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Lower gas prices have increased convenience store snacking

McClatchy-Tribune Information Services

February 23, 2015

   

DALLAS ó For hungry drivers like Whitney Scott, the current below-average gas prices offer a measure of freedom.

When local gas prices last spring hovered close to $4 a gallon, drivers may have wanted to grab some snacks or sodas after filling up the tank "but didnít because gas was high," said Scott, who stopped earlier this week at a Dallas 7-Eleven/Chevron station to fill up her Chevy Equinox.

"Now," she said, toting a box of barbecued chicken wings from the 7-Eleven, "they have the funds to freely get what they want."

Nationwide, gas prices plunged in the second half of last year, as fracking boosted U.S. shale oil production and the OPEC oil cartel kept the spigot open.

Increasingly, experts say, drivers are taking the windfall saved at the pump and spending it inside the nearest convenience store.

Because profit margins on a gallon of gas are so thin, sales of drinks and merchandise are much more profitable for a convenience store operator than fuel sales, the experts said.

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That means potentially lower 2014 revenue, but stronger margins for key convenience store players including market leader Dallas-based 7-Eleven Inc. And it means more sales of snacks and drinks from companies such as PepsiCo Inc., parent to Plano-based Frito-Lay.

"We are seeing an uptick in sales," said Margaret Chabris, director of communications for 7-Eleven. "Gas sales, in-store sales and customer counts are up."

Chabris attributed much of the in-store increase to continued efforts by the company to introduce higher-quality store-brand items along with fresh foods that are priced to be wallet friendly.

"But we also believe that customers have more money in their pockets to spend with the lower price of gasoline," she said, adding that 80 percent of 7-Elevenís customers buy something to eat and drink. "Our private-brand products and pizza sales are on fire."

By far the largest convenience store chain in the nation, 7-Eleven has about 7,800 locations in the U.S.

Dallas-based Energy Transfer Partners, which owns the Stripes brand, is another large player in the industry, according to the Top 100 chart from Convenience Store News, a trade publication.

Stripes operates more than 645 stores in Texas, New Mexico and Oklahoma under the names Stripes and Sac-N-Pac.

Stats on how those locations are doing were not immediately available.

Exxon Mobil, based in Irving, wrapped up the sale of its convenience stores in 2013. There still are about 10,000 stations in the U.S. that operate using the Exxon and Mobil brand names under licensing agreements, the company said.

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For convenience stores in general, gas may bring consumers onto the lot, but drinks lure them into the store. And drinks, from Gatorade to craft beer, saw sales rise as gas prices fell.

Convenience store patrons "go inside to get a beverage Ö whether itís for a cup of coffee or a fountain drink," said Jeff Lenard, vice president for strategic industry initiatives with the Virginia-based National Association of Convenience Stores. "And while there Ö theyíll say ĎIíll get a snackí also. Itís the beverage sales that you see mostly increasing and the other items increase because of the beverage sales."

Bonnie Herzog is a senior analyst with Wells Fargo Securities, where the research department recently surveyed retailers representing more than 15,000 U.S. convenience stores.

Based on the survey results, she estimates that non-alcoholic beverage sales gained nearly 6 percent in the fourth quarter of 2014, compared with a year earlier. That follows a 6.2 percent gain in beverage sales in the third quarter.

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In North Texas, the 2014 peak price for a regular gallon of gas came in late April, according to GasBuddy.com. It was at $3.701.

Prices headed steadily south during the second half of the year and bottomed out locally at $1.768 in mid-January, the website said. Prices have started rising since then.

"Itís all about low gas prices, with 100 (percent) of our contacts indicating lower gas prices had a favorable impact on sales," Herzog said in the report.

PepsiCo and Plano-based Dr Pepper Snapple Group have not yet reported financial results for the fourth quarter and declined comment.

Herzog estimates PepsiCoís convenience store sales grew by nearly 4 percent in the quarter, with Gatorade posting particularly strong sales.

She called market leader Cokeís performance solid, but said Dr Pepper Snapple Groupís sales growth "remains below its peers."

Wells Fargo studied trends at convenience stores because over time they have become the nationís filling stations.

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Of all gas purchased by consumers in the U.S., roughly 80 percent flows from convenience store pumps, according to Lenard of the trade association. Only 10 percent of sales come from traditional service stations. The other 10 percent is sold at larger grocery and big box stores, he said.

Out of the nearly 153,000 convenience stores in the U.S., more than 80 percent have gas pumps, he said.

The average convenience store gets about 300 customers a day at the pump, Lenard said, and about 35 percent of those customers also fuel themselves.

Seeing lower gas prices "doesnít make you hungrier or thirstier," he said. "It gives you permission to go inside."

Each soda and bag of chips sold helps blunt the impact of lower gas prices on the storeís profit and loss statement.

"Itís likely that total C-store revenues (for 2014) will be lower due to the lower gas prices," said Don Longo, editorial director for Convenience Store News. "However, in-store sales, merchandise and food service combined, are likely to grow more than usual, which will have a positive impact on bottom lines because" of the higher profit margins.

In 2013, the most recent year available, motor fuels accounted for 70.7 percent of total convenience store sales but only 35.6 percent of profit dollars, according to a report from the convenience store association.

Meanwhile, consumers are looking at their own financials and assessing what spending options the lower gas prices bring.

"It makes the economy better when you donít have to worry about gas prices being so ridiculous," said Dallas resident Karmon Robinson, who took a break earlier this week to refuel his Mercedes SUV.

"It allows you to get snacks when youíre hungry," he said. "Now you can get maybe $7 (of gas) and pick up some beef jerky or a Snickers or something."