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Issue Date: Vol. 48, No. 5, May 2008, Posted On: 5/6/2008

C-Stores Set Record Highs; Fees, Fuel Costs Drop Profits

Emily Jed

CHICAGO — Convenience store industry sales reached a new high of $577.4 billion in 2007, but profits dropped by $1.4 billion. The decline is largely attributed to higher credit card fees, according to data released by the National Association of Convenience Stores. 

Overall industry revenues climbed only 1.4% last year, leveling off a decade of three-fold growth from $174.2 billion in 1997. 

Cigarettes again dominated in-store sales, accounting for more than $1 in every $3 spent in stores. They were second to nonalcoholic packaged beverages with respect to overall contribution to gross margin. 

The continuing growth of coffee sales in the channel led NACS to establish hot beverages as an independent category, separate from its traditional grouping with food prepared onsite and hot, cold and frozen dispensed beverages. The new category now ranks in the top five in both sales and gross margin dollars. 

Nearly 80% of in-store sales were from the top five categories: cigarettes (36.9%); packaged beverages (16%); beer (13.2%); food prepared on site (7.9%); and hot dispensed beverages (5.5%). 

Following a year of decidedly mixed performance, the biggest concern for convenience retailers remains escalating credit card fees. 2007 saw fees surge $1 billion (15.2%) to reach $7.6 billion. Meanwhile, industry pretax profits dropped by roughly the same amount, $1.4 billion, to $3.4 billion. The net effect is that the industry's credit-card fees are now more than double its pretax profits. 

Motor fuel prices increased 8.8% in 2007, but sales increased only 0.7% to $408.9 billion. The convenience store industry sells an estimated 80% of the fuels purchased in the United States, and motor fuel sales continue to dominate industry revenues, comprising 70.8% of sales. However, because of low gross margins, the fuel category represents only 33.8% of the industry's gross profit dollars. 

Gross margins from fuel sales shrank to 5.2%, their lowest level since 1983, and are closing in on the record low of 4.2% in 1981. On a cents-per-gallon basis, motor fuels gross margins were 14.3¢, but only 10.1¢ per gallon before store expenses, which factors in credit card costs for all fuels transactions. 

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