have an obligation to help our future by training and mentoring tomorrow’s leaders today. This is the goal of the Young Executives Organization (YEO). YEO’s mission is to cultivate young talent in the convenience store and petroleum industry through implementation of education and networking. YEO accomplishes this mission by leveraging the experience of National Advisory Group (NAG) members to help foster superior leadership skills. Companies that leverage the leadership and experience of senior executives can develop and maintain the talent they have in-house to ensure the organization has a robust pipeline of talented leaders. YEO will take another important step forward in our mission cultivate young talent May 24-25 with the fourth annual YEO Roundtable at Maverik Convenience Stores in Salt Lake City. The roundtable will include a special team-building project with Habitat for Humanity on May 23. Attendees will have the opportunity to help build a new home for a local family in Provo, Utah. I am especially proud of the growth of YEO and the level of participation we are seeing from young leaders throughout the convenience store industry. What I am learning from this up-and-coming generation is that high achievers have an insatiable thirst for knowledge and will seek out learning opportunities throughout their careers that help hone their skills and add to their arsenal of leadership tools. YEO is here to foster these new opportunities. According to Alex Malley, a leadership expert and author of "The Naked CEO" the best way for young executives to become effective leaders is to focus on a learning journey that combines formal experiences in the workplace with selective experiences of their own making. In other word, they must choose their own paths. The business climate today was much different than the ones faced by our fathers and grandfathers, so it stands to reason that the path in the business world will also be different. Naturally, some things will never change. Treating people the right way and having a solid

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foundation ethically and morally will help you in times of crises, but other than that, forging your own leadership identity is vital to success. Malley listed five priorities essential for young leaders: 1) Pursue Your Passions. When you combine passionate pursuit with your work you have an energy that others notice. It’s in your body language. People are naturally attracted whether they like you or not. Great leaders mobilize others with their authentic energy. 2) Listen and Observe. "Great communication comes from a genuine human interest in others," Malley said. It's sound advice. If you want to be a leader, learn about the personalities of the people around you. Understand their strengths, weaknesses and motivations. Invest in them through conversation. Learn about their life experiences and marry your approach to different people in a manner consistent with their character. 3) Empathy. A timely act of kindness can turn a person’s life around. Always take the opportunity to exhibit your understanding when a colleague faces difficult times, whether that be as a result of their own actions or not. A moment of kindness when a person is vulnerable can present a profound opportunity to recast a relationship and allow confidence to be built or rebuilt. 4) Personal Identity. The most effective leaders are not defined by their own success or the title they hold. Always ensure that you do not align your identity to your title. Not only will it make you more tentative in conducting your activities, it could impact you if the title is taken away. 5) Self-Awareness. Do everything you can to understand the impact you have on others around you and appreciate how your actions and behaviors impact others. Only when selfawareness becomes a strength will you be on your leadership journey. To learn more about the YEO Roundtable and our mission to help develop the leaders of tomorrow, visit www.nagconvenience.com.

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FRONTEND PROFILE

Mach 1: Breaking Barriers This convenience chain is making cool things cooler and old things newer—all the while expanding its presence in the communities it serves. By David Bennett, Senior Editor

IKE MANY CONVENIENCE RETAILERS that pour over the details until they have a sure course of action, Mach 1 Stores contemplates its future steps carefully. The result has been a progressive c-store operation with enviable locations and a growing reputation for stellar offerings and satisfied customers. Part of Teutopolis, Ill.-based Meyer Oil Co., Mach 1 operates 17 locations throughout central and southern Illinois and Indiana. The retail business began in 1989. Meyer Oil is a branded supplier for Marathon and ConocoPhillips. The company prefers to make life comfortable for patrons, to include providing cavernous retail space that allows patrons to buy a six-pack of beer, a hot pizza or time at the gaming booth. Mach 1’s flagship location in Harrisburg, Ill., was designed by Paragon Solutions. At more than

The Mach 1 Café features Ronnoco Handcrafted Coffee. The Illinois-based c-store offers an array of cappuccinos, with flavors such as French vanilla, pumpkin spice, gooey butter cake and caramel macchiato. 10 Convenience Store Decisions

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Founded in 1989, Mach 1 Stores has solidified its presence as a go-to convenience retailer in central and southern Illinois and Indiana. Over the last few years, the company has initiated a host of internal programs, creating more loyal customers and a more productive workforce. The company has also implemented technological advances that have streamlined processes, making the c-store chain more nimble and flexible. Part of its recent success is based upon the integration of data analytics. 8,000 square feet, the retail space is adorned with lively graphics, easy to distinguish service areas, large bathrooms and an expansive forecourt. Alan Meyer, chief operations officer of the second-generation, family-owned business, said the convenience chain is slated to grow even larger with two new locations, which are in the planning phase. “Yes, we are starting construction on a site in Benton, Ill. and will soon begin the design of what will be the company’s 19th store in Clinton, Ill.” Meyer said.“We plan to be operating 20 stores by the end of 2018.” BETTERING BEVERAGES In the last few years, the company strategized that dispensed beverages—a high margin and profit earner—should be a more predominant focal point. Th e M a c h 1 C a fé fe a t u re s Ronnoco Handcrafted Coffee, provided by the St. Louis-based coffee roasting and distribution company. The c-store also offers an array of

cappuccinos. There are flavors such as French vanilla, pumpkin spice, gooey butter cake, caramel macchiato, chocolate fudge brownie, chocolate caramel pecan and white chocolate caramel. Not only has Mach 1 keyed in on coffee, the c-store has developed the Mach 1 Chill Zone, which has an array of drink selections including freshly-brewed tea with flavors such as peach mango, raspberry and berry green. Patrons can also choose from f’real milkshakes, Caribbean Crème smoothies, Flavor Burst frozen carbonated beverages and frozen sodas. Meyer explained that establishing Mach 1 as a beverage destination was reasonable, but required a company commitment to ensure its success. “First, the fountain and coffee demographic is one of the most loyal and finicky groups to capture. These people have high expectations with their purchases and once you’ve overcome that they will travel a long CStoreDecisions ecisions .com

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FRONTEND PROFILE The Mach 1 c-store chain, operated by Meyer Oil Co., has become a regular customer destination because of the vast selection of cold and frozen beverages. The beverage area is easily identifiable within the company’s spacious floor plans. every dollar spent inside the store. Customers can use points to purchase fuel or in-store items. In addition, Mach 1 has a company app in which customers can track their loyalty points and promotions. way to give you their business,” Meyer said. “Second, this space is one of the most visible aspects to a convenience store that we can differentiate from our competition. When people walk into a store they are directed to the equipment inside so the biggest and best versions of this will help you stand out. It is difficult to show someone that your company is better because you have the best gondola

shelves or cooler doors.” Fresh doughnuts, deli-style sandwiches and a popular roller grill program bolster the bevy of beverage offerings. Mach 1 also offers Champ’s Chicken products and Hunt Brothers Pizza. Patrons can avail the Mach 1 Rewards loyalty program, where members receive two points per gallon at the pump and one point for

OPERATIONALLY SPEAKING Through trial and error, Mach 1 has implemented effective upgrades and initiatives that helped streamline the retail business as a whole. The improvements have been varied, but effective: • The company purchased headsets for all the employees. “This has resulted in customers receiving imme-

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FRONTEND PROFILE diate service at the drive-through while at the same time allowing us to maximize the productivity of our employees,” said Meyer. “As our employees are addressing issues on the sales floor or on the lot they can be notified at a moment’s notice that they need to return to the checkout areas to assist customers waiting in line.” • Company executives hired a third-party partner to visit all store locations regularly and report back on the quality of appearance and timeliness of service. • The retailer uses a program that allows it to internally track a store’s appearance and identify any operational issues. “Site managers as well as operational management utilize this software program daily to make improvements as needed,” Meyer said. • Mach 1 changed its point-ofsale system to NCR and a service called Pulse. “Pulse gives us the ability to remotely monitor issues with the dispensers, receipt printers and car washes. With this technology, we have increased our efficiency in response to these issues.” • The c-store is using analytics more to maximize productivity in addition to bolstering worker incentives. “We raised our wages and began offering sign-on bonuses to increase the quality of our staff. To offset this cost, we are tracking customers per payroll hour and adjusting hours where needed.” In addition, Mach 1 is relying more on technology to boost internal operations. “There are so many tools available today to track performance indicators such as productivity, sales performance, market share, etc. Of these areas, our priority has been to increase sales. Mach 1 achieved annual same-store sales increases of 9% in gallons and 7% on convenience items in 2016,” Meyer said. “The source of this success was being able to analyze areas we need to price competitively as well as areas we need to focus our marketing on.” CStoreDecisions ecisions .com

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With each success, the company has grown even more aware of its customer needs and works hard to see how they can best be implemented. Everything first starts with an idea and then, some discussion. “I think family businesses allow the opportunity to have more open con-

versations,” Meyer said. “There are times when our passion spills over in the office and these conversations can get heated, but I think that it is how it should be. My entire life has been built around this company and I will do anything to make sure it succeeds and I know the other family members would do the same.”

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FRONTEND

CSD’S QUICK BITES Millennials Drive Cars Sales New car sales are forecast to increase an estimated 4.4% over 2016 to 18.46 million units sold by 2017, due in large part to American Millennials (those aged 22-39 in 2016): • 15% of Millennial car buyers in the U.S. plan to drive for a ride-share service compared to 9% of overall car buyers.

Screaming for Ice Cream

• Millennials are more likely (84%) to consider a new car compared to 77% of overall car buyers.

85% of U.S. households use ice cream or sherbet. • 41% of Millennial-age car buyers are interested in the latest technology innovations in their next vehicle, compared to just 38% overall.

70% of Millennials who plan to purchase a vehicle within the next three years say they are willing to pay extra for an infotainment system in their next vehicle.

Source: Mintel’s “New Cars U.S. 2016” report.

CSD/NAG Idea of the Month:

Use signage to identify healthy snacks. Consumers are increasingly looking for healthier snack options, and many customers don’t think of c-stores as having healthy options. A little signage can help change these perceptions and help health-conscious customers navigate the snack aisle. Do you offer healthy snack bars? Healthy chips? Let customers know by using signage to identify some healthy items in these key snack categories. Even if customers ultimately opt for something more indulgent, you’ll be top of mind the next time they want a healthy snack.

In 2016, the market for all ice cream and frozen dessert sales sold through all retail channels and ice cream purchased at foodservice outlets, was just shy of $28 billion. Foodservice sales outpaced the retail channel by more than $3 billion. Source: Packaged Facts’“Ice Cream and Frozen Desserts in the U.S., 9th Edition.”

Online Grocery Shopping Grows Millennials and Gen Zers are among key groups favoring online grocery shopping. Of those who online shop: • 60% are completely satisfied by the experience • 6% are neutral or dissatisfied • Convenience is the top driver of satisfaction, but online grocery shoppers also like the delivery options, shipping deals, infinite assortment and tax advantages. Source: NPD Group,“The Virtual Grocery Store.”

Coffee Creamer Sales Soar Clean labels and plant-based creamers helped boost the refrigerated coffee creamer market to almost $2.5 billion in 2015 up over 4%. About 12% of U.S. households consume three or more containers per month—a five-year high. Source: Packaged Facts’ “Refrigerated Coffee Creamers: U.S. Market Trends.”

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INDUSTRYNEWS QuickChek Marks 50 Years Whitehouse Station, N.J.-based QuickChek is celebrating its 50th anniversary in business by rewarding c-store customers with 10 weeks (Feb. 20-April 30) of in-store and mobile app promotions, featuring five offers per week. Consumers will enjoy deals ranging from free coffee and fountain drinks to buy-one-get-one foodservice offers.

Two States Propose Raising the Smoking Age to 21

Retailers Ask Lawmakers to Save Reforms More than 60 representatives from retailers, grocers, convenience stores and restaurants met with lawmakers recently to discuss the importance of keeping in place debit swipe fee reforms as the House is readying legislation to repeal the Durbin Amendment. Members from the National Association of Convenience Stores, the Food Marketing Institute, Merchant Advisory Group, National Restaurant Association, National Retail Federation and Retail Industry Leaders Association visited Capitol Hill to explain how debit reforms have aided their operations.

Dollar General Expands to North Dakota

Connecticut and Nebraska could become the third and fourth states in the U.S. to raise the legal smoking age to 21. Connecticut lawmakers are considering a bill that would increase the legal age to purchase tobacco products from 18 to 21 statewide. The proDollar General has entered its 44th state—North posed bill, H.B. No. 5384, is sponsored by Rep. Prasad Dakota. The dollar store chain celebrated the grand Srinivasan and co-sponsors. The effort is a renewed opening of its new location in Hankinson, N.D., on Feb. push to raise the minimum age for buying tobacco in 11. The company is planning official grand opening celthe state from 18 to 21 years old as well as categorizing ebrations for six additional stores in the state through “vaping” products into the same class as tobacco prod- spring 2017. Dollar General plans to identify additional ucts, thus making them eligible for special tobacco areas for new store growth in North Dakota. These stores taxes. A bill that would raise Nebraska’s legal smoking are scheduled to be supported by items from one of age from 18 to 21 won support from medical groups its newest distribution centers in Janesville, Wis. Dollar at a legislative committee hearing this past February. General most recently expanded from stores in 40 states The bill, sponsored by Sen. Merv Riepe of Omaha, Neb. to 43 states with the grand opening of stores in Maine, would apply to smoking, chewing tobacco and using Rhode Island and Oregon in March 2015. alternative nicotine products such as e-cigarettes. Other states that are also discussing legislation to change state laws to make 21 the legal smoking age are Texas and Washington State.

Dietz Receives CDA Award

Stinker Stores Acquires Bradley Stinker Stores Inc. recently closed a deal to acquire Denver-based Bradley Petroleum Inc. and Sav-O-Mat Inc. The acquisition, which includes 40 stores in Colorado and one in Wyoming, enables Stinker Stores, a Boise, Idahobased convenience store chain, to push its portfolio beyond 100 locations. Matrix Capital Markets Group Inc. assisted in closing the sale. CStoreDecisions ecisions .com

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Kit Dietz, a long-time convenience distribution industry consultant and advisor and author of numerous studies that have helped guide CDA member companies, was presented with the Convenience Distribution Association (CDA) Dean of the Industry Award Feb. 14, 2017. The presentation came during the Convenience Distribution Marketplace Awards Luncheon during the association’s annual conference and convention at the Hilton Orlando. Dietz, who for many years operated Dietz Consulting, based in Huron, Ohio, is now president of the data analytics company, InfoRhythm, based in Pittsburgh, which operates CDA’s exclusive InfoMetrics data program used by member companies and suppliers to improve category management, sales and profit.

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CategoryManagementLeader

Gehrts Reinvents Tobacco

at Kum & Go

Years of experience on the manufacturer side has provided Jodi Gehrts a unique perspective on tobacco retail. By Erin Rigik Del Conte, Senior Editor

Jodi Gehrts

Within a few years she was promoted to an account HIS APRIL MARKS JODI Gehrts 24th year in the tobacco industry, first on the tobacco manufactur- manager position in Seattle, where her responsibilities ing side, followed by nearly 10 years overseeing the included calling on designated chains and wholesalers in Washington. The years that followed included several tobacco category for Kum & Go. For her exper tise on both sides of the aisle, “promotions, mergers and moves around the country.” Convenience Store Decisions is recognizing Gehrts this With the completion of the B&W and R.J. Reynolds merger in 2004, she took the position of senior division manager year as a category management leader. As the category manager for cigarettes and tobacco for in Omaha, Neb., for R.J. Reynolds Tobacco. “At that time, I worked with a team of 19 amazing people. Kum & Go, Gehrts is responsible for sales, margin, promotions, demand-generation and distribution of all things tobacco— My team was responsible for sales, distribution and volume cigarettes, smokeless, cigars and e-cigarettes. She also for three-fourths of Nebraska and three-fourths of Kansas.” Gehrts left RJR in 2007 and began working as a divinegotiates and implements contracts from tobacco manufacturers and works with manufacturers on strategies that sion manager for a company in the Omaha, Neb. area support and enhance Kum & Go’s plans for growth, while when Kum & Go approached her to change paths. “I really did not have any thoughts or intentions of workmeeting the demands of tobacco consumers. One of the first projects she spearheaded when she ing on the retail side, but after meeting several remarkable started at Kum & Go was to increase space for the other people at Kum & Go regarding the position of category manager for cigarettes/OTP, I knew this would be a great tobacco products (OTP) category. “With my experience from the manufacturer side and opportunity in which my experience would bode well for calling upon all the different trade channels for ciga- Kum & Go, the industry and me personally,” Gehrts said. rettes/tobacco, I was very aware of the growth that was transpiring in the OTP category. We began expanding sets ATTRACTING CUSTOMERS Gehrts’ favorite aspect of her role at Kum & Go is the from just two-feet of combined smokeless and cigars to a combined linear space of four to six feet where space people she works with on a daily basis.“I have the opporallowed,” Gehrts said. “From that early expansion, Kum & tunity to work with so many great people, both internal Go was able to increase product distribution/selection, and external. We truly have an amazing category mansales, and most importantly, meet and exceed the grow- agement team with people from different backgrounds and experiences, yet who all operate with the same goal ing demands of the adult tobacco consumer.” in mind—creating a great experience for our customers.” One challenge facing convenience store category EARLY YEARS A year after her graduation from Iowa State University, management today, she noted, is keeping abreast of Gehrts began working as a territory manager in Overland trends, bringing in new products consumers may not know they want until they see it, and staying fresh and Park, Kan., for Brown & Williamson Tobacco (B&W). “A family friend owned a chain of grocery stores and had innovative in the eye of consumers. In addition to researching new products and suggested I apply to a few of the cigarette manufacturers. I knew very little about cigarettes or the tobacco industry. reviewing data, Gehrts credits ‘foot research’ for idea I applied to B&W and was told I was chosen for the inter- generation.“This means I look for ideas everywhere—not view because I was from Iowa and people from Iowa were just competitive convenience stores, but all trade chanknown for having a great work ethic and integrity,” she said. nels and all types of stores—online and brick and mortar. After several interviews she was offered the position We need to be aware and creative in ways to attract and began her “unexpected” career in the tobacco and keep new customers while staying relevant to our current consumers.” industry at age 23. 16 Convenience Store Decisions

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CategoryManagementLeader

Cumberland Farm’s Flint

Influences Industry

Work with government regulators, NATO and legislative committees are just some examples of Anne Flint’s dedication to helping the tobacco category succeed. By Erin Rigik Del Conte, Senior Editor

N FEBRUARY, ANNE FLINT became the director of category management —tobacco for Cumberland Farms after 16 years managing the tobacco category for the Westborough, Mass.-based chain of 560 stores, first as a buyer progressing to her current position as director. During her time managing tobacco she has participated in numerous panels and currently sits on Retail Councils for Altria, Scandinavian Tobacco and Logic. Flint has won numerous awards for her work including the NATO Pinnacle Award and the New England Convenience Store Association Legislative Service Award. She has been a NATO (National Association of Tobacco Outlets) Board Member since 2010 and is currently serving as vice president. She also sits on the legislative committees of the New York Association of Convenience Stores and the New England Convenience Stores & Energy Marketers Association. Over the years, Flint has represented Cumberland Farms at many high-level national events pertaining to tobacco. “In 2011, I was chosen to sit on the U.S. Food and Drug Administration (FDA) Center for Tobacco Products, Stakeholder Panel (led by Dr. Lawrence Deyton—then director of the FDA Center for Tobacco Control) where I participated in discussions pertaining to FDA compliance and enforcement. I was also chosen to be a consultant for the FDA website construction from the retailer perspective.” For her vast experience and commitment to leadership in the tobacco category, CSD is recognizing Flint for her leadership in category management. PATH TO SUCCESS Flint graduated from Bryant University with a degree in accounting and began a fulltime position with Almacs Supermarkets in Rhode Island, progressing through many corporate roles including loss prevention, real estate and category management. In 1995, Flint began working for Cumberland Farms in the Corporate Auditing Department and later transferred to marketing. She became a buyer for the tobacco category in 2000 when the Master Settlement Agreement was just coming into play. Being both a wholesaler (self-distributing) and a retailer, the Cumberland Farms Tobacco group is responsible for 18 Convenience Store Decisions

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Anne Flint ordering all the tobacco products along with the distribution, pricing, displaying and maintaining of inventory. As director of category management for tobacco, Flint’s responsibilities also include the negotiation and execution of tobacco contracts and being involved legislatively. “In addition to managing this important category from my office, I have learned by spending time in the field, by testifying in front of town and state lawmakers and by becoming active in industry organizations,” said Flint. NATO PARTNERSHIP Under Flint’s leadership, Cumberland Farms joined NATO. “I have found one of the most beneficial aspects of NATO membership to be the ability to call NATO staff members and get a clear, concise answer to a question about tobacco legislation or what a FDA regulation means, and usually the answer is immediate,” she said. “NATO fights for retailers and helps them take a stand against legislation that could be devastating to their business.” As the vice president for NATO, Flint has worked with government regulators and agencies to assure Cumberland Farms is doing the “right thing” for customers, and that its views are well received and understood by all stake holders. FACING THE FUTURE The ability to innovate and be creative, the relationships she has forged and helping others develop and grow are the aspects of her career Flint finds most rewarding. “Cumberland Farms has afforded me the opportunity to plot a strategic course in reference to tobacco—we have our own control label for example—and I enjoy being able to lead trends in our market,” Flint said. With a number of stores in Massachusetts, Cumberland Farms continues to face regulations “that have been considered by more than 100 local boards of health throughout the state” from cigar package size requirements and minimum prices on cigars to flavored tobacco bans and moving the legal tobacco purchase age to 21. “The real battleground over the sale of tobacco has shifted to the local level and retailers all across the country need to get involved and fight these unfair restrictions,” she said.

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Convenience Store Solutions

Quenching Thirsts and Sales Spring is almost here, which means summer isn’t too far behind. It’s time to get your beverage business in order. By Jim Callahan

HE WARNING, “BEWARE THE Ides of March” probably snacks, candy, jerky or a pack of cigarettes. Filling those resonates more with readers of Shakespeare’s play baskets means more profit for your business. It all comes “Julius Caesar” than it does with c-store operators. down to this point: an operator can’t disappoint customers Still, March is an important month to mark on your making an unplanned stop and then expect that they will calendars. That’s because March signals spring and spring return; it’s not going to happen. of course is the precursor to summer sales. The path to success is littered with well-intentioned but, However, some c-stores stab themselves in the back (a poorly thought-out business strategies, which are often torpeCaesar reference) by not being prepared to serve their cus- doed by a lack of motivation or creativity. As the saying goes: tomers all summer long. This month is a good window to “Fatigue makes cowards of us all.” Adhering to a solid plan plan, prepare dispensing equipment and oil the cash regis- doesn’t guarantee success but can become a blueprint for it. ter—homing in on what I consider the No. 1 “must push” foodservice-related segment for convenience retailers. CHOSEN STOP That, of course, would be beverage offerings. Whether In order to be a chosen stop or a true destination, you you are in the deep south, like I am here in Atlanta, in upstate must present excellent curb appeal and stellar choices. Of New York—where I grew up—or Anchorage, Alaska, where course, you must demonstrate excellent customer service, I’ve never been, dispensed beverages are a top business cleanliness throughout the store and attractive pricing on driver throughout the year. That’s because beverage-buying popular beverage items. Understand, that while these custrends cover a broad spectrum of customer behavior. tomers will shop by price for the beverage category they In my opinion, beverages are by far that No. 1 sum- came for, they are likely in a hurry to get back on the road, mer merchandise item. Customers alter their day with an whether to work or a travel destination and not be nearly as enormous number of unplanned stops to purchase desired price sensitive on incremental snack items. beverages—even rivaling restroom stops. After all, quenchOut of stocks, broken dispensing machines and a raning one’s thirst and hydrating one’s body is serious business. sacked coffee offering will not leave patrons with a good In that regard, beverage offerings too are serious busi- taste in their mouths. ness. Both cold and hot dispensed beverages are perennial We as an industry have by far the best and brightest contop 10 performers when it comes to in-store sales. Throw in venient locations serving all kinds of communities. In order the unique and expanding frozen beverage tradition that to find a better selection of candy, cookies, snacks and bevc-store have cultivated and grown since 7-Eleven rolled out erages, consumers would have to go to the local grocery the first Slurpee machine. store, if there is one. Even if that grocer offers fuel and has a discount loyCOMPETITORS ABOUND alty program, individuals still have to walk through a large Understand that the likes of Burger King, Taco Bell, store, wait in long lines and then make a separate fuel purPizza Hut, KFC and a myriad of other national and regional chase. Yes, Big Grocery has an advantage when someone fast food brands will always present stiff competition. As I goes shopping for groceries, meat etc. and has the time to write this, McDonald’s is advertising $1 on any size coffee shop. But for that quick stop and beverage purchase we hold the keys to the kingdom. or fountain drink and $2 for a latte. But remember, c-stores All we have to do is keep earning it by practicing simple, have the most powerful trump card: one-stop shopping. Those fair-weather motorists who stop for fuel can grab but sound business practices. food and snacks as well as the very best and widest variety beverages: a hot cup of coffee, a cold bottle of water, an Jim Callahan has more than 40 years of experience as a conveenergy drink or a 20-ounce soft drink. nience store and petroleum marketer. His Convenience Store SoluChances are good that same customer that exits the road tions blog appears regularly on CSDecisions.com. He can be reached for a beverage is also going to include a purchase of salty at (678) 485-4773 or via e-mail at jfcallahan1160@gmail.com. 20 Convenience Store Decisions

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INTRODUCTION

2017 Category Management Outlook

Looking Ahead at

CM in 2017

In this issue CSD examines 38 c-store categories, highlighting new product lines, technological advances, industry trends and best in sales. A CSD Staff Report

HERE ARE STRANGE NOISES circling the c-store industry. For instance, there’s a buzz about Amazon, which unveiled a 1,800-square-foot convenience location in Seattle that allows shoppers to skip the checkout by using Those new innovations, streamlined concepts and better the same technology featured in self-driving cars. In the other Washington, there are whispers that President product offerings are evident in many in-store categories, Donald Trump and a Republican Congress are intent on dis- especially in foodservice. Foodservice, a broad category that includes prepared mantling the U.S. Food and Drug Administration like a toy wooden house, throwing out a host of regulatory policies and commissary foods, hot dispensed beverages (coffee) and cold and frozen dispensed drinks, continues to be a along the way. It’s all good fodder for shooting the breeze in the break key focus for growth in the convenience store channel, conroom, but the true sounds that all c-store operators most tributing 20.8% of in-store sales in 2015 and accounting for concern themselves with are those emitting from satisfied 33.7% of gross profit dollars, according to NACS “2016 State customers, a supplier pulling up in the parking lot to make of the Industry” report. More c-stores are offering made-to-order options, while a daily delivery or the distinct ring of busy registers. Those are the sounds of a retailer doing business, and in enticing a wider customer base with fresher ingredients and wholesome food options. 2016, business was good. To serve those patrons truly on the go, retailers are anaLast year, fuel prices were lower compared to a few years lyzing Millennials’ proclivity for snacking, offering up ago. Proportionately, in-store sales shot up. broad arrays of fruits, veggies and leaner proteins. Not surprisingly, there has been a visible shift in certain BANNER TIMES Most convenience retailers don’t wait on outside forces to category sales. For example, dollar sales of dry meat snacks determine their success. New innovations, streamlined con- declined in 2016, compared to a noticeable uptick in the cepts and better product offerings pushed total sales inside sales of nuts and seeds during the same period. Because of increased legislation and regulatory manof the store, reaching a record $225.8 billion in 2015. While the preliminary industry numbers won’t be published by the dates, some were pessimistic for the fate of e-cigarettes in National Association of Convenience Stores (NACS) until 2016. However, the category showed resilience in terms of market productivity. April, expectations are high for another banner year. Success can breed complacency when well-to-do conveConsumer surveys conducted by NACS in 2016 indicated more than nine in 10 Americans (92%) agree that lower gas nience retailers fail to heed to the signs pertaining to what prices give consumers more money to spend and 85% say the market and the competition are up to. Eventually, that that low prices are good for the U.S. economy. But results complacency invites inertia and non-productivity. There’s were mixed on how the economy has benefitted, accord- another economic term closely associated with inertia and ing to NACS. While income was up 4.5% in 2015, spending non-productivity: going out-of-business. On the following pages, Convenience Store Decisions only increased 3.4%, according to the U.S. Department of Commerce. Consumers were clearly saving more as a whole, examines 38 c-store categories to identify how that respective category fared in 2016, what market influences now but economic growth for the year was only 2.4%. As gas prices still remain low, the potential for higher loom in 2017, and what some convenience retailers are doing to make their category mix work best for them. ✜ spending in U.S. c-stores looks encouraging in 2017. 22 Convenience Store Decisions

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2/22/17 11:27 AM

Chicken

FOODSERVICE

Chicken Options Span Dayparts

CCORDING TO THE U.S. Department of Agriculture, Americans are expected to eat close to 92 pounds per capita of the nation’s favorite fowl, making it the most popular center-of-the-plate choice. The National Chicken Council (NCC) noted that chicken consumption per capita has increased nearly every year since the mid-1960s, while red meat consumption has declined. John Lyons, foodservice supervisor for S & S Food Stores in Alabama, Florida and Georgia, has experienced this trend first-hand. He pointed out that the stores sell about 600,000 pounds of chicken every year and a million pounds of fresh fried gizzards. Of all of the food items on the fresh menu in the S & S stores including pizza, subs and other deli specialties, chicken is the top seller. It is sold in 21 of the company’s 75 locations. Foodservice, a broad category that includes prepared and commissary foods, hot dispensed beverages (coffee) and cold and frozen dispensed drinks, continues to be a key focus for growth in the convenience store channel, contributing 20.8% of in-store sales in 2015 and accounting for 33.7% of gross profit dollars, according to the National Association of Convenience Stores. Across an industry where foodservice has evolved greatly, chicken remains an indispensable protein. BUSINESS BUILDER Breakfast is the fastest-growing daypart for chicken at S & S. Freshly fried chicken is available beginning at 5 a.m. Jumbo fried tenders, both on biscuits or just on their own with a choice of six different dipping sauces, are the biggest

Americans Crave Chicken

About 22 million chickens are consumed in the U.S. each day. Moreover, chicken remains one of the top-selling proteins in all convenience store foodservice programs.

92%

or more than nine in 10 consumers said they purchase chicken regularly.

72%

of consumers said they had eaten a chicken meal or snack from a foodservice establishment in the two weeks leading up to the survey, up from 67% in 2015.

Source: National Chicken Council,“U.S. Chicken Consumption,” July 2016

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March 2017

Weekly Chicken Consumption

Results from an annual survey, conducted July 2016 by the National Chicken Council, indicate the weekly volume of chicken consumed in the U.S continues to go up as avid eaters seek more dining opportunities. • Customers had eaten chicken an average of 2.2 times from a foodservice establishment, up from 1.8 times in 2015. • 47% of customers said they had eaten a chicken meal or snack from a foodservice establishment 1-2 times in the two weeks leading up to the survey. • 30% said three or more times in the two weeks leading up to the survey. • 14% of customers said they anticipate eating more chicken from a foodservice establishment over the next 12 months. Source: National Chicken Council,“U.S. Chicken Consumption,” July 2016

sellers although, as Lyons pointed out, gizzards also do well during this daypart. In addition to fried tenders, the stores also offer bone-in breast with wing and legs and thighs baked, barbecued or smoked over hickory, applewood or pecan. Smoked chicken is the second most popular preparation after fried. S & S is also planning to introduce a rotisserie chicken in the coming months. Lyons noted that chicken is also a “business builder” for both lunch and supper. Complete chicken meals with a choice of two sides and a roll or freshly-baked cornbread at a price point of $5.99 sell well all day. Fried gizzards are a favorite mealtime and snack choice throughout the day. To go with the chicken, S & S offers six different sides including macaroni and cheese, potatoes and turnip greens. “Many of our stores are close to businesses that work on shifts, so morning is actually supper time for many of the workers,” he explained. “We sell both boneless and bone-in chicken from morning until night.” Some of the stores keep freshly-cooked chicken available until as late as 8 p.m. to meet the needs of all of the shiftworking clientele. Lyons noted that the two things the stores emphasize is that the chicken is fresh, never frozen, and that it is prepared and cooked on the premises. “Those are big selling points for us,” Lyons said. A report presented at the NCC’s 2016 Chicken Marketing Summit indicated that consumers are also interested in knowing if any antibiotics are used in raised chickens as well as if the fowl is locally sourced. ✜ CStoreDecisions ecisions .com

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Hispanic

FOODSERVICE

Hispanic Food Offers Opportunity

S THE U.S. HISPANIC and Latino populations con- towards more unique, tinue to grow, the demand for Hispanic items in ethnic offerings.” The evolution of c-stores is expected to increase as well. The Hispanic population in the U.S. has grown Hispanic offerings has 43% in the past decade, reported IBISWorld, a Los Angeles spurred big business for market research firm. There has never been a larger or some U.S. c-store chains. more influential minority than today’s Hispanic Americans. A shining example is According to the U.S. Census Bureau, the U.S. Hispanic Laredo Taco Co., which population numbered 57 million in 2016—more than 17% has more than 450 locations in seven states and of the total population. As this number grows, cultural lines blur within the is part of the Stripes’ convenience store channel. This concept is on full dis- retail operation. In October 2016, Stripes unveiled a new store design play in changing foodservice programs that increasingly offer Hispanic food—driven by demand from everyday showcasing Laredo Taco Co.’s authentic food offering as a restaurant destination, complete with indoor and outdoor customers. “Second- and third-generation Hispanics aren’t becom- restaurant seating. Hispanic and Latino populations in the U.S. are no loning completely assimilated/acculturated,” said Maria Steingoltz, managing director at Chicago-based L.E.K. ger associated with just Mexican communities. C-store Consulting. “Rather, they are expected to continue to clientele today include Puerto Ricans, Guatemalans, engage with food and see Hispanic dishes as a way to con- Salvadorans, Colombians, Ecuadorians, Peruvians, Cubans and Dominicans. nect to their heritage.” In c-stores, it appears the authentic offerings are just as valued. Mad Max Convenience Stores have added Hispanic GROWING ROLE Mad Max Convenience Stores, a 12-store Wisconsin items to its menu over the years, but breakfast and chicken chain based in Saukville, sells breakfast burritos, including burritos remain the top sellers. “Our sales will hopefully skyrocket with the sausage, bacon and chorizo, along with burritos opening of a new business and the remodel with chicken and cheese, or chicken, cheese, of another,” said Jamie Harycki, Mad 7.4% 4.2% black beans and rice. Frozen Dairy Max’s foodservice operations manThe chain has seen sales of these items Foods ager. “We are putting much more products dip slightly in the last 9.3% focus on foodservice.” year in its two locations that Beverages Following the (incl. alcohol) The opportunity is there as sell breakfast and chicken Hispanic Market Convenience stores that want a the Latino driver of growth burritos, according to Katie bigger slice of the Hispanic consumer in the U.S., with spending Kissinger, Mad Max’s price market can gain knowledge by learning how 9.7% power increasing faster than book manager. The stores Non-food food segments fare in Hispanic supermar- 38.9% that of non-Latino consumsold 3,568 breakfast burkets. While meats and produce are popular Other items mainstays, dairy products such as milk and ers, while these households ritos and 1,137 chicken food cheese are popular in Hispanic markets. Also, are growing exponentially. burritos, respectively, in items juices such as Jarritos and soft drinks like La “In convenience stores, 2015 versus 3,206 breakfast Casera make up a substantial portion of popular beverages. authentic Hispanic alternaburritos and 938 chicken 14% Here’s a breakdown of the tives that also deliver on the burritos in 2016. Produce 2016 Products and Segments: core c-store food value propo“We’re seeing ethnic food Total $31.6 B sition (convenient and ready to at retail growing at approxeat), will be a growing area,” said imately 3% per year, but this Steingoltz. “We’ll see more unique doesn’t tell the whole story,” said 16.5% Meats offerings like tamales or tortas, which Steingoltz. “Staples like burritos and are great for c-stores, as these are handtacos have become fully mainstream with Source: Industry Research Firm IBISWorld, held and easy to eat on the go.” ✜ slower growth, but there is a greater push www.ibisworld.com, Jan 13, 2017. 26 Convenience Store Decisions

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Pizza

FOODSERVICE

Pizza Slices Through Foodservice

HEN AMERICANS NEED COMFORT they crave pizza twice as much as any other food. That’s what an online Harris Poll of more than 2,000 U.S. adults last year found. And those cravings aren’t likely to disappear any time soon. In its “2017 State of the Industry Pizza Report,” PMQ Pizza Magazine said that in the U.S., pizza is a $44 billion business. Consumer demand rose 26% between 2015 and 2016. Conversely, convenience stores are grabbing a bigger piece of the pie. According to research from the NPD Group, in the year ending November 2015, 5.2 billion ready-to-eat pizza servings were sold in the U.S. While most were sold by major pizza chains, 4%—nearly 210 million servings—were sold by c-stores. At one of the two Shop ‘n’ Go stores in South Reno, Nev., customers can get all the comfort they crave from morning to night every day, whether it’s a grab-and-go slice or a whole pie. The pizzas are made in the stores in two sizes, 17-inch regular crust and a 12-inch “artisan-style” with a thinner, crispier crust. In the Harris Poll survey, 29% of the respondents said they prefer a thin crust. Eighteen percent liked a regular crust, 15% a deep dish and 14% a stuffed crust. Fewer than one in 10 named a thick crust, French bread or Sicilian crust as a preference. Other industry studies suggest that price remains a top priority for pizza consumers. Also, coupons and loyalty programs are most likely to motivate. Pizza Sales Rise Customizable personal size pizzas and combination deals, Servings of pizza such as bundling with a drink at c-stores were up are also popular motivators. 6% from 2015 for

the year ending December 2016.

FLAVORFUL OPTIONS Shop ‘n’ Go begins the day with a Denver omelet-style pizza Source: The NPD Group/CREST, topped with a garlic spread, egg, year ending December 2016 hash browns, ham or sausage, jalapeños or bell pepper and onion. The store has been offering a breakfast pizza for at least 20 years, long before the trend took hold across America. General Manager Joe Linscott reported that it outsells any of the other pizzas and is one of the best-selling products in the store. For the rest of the day, the toppings on the 17-inch pizzas that the stores sell by the slice change constantly, sometimes hourly. Linscott describes the 12-inch pizzas as “artisan-style” because of their thin crust and fancier toppings. They are available in five varieties: Chorizo Goat Cheese with moz28 Convenience Store Decisions

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March 2017

Pizza Independents vs. Chains The demand of for pizza remained at an all-time high in 2016. There were 76,723 pizza restaurants in operation in the U.S. as of the end of September 2016. A total of 5,377 new pizzerias opened their doors in the past year, while 6,066 closed down, marking a little more market share up for grabs.

Pizza Magazine,“Pizza Power 2017 - A State of the Industry Report,” December 2016

zarella and roasted red peppers; Prosciutto Gorgonzola with mozzarella and a drizzle of balsamic glaze; Salami and Goat Cheese with mozzarella, roasted red peppers and arugula; Buffalo Chicken with gorgonzola, mozzarella and purple onion; and Sausage Mushroom with feta cheese, mozzarella and sriracha. PMQ’s report encouraged operators to create new specialty pizzas and limited time only (LTO) offers featuring locally grown, in-season toppings and new flavor profiles. Among the latter, the report suggested chorizo, chipotle and Jamaican jerk chicken. In addition to generating significant sales of its own, pizza can boost customers’ purchases of go-with items. At Shop ‘n’ Go, one complementary item is beer, either in bottles, six-packs and 12-packs; pints to consume in the store or craft beer in growlers-to-go from the store’s filling station, Linscott said. ✜ CStoreDecisions ecisions .com

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FOODSERVICE

Sandwiches

Fresh Ideas Sell Sandwiches

RAB AND GO? MADE to order? Kristi Patel sees it all as assistant director for retail operations for Iowa State University, which has five convenience stores on its campus. All of the stores offer grab-and-go sandwiches and three also have delis that offer the made-to-order (MTO) option. Some locations also offer the option of toasting sandwiches. “People really like that,” Patel said. More than one-third of respondents surveyed for the “C-Store Keynote Report” published in July 2016 by Datassential research firm said that having their sandwich made fresh by store staff was likely to motivate them to purchase. Around one-third said that having the ability to customize their sandwiches was a major motivator. “Our students like to be able to customize their sandwiches, so in the stores that offer it, made-to-order is most popular,” Patel said. “But not everyone has time to go through the process. That’s why grab-and-go sandwiches that are made in our commissary also sell very well.” Just like a widening margin in the convenience channel, breakfast is a particularly productive traffic driver for pre-

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Consumers favor a “made -on”

packaged sandwiches on Iowa date (33%) rather than a “sell-by” State’s campus. The c-stores date (25%) on their sandwiches. offer a heat-and-serve sandwich that they display in warmers for quick pick-up. The Datassential report found that 64% of the consumers surveyed wanted to see breakfast sandwiches at c-stores, up 16% from 2012. The University of Iowa has had its breakfast sandwich offering for several years and has seen it perform successfully since its introduction. Recently, one of the MTO locations, Hawthorn Market & Café, scrapped its Subway build-your-own model and substituted it with one that’s closer to Panera Bread, where customers order specialty sandwiches from a set menu. “The sandwiches are still built to order from fresh ingredients, but we’re trying to increase our speed of service,” Patel noted. Customers have been slow to embrace the changed model.

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Sandwiches

FOODSERVICE

Our #1 selling snack items have

2- NEW Flavors!

“We need to take a look at the Hawthorn store’s deli for the fall to see how we can make this new model more popular,” she said. PRE-PACKAGED OFFERINGS Many times, all the customers want is a good quality sandwich at a good price and, for them, a basic wedge meat and cheese sandwich made fresh in the commissary is exactly what they want. “Not everyone wants cutting edge ingredients and fancy toppings on their sandwiches,” Patel explained. The biggest motivator for customers to choose a sandwich is that it is made on high quality bread, the Datassential report showed. Survey participants also said that a “madeon” date (named by about one-third of respondents) is more persuasive than a “sell-by” date (named by one-quarter of respondents) on their sandwiches. But for those on the Iowa State campus who do want something different, the commissary provides a number of prepackaged specialty sandwiches. Among the most popular are a Turkey Roasted Tomato Sandwich with lettuce spring mix on 12-grain bread, Smoked Turkey with Cranberry Mayonnaise made with caramelized onions and lettuce spring mix on nine-grain bread, and a Muffaletta Sandwich with olive salad, hard salami, smoked turkey breast, provolone cheese and ham on a telera roll. ✜

Fresh Approaches Sell Sandwiches

Consumer interest in cold sandwiches rose to 57% in 2016, up 8% from 2012. A July 2016 Datassential report indicates that sandwich offerings are increasingly popular among U.S. consumers.

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36%

of consumers said that, when it comes to cold sandwiches, they are most interested in high quality bread.

35%

prefer to see their sandwiches prepared fresh by the staff.

33%

want the ability to customize their sandwiches.

33%

would like to be able to choose from a large variety of meat and cheese options. When it comes to hot sandwiches, consumers said they are most interested in hamburgers/cheeseburgers (64%, a

14% increase from 2012) and breakfast sandwiches (64%, up 16% from 2012).

Source: Datassential,“C-Store Keynote Report,” July 2016

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Roller Grill

FOODSERVICE

Roller Grill Reigns Supreme

O MATTER HOW MANY different food items are on a convenience store menu, there’s still room—and a fan base—for roller grill favorites. “The traditional hot dog will always have its place; it will never go away,” said Ted Roccagli, director of partnerships and preferred vendor programs for Dallasbased Empire Petroleum Partners. “But now, customers expect to find an assortment of other roller grill options as well.” In its “C-Store Keynote Report” published in July 2016, Datassential research company found that hot dogs were the roller grill choice of 56% of surveyed consumers. Next most liked were egg rolls/spring rolls (43%) and taquitos/ roller burritos/etc. (45%). That etcetera can cover a lot of tasty territory. In stores that operate the most successful roller grill programs, customers will find an ever-changing array of innovative items such as corn dogs, breaded whitemeat chicken roller bites, cheeseburger roller bites and all kinds of sausages including jalapeño and cheese varieties, Roccagli pointed out. For companies that do them right, roller grill programs can still be very popular with customers and profitable for convenience stores, he noted. ENGAGING CUSTOMERS There’s no cookie cutter product set that works for all stores when it comes to what roller grill items to stock, explained Roccagli, who works with 1,600 Empire Petroleum retail partners in 32 states. Just like every category, operators have to keep a close eye on what sells and what doesn’t to know which items to keep and which ones to discontinue. Freshness is another factor that can motivate a customer to purchase (or not purchase) roller grill items. Thirtyone percent of the respondents in the Datassential survey said they would like to see an indicator of how much time an item has been on the roller grill. Roccagli explained that, in reality, it might take some time and multiple visits for customers to trust the freshness of the roller grill food. 34 Convenience Store Decisions

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Grill Customers Expect Quality,Value

Anymore, roller grill items offered in c-stores can include hot dogs, sausage, bratwurst, taquitos, egg rolls, breakfast sausages, wrapsters and roller bites. Variety is important, but a 2016 Datassential report indicates that consumers put emphasis on quality and value when weighing roller grill programs.

31%

said an indicator of time that items were on the roller grill was the strongest motivating purchase factor.

30%

responded that a selection of highquality ingredients was their highest priority.

26%

look for a wide selection of roller grill items.

24%

wanted to be able to purchase their roller grill item as part of a combo deal. Source: Datassential,“C-Store Keynote Report,” July 2016

He pointed to sampling roller grill items both inside the stores and at the pumps as an effective way to jumpstart the building of that trust. He also recommended taking a couple of hours one day a week to offer free samples, such as a hot dog or sausage cut into thirds for each portion. “Studies have shown that about 70% of people who come to fuel up at the pumps don’t come inside the stores,” Roccagli said. “So taking samples out to them can be just the thing to persuade them to come inside, not just to buy that roller grill product, but to see what else you have that might be of interest. In my experience, sampling has worked very, very well.” Special pricing and bundling can also move more roller grill products, according to the Datassential report. Twentyfour percent of the respondents said that a combo deal would motivate them to purchase a roller grill item. Roccagli agreed that bundling a hot dog with a bag of chips of choice and a fountain drink has always been an effective sales strategy. So is a two-for offer such as charging $2 for two roller grill items. ✜ CStoreDecisions ecisions .com

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Bakery

FOODSERVICE

Baking Better Store Sales

2016 SURVEY BY Q1 Consulting found that 16% of respondents listed in-store bakery as the primary reason for their last c-store visit. Moreover, 85% found bakery items to be the most portable graband-go foods at c-stores. “Portability is critical for all grab-and-go foods in c-stores and especially for bakery items that are usually eaten on the go,” said Tim Powell, vice president and senior analyst for Q1 Consulting. In the survey, c-store consumers said the cues that they found most interesting are “made-in-store” and “fresh,” Powell noted. “Fresh is an abstract term, but when a baked good is not prepackaged and there is an appearance that the item was baked in-store—like Subway’s breads—consumers will be more likely to try the product,” Powell explained. Retailers are responding by expanding their in-store bakery sections based on consumer demands—a trend expected to rise in 2017. Wesco Convenience Stores, for example, found its ‘Sweet Spot.’ When cusBread and sweet roll tomers recently told the servings ordered at Muskegon, Mich.-based convenience stores c-store chain they wanted were up 7% in 2016 smaller-portion bakery over 2015. products at lower prices, the company introduced two-for-99-cent 1.25-ounce Source: The NPD Group/CREST, year ending December 2016 packaged cookies under the Sweet Spot brand name. Currently, there are four varieties of cookies that carry the Sweet Spot label. “Our marketing department created some great labels to sell the Sweet Spot products and they definitely caught the attention of our shoppers,” said Kimberley Loniecki, Wesco’s director of foodservice. “The packaging is relatively inexpensive so we have been able to maintain our margins.” To further meet customers’ request for smaller portions, Wesco took one of its most popular items—a chocolateenrobed no-bake cookie—and adapted it into a size that is “a little larger than a quarter, but smaller than a halfdollar,” said Bill Yandian, supervisor of the company’s 16,000-square-foot production plant.

Consumers Sweet on Bakery Given an increased demand for freshness and quality ingredients by today’s shoppers, convenience retailers are identifying opportunities between bakery and other foodservice and beverage offerings, resulting in bigger baskets and more sales.

70%

of consumers said they were most interested in “fresh bakery breakfast items” (e.g. doughnuts, muffins, bagels and cinnamon rolls) out of all prepared foods at c-stores, up 5% from the previous year.

69%

69% of consumers were interest in “fresh warm bakery sweets” (e.g. cookies and brownies), a 12% annual rise.

59%

of consumers said they were interested in “cheesecake/pie/etc.,” an increase of 21%. Source: Datassential,“C-Store Keynote Report,” July 2016

most of the growth is from fresh-case items, sales of packaged bakery products also increased. One top seller in the packaged division is a 12-ounce dome-lidded cup filled with the stores’ signature no-bake cookies. The commissary services 35 of the total 52 Wesco stores. Two Wesco stores with on-site bakeries service the rest. The stores also sell an average of 20,000 doughnuts per day as well as muffins, brownies and full-size (3.5-4-ounce) cookies. Last year, Wesco started offering mini cake doughnuts in concession-size packs containing 20 doughnuts each for resale at schools and fundraisers. Initial response was lukewarm, but when the company merchandised the same vanilla cake doughnuts with Halloween-themed toppings in October, they flew off of the shelves, puffing up sales, Yandian explained. “We thought we would sell about 100 or 150 cases in October, but instead we sold 1,500 cases,” Yandian said. “We did the same thing for Christmas and our results were just as solid.” Retailers that rely on bakery to boost profits must also face stricter federal guidelines. For example, under new rules from the U.S. Food and Drug Administration, bakers have until June 2018 to reformulate bakery products without partially hydrogenated oils (phos). That means 2017 will MAKING DOUGH Yandian said the total volume of bakery items he pro- be a pivotal year for the transition to non-pho shortenings duces increased by double digits in the past year. While and oils. ✜

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Coffee & Tea

FOODSERVICE

Specialty Coffees Are Hot

IKE OTHER CONVENIENCE RETAILERS,Lassus Handy concept about 10 Dandy Food Stores, a subsidiary of Fort Wayne, years ago, said Ind.-based Lassus Brothers Oil, is boosting its hot dis- To d d L a s s u s , Between 2010 and 2015, total category sales for pensed sales with specialty offerings. Following U.S. company preshot tea have increased The consumers’ inclination for more specialty coffees and teas, i d e n t . more than 15%. concept offers c-stores are banking on this trend continuing. Coffee sales continued to grow in 2016. Overall servings more than 20 difof both traditional and specialty coffees rose 19% last year ferent varieties over 2015, according to a NPD Group/CREST report, which of coffee from its traditional covers the U.S. coffee market in 2016. Source: Tea Association of the U.S.A., Fact Sheet 2016 In its “Coffee Market in the U.S. 2014-2018” report, premium brews Technavio research firm forecasted that U.S. coffee market to such innovative creations as its signature Zebra (white revenue will increase at a compound annual growth rate and dark chocolate with espresso and milk), Monkey’s Tail (CAGR) of 5.9% over the period between 2013 and 2018. In (espresso with banana syrup) and the Chicago Jamaican terms of coffee volume, the CAGR is expected to rise 4.16% (espresso and dark chocolate with almond and amaretto syrups), all of which are brisk sellers. over that period. The retailer’s thirst to offer more variety doesn’t just apply to its beverage offerings, but following customer SPECIALTY INNOVATION At five of Lassus Handy Dandy Food Stores, cus- demand, is increasingly focusing on diverse condiments, tomers don’t have to get out of their cars to order the flavors and specialty options. Hot specialty coffee drinks at Handy Dandy are inspired company’s Higher Grounds premium coffee and madeto-order espresso drinks. Each of the stores has a drive-up by dessert favorites such as Cinnamon Roll Latte, German Chocolate Mocha and Mudslide. There is also an assortment window to expedite ordering and pick-up. Handy Dandy was an early adopter of the premium of candy bar-inspired flavors, including Peppermint Patty, coffee movement, having introduced its Higher Grounds Snickers and Almond Joy. The stores offer 4-5 regular “Brews of the Day,” of which at least one is a seasonal flavor. Customers can upgrade Specialty Brews Percolate their coffees with a shot of espresso, whipped cream, half Daily consumption of espresso-based and half, breve (steamed half and half) or Torani syrup or beverages has nearly tripled since 2008. sauce for an extra cost ranging from 50-75 cents. Coffee refills are also available at a discounted price. In addition to the coffees drinks, Higher Grounds also Between 2008 and 2016, past-day offers two types of hot chocolate, two different hot tea consumption of gourmet coffee drinks and steamers. beverages increased: Prices for coffee drinks range from $1.55 for a short • to 36% from 13% among 18-24 espresso to $5.30 for a vasto White Chocolate Crème Brûlée. year olds; • to 41% from 19% among The Higher Grounds concept will be included in future consumers 25-39. high-volume stores. Labor and window-ordering capabilities for Higher Grounds are shared with the stores’ deli concept, Elmo’s Pizza & Subs. In the 29 Handy Dandy stores in Indiana and Ohio that For espresso-based beverages don’t have the Higher Grounds concept, customers can alone, past-day consumption rose: still get cappuccinos and other espresso-based drinks from • to 22% from 9% of individuals eight-head, self-serve machines. aged 18-24; Tea is also a hot-button topic in the convenience channel. • to 29% from 8% among those 25-39. Total category sales for hot tea sales increased more than 15% between 2010-2015, according to the Tea Association of the USA. ✜ Source: National Coffee Association,“NCA National Coffee Drinking Trends,” 2016 38 Convenience Store Decisions

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Carbonated Soft Drinks

BEVERAGES

Lively Soft Drinks Emerge

LTHOUGH THE NEWS IS not all positive for carbonated soft drinks, innovation in the category has the potential to create a reboot. Demand for both regular and diet carbonated soft drinks has declined as more consumers turn to healthier beverages to quench their thirst, according to IBISWorld, a Los Angeles-based market research firm. It reported total channel soft drink revenue totaled $42.8 billion in 2016, a 0.9% decline since 2011. Yet, convenience stores will remain a key market for carbonated soft drinks, with this channel’s share of market revenue increasing steadily over the past five years due to consumers’ growing need for convenience, according to IBISWorld. More than 31% of c-store packaged-beverage sales came from CSDs in 2015, according to the Nielsen’s annual category report. However, new products in the marketplace are expected to bring life to the segment. For example, both Coca-Cola Co. and PepsiCo have introduced new low-calorie lines to bolster lagging diet soda sales. Even more intriguing are the new craft brands hitting the marketplace. Pepsi introduced its Stubborn craft line in August of last year, the third such line in three years. Already, 2017 is shaping up to be more eventful in terms of CSD product introductions. The Canadian soft drink brand, Guru, is pushing the

19.2%

Diet carbonated soft drinks and CSDs Move sparkling Forward water To mitigate the losses from lower

consumption, major producers in 2016 introduced new soda products. Two of the leading manufacturers, the Coca-Cola Co. and 56.1% PepsiCo, launched new mid-calorie soda products that appeal to consumers who dislike Regular the taste of diet soda but don’t want to consume carbonated soft drinks the calories in regular soda. Overall, regular carbonated soft drinks (CSDs) enjoy a majority of market share, including the robust energy and sports drinks segments. 24.7%

Energy sports drinks

Here is a breakdown of the products/services Segmentation

Source: Industry Research Firm IBISWorld, www.ibisworld.com, Jan. 13, 2017.

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Market Share 32.4% Coca-Cola Co. 25.9% PepsiCo Inc. Dr. Pepper Snapple

9.4% Group Inc.

Source: Industry Research Firm IBISWorld, www.ibisworld.com, Jan. 13, 2017.

organic and energy trends with sparkling energy water that’s said to be free of sugar, calories and GMOs. These products make up for what is lacking by including heavy doses of natural caffeine. SPURRING INNOVATION Meanwhile, Daniel Levine, a trends expert and director at The Avant-Guide Institute, a New York City-based consultancy said strongly-carbonated soft drinks, a trend in Japan, may make their way across the Pacific. Lead by Pepsi, these bottled soft drinks contain about five times the normal carbonation and are packaged in reinforced plastic bottles. London Spirits company, Diageo, is pushing Seedlip, marketed as the “world’s first distilled non alcoholic spirit.” “The idea is zero-proof, non-alcoholic cocktails, some of which are carbonated, that could be bottled and sold in c-stores as well as bars,” said Levine. Late last year, Les Claypool, the bassist for the San Francisco-based rock band Primus, launched SeaPop, a line of “soothing” soft drinks that are essentially the opposite of energy drinks. “Created with herbs that are supposedly relaxationinducing, c-store operators might have to make room for a new calming category of soft drinks,” predicted Levine. Evolving trends in the category have also allowed some c-store chains to launch proprietary brands. For instance, 7-Eleven last November teamed with Jones Soda Co. to produce a limited-edition Orange & Cream Slurpee flavor soda to be sold exclusively in 7-Eleven locations. The Jones Orange & Cream Slurpee flavor is the first cane sugar product for the Slurpee brand. At Git ‘N Go Markets, a four-store operation based in Tennessee, carbonated soft drinks category sales rose 2.5% in 2016. “However, the category was lagging in overall sales growth in the c-store about 9%,” said William Baine, Git ‘N Go CEO. “Core 20-ounce offerings were flat to down from 2015. Our numbers might be off compared to the region due to our deli/fountain remodel.” ✜

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Cold/Frozen

BEVERAGES

Cool Category Carries On

“Much like with the beer industry, where we’ve seen an ERHAPS THERE IS NO “destination category” that best captures the entrepreneurial spirit of the con- increase in craft beers, not at the expense of regular favorites venience store industry as does cold and frozen but to enhance these, we are seeing the same with c-store cold dispensed beverages,” said Jeff Lenard, NACS’ vice presidispensed beverages. More and more when patrons enter a c-store, they are dent, strategic industry initiatives. “Stores that have unique likely to encounter dedicated spaces known as the “Chill offerings in this segment can take the pressure off with gas prices, since customers will seek out these beverages.” Zone,” “Siberian Chill,” or “Cold Corner.” It helps that there is no other type of product more tied Cold dispensed beverages remain a staple in c-stores, with about 98% of c-stores reporting offering cold dispensed to convenience stores than frozen dispensed beverages, and products, according to data presented at the National this is a big positive for retailers. It bears keeping in mind Association of Convenience Stores (NACS) 2016 State of that this category is not just for summer or regions with the Industry Summit, which is preliminary and derived warmer weather. “7-Eleven has stated that frozen dispensed beverages are from company submissions as of March 31. Top-quartile performers had cold dispensed profits that were 5.46 per- most popular in Michigan all year long,” said Lenard. More retailers are taking advantage of the opportunities centage points more than those in the bottom quartile. “We find the more dispensed beverages we offer, it picks by offering signature mug programs. For example, RaceTrac up overall sales in our stores,” said Jamy Flory, vice pres- has seen great success with its Sodapalooza promotion, ident at Flory’s Convenience, Gas & Delis, a four-store which offers coupons and discounted refills for customers operation based in Fishkill, N.Y. “Rather than two barrels of who purchase its branded mugs. Likewise, 7-Eleven’s Free frozen drinks, we’ll have three with six flavors to increase Slurpee Day on July 11 has become a traditional event. “This does two things,” said Lenard. “First, it takes one total cup sales.” To that point, the advent of frozen coffee beverages at of the most in-demand products and encourages people to Starbucks, Dunkin’ Donuts and other foodservice venues has purchase other items and second, it encourages these customers to come to your store instead of the competition for spurred significant competition in the convenience channel. discounted cold or frozen drinks.” Flory’s stores recently added more dispensing equipDISPENSING INNOVATION While much of the excitement in this category was cen- ment for these beverages at two of its stores, which have led tered around flavor shots years ago, more recently the to an overall sale increase. “At our flagship store, we’ve created an arctic theme and buzz is about new types of drinks more akin to craft beers. Younger consumers, particularly Millennials, are designing will do that in our other site now,” said Flory. “This spring, their own concoctions by mixing flavors. Stores are then dis- we have plans to create a theme for frozen drinks to be proactive and stay ahead of the curve.” ✜ playing the innovative virgin cocktails via social media.

Dispensed Beverages Boost Foodservice

As more retailers upgraded their foodservice offerings in 2015, a significant volume of cold dispensed-beverage purchases came from the fountain. Moreover, frozen dispensed beverages—a long-time staple of the c-store channel—continues to be one of the strongest gross margin performers, according to the National Association of Convenience Stores (NACS).

Per Store/Per Month Prepared Food Commissary Hot Dispensed Beverages Cold Dispensed Beverages Frozen Dispensed Beverages

$ Sales GP$ $29,377 $16,818 $3,964 $1,594 $6,121 $3,817 $4,794 $2,438 $683 $314

GM% 57.3% 40.2% 62.4% 50.9% 46.1%

Source: NACS “State of the Industry Summit Report,” CSX LLC, April 2016

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Juices & Teas

BEVERAGES

Adding Juice To the Mix

OTH THE JUICE AND tea segments have experienced expansion when it comes to flavor innovations as well as more healthful ingredient profiles. Millennials and younger consumers tend to seek out a variety of ready-to-drink tea and juice flavors, according to Los Angeles-based market research firm IBISWorld. Also, tropical flavors like mango and pineapple have been on the rise, as consumers look for exotic and creative healthy alternatives. In its December beverage report, IBISWorld projected overall juice revenue to expand at an annualized rate of 1.2% to $13.4 billion in the next five years. Comparably, tea revenue is projected to grow at an annualized rate of 1.6% totaling $1.4 billion. Aside from different flavors, U.S. consumers are seeking better-for-you beverage offerings, which are helping drive packaged beverage category sales in c-stores. Although it is one of the largest non-alcoholic beverage markets, the juice category has stalled at $20 billion in overall sales, according to the Mintel Group. It also suffers from an unhealthy perception from consumers. Juice sales in c-stores for the 52 weeks ending Dec. 25, 2016 totaled $620 million, a 0.5% increase from the prior year, according to Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data.

RTD Tea Leads the Way

Ready-to-drink tea had the strongest unit and dollar growth of all major food and beverage categories in the U.S. for the 52 weeks ending Oct. 1, 2016, according to Nielsen.There’s proof in the numbers: 1. A Beverage Marketing Corp. report found premium RTD tea is the fastest-growing segment in the category, with a 16% compound annual growth rate over the past five years, generating $1.1 billion in sales.

2. RTD or liquid coffee—with unit sales up 13.8% and dollar sales up 14.6%—grabbed third position in Nielsen’s ranking of the top 10 food and beverage categories by dollar growth within categories with $500 million or more in annual sales.

3. Grand View Research has projected that the combined RTD tea and coffee market will grow to $116 billion by 2024, compared to the $71.4 billion generated in 2015. 44 Convenience Store Decisions

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8.1%

Vending Machine Operations

6.8% Exports

3.4% Other Markets

C-Stores Squeezing Juice Market

Convenience stores provide producers the retail space to market beverages that 40.4% depend heavily on impulse buyers, such as 18% people on a lunch break or seeking refreshment Grocery Warehouses while traveling. C-stores have been an increas- stores and and ing source of sales during the five years to 2016, SuperSuperstores closing the gap with grocers and supermarkets markets with 23.3% of the juice market in 2016.

Here is a breakdown of the 2016 Major Market Segmentation

23.3%

Convenience Stores and Gas Stations Source: Industry Research Firm IBISWorld, www.ibisworld.com, Jan. 13, 2017.

HEALTH ALERT “C-stores are alert to the fact of alternatives and healthier products within juices and teas, which is in line with consumers,” said Tom Pirko, managing director of Santa Barbara, Calif.-based BevMark LLC, a beverage consulting firm. “Health and wellness is driving the business.” Still, 77% of adults in the U.S. drink juice, with 100% juice leading with 66% consumption, followed by 36% for juice drinks, as reported in Mintel’s October “Juice and Juice Drinks–U.S.” “The convenience segment needs to stock juice and tea products that are distinctively different, but also straightforward and simple, so consumers don’t have to think too much about their purchase,” said Pirko. Refrigerated tea sales in c-stores totaled $172 million in the 52 weeks ending Dec. 25, 2016, while ready-to-drink sales were more than $1.4 billion, according to IRI. This highlights the big discrepancy between the packaging types and consumer preferences, though sales in both categories were essentially flat. PRIDE Stores, a 12-store chain based in St. Charles, Ill., is seeing interest in juice and teas with healthful ingredients.“There are a lot of new teas and an increased focus on packaging, such as with Snapple and Golden Peak lines, which has drastically improved in this beverage category,” said Mario Spina, PRIDE Stores’ CEO. ✜

March 2017

2/23/17 11:05 AM

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2/22/17 10:36 AM

Bottled Water & Sports Drinks

BEVERAGES

A Twist On Refreshment

OTH BOTTLED WATER AND sports drinks are thirst of bottled water. Consumers prefer reusable packaging for quenchers that continue to be staples in the conve- these beverages as well as biodegradable materials. nience channel. According to research firm Mintel, 83% of U.S. BOTTLING UP SALES Still, 85% of consumers surveyed recently by Mintel said consumers drink unflavored still bottled water, compared with 82% drinking tap water. Flavored still bottled water was they drank bottled water in the past three months, compared consumed by 48% of those surveyed, and 46% sought out with 82% for coffee and 75% for tea. Fruit-based waters were consumed by 41% of respondents in the past three months. both unflavored and flavor-enhanced still bottled water. “C-store consumers are more likely to go for healthier flaThe report, “Bottled Water U.S. January 2017,” also indicated that 17% of U.S. consumers drink flavored sparkling vored waters, as these offer something different than the bottled/canned water frequently, compared with 16% prefer- tap,” said Terri-Lynn Woods, a convenience store consultant, ring both unflavored and flavored enhanced still bottled water. based in Toronto, Canada. “Also, those looking for added Promotions tend to have a big impact on sales for both nutrients are seeking out Vitaminwater and other brands with functional ingredients.” bottled water and sports drinks. Mintel’s report confirmed this, as 83% of those surveyed “In the grocery channel, a deal may promote 10 beverage bottles for $10 or $1 per bottle, whereas in c-stores, a buy- said they are looking for some sort of nutritional or funcone-get-one offer is only good for those who buy multiple tional benefit with bottled water. Even big beverage makers products, with the first beverage at full price and the second are paying attention. For example, PepsiCo is pushing its either reduced or free. It’s about moving more units through premium water brand LIFEWTR. Larger beverage manufacturers are seeking to carve out and increasing the rings,” said Marylou Mendez, chief financial officer at Mendez Automotive Services Plaza Chevron a niche for water similar to that of the beer companies for Service Center, based in Costa Mesa, Calif. “We do a lot with microbrews. This may be the next category frontier. “Like craft beers, water branding is focusing on the root Smartwater, our No. 1 seller that has a year-round promotion of the product, and regional brands are coming to the foreof buy a liter at full price and get a second for 50 cents.” The retailer also carries Core water, which is experienc- front in c-stores,” said Woods. “This is in line with the ing increasing sales, as well as another top seller, Gatorade. overall local trends and focus on more healthful eating.” While bottled water had more than $4 billion in c-store sales The latter is offered in a two-for-one deal, with lemonade, lemon-lime and fruit punch flavors selling best, along with in the 52 weeks ending Dec. 25, 2016, by comparison, sports drinks clocked in at about $3 billion, according to Chicagothe newer cucumber-lime line. In addition to promotions, Mintel’s report confirmed that based IRI. For the latter, this was a 5.5% jump in sales from the environmental impact has had an effect on consumption a year prior, compared with bottled water’s 7.5% increase. ✜

Bottled Water, Sports Drinks Rise

Bottled water is currently the second largest beverage category by volume in the U.S., behind carbonated soft drinks (CSDs). However, the Beverage Marketing Corp. predicts that bottled water will surpass CSDs to become the No. 1 beverage in America by early 2017. Comparably, sports drinks have seen significant year-over-year volume growth over the last few years.

Category (millions of gallons)

CSD Bottled Water Fruit Beverages Sports Drinks RTD Tea

FY2013

FY2014

FY2015

12,885 10,156 3,234 1,374 1,525

12,760 10,903 3,144 1,416 1,584

12,564 11,769 3,111 1,494 1,655

FY2016 (preliminary)

12,354 12,764 3,033 1,556 1,716

Source: Beverage Marketing Corp. Jan. 20, 2017

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March 2017

2/23/17 1:19 PM

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Beer & Wine

BEVERAGES

C-Stores Learning Their Craft

EER RANKS THIRD AMONG the top 10 merchan- based in Duxbury, dise categories, behind cigarettes and packaged M a s s . “ T h e b i g beverages, according to the National Association gest piece of the of Convenience Stores (NACS) “2016 State of the pie was the malted Industry” Report preliminary data, derived from submis- beverage category: Twisted Tea, Mike’s, sions as of March 31. Beer Sales Flow In addition, the beer category ranks sixth for in-store hard soda, hard Nearly 80% of convenience seltzer, etc. Almost gross margin contribution at 4.2%. stores sell beer, accounting Moreover, Americans are spending more for better qual- all brands grew, but for more than 30% of all the new hard soda ity beer. beer purchased in the U.S. Bonnie Herzog, managing director–beverage, house- and hard seltzer hold & personal care, tobacco and c-stores for Wells Fargo really got traffic to Source: National Association of Convenience Stores, Securities LLC, explained that premiumization—an indus- this category. The Dec. 31, 2016 try term for the willingness by consumers to spend more category grew 40% money on beers that command higher price points—is a key for us.” Aside from beer, 2016 showed an uptick in other adult bevtrend among U.S. consumers. erages sales in c-stores, including wine and hard cider products. Eaton cautioned convenience store operators that they PREMIUM DRIVE “While sub-premium priced beer dollar sales have need to pay attention to the mainstream craft beers, being declined 5.6% since 2015, premium-priced beer sales have careful to rotate in the new flavors suppliers introduce. increased 10%,” Herzog said. “Based on an analysis from “The hard seltzers, I think, will do well again this summer. Nielsen, consumers have been trading up to premium Seltzer, being well established now, and new flavors for brands, with key reasons including better taste; perceived 2017, I think will have the biggest impact on beer.” Two-for deals work very well when it comes to the better quality; consumers wanting to treat themselves; and malted beverage singles, she added. consumers wanting to try new things.” “Craft and Mexican imports drove the volume here,” said Craft and high-end imports have been beneficiaries of this ongoing trend. However, going forward, “while we still Tim Cote, vice president of marketing for Beaverton, Ore.expect the premiumization trend to continue, we anticipate based Plaid Pantry, which operates 107 stores. “Beer has this trend to slow slightly as higher gas prices and uncer- gotten so ‘nichey.’ What works in one town likely does not work in another.” tainty pressure consumers,” Herzog added. Consumer trends include growth for a variety of styles “Beer had a great year in 2016,” noted Meghann Eaton, category manager at VERC Enterprises, a 25-store chain that craft brewers have popularized, including IPAs, session IPAs, pilsners and sour beers. What excites many consumers in this category, Cote has found, What Makes a Beer Craft? is small, new, local craft brews. There are certain industry What will fuel growth in 2017, Cote continued, will be products made close to home. Also, standards that define a craft cans will continue to be preferred by consumers in beer versus a regular beer. every segment. “New SKU’s will be life and death Two of the most prominent in this category. Fail to launch new SKUs and criteria are: a craft product risk becoming obsolete. The new-item life span is must be less than 25% shorter than ever; constant motion is not optional.” owned by a non-craft brewer; and What may hinder growth of the category during the coming months, Cote suggested, is retailers the brewer must make trying to go too high end. fewer than 6 million barrels “Some brands are testing how high-priced craft of beer per year. can go. They are finding there is a limit, even in Source: The Brewers Association the craft beer center of the universe,” Cote said. ✜ 48 Convenience Store Decisions

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March 2017

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Energy Drinks

BEVERAGES

Energy Drinks Chugging Along

N-THE-GO CONSUMERS—WHO MAKE UP the bulk of c-stores’ customer base—show no sign of slowing down, which means energy drink sales will continue to grow. The reason is obvious: Americans crave energy. According to a projection by Packaged Facts, sales of energy drinks and shots will grow to $21.5 billion by the end of 2017, driven by continued economic recovery, expansion in retail distribution, and strong potential in new product development. As in other fiscal years, Red Bull and Monster continue as category leaders, with Rockstar following. “We project mid-single-digit volume growth in 2017,” said Gary Hemphill, the managing director of Beverage Marketing Corp. “The category targets a large and essential consumer need state—energy—so it is relatively well positioned for future growth. The category has struggled somewhat to broaden demographics beyond its core consumers of youthful males, and is striving to do this by broadening its marketing.” According to Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data for the 52 weeks ending Dec. 25, 2016, the non-aseptic energy drinks category saw a sales increase of 3.95% to nearly $8.3 billion.

According to Hemphill, energy drink sales are the “ultimate” c-store product because purchases are so impulse driven. “About half of energy drink sales are through c-stores. C-stores need to continue to capitalize on their advantage and do a great job of merchandising the product, placing it at multiple points in the store and making sure it is icy cold for consumption right away.”

DEMAND DRIVEN Because of the aforementioned customer trends, energy drinks should remain in high demand during the next few years. “I believe energy drinks are still growing as a category,” said David Commer, the principal of Commer Beverage Consulting in Lewisville, Texas. “My sense is the target demographic is and remains 15-to-25-year-olds, and marketing is targeted to influencers in this age demographic.” “Energy drinks are still going strong,” agreed Kumar Assandas, a 7-Eleven franchisee in Henderson, Nev. “Last year was a good solid sales year, and it looks like it’s been steadily climbing from the end of December until now. We have increased our sales from 523 units to 711 units per week.” Assandas has watched the customer demographic for energy drinks shift. “It’s mainly kids, and a lot more people who go to work. There’s something about (these beverages) that keeps them awake and alert instead of coffee now. And they can take them to go; some of them are resealable.” Monster, Rock Star, Red Bull and Spike remain his top sellers—in that order. Hemphill noted that there is an effort afoot to broaden category demographics. “This is likely to be the key to successful growth in the years ahead.” That is borne out b y re s e a rc h b y M i n t e l International. As the tarEnergy Drinks Powering Growth get consumer age range of Though the energy drink category might not be duplicating the massive percentage of volume growth users has expanded, Mintel generated 5-6 years ago, flavor innovations and increasing consumer demand for more natural reported, energy drinks have ingredients are helping drive energy toward the top of the beverage pyramid. begun to align with more FY2016 mainstream sports such as Energy Drinks FY2011 FY2012 FY2013 FY2014 FY2015 (preliminary) college football, college basMM Gallons 450.53 515.06 543.39 578.03 629.27 670.17 ketball, professional baseball, FY2016 professional soccer and proEnergy Drinks FY2011 FY2012 FY2013 FY2014 FY2015 (preliminary) fessional golf to reach a wider range of consumers. Each Volume Y o Y 17.16% 14.32% 5.50% 6.38% 8.86% 6.50% presents an opportunity for Growth Rates savvy marketers and retailers. ✜ Source: Beverage Marketing Corp., Feb. 13, 2017

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March 2017

2/23/17 11:07 AM

Energy Shots

BEVERAGES

Energy Shots Still Compete

NERGY SHOTS SATISFY THE need that drives many customers to convenience stores in the first place: something fast and convenient to help them rocket through their busy day. However, the segment has been overshadowed for the last few years by a dynamic energy drink category. Dollar sales of energy shots, including 5-hour Energy, Stacker 2, Tweaker, Rhino Rush and K Chill, dipped 2.3% to $770 million for the 52 weeks ending Dec. 25, 2016, according to Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data. “Energy shots and energy drinks are marketed and positioned differently, and c-store operators should carry both,” insisted Gary Hemphill, managing director of research for Beverage Marketing Corp. “Energy shots are marketed directly and specifically as an energy source, while energy drinks are marketed as a lifestyle beverage that offers the functional benefit of energy.”

Condon Oil Co., which operates 35 Ultimart convenience stores in Wisconsin. “We used to see energy shots being purchased solely by Millennials, but that really isn’t the case anymore. We’re seeing older consumers purchase them more and more.” Consumers think energy shots are healthier than soda and better than drinking multiple cups of coffee, Bauman pointed out. “You get all of the caffeine you need in a little shot and you’re good to go. And because energy shots are merchandised in-store right at the counter and promoted on discount in quantities of two, four and six, they’re really the perfect add-on to any purchase,” Bauman said. The energy shot segment continues to diversify, which is good news for consumers who want more variety. “In the past, it’s always been 5-hour, then the ‘temporary other’ shots,” said Mike Nelson, category manager for Plaid Pantry in Beaverton, Ore. “Now there seem to be some brands learning to co-exist with 5-hour. Also, ‘relaxation shots’ have entered the picture, and are growing at a DISCUSSING DEMOGRAPHICS The consumer base is also somewhat different, Hemphill good pace.” For example, Rhino Rush has worked as a good complecontinued, with drinks appealing to more youthful males and shots having a somewhat older demographic. “Savvy ment to 5-hour for Plaid Pantry, according to Nelson. “5-hour c-store operators should carry both. Both serve a need, and rolled out their Protein + Energy, but it wasn’t a big hit.” Over both are heavily driven by impulse purchases when the the coming months, he continued, Plaid Pantry is looking for Protein + Energy to grow. “I think relaxation shots will need for energy occurs.” breathe new life into a close-to-flat overall category.” Of course, c-store operators will carry what sells. Nelson forecasts that 5-hour Energy should maintain its “Energy shots are a big deal, and we sell a lot of them,” said Kurt Bauman, vice president of food distribution for market share in 2017. ✜

Demand for Natural Energy

Nearly one-third of total consumers worry about the safety of regular energy drinks and shots, according to a 2016 Mintel study of 2,000 internet users aged 18 or older. Natural or organic energy drinks and shots may offer one solution, since more than a quarter of total of individuals polled would be more comfortable drinking energy drinks and shots made with all-natural ingredients. Percentage of those polled:

I am or would be more comfortable drinking energy drinks/shots made with all-natural ingredients.

26%

Natural energy drinks/shots are safer than regular ones.

24%

Natural energy drinks/shots are better for you than regular ones.

22% Source: Lightspeed GMI/Mintel, May 2016

March 2017

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Convenience Store Decisions 51

2/23/17 2:12 PM

SAVE

THE

DATE

Join us for the 2017 National Advisory Group (NAG) conference!

September 10th â&#x20AC;&#x201D; 13th Nashville, TN Downtown Hilton

2017 NAG_STD_AD.indd 1

2/23/17 12:38 PM

SESSION SNEAK-PEEK Monday, September 11, 2017

BURNING ISSUE 1: Competing On Fuel: Understanding RIN’s, alternative fuels and declining gallon sales. The Renewable Fuel Standard (RFS) is changing fuel economics across the country and not for the better. Credits for renewable identification numbers (RINs) are escalating and convenience store chains are having a harder time competing on price and in some cases they are being forced to retail fuel at a loss. Combined with these regulatory requirements, enhanced fuel-efficient vehicles and alternative power sources are muddying gasoline’s future. Learn what you can do to protect fuel sales to remain competitive in the gasoline business. BURNING ISSUE 2: Navigating Staffing: Attitude is the new rallying cry in modern recruitment. Finding employees with the right attitude, enthusiasm and willingness to learn with a personality that fits your organization is far more useful than finding someone with the usual list of qualifications. Today, Millennial employees say they want more from their jobs. They want flexibility, satisfaction and fulfillment from their workplace. So whether it’s partnering with Uber to secure reliable transportation, creating an incentive program to reward great service or offering a clear path for advancement, retailers must take the necessary steps to attract winning employees. INFORMATION EXCHANGES PART 1 The Information Exchanges are the heart and soul of what makes NAG so unique. Attendees will be formed into small groups of non-competing chains to discuss relevant business issues. We all want uninterrupted time with people who “do what we do,” but rarely do our busy lives allow us the luxury of benchmarking what we do and how we do it with other professionals. As you listen, learn and share with your small group of retailers, you will find that what you are doing right will be validated, what you might be doing wrong will be challenged, and how you might do things better will be encouraged. The relationships formed in this intimate setting will last a lifetime and be firmly measured in increased profitability and decreased legal liability.

Tuesday, September 12, 2017

BURNING ISSUE 3: Foodservice: Delivering the goods. UberEats and Amazon have muscled into the foodservice market and are changing how consumers purchase their meals. Other services like Doordash and Instacart are also gaining momentum, keeping customers away from convenience stores in favor of home delivery. Emerging services such as Munchery deliver food directly from commissaries, bypassing the brick-and-mortar stores altogether. To remain competitive, convenience store operators must keep pace to maintain sales in this crucial category. BURNING ISSUE 4: The Future of Fresh Foods in Retail: As consumers increasingly seek fresh options in convenient formats, retailers are rising to meet the demand. While convenience store customers have a tendency to talk healthy and eat otherwise, there is a clear need for quick, healthy foodservice solutions and convenience stores are in a prime position to meet this demand. Driven by the consumer’s demand for convenience, food retail

2017 NAG_STD_AD.indd 2

concepts, formats and locations are converging. Today’s shoppers are pushing convenience retail businesses to expand, invest in fresh foods and provide a consistent brand experience. BURNING ISSUE 5: Developing Real Estate: How to Find and Invest in Great Locations: The retail industry is more dynamic than ever. Retailers must evolve to succeed over the next decade. However, the cost of real estate continues to rise so convenience store operators must make wise decisions about how to develop properties. This includes capital investments, site selection, store design and layout and the service offered. Other strategies, such as sale-leasebacks, can help c-stores access capital to acquire new locations. This session will explore the best practices of real estate development to help retailers stay ahead of the competition. Young Executives Organization (YEO) BREAKOUT SESSION: What does omnichannel mean to convenience retail? Omnichannel retail is a multichannel approach to sales that seeks to provide customers with a seamless shopping experience whether the customer is shopping in-store, online or from a mobile device. What distinguishes the omnichannel customer experience is that there is true integration between channels on the backend. Using an omnichannel approach means retailers know and respond to their customers’ shopping preferences and can tailor marketing efforts to meet their needs. Presenting a uniﬁed physical and digital customer experience in the age of Amazon is an essential requirement for today’s convenience stores.

Wednesday, September 13, 2017

CONVENIENCE STORE CONSUMER INSIGHTS: NAG members and panelists will collaborate to present primary consumer research relevant to what convenience store operators are facing in their day-to-day operations. IDEAS BOOT CAMP: Information Exchanges are a hallmark of the NAG experience, where great ideas come to light. The Ideas Boot Camp is meant to share these ideas with all conference attendees to ensure all NAG members leave the conference with ideas they can bring home with them right away to improve operations, cut costs and enhance overall proﬁtability. This interactive session will be lead by NAG Executive Director John Lofstock and include a detailed wrap up of the six Burning Issues and potential hot-button topics convenience store retailers need to watch for in 2018.

2/23/17 2:42 PM

SNACKS

Meat Snacks

Carving Out Meat Snack Sales

NCE BEEFY, SALES OF meat snacks at convenience shrinking and we are adjusting our locations to that.” But don’t count meat snacks out, said David Bishop, stores are being sliced away by customers’ declinmanaging partner of the sales and marketing practice ing interest in limited flavor and texture options. Dried meat snacks sales in convenience stores Balvor Inc. in Barrington, Ill. “It’s still a product that aligns well with increasing snackexperienced a dramatic drop in the last two years. Dried meat snack sales jumped 11.16%, according to Information ing occasions, and need for portability as people snack on Resources Inc. (IRI), total All Scan c-store dollar sales data the go. In addition, it has a health and wellness aspect in for the 52 weeks ending Nov. 29, 2015. Jump ahead one year, that it provides something consumers are increasingly seekand dollar sales fell to $1.52 billion, a dollar sales percentage ing: protein,” Bishop said. To meet that demand, growing brands such as KRAVE change of nearly 10 percentage points, according to IRI sales are adding to in-store sales offerings such as turkey jerky data for the 52 weeks ending Dec. 25, 2016. Broken out, jerky sales rose 2.19% during the same period. and pork jerky, and featuring such flavorful combinations Steve Magestro, president of West Bend, Wis.-based like Basil Citrus, Black Cherry Barbecue and Chili Lime. “When consumers come in and purchase that meat snack, Mad Max Convenience Stores, wouldn’t likely have any beef with those figures. The beef sticks and jerky category often times that snack is a meal replacement. The person might be on a high-protein diet, or want to get needed nutriaccounts for less than 1% of total in-store sales. “That is down from the year before, and that year was ents without having a complete meal.” What’s next? That depends on what meat snack manudown from 2014,” he said. Mad Max sells single packs and combo packs of sticks facturers see as the next trend, whether it’s reduced sodium, and jerky, and also markets combo packs of meat and cheese new and organic flavors or other, Bishop said. “Nuts, seeds and meat snacks tend to be adjacent and at its 12 c-stores. Meat snacks are sold in endcaps, inline and in counter displays. Promotions are limited to two-for-one occupy similar space because they’re pegboard items,” Bishop added. “So what’s coming next in nuts and seeds and sale prices. As for new items, Magestro said Mad Max intends to will determine how much space meat snacks get.” ✜ start carrying the new flavor group being introduced by Jack Link’s Beef Snacks.

Meat Snacks Sales Slip

PROTEIN CHALLENGES Several factors underpin the falloff in meat snacks category sales, according to Magestro. “As we get more into foodservice at our locations, we are seeing customers buying fresh sandwiches, fresh food or buying combo meals for less than a bag of beef jerky,” he said. “Price is a major consideration for our customers.” In addition, meat snacks have been impacted by an apparent demographic shift, he reported. “The younger people—meaning the 25 and younger crowd— don’t seem to like it as much. So you have an increase in cost and retails. With people not buying or buying less, that category is 54 Convenience Store Decisions

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The dried meat snacks category in the convenience channel has experienced slower sales during the last few years, driven largely by a slowdown in jerky, according to recent IRI analysis. Category Growth: Dried-meat snacks 13.5% Convenience channel 2014-2016 Dollars 7.9%

Units

8.4%

1.9% 2014

2015

1.3% -0.8% 2016

Source: IInformation Resources Inc. (IRI) Total Convenience Store All Scan data for the 52 weeks ending Dec. 25, 2016

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2/23/17 11:08 AM

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SNACKS

Seeds & Nuts

Variety Vital in Seeds, Nuts

ANY CUSTOMERS DASH INTO a Maverik convenience store looking for a quick snack to take along on whatever adventure they have planned, whether it’s heading to the office or on a mountain hike. Often they choose a package of seeds or nuts, according to Ryan Morton, category manager for snacks and groceries at Maverik, the North Salt Lake, Utah-based chain, which incorporates “adventure” as its marketing theme. “It’s been a pretty healthy category,” he said. “We’ve seen a lot of grab and go. There has been some low-hanging fruit with items such as Frito Lay’s 99-cent packs. That’s a simple price point that has worked well.” While seeds and nuts remain popular and are considered a better-for-you treat, the category saw a blip in overall sales in 2016, according to Jordan Rost, vice president of consumer insights at the Nielsen Co. “Salty snacks are still driving strong growth for c-stores with $6.26 billion in total sales (in 2016), growing at 2.6%,” Rost said. “The 2.7% sales and 5.5% unit declines seen in nuts and seeds are consistent with an overall contraction in sales across channels, which despite growing at 3.1% over the last four years, were flat in 2016.” OUT OF ITS SHELL Although the performance of seeds and nuts slowed, they have generated good customer response for Maverik. The company sees a demand for sunflower seeds, especially varieties from Spitz that come in flavors ranging from dill pickle and black pepper to chili and barbeque. But offering customers a wide selection and new varieties is more than staying on top of trends. “It’s a matter of keeping it fresh,” Morton said. “Some other brands have come out with sweeter flavors. Some stuck, and some didn’t. I think you’ve got to experiment. You’ve got to have some space dedicated to trying new

Seeds, Nuts Among Superfoods In 2017, U.S. consumers will continue to be concerned about clean eating as a whole and maintaining a healthier lifestyle, according to a recent food trend survey of 1,700 dietitians. The survey listed the top 10 superfood trends for 2017, which include seeds, such as chia and hemp; avocado; nuts like almonds and walnuts; fermented foods such as yogurt; and ancient grains in the top five. Kale, green tea, coconut products, salmon and exotic fruits round out the top 10. things. Some things will be winners, but some are just a roll of the dice. You have to gamble on some things and be flexible if it doesn’t work.” Maverik uses store schematics that ensure approved items, including seeds and nuts, are placed in the exact location that management has deemed most appropriate. “We don’t allow vendors to put products wherever they can fit it or leave what they want in the stores,” Morton said. “We do that to maintain the integrity of the stores.” PROOF IS IN THE PROTEIN According to research, consumers have looked for more protein-rich, healthful snacks over the past few years. “Consumers are increasingly open to snacks that fit that bill,” Rost said. “For example, sales of rice and other grain cakes saw a spike in sales in 2016, after years of declines, as more consumers consider healthful grains to be part of a well-balanced diet.” He predicted growth opportunities in certain varieties of nuts. ✜

Crunching Sales of Nuts, Seeds

The nuts, seeds and corn nuts category saw no significant momentum in 2016. Dollar sales percentages generated in c-stores fell in all segments except snack nuts, which showed a slight percentage gain, according to IRI All Scan data for the 52 weeks ending Dec. 25, 2016.

Nuts and Seeds Total Snack Nuts Sunflower/Pumpkin Seeds Toasted Corn Nut Snacks

$ Sales $989 M $621 M $318 M $51 M

$ Sales % Chg Y Ago (0.86%) 0.04% (2.42%) (1.93%)

$ Share 100.00 62.77 32.11 5.12

Source: Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data for the 52 weeks ending Dec. 25, 2016.

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March 2017

2/23/17 11:09 AM

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2/22/17 11:28 AM

SNACKS

Salty

Stimulating Salty Snacks Sales

ONVENIENCE STORES CONTINUE SALTING away profits by catering to Americans’ never-ending cravings for potato, corn and tortilla chips, peanuts, pretzels, popcorn, cheese snacks, crackers and many other types of indulgent snack foods. Slowly, but surely, indulgent snacks options are being pushed by healthier items. Threading the salty-but-healthy snack combination is a major key in appealing to consumers over the next few years, according market research publisher Packaged Facts in the February 2016 report “Salty Snacks in the U.S., 4th Edition.” The compound annual growth rate (CAGR) for salty snack sales across all U.S. channels between 2010 and 2015 was 3.7%. Potato chips were the top salty snack seller in the U.S., with the category taking in $7.5 billion in 2015. Next were tortilla and tostada chips, which garnered $5.2 billion in sales. That’s good news for c-store sales, where salty snack sales are particularly pronounced among Millennials, said Jeff Lenard, vice president of strategic industry initiatives with the National Association of Convenience Stores (NACS). “The big opportunity for retailers is to communicate what the product does, as opposed to saying what the product is,” Lenard said. “What kind of story can you tell about the product? It could be as simple as offering salty snacks as part of a combo meal, or even announcing that it is new to the store.

Salty Snacks Never Better

Potato chips in 2016 crunched other segments in the salty snacks category, racking up $1.586 billion in sales. Corn Snacks earned the greatest dollar sales % increase over 2015 with a 4.97% hike.

$4.948 B $614.3 M $367.2 M $810.7 M $188.9 M $1.586 B $233.1 M $216.1 M

$ Sales % Chg Y Ago 4.59% 7.95% 4.97% 3.13% 3.08% 4.81% (0.38%) 4.83%

$932.3 M

4.75%

Category–Salty Snacks

$ Sales

Total Cheese Snacks Corn Snacks (No Tortilla Chips) Other Salted Snacks (Non-Nuts) Pork Rinds Potato Chips Pretzels Ready-to-Eat Popcorn/ Carmel Corn Tortilla/Tostada Chips

Source: Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data for the 52 weeks ending Dec. 25, 2016.

58 Convenience Store Decisions

Or you may want to find a way to define how the product satisfies a need, such as the perfect between-meals snack.” Among the newer chips that have won customer acceptance at c-stores are vegetable and even kale chips, Lenard said. One product line that is garnering increased attention is 7-Select—a private brand created by 7 Eleven. Chip lovers have their choice of 7-Select Potato Chips, 7-Select Tortilla Chips and 7-Select Kettle Chips in upscale offerings such as Spicy Guacamole Thin Tortilla Chips, Go! Smart Sriracha Sprouted Tortilla Chips and Kettle Style Cheddar Ale Potato Chips. C-stores will also grow sales by unveiling new packaging, like chip containers designed for vehicle cup holders. St. Louisbased U-Gas and its Gigi’s Café Express in 2016 unveiled single-serve-house made chips in clear cups for $1.89. SNACK ATTACK At the PRIDE Stores, a 12-store chain based in Warrenville, Ill., chips and salty snacks are just as popular as ever, said Company Vice President Guy Morgano and Loyalty and Food Service Manager Nicolette Jaeger. The stores’ shelves are brimming with chip brands like Doritos, Baked Lays and the traditional Chicago favorite Jays. Patrons can also grab salty snacks like SkinnyPop Popcorn, Planters Peanuts, Wonderful Pistachios and an array of Lance-brand snacks. “We have an entire aisle devoted to potato chips, directly adjacent to the coolers, sometimes on the side, sometimes on the back,” Morgano said. “They’re just as popular as they ever were, but we’ve seen growth in mixing salty and sweet.” Items growing in favor at The PRIDE Stores include “better-for-you” options like the Snyder’sLance Inc. line of Late July Organic Sweet Potato Chips and Sea Salt Tortilla Chips, as well as increasingly crowd-pleasing Snack Factory Pretzel Crisps and Pretzel Crisps with Dark Chocolate Crunch. ✜

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Sweet, Energy Protein & Breakfast Bars

SNACKS

Sweet Snack Sales Surge

S CUSTOMERS CONTINUE TO be starved for time, convenience stores are in an ideal position to fill their meal and snacking needs. The proof is in the rise in sweet snack sales across the board. Total packaged pastry and doughnut sales for the 52 weeks ending Dec. 25, 2016 increased 3.62% to $1.54 billion, according to Information Resources Inc.’s (IRI) Total All Scan convenience store data. Unit sales jumped to 1.03 billion, an increase of 1.5% from the previous 12 months. Within the pastry and doughnuts category, pastries, Danish and coffee cakes experienced the strongest sales gain, up 4.96% to $719 million. Unit sales rose up sharply, increasing 3.24% to 520 million for the 12-month period. “There are a couple of things that I see,” said Guy Morgano, vice president of the PRIDE Stores, a 12-store chain based in St. Charles, Ill. “Everything is transitioning into bags right now. I see a lot of bagged snacks with little bigger portions.” C-store shoppers aren’t going to go away from sweet snacking, but they are more likely to read labels than ever before. “I think the healthier options are going to continually keep popping up and being more important as time moves on,” Morgano said. “We’re actually starting to scratch the surface with the non-GMO products in an attempt to attract a different demographic than in a typical convenience store consumer.”

SNACK/GRANOLA BARS Like packaged sweet snacks, granola bars and snack bars also enjoyed a strong 2016 and a renewed optimism for 2017. Dollar sales for the category rose 5.75% to $911 million last year. Unit sales increased to 552 million, a hike of 2.29%. Within this category, customers are looking for health benefits and value. IRI data shows that value health bars surged 6.53% to $626.32 million. Unit sales increased 3.1%, or 278.53 million bars sold. The breakfast/cereal and snack bar segment of the category experienced dollar sales growth of 5.61%, to $181 million for the 12-month period. Within its 12 locations, the PRIDE chain has made a concerted effort to offer patrons more natural snacking options. One popular offering that is gaining traction in the c-store channel is KIND-brand granola bars, which feature whole nuts, fruits and whole grains. The snack offering fits the c-store’s increased emphasis on stocking healthier snacking options. It’s also just one of the strategies that the retailer has put in place to draw a more diverse consumer base. There are certain segments of new consumers the Illinois c-store chain is targeting to increase retail traffic. “We’re trying to attract more women and people in general who normally wouldn’t expect to find higher quality product within a convenience store,” Morgano said. “We are experimenting with those types of products to try and get people in.” ✜

Danish & Coffee Cake Lead Sweet Snack Sales Total Package Pastries/Doughnuts Pastries/Danish/Coffee Cakes Doughnuts Muffins

$ Sales

$ Sales % Chg Y Ago

Unit Sales

$ Sales % Average Chg Y Ago Unit Price

$1.5 B $718.6 M $640.4 M $185.8 M

3.62% 4.96% 2.73% 1.62%

1.0 B 520.2 M 405.3 M 102.0 M

1.50% 3.24% 0.16% (1.67%)

$1.50 $1.38 $1.58 $1.82

Snack Bar Sales Up Amid Health Conscious Demand $ Sales Total Snack Bars/Granola Bars Breakfast/Cereal/Snack Bars Granola Bars Value Health Bars All Other Snack/Granola Bars

$911.2 M $181.1 M $101.9 M $626. 3 M $1.8 M

$ Sales % Chg Y Ago 5.75% 5.61% 1.63% 6.53% (7.55%)

Unit Sales 551.6 M 145.9 M 126.4 M 278.5 M 798,306

$ Sales % Average Chg Y Ago Unit Price 2.29% $1.65 0.16% $1.24 3.31% $0.81 3.1% $2.25 (27.05%) $2.31

Source: Information Resources Inc. (IRI) Total All Scan Convenience Store data for the 52 weeks ending Dec. 25, 2016.

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Chocolate

CONFECTIONS

Whipping Up Chocolate Sales

NE WORD WILL DRIVE chocolate sales in 2017, but increases in chocolate under 3.5 ounces and chocolate over 3.5 ounces, according to Information Resources Inc. experts say: Snackfection. “Think of snackfection as an amalgam of pre- (IRI), total All Scan convenience store data for the 52 weeks dominantly snack items like fruits, nuts, seeds, ending Dec. 25, 2016. pretzels and predominantly confectionery items like chocolate that are used to create a variety of textures and flavor PERFECT PACKAGE And while taste is at the forefront, packaging remains an profiles,” said Sheril Retson, category manager, center of store at Chevron. “For 2017 we will continue to see more important tool as well. Experts noted a trend toward bigger packages as companies try to meet the desire for both size snackfection type items coming to market.” Coined by Hershey but adopted by the industry, this and portability. “A lot of the product launches are coming out in an array snackfection concept will grow stronger in 2017. “A growing trend is confection and chocolate expanding of pack types. We try and upsell as much as we can and have into the salty category with items like the new Hershey’s seen a lot of success in larger-pack types like the stand-up Snack mixes, Flipz and Barkthins,” said Gene Cyranski of pouches,” Cyranski said. “Look for candy manufacturers Pilot Flying J. “You will see a lot of innovation by smaller to renew some focus on singles with product launches, probrands trying to enter the market is in this ‘snackfection’ motions and merchandising vehicles. King still drives the category but there are those customers that will not get anycategory, such as s’mores snack mix and cookie chips.” This snackfection mentality isn’t just about combin- thing but a single.” Retson agreed, saying that positive growth in standard bars ing ingredients, though. It’s a direct response to consumer “is contingent on the enhancement of innovation and aggresdesires. “Consumers are interested in trying new tastes and tex- sive promotional activities, [while] king size growth [is] driven tures, and manufacturers are diversifying products to by new item launches and promotional activation.” ✜ accommodate this,” said George Puro, president of Puro Research Group, which publishes the Packaged Facts report, “Chocolate Candy Market in the U.S.” Chocolate remains a consistent category performer in The major players all have new prodthe convenience channel. In 2016, dollar sales increased ucts coming out, like three new flavors of 2.91% over 2015. Chocolate boxes, bags and bars Hershey’s Cookie Layer Crunch. Items like combined for positive gains, though snack-size offerings chocolate-covered pretzels also seem to be dropped off significantly over the previous year. popular. Chocolate Dollar Dollar Sales This year will be “a heavy candy Category Sales % Chg Y Ago product launch year with new brand extensions and new flavor profiles,” Cyranski Total Chocolate $2.8 B 2.91% said. “Chocolate has a lot of new product Candy launches. Whether it be brand extensions or Chocolate Candy $2.3 B 2.57% flavor extensions like the Snickers Hazelnut, box/bag/bar < 3.5 chocolate [is] the majority of the innovation ounces in heavy-hitting brands like Snickers, M&M, Chocolate Candy $390 M 4.76% Butterfinger, Reese’s and Hershey.” box/bag/bar > 3.5 Innovation and the snackfection conounces cept could not be more welcome in the eyes of many of retailers that depend on strong Chocolate Candy $3 M (22.50%) chocolate sales annually. Snack size Actually, chocolate sales were a mixed Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data for the 52 weeks ending Dec. 25, 2016 bag in 2016 with decreases of more than 20% in total dollar sales of snack size chocolate

Chocolate Climbing

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INNOVATION

Bringing you incremental category growth through consumer-led innovation.

hersheysconvenience.com

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Gum & Mints

CONFECTIONS

Taste is Key With Gum, Mints

ON-CHOCOLATE CANDY SALES, WHICH include ager at Clifford Fuel. “Mints were up 10%, and gum was breath fresheners, mints, licorice and taffy, in conve- down 6%.” So what does the future hold? nience stores increased 2.4% in dollar sales, according “We estimate a solid 2% growth for the combined candy/ to Information Resources Inc. (IRI) Convenience All gum/mint (CGM) category in our stores,” said Sheril Scan data for the 52 weeks ending Dec. 25, 2016. However, anecdotal evidence suggests that while mints Retson, a category manager–center of store at Chevron. “We expect innovation and seasonal items to continue are providing a category boost, a refresh is needed when it comes to gum. In the 52 weeks ending Dec. 25, 2016, dol- to provide growth for retailers, while gum will continue to lar sales for gum fell 2.2%, compared to the same period in show decline,” Retson said. “A longer Easter holiday season in 2017 could help lessen the impact from soft sales. Overall, 2015. Sales of regular gum and sugarless gum declined. “The gum category is in need of a boost,” Marcia Mogelonsky, we expect continuous growth in non-chocolate items, new director of insight, food and drink at the Mintel Group, pub- promotional vehicles and innovation in standard and king lished in a January 2017 blog entry. “Among the complaints bar pack types to help keep the CGM category growing.” While companies continue to experiment with flavors consumers voice are the inability of gum to maintain long-lastand textures, adding non-traditional items like fruit juice, ing flavor and a desire for more innovative flavors.” While mints seem to be in good shape according to coffee, milk, caramel and coconut, they also continue to Chicago-based research firm IRI, as breath fresheners grew enhance packaging to limit the appearance of disposability 12.26% over 2015 and plain mints grew 4.13% over 2015, and enhance mobility of packaging. Growing research indicates that U.S. consumers crave gum sales continued to flatline. more flavors and textures in the gum segment. Mintel’s “Gum, Mints and Breath Fresheners 2015” report states MAKING A MINT “Our total candy category was down slightly in units sold that “two in five gum/mint eaters agree that there is a need but up slightly in sales, said Mike Clifford, category man- for more texture innovation” and some companies are responding. For example, the Project 7 brand has introduced exotic and titillating flavors such as Front Porch Lemonade, Coconut Lime and Wedding Cake as well as Non-Chocolate Sales Stick packs featuring multiple flavors that Non-chocolate candy sales in the convenience channel showed positive momentum in 2016.The most noteworthy performer was nonallow consumers to build a taste profile chocolate candy, which generated $1.245 billion in sales, a 7.15% like apple pie or s’mores. Other manuspike over the same period last year. facturers are adding vitamins or using 2016 Dollar Y-to-Y % Non-Chocolate Segment healthier products in their recipes. Sales Change “I don’t know if they will gain Total Non-Chocolate Candy $2.1B 2.41% much traction this year, but I could see Breath Freshener $257 M 1.02% manufacturers promoting healthier Caramel/Taffy Apples/Kits/Dips $470.3 K 61.30% sweeteners for gum and mints, like the Trident Purely line that just came out,” Hard Sugar Candy/Pkg & Roll Candy $99 M (3.22%) Clifford said. Licorice Box/Bag $115 M (4.96%) “I see more growth in bigger packs Non-Chocolate Chewy Candy $1.25 B 7.15% and to-go cups,” Clifford said. “These Novelty Non-Chocolate Candy $163 M (16.24%) bigger packages were successful last Plain Mints $87 M 5.55% year and there will be more options coming out this year. I think manufacturers Specialty Nut/Coconut Candy $118 M (3.25%) and retailers will be focusing on these.” Source: Information Resources Inc. (IRI) Total U.S. Convenience Store Retson agreed, noting that “a growth All Scan data for the 52 weeks ending Dec. 25, 2016 in gum bottle packs may help stave off a decline in overall gum category.” ✜ 62 Convenience Store Decisions

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DAIRY

Milk & Ice Cream

2017 Looks Rich for Dairy

AIRY PRODUCTS LIKE MILK, frozen novelties, ice cream and more continue to be essential items for Americans—and just the kind that convenience stores specialize in. Health is an obvious driver. Darryl David, CEO of Darryl’s Ice Cream Solutions LLC, a private-label ice cream consulting firm in St. Petersburg, Fla., said more often than not, U.S. consumers are bending toward better-for-you dairy items. “Many of my clients are eliminating high-fructose corn syrup in their products and making products sweetened with cane sugar.” While there might be a higher demand for soy milk in some markets, the best sellers in convenience stores, he added, are still the super-premium ice cream pint at $4.79 and the $1 novelty item. GOT MILK? “Over the past year, we’ve seen a proliferation of new product introductions and sustained growth of key Non-Dairy products, including chocoSet to Flow late milk and whole milk,” said Kikke Riedel, vice According to president of strategy and Mintel, non-dairy peninsights for the Washington, etration is exploding, D.C.-based National growing from 27.3% Milk Processor Education in 2013 to 55% in Program (MilkPEP). 2016. Comparably, The group found that the almond milk c-stores can and should category is projected step up their game with to grow 36% by 2020, milk. A retail study recently while dairy milk sales commissioned by MilkPEP are projected to defound that convenience cline 8% by 2020. stores, in particular, have lost ground to other channels for milk sales, resulting in a loss of more than $1 billion in potential sales and $321 million in potential profits since 2008. “That’s a loss that we believe can be regained with smart merchandizing and milk product mix optimization,” Riedel said. Riedel made the case that c-stores are not taking full advantage of opportunities when it comes to selling milk. “Ninety-four percent of milk purchases are quick trips, and convenience stores have a competitive advantage over other retailers if they stock appropriately to deliver the variety their shoppers are demanding.” 64 Convenience Store Decisions

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Ice Cream Sales Increase Category: Ice Cream/ Sherbet Total Sales Ice Cream Ice Milk/Frozen Dairy Dessert Sherbet/Sorbet/Ices

Dollar Sales $525 M $506.6 M

Dollar Sales % Chg Y Ago 5.56% 6.23%

$10.3 M $5.4 M

(6.02%) (6.24%)

Category: Frozen Novelties Total Sales

$788.6 M

Dollar Sales % Chg Y Ago 3.76%

Frozen Ice Cream Desserts

$271.6 K

182.97%

Frozen Novelties

$787.3 M

3.71%

Ice Pop Novelties

$1.0 M

20.57%

Sales $

Source: Information Resources Inc. (IRI) Total U.S. Convenience All Scan data, 52 Weeks Ending Dec. 25, 2016.

She also suggested that c-stores are missing target shoppers like Millennials and those looking for recovery after exercise. “Convenience stores are losing ground with Millennials, who are gravitating to mass-merchandisers and dollar stores for flavored varieties and added-value milk for recovery, added protein/calcium, etc.” Price remains an impediment. Amer Hawatmeh, the principal of three-store St. George Oil Inc. in St. Louis, echoed many operators about the economics of milk. “The cost has become so high I can’t compete against the grocery stores on price. We’re getting the milk from the same distributors, but because we buy such small quantities in comparison to the grocery stores I’ve stopped carrying the gallons.” As for frozen novelties and ice cream, Hawatmeh said he sees consumers willing to spend more for desired products. “What I’ve noticed with ice cream is that higher-end products, things that cost $2 and above, are selling better than the cheaper products. I think we’re becoming more conscious of health; that fat is not our enemy, but carbs and chemicals are our enemies. I have noticed that the Ben & Jerry’s pints are selling more than the Prairie Farms pints, even though they’re twice the price.” Frozen novelties, he added, remain quite strong. “As always, a clean and well-organized freezer in a visible area that is well-lit is so important. As you merchandize the pieces in the unit, place different colors next to each other to maximize the packaging.” ✜

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HEALTH & BEAUTY AIDES

HBA Items Fill Niche

ECAUSE OF SPACE CONSTRAINTS and betterequipped competitors, the health and beauty aids (HBA) category in 2017 will fill a role that it has for years in convenience stores: an essential, but unspectacular part of the in-store mix. From pain relief, cough/cold/allergy, skin medications, vitamins and personal care to smoking cessation, supplements and cosmetics, HBA is a wide-ranging category of items consumers need—often when away from home. Hence, convenient trial sizes, careful pricing and wellstocked shelves will continue to translate into sales dollars. John Montoya, vice president of store operations for eight-unit JR’s Country Stores, based in Pueblo, Colo., acknowledged that c-stores will never be a destination location for HBA. “We are at a total disadvantage (competing against chain drug stores, supermarkets and dollar stores),” Montoya said. “People look at us for just the little things they need. If you’ve got a headache, you need some aspirin, you stop at our store. If you have a cold and you’re close by, you will drop by and grab a small container of cough medicine. We just fit the pocket.” IMPULSE BUYING This is borne out by retail trends. As Euromonitor International recently reported, mass-market retailers such as supermarkets and drug stores are expanding their healthand-wellness offerings, including vitamins and dietary supplements, and reorganizing their stores to position these products together. They are also leveraging impulse purchases. “Customers who come to the store to pick up a prescription or buy an over-the-counter product augment their purchase with vitamins and dietary supplements,” Montoya said. The drug store channel might have the most selection, but c-stores still offer expediency, even when it comes to cosmetics. Information Resources Inc. (IRI) total All Scan Convenience Store figures for the 52 weeks ending Dec. 25, 2016 show nails (artificial nails, polish, polish remover, nail treatments and more) at $6.1 million, and accessories (eyelash adhesives and curlers, false eyelashes, makeup applicators, makeup remover) at $4.1 million, among the top-selling items. Sam Odeh, founder and CEO of Power Buying Dealers (PBD) USA Inc., of greater Chicago, which includes 25 owned and franchised locations in Illinois, Georgia and Florida, said smaller sizes do best at his locations. “Specifically, it’s the travel size and the convenience two-

HBA Still an Untapped Category

Nail products and other accessories were one of the most popular cosmetic items purchased in a convenience store in 2016, according to IRI data. However cosmetics are a small portion of HBA dollar sales compared to cold, allergy and sinus medicines that generated a total of $171 million for the 52 weeks ending Dec. 25, 2016.

Nail Accessories Lip Eye

$6.1 M $4.1 M $132,176 $106,289

Dollar Sales % Chg Y Ago 13.86% 29.81% (60.53 %) (83.41 %)

Facial

$75,380

(79.06 %)

Cold/Allergy/Sinus Tablets Cold/Allergy/Sinus Liquids

$135 M

6.07%

$36 M

2.99%

Health Beauty Aids

Sales $

Source: Information Resources Inc. (IRI) total All Scan convenience store data for the 52 weeks ending Dec. 25, 2016

pack, which is the best alternative for consumers at our convenience stores. I love it; it keeps our customers out of drug store chains.” Odeh emphasized that stocking the essentials and top brands is what consumers insist on. At the same time, convenience remains a potent force at retail. “The innovation in small, one-time use is my favorite.” To be relevant HBA providers, c-stores need to be sure to remain in stock with innovative items, since consumers who don’t see them regularly will stop looking for them, studies indicate. Cosmetics have never been strong in his stores, Odeh said, but there’s always reason to stock general items. In looking at his HBA program for 2017, Odeh said he plans to get a bit more aggressive with many items, merchandising them in higher-traffic locations and, notably, on end caps. “Candidly, it’s a better category (for endcap placement) than the salty snacks,” Odeh said. ✜ March 2017

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TOBACCO

Cigarettes

Countdown in the Cigarette Category

2.5% Perhaps one reason IMT registered OBACCO REMAINS A MAJOR driver Cigars bigger drops is consumer demand for of sales for convenience stores. 4.3% 4.5% E-Vapor premium cigarette brands. Within the category, cigarettes Other “As the economy has improved, still claim the No. 1 position. we have seen a slight shift away But fiscal quarter after fisTobacco 11.2% from the cheaper brands to the cal quarter, channel reports Segmentation Smokeless premium brands,” said Sean show the in-store sales generTobacco Out of the estimated Bumgarner, vice president ator has struggled to generate 51.2% $37.6 billion tobacco market of Springfield, Mo.-based the gross margin dollars it in 2016, cigarettes accounted for Regular Scrivener Oil Co., which operdid years ago. Consequently, Cigarettes more than three-fourths of the ates Signal Food Stores. manufacturers have raised products manufactured. “The biggest difference we prices time and time again Here is a breakdown of the have seen over the past year is to offset declining volume or 26.3% 2016 Tobacco Market Share customers are more willing to unit sales as the smoking popMethol Source: www.ibisworld.com .Total U.S. purchase cartons instead of two ulation continues to dwindle. Cigarettes retail channels, Jan. 1, 2017 or three packs at a time,” he added. Wells Fargo Securities reported “I think that is due to the improvecigarette dollar sales in convenience ment in the economy leaving customers stores for the four weeks ending Jan. with a little more discretionary income.” 28 fell 0.1% and 0.2% during the preOn the retail level, penny profits have ceding 12 weeks. Both Philip Morris, owned decreased. In a year-to-year comparison, 2016 fourth by Altria Group Inc., and Reynolds American Inc., quarter penny profits per pack fell from 65 cents the prerecorded drops of 0.1% and 1.2%, respectively. vious year to 64 cents. Wells Fargo Securities analysts anticipate penny profits to hover in this range for at least UP AND DOWN Throughout 2016, manufacturers increased the price per the first quarter of 2017. In fact, most industry forecasts anticipate the rest of the pack. It appears, though, the price hikes no longer compensate for falling volumes. During the above-mentioned year to be an extension of what’s transpired over the past four-week period, Philip Morris’ Marlboro prices jumped few quarters. Nearly three-fourths of the approximately 2.8%, but volume lost 2.9%. Many Reynolds American 25,000 c-store operators queried for Wells Fargo Securities brands faced a similar situation, and other manufacturers 2016 Q4 “Tobacco Talk Retailer Survey” believe cigarette volumes will continue to decelerate this year. experienced even greater hits. “We expect total [cigarette] industry volume to decline “Despite improvements from additional brand support, Imperial Brands (IMT) continues to underperform the industry around 3.4% in FY17 as the industry reverts to historical with 50% of retailers participating in our (4th quarter) ‘Tobacco decline trends of down 3-4%,” said Herzog. Strong marketing efforts include Reynolds American’s Talk’ survey expecting [its] brands to lose share in 2017,” said Every Day Low Price retailer program that has helped grow Bonnie Herzog, Wells Fargo Securities senior analyst. shelf presence for Newport, and the Marlboro app for Continued Cigarette Deceleration mobile couponing. Still, industry-watchers According to the Wells Fargo Securities 2016 Q4 “Tobacco Talk Survey,” the majority of retailers see ongoing slowdown of cigarette sales. fully expect further revenue loss in the long-term. Yes, Cigarette Volume No, Cigarette Volume Not Sure Quarter IBISWorld predicts overall Deceleration Deceleration tobacco industry revenue 2016 Q3 61% 39% 0% could shrink by an annual2016 Q4 71% 25% 4% ized 2.4% over the next five Source: Wells Fargo Securities “Tobacco Talk Q4 U.S. Retailer Survey,“Jan. 24, 2017 years. ✜ 66 Convenience Store Decisions

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TOBACCO

Cigars

Burning Issues for Cigars

IGAR SALES IN CONVENIENCE stores rose 8.58% to $2.8 billion for the 52-week period ending Jan. 22, 2016, according to Chicago-based market research firm Information Resources Inc. (IRI)’s Total U.S. Convenience Store All Scan data. For a number of years now little cigars, which resemble cigarettes in appearance, have incrementally gained appeal with some smokers, strained by a bevy of state and local tobacco tax hikes. That has also made the cigar segment a consistent performer in the other tobacco products (OTP) category. In turn, cigars, little cigars and cigarillos have come under increased scrutiny from regulatory bodies. The latest development occurred in 2016. Because of the deeming rule published by the U.S. Food and Drug Admiration (FDA) in 2016, more OTP segments now fall under the same scrutiny as cigarettes, including cigars, pipe tobacco, vapor items and e-cigarettes. The FDA deeming rule that took effect Aug. 8, 2016 touts key provisions, which: • ban sales of all deemed products that were not on the market on Aug. 8, 2016; • ban manufacturers/retailers from making truthful health claims about deemed products; • ban free sampling of all deemed products to adults; • ban sales of deemed products to anyone under 18; and • require photo ID of consumers appearing under 27 who try to purchase products.

Cigars Face State Levies Often, tobacco consumers react to tax increases by shifting their purchases across state lines or to other supply sources. Since Jan. 1, 2017, the six states below have introduced bills to increase the tobacco product excise tax on cigars or a collective tax on other tobacco products (OTP), which include cigars. Kansas: Increases the OTP tax rate from 10% to 20%. Nebraska: Increases the OTP tax from 20% to 65%. New Hampshire: Adopts a new OTP tax on cigars at 15%. New Mexico: Increases the OTP tax from 25% to 76%. Oregon: Increases the OTP tax from 65% to 90%. Wyoming: Increases the OTP tax from 20% to 38.33%.

QUESTION OF ENFORCEMENT Different tobacco groups have questioned the feasibility of the deeming regulations, including three major cigar and tobacco industry associations that filed suit soon afterward. The Cigar Association of America, International Premium Source: National Association of Tobacco Outlets (NATO), Feb. 20, 2017 Cigar and Pipe Retailers Association and the Cigar Rights of America asked for a declaratory injunction to “vacate, set aside and enjoin the enforcement of the final rule” because deeming rule, asserting it’s unlawful and in violation of the it violates numerous federal statutes as well as the federal Administrative Procedures Act. This is based on nine points, stating: rulemaking process. 1. FDA’s Final Rule improperly subjected cigars and pipe Last month, the cigar trade associations filed a motion for summary judgement and opening brief in the lawsuit tobacco to all aspects of the regulations; 2. FDA arbitrarily imposed premarket review provisions challenging the FDA deeming rule on premium cigars and pipes. The motion was filed Feb. 13, 2017 in U.S. District without clarifying the substantial equivalence pathway for cigars and pipe tobacco; Court for the District of Columbia. 3. FDA impermissibly denied to cigars and pipe tobacco A Summary Judgement is a procedural move that essentially requests the Court to promptly dispose of a case the same stay of enforcement pending review of premarket because there are no facts at issue. In this case, the trade applications as was provided to cigarettes; 4. FDA rejected “Option 2” exempting premium cigars associations are asking the court to “throw out” the FDA’s 68 Convenience Store Decisions

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TOBACCO

Cigars

Strong Dollar Sales % Increase Leads Cigars Total Tobacco Categories

$ Sales

$ Sales % Chg Y Ago

Unit Sales

Category—Cigarettes Category—Smoking Accessories Category—Cigars Category—Smokeless Tobacco Chewing Tobacco/Snuff Spitless Tobacco

$56.4 B $251 M $2.8 B $6.4 B $6.1 B $280 M

1.57% (0.18%) 9.30% 5.84% 5.54% 12.90%

8.6 B 146.4 M 1.9 B 1.4 B 1.3 B 65.3 M

Unit Sales % Chg Y Ago (1.04%) (1.22%) 12.16% 1.74% 1.41% 9.05 %

Category—Electronic Smoking Devices Category—All Other Tobacco Products

$796 M $126 M

11.32% (8.42%)

96.9 M 17.9 M

14.44% (9.59%)

$74 M $52 M

(9.42%) (6.97%)

9.8 M 8.0 M

(9.54%) (9.66%)

Pipe Tobacco RYO Tobacco

Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan Data for the 52 Weeks Ending Jan. 22, 2017

from regulation without any basis; 5. FDA’s decision to impose user fees on some, but not all, of the newly-deemed products is contrary to law and exceeds statutory authority; 6. FDA’s Final Rule is based on a flawed cost-benefit analysis and imposes an unreasonable burden on small businesses; 7. FDA’s Final Rule warning label requirements violate the First Amendment; and 8. FDA unreasonably imposed the new warning label requirements without making statutorily mandated findings. 9. The FDA also improperly treats pipes as “components” of a tobacco product and therefore subject to regulation. On Dec. 9, 2016, FDA issued warning letters to four tobacco manufacturers—Swisher International Inc., Cheyenne International LLC, Prime Time International Co. and Southern Cross Tobacco Co.—for selling flavored cigarettes that are labeled as little cigars or cigars, a violation of the Family Smoking Prevention and Tobacco Control Act (FSPTCA). The decision touches upon a debate regarding what connotes a cigarette and what connotes a small cigar. One of the manufacturers, Swisher, issued a formal response that there was no violation with its product line. The situation appears to be cleared up for now. Don Burke, senior vice president with Management Science Associates Inc., a diversified information management company, said the FDA’s action shouldn’t be construed in any way other than an isolated incident. “The recent letters sent concerning flavors in cigars does not, in my opinion, necessarily signify that there will be 70 Convenience Store Decisions

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additional policy enforcement this year,” Burke said. “In fact, my understanding is that of the manufacturers that were notified, there is a level of confidence that their products meet the legal requirement as they are defined and that there is a reasonable chance they will be able to defend their position. This fact, along with an administration that is prone to less regulation, probably means that we will not be seeing an increased level of regulation in the cigar category.” Darryl Jayson, vice president of the Tobacco Merchants Association, said the possible confusion regarding the FDA’s recent warning letters isn’t about semantics as it is a clear definition. “The original FSPTCA prohibited the retail sale of flavored cigarettes,” Jayson said. “As long as the flavored products in question do not fit the definition of “cigarette,” the retail sale of flavored cigars will continue under the current set of regulations issued by the FDA CTP (Center for Tobacco Products).” MARKET MATTERS Sheila Whitfield, senior buyer for the Army & Air Force Exchange Service (Exchange) purchases tobacco products for 620 store locations nationwide and abroad. She said the military retailer’s cigar business was strong in 2016, and sees no repercussions from the recent FDA action. “The Exchange carries one of the cigar manufacturers that were issued an FDA warning letter in December 2016,” Whitfield said. “We do not anticipate any additional policy enforcement activities in the future. Barring some unforeseen occurrence, Whitfield is welcoming a new fiscal year. CStoreDecisions ecisions .com

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TOBACCO

Cigars

“THESE KINDS OF ORDINANCES ARE A REAL THREAT TO CONVENIENCE STORES BECAUSE, IF ADOPTED, THE RESULT IS THE REMOVAL FROM STORE SHELVES OF DOZENS OF CIGAR SKUS, EITHER BECAUSE FLAVORED CIGARS ARE BANNED OUTRIGHT OR THE MINIMUM PRICES ARE SET SO HIGH THAT THE CIGAR PRODUCTS BECOME UNSELLABLE.” -THOMAS BRIANT, EXECUTIVE DIRECTOR OF THE NATIONAL ASSOCIATION OF TOBACCO OUTLETS ban the retail sale of flavored cigars, mandate minimum prices for cigars, and/or require minimum cigar package sizes, said Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO). LOCAL ISSUES “These kinds of ordinances are most prevalent in It shouldn’t be surprising to convenience store operators that one of the most significant challenges to the cigar seg- Massachusetts, California and Minnesota, but are spreadment isn’t so much federal oversight, but the ever increasing ing to localities in other states,” said Briant. Stephanie Lorance, OTP category manager for Cumberland number of state and local tobacco ordinances that seek to Farms, is familiar with these lines of legislation, especially in the state of Massachusetts, where the company is based. “With a large number of our stores being in Massachusetts we face legislative challenges on a daily basis. Town boards of health are able to place minimum pricing on cigars, raise the legal age to 21 and ban flavored tobacco products,” Lorance said. “This significantly impacts what we can sell in the affected stores. We are currently up to 145 stores with some form of legislation in the town representing approximately 26% of our total stores.” Cumberland Farms is one of the largest convenience store chains and gasoline marketers in the Northeast. Its network of Cathy Lanier 560 retail stores, gas stations, and petroleum and grocery distriSenior Vice President bution operations spans 11 states across the Northeast and Florida. of Security, NFL The c-store chain is involved with many local issues, and Keynote Speaker is proactive when a piece of legislation surfaces, promising to impact its business or the interests of vested partners. “We are very active through organizations like NATO, New England Convenience Store & Energy Marketers Association and others as well as legislators and our vendor Knowledge is power—and NRF PROTECT partners,” Lorance said. provides it. Join 2,500 of your peers at the The full impact of local ordinances isn’t known until they largest, most important retail and restaurant are fully enacted. However, the collective brunt is being felt loss prevention event in North America. in many c-stores, where cigars are sold. “These kinds of ordinances are a real threat to conveRegister by April 7, 2017 to save $300—NRFPROTECT.com nience stores because, if adopted, the result is the removal from store shelves of dozens of cigar SKUs, either because flavored cigars are banned outright or the minimum prices are set so high that the cigar products become unsellable,” Loss Prevention Conference & EXPO: June 26–28, 2017 Briant said. “This results in significantly lower cigar sales Gaylord National Harbor | Washington, D.C. | NRFPROTECT.com for convenience store retailers.” ✜ “Yes, the Exchange is very much encouraged in overall cigar sales for 2017,” she said.

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TOBACCO

Smokeless

Smokeless Sales Grow Strong

N FEB. 7, 2017 the U.S. Smokeless Tobacco Co. also came out with some fruit blends, apple, berry and cit(USSTC), a division of Altria Group Inc., issued rus. We pushed the different flavors harder this past year.” In the Wells Fargo Securities 2016 Q4 “Tobacco Talk a nationwide recall of numerous Copenhagen, Skoal, Cope and Husky smokeless tobacco prod- Survey,” Herzog observed that the recent launch of Grizzly uct lines after receiving complaints of foreign objects found Dark Mint received a more tempered reception. in containers. “We go through manufacturer product recalls pretty regularly, but this is the biggest one as far as [removing] fast-moving core items,” said Mike Clifford Spitless Sales Spikes category manager for Clifford Fuel. The company operates Even though chewing tobacco and snuff still hold the majority market share, consumers show a growing preference for spitless tobacco. 21 retail sites, including a franchise of Nice N Easy Chewing Spitless c-stores, throughout cenChewing Tobacco Sales Tobacco Tobacco tral and upstate New York. & Snuff “We instructed our Dollar Sales for 52 weeks ending 12/25/16 $6.1 B $278 M managers to apologize to Y-to-Y Dollar Sales % Change 2015-16 5.86% 13.17% customers and recommend an item in stock, such as Unit Sales for 52 weeks ending 12/25/16 1.34 B 65 M Grizzly,” he added. “We’ve Y-to-Y Unit Sales % Change 2015-16 1.71% 9.29% also instructed our stores Source: Information Resources Inc. (IRI) Total U.S. Convenience All Scan data, 52 Weeks Ending Dec. 25, 2016. to ramp up on their orders of Grizzly.” Despite the isolated incident, spitless tobacco has performed well overall. According to Nielsen data, reported by Wells Fargo Securities, Copenhagen’s dollar share rose to 31% during the four weeks ending Jan. 28, 2017. Grizzly SPITLESS IN THE SPOTLIGHT Within the smokeless tobacco sector, chewing tobacco still recorded an impressive 26.8% in dollar share during continues to dominate in both dollar and unit sales. the same period. In dollar sales, Copenhagen marked an increase of 8.5% According to Information Resources Inc. (IRI) Total U.S. for all retail channels during the four weeks ending Jan. 28. Convenience Store All Scan data for the 52 weeks ending Dec. 25, 2016, chewing tobacco earned more than $6.1 bilGrizzly gained 3% during the four-week period. “While Copenhagen remains a clear winner on recent line lion in dollar sales. Unit sales totaled more than 1.3 billion. SNUs and dissolvables rang up more than $277 million extensions, we expect Grizzly to benefit in the near term from USSTC’s recent smokeless product recall,” said Bonnie in dollar sales for the same 52 weeks, which represented a 13.17% jump compared to 2015 figures; whereas chewing Herzog, senior analyst for Wells Fargo Securities. Over the past year, Clifford has worked to grow the other tobacco only grew by 5.86%. Unit sales for spitless also experienced greater gains: tobacco products (OTP) category in his stores. “It was a pretty good year. We’re up 3% in units and 6% 9.29% versus 1.71% for chewing tobacco, according to IRI. in sales. There have been price increases, so sales growth is Some industry analysts point to the steady stream of state regulatory legislation—including increasing taxes on e-cigaa little higher,” Clifford said. Part of that category expansion has included adding new rettes—are driving some consumers to the spitless segment. As more municipalities pass restrictions on where users can flavors. For example, he started stocking Copenhagen Dark indulge in chewing tobacco products, SNUs and dissolvables Mint, which had a national rollout this quarter. “It was one of the best-selling SKUs,” Clifford said. “Skoal may command even more market share in the short-term. ✜ 74 Convenience Store Decisions

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TOBACCO

RYO

RYO Remains Viable to Consumers

OLL-YOUR-OWN (RYO) TOBACCO SHOULD remain a potentially profitable segment throughout 2017, despite lagging sales in 2016. The higher taxation on traditional cigarettes drove many consumers to RYO in previous years, but the increasing parity in taxes since 2009 has prompted a dip in sales. Despite that, solid margins and a growing appeal in the eyes of many younger consumers have kept the category vibrant. In convenience stores, total dollar sales for other tobacco Pennsylvania Joins to Tax RYO products (OTP) comprising pipe tobacco and RYO totaled Other tobacco products, or OTPs, received a new 55-cents-per$126 million, a 8.41% decline from the previous year, ounce weight tax with Pennsylvania becoming one of the final according to Information Resources Inc. (IRI) Total U.S. states to implement this type of tax.These products include pipe Convenience Store All Scan data for the 52 weeks ending tobacco, snuff, chewing tobacco, smokeless tobacco such as snus, Dec. 25, 2016. Of that total, RYO sales accounted for $52 and roll-your-own cigarette tobacco.The tax on e-cigarettes, chewmillion, a 6.53% drop in sales from the previous period.

ing tobacco, snuff and pipe tobacco became law Oct. 1, 2016.The tax on RYO tobacco took effect on Dec. 14, 2016.

THE YOUNGER CROWD Despite lagging sales, RYO is ripe for attracting the next in his stores for the past couple of years, margins have been generation, some say. “RYO appeals to the college crowd—that age group,” said slightly up; hence, he also sees cause for optimism. “We are starting to see the Millennials look for that Robbie Parish, supervisor with Parish Oil Co. in Montrose, Colo., a demographic that the company’s Gunnison c-store unique, customized cigarette,” Greene said. “They are startbusiness sees in large numbers. “They are marketed more as ing to pick up brands like Stokkebye’s and American Spirit all-natural, and (youngsters) don’t see it as ‘big tobacco’ as so that they can kind of craft their own cigarette, if you will. Again, I wouldn’t say it’s a huge market, but we’re starting much. They don’t see it as being so mainstream.” Tim Greene, category director-tobacco and general man- to see a trend, maybe, a little bit that way.” Challenges do remain for RYO—unfortunately due to ager for Smoker Friendly International LLC in Boulder, Colo., said that while the RYO category has been slightly off public perception. As Ryan Mathews of Black Monk Consulting in Eastpointe, Mich., noted, “This is obviously a problematic RYO Sales Remain Lack-Luster category for two reasons. First, the entire tobacco cateIndustry reports show an incremental decline in roll-you-own (RYO) gory is under constant media attack. Second, roll-your-own tobacco sales since 2014. Some analysts point to increasing state products—in many critics’ minds at least—are often assotax initiatives, exerting downward pressure on the segment for the ciated with lower-income customers. So, the optics of the decline while others cited lower fuel prices as having indirectly category represent significant challenges.” encouraged more cigarette purchases, impacting RYO sales as well. For that reason, Mathews added, RYO items should be merchandised wisely. Total Sales: $52.3 Million Darryl Jayson, chief operating office for the Tobacco Merchants Association in Princeton, N.J., said it is up to each c-store operator to judge how much emphasis to place on RYO. Year-to-Year Change: (6.53%) “They understand how much they move, and that it’s part of the entire tobacco package,” Jayson said. Unit Sales: 8.2 Million Still, there are profits to be earned in the c-store channel of RYO handled smartly. “Buy smart and get your margin,” Greene said. “It’s defiYear-to-Year Change: (9.45%) nitely a higher-margin category, as opposed to cigarettes or Source: Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data moist. It’s 35-40%, while cigarettes are more like 15-20%.” ✜ for the 52 weeks ending Dec. 25, 2016. 76 Convenience Store Decisions

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TOBACCO

E-Cigarettes

E-Cig Retailers Watching RRPs

IX MONTHS AFTER THE official enactment of the U.S. Food and Drug Administration (FDA) deeming regulations that classify e-cigarettes as tobacco products, the retail space now appears to be less unpredictable. Sales figures from all retail channels show the segment is regaining positive footing. Nielsen, as reported by Wells Fargo Securities, determined dollar sales for e-cigarettes and vaping products climbed 24.6% for the four weeks ending Jan, 28, 2017. Just in convenience stores, sales of electronic smoking devices increased 8.4% in dollar sales, according to Information Resources Inc. (IRI) Convenience All Scan data for the 52 weeks ending Dec. 25, 2016.

In terms of brands, there’s been little movement. “The major proportion, more than 70%, of the rechargeable and disposable e-cigarettes market has been concentrated in the hands of the premium brands owned by Big Tobacco for the past three years, and continues to be so,” said Khan. VUSE still leads the market with nearly 38% of dollar share, which is more than double the 16% share held by blu. MarkTenXL dropped to 13% of dollar share in the same period.

IN THE WORKS Due to the prolonged application process for new products to obtain FDA approval before they can be released on the retail level, many analysts expressed concerns that the federal regulations would stifle innovation. E-Cigs Still Strong “The future [of the category] hangs Looking across all retail channels, disposable and rechargeable e-cigarettes remained on the FDA. If the FDA changes one the steadfast leaders within the noncombustible tobacco category in 2016. thing [such as the predicate date Disposable Rechargeable E-liquids Open-systems Rechargeable refi lls market of Feb.15, 2007], or doesn’t change market share market share market share market share share anything, that can affect the busi2016 Q1 36% 17% 12% 17% 18% ness monumentally,” stated Anna 2016 Q2 39% 15% 9% 18% 19% Bettencourt, category specialist for 2016 Q3 33% 23% 8% 19% 17% VERC Enterprises, which has 25 con2016 Q4 39% 22% 12% 15% 14% veniences stores in Massachusetts and Source: Wells Fargo Securities “Tobacco Talk Q4 U.S. Retailer Survey,” Jan. 24, 2017. New Hampshire. However, there’s a buzz growing around the potential market response to reduced-risk products (RRPs). “Tobacco companies are now directing focus toward next-generation heated tobacco (heat-not-burn) products,” said Khan. “Heat-not-burn products are expected Another development is an upward trend on pricing. “Rechargeable e-cigarettes [had] witnessed the sharp- to be widely available in the U.S. and Europe by 2018 and est decline with leading brands, including MarkTen, bring in revenues worth over $1 billion by 2020.” “Japan Tobacco International’s Poom TECH and British Greensmoke, and Logic, among others, cutting prices by over 35% in the past year. Tank and mod prices [had] fallen American Tobacco’s Glo iFuse are other tobacco heatat a relatively moderate rate of 10-20%,” said Shazlie Khan, ing devices that are being tested in markets of Japan and Europe,” said Khan. an analyst with BIS Research. Closer to home, Philip Morris International last However, Nielsen data indicates pricing in all channels for e-cigarettes and vaping rose by 10.7% for the four weeks December submitted a modified risk tobacco product (MRTP) for iQOS, the new heat-not-burn tobacco system this past January. What hasn’t changed is how segment revenue is divvied from Phillip Morris. The manufacturer anticipates releasing up amongst the different product offerings. Throughout the product to market before the end of 2017. It’s reported 2016, disposable e-cigarettes represented at least one-third that the manufacturer’s MRTP was two-million pages. “I think iQOS will be big, but again, it depends on the of the revenue share, followed by rechargeable e-cigarettes, FDA and how it rules on things,” said Bettencourt. ✜ with market share ranging from 15-23%. 78 Convenience Store Decisions

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TOBACCO

Vaping

What’s the Future of Vapor?

APING SALES HAVEN’T COMPLETELY vaporized drive trial by reducing inventory, selecting premium prodin the aftermath of deeming regulations passed last ucts and creating impactful promotions. We saw an increase in fall by U.S. Food and Drug Administration (FDA). For units, which drove big margin increases for our stores.” Based in Atlanta, RaceTrac operates more than 435 stores the time being, vaping and e-liquid c-store sales have maintained an upward trajectory in the convenience channel. in four southern states. Information Resources Inc. (IRI), a Chicago-based market research firm, reported electronic smoking devices earned GOVERNMENT INFLUENCE Still, there is an air of uncertainty as stakeholders cast more than $277 million for U.S. convenience stores during the 52 weeks ending Dec. 25, 2016. That indicated an 8.44% eyes upon Capitol Hill. “The markets were frozen on Aug. 8, 2016. One develincrease in a year-to-year comparison. Unit sales fared even opment that happened shortly before Aug. 8 was the better with a 12.78% increase. Euromonitor International projected growth of approx- development of more innovative, smaller devices that are imately 158% for vapor products in the U.S. between refillable pod-type systems. Those all have their own issues,” 2015-2020. That would deliver a 20.9% compound annual said Gregory Conley, president of the American Vaping Association. “If they didn’t have to be rushed to market growth rate. “RaceTrac had a very profitable year as it relates to vapor in before Aug. 8, these would be much better products.” The FDA’s deeming regulations targeted vaping prod2016,” said Rich Jacobs, director of packaged beverages and tobacco. “In 2015, we had minimal growth due to having mul- ucts, including e-liquids, as tobacco products—thereby tiple product lines and not promoting the category throughout committing them to the same regulatory standards as cigthe year. Our goal in 2016 was to right-size the category and arettes. Afterward, companies rushed to get products to market before having to secure FDA approval on new products. However, manufacturers still face the decision of whether to incur the cost of trying to qualify existing designs and formulas for FDA approval and keep their products on store shelves after the grace period expires. Conley believes the industry could gain a firmer foothold if the new White House administration and the Republican-controlled Congress act on calls to change the E-LIQUID E-LIQUID E-LIQUID E-LIQUID official predicate date of Feb. 15, 2007. Moreover, President Donald Trump told pharmaceutical company CEOs Jan. 31 that between 75% and 80% of all FDA regulations will be SWEET / DRINK FOOD / FRUIT MINT / MENTHOL TOBACCO eliminated, according to a report by the Regulatory Affairs FLAVORS FLAVORS FLAVORS FLAVORS Professionals Society. “If you have new leadership at FDA, I think we’ll see posDespite the blip of increased vape sales—a market reaction to last year’s U.S. Food and Drug Administration deeming regulaitive things happen,” he said. “There is a small possibility tions announcement—vape sales in all channels have shown that as the Trump administration gets going and key perincrementally declining growth. Still, some anyalists continue to sonnel at the FDA are shuffled into positions, you could see hold out high hopes for an expanding vapor market. harm-reduction products recognized at the federal level.” In that regard, Conley is keeping an eye on Philip Morris OTP 2010 2015 2020 Segments International’s iQOS, a heat-not-burn device the company Vapor Products $148 M $3.45 B $8.92 B hopes will be categorized as a reduced-risk product (RRP). The manufacturer last December submitted a modified risk Cig-a-likes $148 M $1.57 B $3.92 B tobacco product (MRTP) for iQOS, the new heat-not-burn tobacco system. The manufacturer anticipates releasing 2010-2015 Historic 2015-2020 Forecast % Growth % Growth the product to market before the end of 2017. Vapor Products 2,286.5% 158.1% “iQOS is the first [RRP] opportunity. The first day it gets Cig-a-likes 983.9% 149.8% approval from the FDA will generate massive publicity,” Conley said. ✜ Source: Euromonitor International Ltd., January 2017 10 ml

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March 2017

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TOBACCO

Accessories

Accessories Add Up

ERTAIN PRODUCT CATEGORIES RARELY undergo serve the cannabis customer base. This year in Washington major shifts, whether it’s a spike in popularity or a State, a study was conducted by Headset Cannabis significant drop. You can count tobacco accessories Intelligence, which indicated that consumers appreciate a greater variety of accessories. Some residents were interested among those in that classification. Sales of lighters, matches, pipes and other accessories in different formats of cannabis, and the associated devices. For example, sales of vapor pens as a delivery system either register minimal gains, or at the very least don’t lose major ground in year-to-year comparisons. This is good rose by more than 225% in Washington cannabis shops. news for convenience store owners and operators, espe- Headset also reported that pens boast a profit margin of cially considering that the smoking population is expected approximately 56%. “As each market matures, our contacts say their customto fall to historic lows in the near future. “Plus-selling is important. I have employees who always ers become more educated and interested in vaping,” said bring [accessories] up,” said John Archer, owner of Shell Jessica Rabe, assistant vice president and research associate Food Mart in Hinsdale, Ill. “[Tobacco accessories] are defi- for brokerage and trading-related services firm Convergex. “Consequently, companies continue to innovate with new nitely an additional sales opportunity.” Information Resources Inc. (IRI), a Chicago-based mar- cartridge designs and have numerous products on offer for ket research firm, reported convenience stores sold more stores to provide their customers.” As of mid-February, the new White House administrathan 382 million lighters for the 52 weeks ending Dec. 25, 2016. At an average price of $1.60 per unit, lighters can’t tion has not issued any policy statement regarding its stance compete on the same profit level as foodservice, carbonated on legalizing sales or use of recreational marijuana. In 2013, beverages or snacks. However, the product segment did the federal government released a memorandum stating it earn $614 million in dollar sales last year, a year over year would not challenge states on the issue. During Senate confirmation hearings, the new attorney gain of 4.08%, according to the IRI. While lighters continue to flicker brightly, matches experi- general, Jeff Sessions, remained noncommittal about any enced the biggest gain among accessories—including rolling changes he may institute, which could impact an industry papers—last year. IRI reported that matches experienced an that’s projected to generate more than $21 billion by 8.22% increase in dollar sales in the 52 weeks ending Dec. 25, 2020. ✜ 2016. Unit sales also received a boost of more than 11%. Pipes and other tobacco accessories stayed steady with less than 1% increase in dollar sales and slightly more than 1.5% gain in unit year-to-year sales. SPARKING INTEREST For the most part, the design and technology of tobacco accessories has remained unchanged outside of cosmetic updates. Throughout the past few years, however, this prodPerennial Favorites uct segment has expanded its Tobacco accessories may not represent the biggest profit margins for convenience stores, but inventory to include items such they continue to tally reliable sales. as hookahs. In the seven states Dollar Sales for 52 Y-to-Y Dollar Sales % Y-to-Y Unit Sales % that have legalized the sale and Product weeks ending 12/25/16 Change 2015-16 Change 2015-16 use of recreational marijuana, the category has added various Lighters $614 M 4.08% 1.43% cannabis paraphernalia. Pipes $250.4 M 0.59% 1.55% Last year, we reported stores Matches $470.1 K 8.22% 11.34% in Colorado added items such as disposable pipes or hemp Source: Information Resources Inc. (IRI) Total U.S. Convenience All Scan data, 52 Weeks Ending Dec. 25, 2016. rolling papers to shelves to 82 Convenience Store Decisions

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Loyalty

TECHNOLOGY

Keying on Loyalty Trends

N 2017, YOUNGER SHOPPERS are gaining greater Generational Loyalty Perceptions share of wallet and looking to word-of-mouth (WOM) marketing. Consulting firm LoyaltyOne found those The word that best describes the experience of aged 18–24 want “authentic” information sharing, relybeing a loyalty program member is “economical:” ing more on alternative, third party “un-biased sources” • 69% of baby boomers (52-65) such as social media, bloggers, friends or family. • 52% of Millennials (22-35) “Superficial promises will be identified and cast aside,” said Melissa Fruend, partner, LoyaltyOne Consulting. “Speak with them via email, social, text, one-on-one and learn from their point of view how you can improve their Savings and discounts are factors that encourage lives/experience.” them to remain in a loyalty program: Social media is crucial for data collection, behavior mapping and measurement indicators. • 36% of baby boomers “Loyalty is a two way street and customers can tell when • 28% of Millennials it is being done ‘to’ them rather than ‘with’ them,” Fruend said. Knowing the difference is important. Customers are quick to delete mobile apps. Retailers 78% of baby boomers said they will continue to should be confident in their customer strategy and grow the participate in a program because it is easy to app from data and insights to avoid deletion. understand. It’s also wise to develop CRM communication plans to incorporate customers’ preferences within loyalty. “It’s surprising how many brands often look for the elusive ‘magic bullet’ to loyalty when they aren’t executing the basics cor- Source: COLLOQUY’s “Shopping by Generation: Millennials Get the Attention, but Baby Boomers Have the Clout,” December 2016. rectly,” said Fruend. EVOLVING PROGRAMS Forward Corp. and Chevron are two chains that have considered consumer demand for more choices when recently rolling out loyalty programs. Forward Corp., which operates 30 stores in Michigan, switched its loyalty program to the Paytronix platform in November 2016. The company replaced a 10-year old program that relied on RFID tags, a detached printer at the point-of-sale (POS), and couldn’t roll-back prices at the pump. Paytronix API now integrates with Forwards’ VeriFone POS. The updated Forward Rewards allows members to earn 10 points for every gallon of gas and 20 points for every dollar spent in store, plus a sign-up bonus discount of fivecents per gallon every time they purchase gas for 30 days. The program integrates with Forward’s four sweepstakes per month. Forward now has more ways to “slice and dice data,” in order to better target specific customers, and allows customers more choices for rewards. “One of the first qualifications was that it integrated seamlessly with our pumps. Our wish list included greater 84 Convenience Store Decisions

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communication through an email program,” noted Emily Mallory, chief marketing officer and fifth-generation owner. A bonus point function lets it highlight a product and offer 200 extra points when customers buy it. “I do a lot of different promotions, so we need the flexibility to change rapidly and Paytronix fulfills that need,” Mallory said. Customers can sign up via in-store kiosk, web or mobile app, and use a card or phone number at checkout. In January, Chevron launched ExtraMile Extras Rewards to more than 700 ExtraMile locations in California, Oregon and Washington. Customers enroll by entering a phone number at checkout and making a qualifying purchase. Qualifying purchases earn one Shield. Five Shields earns a free ‘Extra,’ like a coffee or snack. Some stores previously offered coffee frequent buyer cards, but “our research indicated customers want choice,” said Doris Lee, head of loyalty for Chevron— choice in how to earn, redeem and access (mobile app and web, versus paper card). Now members can choose from a catalogue of six items. “We will be monitoring feedback and refreshing the catalogue as necessary,” she added. ✜

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Prepaid

TECHNOLOGY

Uncertainty Looms for Prepaid

EGULATIONS WILL HAVE A big impact on prepaid cards in 2017—but exactly how depends on whether the Consumer Financial Protection Bureau’s new rules requiring upfront disclosures and consumer protections, set to go into effect Oct. 1, 2017, are overturned or upheld. “If the rules are upheld, c-stores should expect prepaid card owners to replace many of the cards in the racks today as providers ensure cards with the latest disclosures and The amount consumers put on general purpose reloadable packaging are the only ones for sale,” said Ben Jackson, (GPR) prepaid cards grew from less than $1 billion in 2003 to director for prepaid advisory service, for Mercator Advisory nearly $65 billion in 2012.The total dollar value loaded onto Group, a payments consulting company. “If the rules are GPR cards is expected to hit $112 billion by 2018. overturned, providers will want to sell through the stock Source: Consumer Financial Protection Bureau they have.” Beaverton, Ore.-based Plaid Pantry with 107 stores, offers The prepaid market is maturing. General purpose reloadable (GPR) cards remain popular with the unbanked and an array of prepaid cards, including third party gift, gamunderbanked, but growth may slow in 2017 due to a mature ing, long distance, open loop gift, reloadable and wireless. market, said Jackson. Closed-loop gift cards remain popular Plaid Pantry merchandises its prepaid cards using a fourand may see growth if more retailers connect them with loy- sided, two-tier spin rack atop a free-standing beverage cooler alty programs and mobile apps. Open-loop gift cards will directly across from the transaction area in most stores. “Reloadable debit and gaming are far and away the leadgrow, but that growth will depend on the economy. ers in this category,” said Mike Nelson, category manager Digital cards are also gaining market share. for Plaid Pantry. “I would expect the category as a whole to be close to flat (in Q1 2017), with gift, debit and gaming CHALLENGES AHEAD “The question for c-store operators is where their racks growing and wireless and long distance continuing to fall, will fit into shopper’s habits as more cards are bought, given as they have been since early last year.” Steve Magestro, president, Mad Max Convenience Stores, and redeemed online,” Jackson said. It’s an issue retailers expects the category to dip in 2017 and beyond. are already pondering. “With smartphones, you can order online, bank online, transfer money, so it is only natural you would be able to do more with this single item and in turn not need to buy preGift Card Purchasing Trends paid cards,” Magestro said. "As more people shop online prepaid will decrease even more because you’re paying Consumers purchased more physical gift cards (via) online shopping. No need for prepaid cards then.” than e-gift cards in 2016. But until that day arrives, Mad Max sells BP, CITGO, Mobil, Shell and Clark cards at its 12 locations in Wisconsin. “With so many stores selling prepaid cards and so many Self-purchasing of physical gift cards has grown of those top tier cards not available to our industry, we only from 26% in 2014 to 35% in 2016. sell branded gift cards in our locations,” Magestro said. The chain continues to seek a company that can offer a Mad Max-branded gift and loyalty option in one card that E-gift self-purchasing has increased by 13% since works across its various point-of-sale platforms. 2014 from 40% to 53% in 2016. Jackson suggested that if c-stores can facilitate adding money to cards for coffee shops and online games, they have an opportunity to reach an underbanked market that 50% of respondents across all age groups are is often overlooked—youth who do not have access to credit at least somewhat interested in using an app to cards and debit cards, but want the ability to buy things store gift card information on their phone. online and through mobile channels. ✜ Source: First Data, "2016 U.S. Prepaid Consumer Insights" Study 86 Convenience Store Decisions

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March 2017

2/23/17 3:56 PM

Point-of-Sale

TECHNOLOGY

POS Plugs Into New Technology

N ITS EARLIEST INCARNATION, a point-of-sale (POS) terminal was little more than a computerized substitute for the traditional cash register. It reduced human error by introducing barcode scanning and eliminating the need for product price tags. Since then, POS technology has added abundant functions ranging from sales reporting and analytics to employee and inventory management. Add appropriate applications and a retail POS can administer customer profiles, tracks histories, manages formal loyalty programs and rewards customer consistency. A recent survey from Boston Retail Partners (BRP), a technology consultancy, found that retailers want POS to improve the customer’s overall experience. A major focus is on customer identification and an improved shopping experience (70%), customer mobile experience alignment (57%) and giving sales associates mobile tools to better perform their jobs (46%). Other concerns include managing data in real time (33%) and the customer’s in-store experience (26%), which includes everything from digital signage to “smart” dressing rooms with an RFID reader that scans items taken into the dressing room and then provides customers with additional product information. Perry Kramer, vice president and practice lead at BRP, believes customers now expect the benefits that a robust POS system provides, and as a result, even small, independent operators need the basic technology. “Core features include in-stock inventory visibility, loyalty rewards redemption on the POS or the customer’s phone, product information and consumer reviews and automated reordering,” Kramer said. “Many of the newer POS systems designed for small retailers will facilitate the enhanced experience consumers expect. Smaller retailers must compete to remain relevant with the evolving expectations of shoppers from multiple demographics.” Another survey, "Hospitality Technology’s POS Software Trends Report," shows that of POS functions retailers plan to implement in 2017, compared to last year, three areas saw the largest increase from 2016: prepping for EMV (66% from 58%), adding mobile POS (52% from 46%) and e-commerce integration (33% from 22%).

POS/Customer Engagement Priorities for 2017 Customer identification/ personalization of customer experience.

70%

Customer mobile experience alignment (mobile app/ website/reponsive design.)

57%

Empowering associates with mobile tools.

46%

Real-time retail (disseminating data across all channels in real-time.)

33%

Customer-facing technology in the store (digital signage, "smart" fitting rooms etc.)

26%

Source: Boston Retail Partners' "2017 POS/Customer Engagement Benchmarking Survey"

vendors in the market who do have lower-cost solutions with expanding capabilities.” Erick Pineda, a c-store owner in Clifton, N.J., and Oscar Dominguez, a two-store operator in the neighboring metropolitan city of Newark, relied on traditional cash registers until signing up with National Retail Solutions (NRS). NRS provides independents with a complete POS system that lets them operate as a group, similar to a multi-unit chain. Retailers collect customer phone numbers, offer promotions from major brands and send shoppers mobile messages, including coffee club updates and promotion information. POS ECONOMICS Store owners never need to process coupons since everyPOS systems are a big investment, starting at $1,500 and thing is done online. running to $20,000-plus. “Promotions help a lot,” said Dominguez. “People who “For large- and medium-size retailers, we do not see the price of POS software coming down in the near future,” might buy one item may take two or three. That means said Kramer. “For small retailers, there are several new POS we’re moving items off the shelf.” ✜ March 2017

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2/23/17 11:21 AM

Security & Cash Management

TECHNOLOGY

C-Stores Confronting Theft

RGANIZED RETAIL CRIME (ORC)—defined as professional shoplifting by organized crime rings—is growing, with 83% of 59 merchants surveyed reporting an increase in the past year, according the National Retail Federation’s “12th annual ORC study,” conducted July 20-Aug. 19, 2016. Sean Sportun, ICPS manager, security & loss prevention for Mac's Convenience Stores in Canada, noted ORC is an evolving issue for the c-store industry. While ORC usually targets big box chains with high volume items “what most fail to realize is the c-store/gas industry are the initial target for these groups when it comes to fraud payment cards and robberies,” Sportun said. “C-store retailers must ensure they have a training program in place and that it is current—this will enable employees to combat these crimes and remain safe if they encounter an incident.” Mac’s is renowned for fighting crime, from inviting communities to take ownership of neighborhood convenience

Shoplifter, Dishonest Employee Apprehensions Increase Apprehension of shoplifters and dishonest employees has increased in nine of the past 10 years.

Participants surveyed

25 large retail companies with 21,288 stores and over $700 billion in retail sales in 2015.

Apprehensions

1.17 million shoplifters were apprehended in 2015, up 2% from 2014. 75,947 dishonest employees were apprehended in 2015, up 1% from 2014. More than $206 million from apprehended shoplifters and dishonest employees in 2015, up 1.2%.

Recovery Dollars

Source: "28th Annual Retail Theft Survey "(June 2016), by loss prevention consulting firm Jack L. Hayes International. 88 Convenience Store Decisions

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stores by participating in painting a store mural to posting images of thieves to Mac’s Crime Stoppers social media pages, so members of the community can identify them for a reward. “Mac’s is now being studied by Harvard University on the crime prevention program's effectiveness in reducing incidents of crime,” Sportun said. The Harvard Business Study should be available this summer. Mac’s is also using a Tobacco Tracker program to monitor stolen tobacco cartons—a “huge success,” both in the recovery of assets and in the apprehensions of suspects. Security expert Chris McGoey, president of McGoey Security Consulting, said while ORC is an age-old issue, the label is often overused, especially in relation to convenience stores. “What’s happening (at c-stores) is plain old shoplifting. It’s the same old story: if you have one person on duty and that person is overworked, they’re not going to be able to pay attention to potential shoplifters,” he said. McGoey said he sees theft overall trending upward. There are more items today, more inventory issues to contend with and products are more expensive—which means theft dollar totals are higher—all contributing factors. INTERNAL THEFT C-stores must also contend with employee theft. The "28th Annual Retail Theft Survey" conducted June 2016 by loss prevention consulting firm Jack L. Hayes International, found one out of every 38 employees was apprehended for theft from their employer in 2015. The survey was based on approximately 3 million employees. “The convenience industry is hit particularly hard with employee theft because of the nature of a c-store. They’re designed to be operated by one person often times without supervision,” McGoey said. Mac’s is using technology to help matters. “The loss prevention department implemented a variety of preventative measures to identify this type of crime, but our most effective initiative has been the introduction of our 24/7 monitoring room, which has the ability to remote access into stores through the DVR system,” Sportun said. While ongoing advancements in video surveillance ability and quality continue to improve, McGoey warned some retailers invest too much capital in technology and then fail to use it, thinking just having the technology is a deterrent. McGoey said sticking to the basics of counting inventory, implementing cash controls, hiring and training well and monitoring customers are crucial in preventing theft. ✜

March 2017

2/23/17 11:21 AM

Electronic Payment

TECHNOLOGY

Electronic Payments Evolve

AVIGATING EMV (Europay, Mastercard and Visa) and mobile payment is top of mind for retailers in 2017. The National Retail Federation (NRF)’s "State of Retail Payments 2016" study found the top payments priorities for retailers all centered around EMV, including EMV implementation (76%), chargebacks (46%) and tokenization/encryption (37%). “Retailers have seen a surge in chargebacks related to EMV because of the change in liability rules. They have ramped up efforts to put tokenization/encryption in place because the new EMV cards do neither,” said J. Craig Shearman, NRF’s vice president for government affairs public relations. Boston Retail Partners' (BRP) "2016 POS Survey" found 85% of retailers surveyed indicated that unified commerce is also a top priority. Unified commerce is a single commerce platform connecting mobile, web and store in real time. “Retail is moving toward a ‘seamless experience’ where customers see the same products, pricing, etc. in-store, online and on mobile,” Shearman said. "They can buy online and pickup in store, return items bought online, use online or apps to locate stores, etc. The technology that makes that happen is a top priority.”

50%

of retailers had implemented or planned to implement near field communication (NFC) technology by the end of 2016.

22%

22% of retailers expect to implement NFC in 2017.

76%

expect to implement Apple Pay in 2017.

34%

expect to implement Samsung Pay in 2017.

68%

plan to accept one or very few types of mobile payment; 24% plan to accept as many as possible in 2017.

Source: National Retail Federation’s "State of Retail Payments 2016" study

pump. In the app, the customer selects their pump number and enters a self-selected PIN into the dispenser to dual authenticate themselves and activate the dispenser. MOBILE MATTERS The biggest challenge to expanding the mobile payment The move toward mobile payment across channels continues. In January, Target announced plans to launch its own option has been waiting for the point-of-sale (POS) manumobile payment service this year. Amazon in December facturers to update their systems with the proper Conexxus began testing “Amazon Go,” where customers pay via API for Sinclair’s provider, P97 Networks. “Our rollout will be by POS type. Fiscal is about 90% rolled out, and I mobile phone just by walking past a sensor with products. Russell Gibson, manager marketing technical services strongly suspect Verifone Commander/Ruby Ci will be for Sinclair Oil Corp. based in Salt Lake City said Sinclair next,” Gibson said. When it comes to electronic payments, Gibson said secuhas rolled its mobile payment app out to 63 of its 1,300 stores. The app uses geo-fencing to pinpoint the customer’s rity and ease of use continue to be top concerns for customers. location to direct them to the nearest station or locate their EMV WOES Sinclair is also rolling out EMV by POS manufacturer. “To date, I am not aware of any suppliers that have released 86% of large and to production their EMV software,” he said. “In order to run EMV, a merchant must have the latest hardware. Attempting mid-sized retailers to fix or add EMV to older models just is not effective.” planned to implement “The idea that retailers were slow to implement EMV was EMV by the end of 2016. banking industry spin intended to cover up the problems with EMV. Millions of chip readers sitting next to cash registers but 99% expect to by the only being used to swipe cards was evidence retailers had end of 2017. done their part and it was banks that had dropped the ball,” Shearman said. He noted thousands of retailers installed equipSource: National Retail Federation’s ment but waited months to get certified by the card industry. ✜ "State of Retail Payments 2016" study

March 2017

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2/23/17 11:21 AM

Fuels

OPERATIONS

Ethanol Fuels Show Promise

UEL SALES HAVE BEEN the backbone of gas staE85 Site Growth tion operations since rumble seats were considered The number U.S. retail sites offering E85 increased from 2,800 in 2013 to 3,419 last year. extreme in the 1930s. 3500 Today, that fact still remains as 80.1% of conve3,419 nience stores (123,807) sell motor fuels, according to the “2017 3000 NACS/Nielsen Convenience Industry Store Count Study.” 2,850 2,800 2,804 Of course, in some 90 years of fuel trends, one of the 2500 most significant is happening now with the evolution of 2000 ethanol-blended fuels, which are becoming more accessible in states such as New York. In 2016, the New York 1500 Department of Agriculture and Markets proposed a rule to update the state’s fuel regulations to allow the sale of E15— 1000 fuel mixed with 15% ethanol—for all vehicles model year 500 2001 and newer. The Renewable Fuel Standard, creates a strong incen0 tive for fuel marketers to blend renewable fuels into the fuel 2013 2014 2015 2016 supply while lowering the price at the pump for consumers. Source: Growth Energy, Jan. 1, 2017. Credits called Renewable Identification Numbers (RINs) That expansion can be identified in growing U.S. regions. are the mechanism for insuring that the prescribed levels of blending are reached. However, this also is creating an According to Growth Energy data, E15 blend is currently offered by approximately 330 fuel retail locations in 26 states. uneven playing field for traditional fuel marketers. “Actually, demand and growth for E15 is fairly consistent The U.S. Environmental Protection Agency (EPA) is responsible for overseeing and enforcing blending man- in the Midwest, across the South and East Coast,” O’Brien dates and developing regulations for RINs. With a new said. “We anticipate more growth in these markets, and new president and a new administration reviewing many reg- entry into the western part of the U.S.” According to Growth Energy, a nonprofit that promotes ulatory policies, it’s unknown how RIN procedures will be the ethanol industry, there are nearly 3,000 stations selling affected, or the future of bio-fuels. E85 nationwide. A blend of 85% ethanol and 15% gasoline, E85 is suitable only for flex-fuel vehicles. STEADY GROWTH He said as brands such as Sheetz, Thorntons, Kum & Go, “The political climate has had little bearing on the expansion of E15 the past several years. E15 is typically a lower MAPCO, RaceTrac, Minnoco and Protec “have started promotcost fuel that offers retailers a price advantage on the street,” ing E15 and E85 more aggressively, the rest of the industry has said Mike O’Brien, vice president of market development taken a stronger interest in higher ethanol blends.” Thorntons Inc. and Kum & Go LC this past February for Growth Energy. “The adoption of E15 has more to do joined Growth Energy’s ranks of associate members. A with market demand than political atmosphere.” purveyor of bio-fuels, Kum & Go has been progressive in introducing both E85 and E15 blends. Kum & Go carries E85 at 205 stores, and E15 at 105 stores in such states as Colorado, Iowa, Oklahoma, Nebraska and South Dakota E15 fueling sites are Jim Pirolli, vice president of fuels for Kum & Go, said the projected to almost triumph of the c-store’s ethanol program can be viewed on double from 626 in many fronts, and is only expected to grow. “The success in this program is measured through our 2016 to an estimated learnings regarding consumer purchase behavior, the col1100 fueling laborative efforts that have improved the relationships we sites in 2017. have with suppliers, and, most importantly, an improved fuel product offering for our customers,” Pirolli said. ✜ Source: Growth Energy, Jan. 1, 2017

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2/22/17 10:58 AM

Car Wash

OPERATIONS

Car Wash Potential Sparkles

CCORDING TO REPORTS, THE U.S. auto industry reached a sales milestone of 17.55 million vehicles sold in 2016. Not only is this larger volume of vehicles good for U.S. fuel marketers, it’s also good news for convenience store operators who offer car wash services. Coupled with lower gas prices, Americans are driving more, increasing demand for car wash services. The car wash industry has experienced annualized growth of 2.9% from 2011-2016, according to IBISWorld. As regulations prohibiting at-home car washing become more prominent, the revenue opportunities for convenience retailers offering car wash options are expected to rise in the next few years.

growth ever right now,” Cox said. Knowing what’s going on around you in your market and what competitors are doing is key. Do your homework on the type of wash you want to get involved in, the equipment, the installers and the soaps. If you don’t have all these things lined up, there’s a chance for failure. 10.4% Staying on top of current technolCLEAN TECHNOLOGY Hand washing ogy, and implementing it when While convenience stores’ feasible, helps grow a sparkling biggest selling point is conCar Washes 10.8% car wash business, Cox said. venience, the same selling at a Glance Self-service “Every year, technology point also applies to car Conveyor car washes, also known bays as tunnel car washes, are the most dives deeper into the car wash operations, where the conventional and consistently used form wash industry. The RFID capabilities at the point of of equipment. In 2016, conveyer car wash 49.7% sale (POS) should ensure 11.4% sales accounted for an estimated 49.7% of Conveyor with unlimited membership total car wash industry revenue. Express programs has been a big a seamless transaction— In-bay car driver in the wash induspart of a value-added automatic tunnel washers are becoming more popular washes in the industry. This type of conveyor car car try lately, and I believe it service, making c-stores wash provides exterior cleaning only and free washes will continue,” Cox said. a “one-stop-shop for many access to vacuums after exiting the tunnel. “I’m most excited about what consumers in transit,” said Here is a breakdown of we will see coming down the Andrew Alvarez, IBISWorld the 2016 Products and Segments road in regards to profiling and industry analyst. scanning vehicles,” Cox said. “I “Easy-to-use and consumer17.7% Detailing think in a few years we will be far friendly POS systems are a must,” more advanced on how we profile Alvarez added. “Drivers getting each vehicle that enters a wash which car washes are predominantly on-theSource: IBISWorld, www.ibisworld.com will minimize damages and provide a better go consumers; that is, short on time and December 2016 overall wash for each vehicle.” typically unwilling to return to an establishOther technological innovations are helping retailers ment that isn’t streamlined.” Chet Cox, president of Henderson, Nev.-based Get N Go boost their rate of return. “Express washes are among the most popular car washes convenience chain, is growing a burgeoning convenience chain based primarily on quality car wash services. Six of today, which are less labor intensive and have more specific cleaning equipment than in-bay automatic washes,” the eight retail locations have car washes. Though car wash services today are a competitive Alvarez said. “Express washes take an average of five enterprise—among both full-service car wash companies minutes (versus 15 minutes for the standard conveyor car and c-store providers—the U.S. marketplace overall is wash), enabling industry operators to generate a higher volapproachable for c-stores willing to do their due diligence ume of customers. With that in mind, a location providing an operator with high-volume turnover is key for this kind before making a significant capital investment, Cox said. “The car wash industry is seeing some of the biggest of model to work.” ✜ 92 Convenience Store Decisions

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March 2017

2/23/17 11:22 AM

Lighting

OPERATIONS

Lower LED Costs Power Profits

INCE 2008, LED LIGHTING costs have dropped by 94%, according to the U.S. Department of Energy’s “Revolution Now 2016 Update.” LED package prices in 2016 fell to approximately $1/kilolumen, resulting in dramatically reduced LED lamp and luminaire prices. That’s good news for small c-store operators with a few stores, or a larger c-store chain such as Parker’s, headquartered in Savannah, Ga. Greg Parker, company president and CEO, said the c-store chain has done several retrofits, converting old HID (high-intensity discharge) and fluorescent lighting to LED and is specifying LED for all new construction, going forward. Parker ’s contacted Lucas Ford Associates Inc. Manufacturer’s Agent for Cincinnati-based LSI Industries to procure LED lighting systems for a few locations in 2013. Currently, of 48 stores located across Georgia and South Carolina, 13 locations haven’t been retrofitted yet. The c-store launched upgrades at multiple locations, replacing and installing LSI canopy lights, area lighting and interior lighting at a majority of Parker’s locations. Parker’s has reduced its electrical costs at each store by about $314 per month. That’s an annual savings of $3,678 per store. Aside from energy savings, the company has enjoyed better quality of light to help represent Parker’s brand and provide visual acuity, and better safety and security. The chain has also reduced its carbon footprint.

“Maintenance costs for lighting have been reduced significantly as we do not have to change bulbs or drivers frequently,” Parker said. STEP INTO THE LIGHT Rebekah Matheny, an assistant professor of interior design in the Department of Design at Ohio State University, said LED lighting in general is more efficient because of the luminaires’ ability to reduce heat output, reducing the load on the cooling systems. “With advances in LED technology, more options in LED light have become available, allowing the overall retail store to reduce its energy consumption dramatically,” said Matheny. “By using LED lighting for everything from overhead down lights to track spot lighting and featured decorative elements, the overall electrical load is significantly reduced, which allows for other digital elements to be integrated into the store design.” More c-stores are also taking advantage of LEED (Leadership in Energy and Environmental Design) certification, issued by the U.S. Green Building Council. While on the surface it’s difficult to link high sales with a LEED certification, there are certain advantages. LEED-certified buildings usually have faster lease-up rates and may qualify for a host of incentives like tax rebates and zoning allowances. ✜

2016 Top 10 States for LEED Leadership in Energy and Environmental Design (LEED) is the world’s most widely used and recognized green building rating system.The U.S. Green Building Council calculates their annual state rankings by assessing the total square feet of LEED-certified space per resident, taking into account commercial and institutional projects that were certified during 2016.

Gross Square Footage (GSF)

Per-Capita Certified GSF

No. Projects

Massachusetts

24,398,765

3.73

136

Colorado

15,921,457

3.17

Rank

State

1 2 3

Illinois

36,188,485

2.82

151

New York

48,405,204

2.5

211

California

88,891,641

2.39

632

Nevada

6,397,602

2.37

Maryland

13,426,623

2.33

104

Virginia

18,444,309

2.31

155

Washington

15,103,478

2.25

105

Texas

41,942,393

1.67

211

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Source: the U.S. Green Building Council, Jan.25, 1017

March 2017

2/23/17 11:23 AM

ATM

OPERATIONS

ATMs Undergo Transition

EFORE LAST THANKSGIVING, THE U.S. Supreme Court ruled in favor of class action lawsuits by consumers, accusing Visa, Mastercard and several U.S. banks of conspiring to inflate the prices of ATM access fees in violation of antitrust law. The lawsuits in question accused the companies of adopting rules protecting themselves from competition with lower-cost ATM networks. The rules blocked ATM operators from charging less when ATM transactions were processed by networks competing with Visa and Mastercard, the lawsuits assert. Bruce Renard, executive director of the National ATM Council, said the top court in the country late last year ruled against the credit card companies and major banks, which were equity shareholders of Visa and Mastercard, causing constraints in the ATM market. According to the National ATM Council, U.S. monthly transactions per ATM fell from approximately 3,000 transactions in 2007 to less than 1,500 in 2015. In addition, the ongoing push to meet EMV mandates has stunted ATM technology roll outs. Liability for chargeback or fraudulent disputes on ATM transactions using a MasterCard-branded card was supposed to shift from the bank or card issuer to the ATM owner last fall. Visa’s liability shift will occur one year later—in October 2017. “The U.S. EMV ATM migration is off to a rocky start and could result in even more marketplace disruption than merchants experienced with the (point-of-sale) shift,” Renard said. ATMS STILL RELEVANT Kevin Huffman, vice president of operations at Portland, Ind.-based Jay Petroleum Inc., said ATMs remain a valueadded service at the company’s Pak-A-Sak c-store chain. Within northern Indiana and western Ohio, Pak-A-Sak operates 33 c-stores. Patrons range from unbanked or underbanked consumers to many individuals who need quick cash. “Yes, our ATM usage is going up,” Huffman said. “As to why, our best guess is that there are more cards out there than ever before, from debit cards from banks to government issued benefit cards.” Because the chain doesn’t own its ATMs, its supply partner is responsible for ensuring EMV compliance.

ATM Use Drops in the U.S.

Only 24% of Americans are making “all” or “most” of their purchases with cash—a 12% drop compared to five years ago—due to a shift toward electronic payment and mobile payment apps, according to a July 2016 Gallup poll. The result has been a dip in ATM usage in the U.S. Also, inflated “foreign ATM fees” imposed by banks as a penalty upon their own cardholders for using retail ATMs is cited as another reason why ATM usage declined between 2009-2015. The number of total U.S. ATMs shows steady growth through 2008, but has begun contracting in recent years: 500000 400000 300000 200000 100000 0

Source: National ATM Council, Feb.1, 2017

Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The machines can send a code to a user’s smartphone, which can be held up to the ATM and scanned. North America at the end of 2016 enjoyed 73% of global BITCOIN CURRENCY If ATM technology has hit a lag in some industry seg- market share, according to www.coinatmradar.com, a webments, the growth of bitcoin ATMs is slowly expanding into site that tracks bitcoin ATM implementation. Of U.S. states, retail channels. Moreover, the new age machines are pop- New York possesses the largest percentage of bitcoin ATMS, with 15.8%. ✜ ping up in c-stores in certain regions of the U.S.

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March 2017

2/23/17 11:23 AM

NEWSTUFF Creations & Innovations to Convenience Products and Services

NEW DATA PROTECTION DEVICE Omega Appliance dramatically simplifies the data security process for retailers. This small, yet powerful device actively protects your stores without requiring changes to the store environment. Omega Appliance comes preloaded with software and ships ready-to-connect to a store’s open network. The security activities (security monitoring, internal vulnerability scanning and logging) are handled locally on each store network so that hundreds of stores can scan simultaneously without interference to store uptime. It self-diagnoses any connectivity issues and reports via its front panel to ensure easy communication. Omega Appliance is fully managed by Omega’s Security Operations Center, saving your business time and effort. One of the top benefits of Omega Appliance besides being a security tool is in the sustainable savings in costs (ROI).

For More Information From Omega ATC

SUGAR-FREE ENERGY Red Bull is expanding its successful Red Bull Editions line with Red Bull Purple Edition Sugarfree, Red Bull Lime Edition Sugarfree and Red Bull Green Edition offering the wings of Red Bull with the tastes of Açaí Berry, Limeade and Kiwi Apple, respectively. The introduction of the Red Bull Purple Edition Sugarfree and Red Bull Lime Edition Sugarfree now provide consumers with the additional choice of sugar content, especially for those looking for variety and sugarfree offerings. A resounding success last summer as the top-selling new beverage item launched in 2016 (IRI, U.S. MULO+C dollar sales, Full Year Ending Dec. 25, 2016) the limited edition Red Bull Summer Edition Kiwi Twist is returning permanently as the Red Bull Green Edition. The Red Bull Green Edition offers the functionality of Red Bull with the taste of Kiwi Apple. The new products will be available nationwide with an MSRP of two for $5.33.

For More Information From Red Bull

(636) 557-7777, Ext. 2451 security@omegasecure.com

www.energydrink-us.redbull.com

FLAVORED PISTACHIOS

NATURAL WELLNESS

GIANT Snacks is introducing two new flavored Pistachios. Dill Pickle Pistachios and Salty Sweet Pistachios are available now. Combining the great flavor profiles of Dill Pickle (4.5 ounce) and Sea Salt & Sugar (five ounce) give you two unique and mouth watering snacks. Available in eight-count boxes or 48-count shipper displays.

Tropiceel is here to solve problems. Pain and circulation issues are a common problem within the driving community. Tropiceel’s line, NATURULZ Remarkable Alternative for Pain and Wellness are coconut-oil based creams that are 100% synthetic-free to give your body what it needs, where it needs it. A sample is available for every customer, which not only enhances the driver’s experience at a stop, it also improves driver wellness. Floor space is also in demand. Tropiceel’s Solution is the ‘AIRSPACE’ Power Wing display, designed to bring travel centers a new avenue of profit by selling airspace.

For More Information From GIANT Snacks

For More Information From Tropiceel Products Inc.

(877) 442-6870 robert@giantsnacks.com

(541) 673-2188 tropiceel.beckyjean@gmail.com www.tropiceel.com

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NEWSTUFF Creations & Innovations to Convenience Products and Services

STRAWBERRY CIGARS Cheyenne International has introduced Strawberry 100’s to the Cheyenne Cigar brand lineup. New to the field, Strawberry is made at the company’s manufacturing facility in Grover, N.C. and joins 11 other styles in the brand’s roster. The new SKU debuted at the 2017 Convenience Distribution Marketplace last month. As a leader in the filtered cigar segment, Strawberry, like other Cheyenne Cigar styles, will deliver profitable solutions to distributors and retailers alike. Cheyenne Strawberry Cigars are the second new release from the brand in recent years. After the successful launch of Limited Edition Tropical, Cheyenne recognized the adult consumer desire for choice in the category. The Cheyenne Strawberry 100’s Cigar is available in 20 cigars per pack, accompanied by attractive point of sale and customized retail and wholesale programs to fit individual market needs.

For More Information From Cheyenne International LLC

SPLITTING FROM THE HERD Sell some excitement by offering Jerky, Snack Sticks and Summer Sausages in Elk, Buffalo, Venison and Wild Boar varieties. Pearson Ranch Elk & Buffalo Jerky introduces new shippers in 2017. These easy to assemble prefilled shippers can be shipped direct to store and are a bright and colorful showcase for exciting and flavorful meat snacks. All Pearson Ranch products are Natural, Gluten Free and contain no MSG or Nitrites. Made with premium quality lean meats, they are full of protein and seasoned to perfection. Consumers are looking for something different than all the beef flavors that have flooded the meat snack market and they also increasingly want healthy snacks. Pearson Ranch products fit those needs perfectly.

For More Information From Pearson Ranch Elk & Buffalo Jerky

www.cheyenneintl.com

www.PearsonRanchJerky.com

BETTER-FOR-YOU GUM

MANGO CIGARILLOS ALL YEAR

The way retailers stock and organize their shelves is evolving as health and wellness is a growing part of the c-store product mix, and gum is being brought to the forefront as an important and productive category to include. In response, Wrigley is debuting new products and programs that support these better-for-you (BFY) merchandising trends. In 2017, Wrigley is introducing Orbit White and has also launched the “Chew To A Better You” shopper marketing campaign across retail channels, including c-stores, Mangos are now in season all which encourages consumers to year long with Swisher Sweets’ incorporate sugarfree gum into addition to its classic cigarillo line. Swisher Sweets Mango cigarillos deliver their health-and-wellness routine to a tangy, smooth and sweet taste that’ll have customers going mad for the promote balance through mindful mango blend. Swisher Sweets Mango comes in a resealable two-count consumption. New Orbit White pouch with the “Sealed Fresh” guarantee that is available for shipment comes in a soft chew form, bigger in to stores nationwide. It is offered in “two for 99 cents,” “Save on Two,” and size than current Orbit pellets, and “Two for $1.49” options. As reported by MSAi, the satisfying mango blend will be offered in two sugarfree flavors, has increased 29% in the large cigar category, (MSAi 26 weeks ending Spearmint and Peppermint. It will be 11/26/16). Swisher Sweets cigarillos with their popular pricing options help available at retailers nationwide in convenience stores drive incremental volume. early 2017 in 40-count bottles (MSRP $3.49). For More Information From Swisher International (800) 874-9720

For More Information From Wrigley

www.trade.swishersweets.com/mango

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BOOST BRAIN PERFORMANCE BrainGear, a brain performance formula, makes it easy to give your brain what it needs to perform at its best. In this world of 24/7 connectivity, we can all use a little TLC for our overworked brains. Developed by top researchers and neurologists, BrainGear provides the focus, clarity and concentration that you can feel and the longterm brain health benefits you can feel good about. BrainGear is a leader in an exciting new category of brain health and outperforms with its unique combination of 13 clinically relevant highquality ingredients, combined into a patent-pending, all-natural formula that tastes great. All-natural, Non-GMO, soy free, and gluten free, BrainGear is available now.

For More Information From BrainGear www.braingear.me

MAPLE PANCAKE SAUSAGE Give customers tastier mornings with the OSCAR MAYER Maple Pancake Sausage and the OSCAR MAYER Blueberry Pancake Sausage. Featuring OSCAR MAYER breakfast pork sausage wrapped in a sweet, fluffy maple or blueberry pancake, these unique additions can elevate your roller grill offerings and let consumers enjoy diner-inspired breakfast classics on the go. With 56% of consumers actively trying to include more protein in their diet, (Datassential, The New Healthy 2016), OSCAR MAYER Pancake Sausages are unique in satisfying consumer demand for something sweet with protein. And with the growing interest in morning fare at nontraditional times, the pancake sausage makes it easy to offer breakfast throughout the day. The aromas of the pancake sausages as they heat on your roller grill can increase patrons’ desire to buy and pair with a drink. Kraft Heinz has a full calendar of exciting promotions and merchandising materials to draw attention to the hottest OSCAR MAYER products—encouraging multiple purchases and increasing sales.

For More Information From Kraft Heinz Foodservice www.kraftheinz-foodservice.com

RELAX, RENEW, REFUEL! Experience the convenience retailing industry’s premier networking event designed exclusively for c-store operators and suppliers, including: 350+ Exhibit Booths PAC Classic Golf Tournament • Product & Service Demonstrations • Credit Card Skimming & Dispenser Security • Casino Kick-Off Party, and much more! • •

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NEWSTUFF Creations & Innovations to Convenience Products and Services

REFRESHING BEVERAGES Simply Beverages is expanding its line of great tasting, all-natural juices and juice drinks with two delicious and refreshing new flavors. Simply Peach and Simply Lemonade with Strawberry will be available nationwide starting this month. Like all Simply beverages that fans love, Simply Peach and Simply Lemonade with Strawberry are all natural, non-GMO, and never have any added preservatives, colors or artificial flavors. Both new flavors are made with simple ingredients, making them simply refreshing and refreshingly simple.These new Simply flavors will be available in the signature multi-serve 59-fluid-ounce Simply Carafe and Simply Peach will be also offered in a convenient single-serve 11.5-fluid-ounce package. Like all Simply beverages, these refreshing new flavor options feature Plant Bottle packaging, the first-ever 100% recyclable plastic bottle made from up to 30% plant-based material. The launch will be supported with national coupon activity, in-store point of sale and social media.

PB & DARK CHOCOLATE Based on consumer demand and strong test performance, DOVE is launching Peanut Butter & Dark Chocolate PROMISES nationally. To generate excitement and brand awareness, Mars is dedicating major marketing support to DOVE Chocolate in 2017. Key elements include dedicated television advertising, digital and print advertising, social media and public relations. Available in 12-counts per case, beginning in April 2017 for a SRP of $4.09 – $4.79 for 7.94-ounce laydown bag.

For More Information From Mars Chocolate North America www.mars.com

For More Information From Simply Beverages www.simplyorangejuice.com

GUSHERS JUICY CANDY

KRAVE MEAT SNACK BARS KRAVE continues to elevate the protein snacking experience with the introduction of KRAVE bars, available in four tempting, tasty flavors, including Chipotle Cherry Beef, Cranberry Thyme Turkey, Mango Jalapeño Pork and Wild Blueberry BBQ Beef. New KRAVE bars are culinarily inspired – combining dried fruit and quinoa with either turkey, beef or pork, for perfect harmony between sweet and savory, and they are a good source of protein, all-natural and gluten-free. Available in 1.25-ounce bars with a SRP of $2.89.

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General Mills is introducing Gushers at convenience stores nationwide. The fruit-flavored snack features a chewy outer shell that provides a “gush” of juicy flavor when bitten into—appealing to convenience store shoppers looking for a fun-to-eat treat with a blast of flavor. Two varieties of Gushers, Sour and Flavor Mixers, are available and come in a larger 4.25-ounce bag that is unique to c-stores. Suggested retail price is $2.19. Sour Gushers will include apple, cherry and grape pieces with a sour blast. Sour is a large and growing segment within convenience stores (Nielsen, 52 weeks ending Aug. 13, 2016). In addition, interest in candy has doubled since 2007 (Google Trends, April 2007-April 2016). With Flavor Mixers Gushers the outside flavor is different from the inside flavor. Flavor combinations include strawberry-peach, orange-cherry and raspberry-lemonade.

For More Information From General Mills Convenience (800) 767-5404 www.generalmillscf.com

March 2017

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800.922.0972 / www.addsys.com

www.RollerBites.com

Home Market Foods ..........................35

NRF Protect ..................................72

AdvancePierre ...........................33

IRI Growth Summit ........................100

Oberto ..............................57

Altria Group Distribution Co. ............2

ITG Brands ...................................71,73

Apter Industries ..................................11

JT International U.S.A. ..................77

www.advancepierre.com

www.tobaccoissues.com

800.441.7146 / www.apterindustries.com

Brakebush ...................................29

800.933.2121 / www.brakebush.com

Cash Depot ....................................12

www.IRIGrowthSummit.com www.ITGBrands.com

800.966.9709

KT&G ....................................19,21

www.ktngusa.com

www.nrfprotect.com www.oberto.com

Prairie City Bakery ..........................32 800.338.5122 / www.pcbakery.com

R.J. Reynolds ..................................103

www.rjrt.com

Raybern’s ..................................30

www.rayberns.com

800.776.8834 / www.cdlatm.com

www.djarumcigar.com

Kretek ....................................9

Smokey Mountain .......................75

CB Distributors ..............................83

Krispy Krunchy ...........................25

Southwest Fuel & Convenience Expo ...97

www.smokeymountainsales.com/airio/

888.824.3256 / www.cbdistributorsinc.com

800.290.6097 / www.krispykrunchy.com

Cenex .........................................41

Liggett Vector Brands ..........................67

Stout Brewing Company ...........47

Cheyenne International, LLC .........43

Little Debbie .....................................37 800.315.6208 / www.LittleDebbieCStore.com

Subway ................................13

Del Monte Fresh ..............................45

203.877.4281 / www.subway.com

Logic .......................................79

Swisher International

www.cenex.com/businessopportunities

866.294.5655 / www.cheyenneintl.com/en/strawberry

800.950.3683 / www.freshdelmonte.com

Dyson .......................................17

855.720.6169 / www.dyson.com

E-Alternative Solutions ....................81 800.628.4675 / www.cuevapor.com/business

GasBuddy ....................................85

877.415.4100

844.552.9623 / www.logicvapes.us

Mason Ways ..................................101 800.837.2881 / www.masonways.com

McLane Company .................................7 www.mclaneco.com/goto/link

www.business.gasbuddy.com

Mondelez International ...................23

Growth Energy ................................91 www.EthanolRetailer.com

New Amsterdam Vodka .......................49

Gulfcoast Software Solutions, Inc. ........3

North American Bancard ....................99

727.449.2296 / www.gulfcoastsoftware.com

Hershey .............................61

www.mondelezinternational.com www.newamsterdamspirits.com

866.481.4604 / www.nynab.com

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www.sw-expo.com

800.746.3419 / www.StoutBrewingCompany.com

800.874.9720 www.experienceacid.com ...................69 www.acidcigarillo.com .......................104

Texas Pete ........................................27 336.661.1550 / www.TexasPeteFoodservice.com

Tillamook Country Smoker .............55 800.325.2220 / www.tcsjerky.com

Tomlinson Industries .......................100 216.587.3400 / www.tomlisonind.com

Whitecastle ............................31

614.559.2473 / www.whitecastle.com

www.hersheyconvenience.com

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INDUSTRYPERSPECTIVES

Fostering a Pro-Business Climate By Mark Radosevich

NEW DAY HAS DAWNED in the downstream oil LEASE CAP RATES business after this past November’s surprising Dealer lease cap rates are not as closely tied to interelection results. est rates and in many instances rents are based upon Just four short months ago at the Petroleum an amount that a dealer can comfortably and reliably Marketers Association of America (PMAA) fall meeting in afford given the economic performance of a given store. Atlanta, the list of probable legislative issues that our indusSpreads between dealer lease cap rates have been try would be tackling seemed almost insurmountable, much wider than typical commercial lease spreads that given the prospect of another four years of governmental have been tracking around 435 basis points above the interference. The chances of a Trump victory was breezily 10-year treasury yield. Interest rates and lease cap rates mentioned, but no one gave it much credence. don’t necessarily move in lock step and with the recent To every doubting Thomas (including myself), things low interest rate environment, the gap has widened turned out quite well after the votes were counted. by over 110 basis points versus the long-term spread Having served only a couple of weeks in office, the average for commercial leases. This enhanced spread Keystone and Dakota Access pipelines are finally green- should allow for a short-term cushion against higher lit and other onerous business regulations are being rates and resultant leased property value declines. lifted. The upcoming PMAA Day-on-the-Hill in Washington, As interest rates rise, marketers that are leasing betD.C. should be something quite wonderful to behold, ter performing stores should consider moving the cap versus the past eight annual events where our industry rate beyond a typical 10% level to preserve long term faced much stress and strife. value. In this instance, a $700,000 store at a 10 cap The easing of governmental regulatory interference yields $70,000 annual rent or just over $5,800 per month. should set the stage for invigorated marketer growth Moving to a 12% cap rate will increase the yield to and profi tability, which will surely fuel continued busi- $84,000 annual rent or $7,000 per month. This will preness acquisition activity. But, you can’t have a rainbow serve overall store value as the cost of capital increases without a little rain and unfortunately the age of ultra- and maintain property desirability to future buyers. low interest rates is coming to an end. Marketers should Dealer-leased stores generally have only two primary expect increasingly higher interest rates over the next valuation metrics; rental and fuel distribution income. For a few years, prompting some immediate action. seasoned store, the income from fuel sales will be fairly stable, leaving rental income as the best variable to enhance value. Given the new business-friendly environment and ASSESSING REAL ESTATE Now is the time to take advantage of current low rates. resultant reinvigorated consumer confidence, the future Marketers need to pragmatically assess all stores within bodes well for the wholesale petroleum industry. For martheir real estate portfolios for refinance candidates to keters, the challenge will be to maintain competitiveness extend the term on currently low mortgage rates or to pos- and business relevance as retail operations become sibly pull out some ingrained equity if plans include growth more sophisticated, resulting in greater pressure to both through acquisitions. Having a ready war chest will enable direct and dealer operations. Proactively addressing the prospect of higher interproactive marketers to more decisively compete for choice est rates should be a key tactic in a marketer’s strategic acquisitions against larger regional and national players. Many current c-store mortgages feature 15- or 20-year plan for the New Year and beyond. amortizations that term out in 5-7 years. For winning stores with long-term economic viability, consider fixing rates Possessing 35 years of downstream petroleum experience, Mark and terming the loans out as far as possible. With current Radosevich is the president of PetroActive Real Estate Services interest rate uncertainty, it may even be advisable to con- LLC, offering confidential mergers & acquisition representation sider paying a slightly higher rate in order to extend the and financing services exclusively to petroleum wholesalers. He term toward the end of the amortization period. Loans can be reached by email at mark@petroactive.net and directly without prepayment penalties are also preferred. by phone at (423) 442-1327, web address www.petroactive.net. 102 Convenience Store Decisions

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