Convenience and Petroleum - MemberClicks

Convenience and Petroleum Retailing Industry Update:Facts, Figures, and Best Practices to Help You Succeed in , g , p

the Coming Months Ahead

July 28, 2009

T dToday…

Ab t NACSAbout NACSAbout our IndustryU d t diUnderstanding consumersChanging operator landscapeiff i iDifferentiation

ABOUT NACSABOUT NACS

Ab NACSAbout NACSFounded in 1961

More than 2 000 retail member companiesMore than 2,000 retail member companies– Operating more than 75,000 stores in the US

– Operating more than 300,000 stores globally

– Members in 49 countries

– 49 of the 50 largest companies in the industry

– 79% of our US members operate 10 or fewer stores

– Increasingly diverse retail membership• Jack‐In‐The Box, Delta Sonic, Kroger, Publix, Giant Eagle, Follett College Book Stores,

TA Travel Centers

• PetroCanada, Quickie Convenience Stores, Tesco, BWG, Topaz, Welcome Break, Total, Pick n Pay, Seicomart, Dairy Mart, Famima, PTT, Woolworths AU, Coles Express, JMEL, OXXO, Repsol, Ipiranga

More than 2 000 supplier member companiesMore than 2,000 supplier member companies

NACS’ three pronged focusKnowledge

– State of the Industry (SOI) Data through CSX– Support of Technology standards (PCATS)

Industry research– Industry research– Educational products– NACS Magazine & NACS Daily

NACS Help Desk– NACS Help DeskConnections

– The NACS Show– NACStech ShowNACStech Show– SOI Summit– HR Forum– Category Management ConferencesCategory Management Conferences– NACS Global Forum & Study Tours– NACS Social Media

AdvocacyAdvocacy

– Government Relations– Media Relations

ABOUT OUR INDUSTRYABOUT OUR INDUSTRY

About our industryAbout our industryOur 145,000 stores…= 50,000 more than: Warehouse clubs+ Supercenters + Dollar stores +

Mass merchandise stores + Supermarkets + Drug stores

Over 90,000 of stores are run by single store operators

Our 2008 sales totaled US$624.1 billion equaling over 4% of the US GDP

160 million transactions per day160 million transactions per day– Every 40 hours the industry serves the equivalent of the entire mobile

population of America (6 years to 85 years old)

98% of Americans shop at c‐stores once/month

We sell 80% of the motor fuel sold in the U.S.

About our industryAbout our industryWe employee over 1,700,000 million workers on the retail side aloneside aloneSome of our members made Fortune Magazine’s 100 Best Companies to Work For in the USA in 2008– #27 (QuikTrip) – #93 (Valero Energy)

We have stores in every congressional districty gOur stores are physically closer to the homes of America than any other channel of trade – We are the “neighborhood” storeWe are the neighborhood store

We are the mosaic of America– Every race, creed, gender, income, age

Industry SnapshotIndustry Snapshot2007 2008 Change

Industry Stores 146,294 144,875 (1.0)%

Industry Sales $577.4B $624.1B 8.1%y $ $

Industry Pretax Profit $3.4B $5.2B 54.2%

Credit Card Fees $7.6B $8.4B 10.5%

Number of Employees 1,714,300 1,727,700 0.8%

Fuel Pool Margin (cpg) 14.6¢ 18.0¢ 23.3%

Source: NACS State of the Industry Survey of 2008 data powered by CSXSource: NACS State of the Industry Survey of 2008 data powered by CSX

Industry Store Count Declines

140 000

160,000

145,119138,205132 424

140,655 146,294 144,875

Industry Store Count Declines

54 02953,435 56,081

55,162 55,611 55,308 120,000

140,000 130,659132,424124,516119,751

59,876 56,904

54,029 54,615

80,000

100,000

ry S

tore

Cou

nt

67 61278,395 76,044

84,770 84,574 89,957 90,683 89,567 40,000

60,000

Indu

str

59,876 67,612

-

20,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Single Stores Chain Stores

Source: TDLinx, a service of the Nielsen Company

Store Growth by Firm Size

150

160Store Growth by Firm Size

130

140

50

Single stores +50% since 2000

120

130

Total stores +21% since 2000

100

110Total stores +21% since 2000

80

90" Chain" stores ‐8% since 2000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: TDLinx, a service of the Nielsen Company

30 Years of Industry Sales30 Years of Industry Sales$600.0

Motor Fuels Sales

0.2

$

$500.0

Inside SalesMotor Fuels Sales

$624.1 Billion

62.6

$344

.2

$405

.8

$408

.9

$450

$300.0

$400.0

olla

rs in

Bill

ions

9

$134

.2

$165

.3

$171

.0

$181

.3

$220

.8

$26

$200.0

Do

$99.

8 $1

04.1

$1

12.0

$1

09.3

$1

16.2

$1

32.1

$1

51.1

$1

63.6

$1

68.5

$1

73.9

$0.0

$100.0

9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: NACS State of the Industry Survey of 2008 data powered by CSX

Wish the guy who thought it was a good idea toWish the guy who thought it was a good idea to post prices tried milk instead…

Skim Milk 2% Milk Whole Milk

Core Direct Store Operating Expenses

Per Store/Per Month 2007 2008 Change

Core Direct Store Operating Expenses

Wages & Benefits $17,813 $18,245 2.40%

Utilities $3,667 $3,965 8.10%

Repairs & Maintenance $2,837 $3,016 6.30%

Supplies $1 102 $1 118 1 50%Supplies $1,102 $1,118 1.50%

Total DSOE $34,086 $36,060 5.80%


Interchange Ratesg

1.10%

1.75%

India

USA

1.04%

1.00%

HK

Brazil

0.90%

0.95%

Sweden

NZ

0 75%

0.79%

0.90%

Denmark

UK

Italy

0.45%

0.70%

0.75%

Australia

EU Crossborder

Denmark

S M h t P t C lliti

0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80% 2.00%

Source: Merchant Payments Coallition

Interchange Rates Increased to Highest Level Ever – Now Over 2%

2.50

%

$4.5

0

Effective Interchange Paid v. Gas Prices

2.30

%$4.0

0

datio

ns

Effective Interchange Paid v. Gas Prices

EIA Gas Prices

2.10

%

$3.0

0 $3

.50

rcha

nge

Rat

e Pa

i

all g

rade

s/fo

rmul

a

s C

PP R

ate

%1.

90%

$2.5

0 $

Effe

ctiv

e In

ter

ice

per g

allo

n -a

Visa

Cha

nges

Stru

ctur

e

Moderate inverse relationship

0%1.

70%

50

$2.0

0

Pr

Highly inverse relationship

Visa Announces “relief to consumers”

1.50$1

.5

Source: NACS Card Processing Program

Card Fees vs Pretax Profit$10 0 Card Fees vs. Pretax Profit$9.0

$10.0

$8.4 Billion

$6.6

$7.6

$7.0

$8.0

olla

rs

$5.0

$5.9

$5 0

$6.0

ons

of D

o

$5.2 Billion

$3 8

$5.4 $4.0

$4.8 $4.0

$5.0

Bill

io

$3.2 $3.8

$3.4

$2.0

$3.0

2003 2004 2005 2006 2007 2008


UNDERSTANDING CONSUMERSUNDERSTANDING CONSUMERS

bub∙ba (bŭb'ə)bub ba (bŭb ə)noun, slang:1 A hi ki l i ll d d1. A white working‐class man, stereotypically regarded as

undereducated and gregarious with his peers.

2. A man of the Southern U.S., variously characterized as easygoing, companionable, assertively masculine, etc.

bub∙ba (bŭb'ə)( )song, Rascal Flatts:Bubba is a friend, he`s a beer drinkin` buddy of mine But lately somethin`s happened that ain`t hard to defineBut lately somethin s happened that ain t hard to define Bubba`s got himself a cousin and I`m gonna make her mine And she`s brushin` both his teeth And she`s makin` him biscuits and gravy I just know it g y jAnd she`s lovin him in that double wide late late at night

Y`know, I wish that I had Bubba`s girl I want Bubba`s girl Why can`t I find a cousin like that? Like bubbas girl I I B bb ` i lI want I want Bubba`s girl Why can`t I find a cousin like that!

Bubba:

Understanding consumers

Age: 18‐55 years old

Cultural influences: Beer, NASCAR, pick up trucks cigarettes beer baseball beeftrucks, cigarettes, beer, baseball, beef jerky, football, beer, dip, mom, hunting dogs…

Brand loyalty measured in: a lifetimeBrand loyalty measured in: a lifetime

The industry's stereotypical customer profile

There’s more to operating a successful convenience andsuccessful convenience and petroleum retailing site than just

bbcatering to Bubba…

Understanding consumersUnderstanding consumersConsumer Demographics:

Understanding consumersUnderstanding consumersAccording to Nielsen, our customers are primarily:

Lower income householdsSingle householdsHouseholds without childrenHouseholds without childrenAfrican American householdsStruggling urban, modest working towns & rural livinggg g , g gBlue collar & currently not in workforceAll age households and male only households

U d di

Beyond Bubba:


Different types of shoppers value different shopping experiences and retailers that best tap into these values and

Beyond Bubba:

experiences, and retailers that best tap into these values and shoppers' needs will capture a greater share of the convenience business, which is no longer confined to c‐stores outlets, according to Fast Forward: Emerging Opportunities in Convenience Retail, a new report from the NACS/Coca‐Cola Retailing Research Council.g

U d di

d bb d l


The NACS/Coca‐Cola Retailing Research Council identifies three types of c‐stores:

Beyond Bubba ‐ Fast Forward: Emerging Opportunities in Convenience Retail

c‐stores:

Neighborhood stores, considered an essential part of the community, whose customers live close by and shop for fill‐in items and specific category purchasescategory purchases

Commuter stores, located on high‐traffic thoroughfares and shopped mostly by blue‐ and white‐collar commuters who buy fuel, drinks and tobacco and value safety cleanliness easy access and competitive fueltobacco and value safety, cleanliness, easy access and competitive fuel prices

Interstate stores, positioned on major highways and frequented by long‐distance travelers professional drivers and locals who buy fuel mealsdistance travelers, professional drivers and locals who buy fuel, meals, snacks and beverages, and value nice restrooms.

U d di

Beyond Bubba Fast Forward: Emerging Opportunities in Convenience Retail


To better customize their products and services, retailers need to better understand various types of shoppers, the report concluded. They were id tifi d

Beyond Bubba ‐ Fast Forward: Emerging Opportunities in Convenience Retail

identified as:

Drop‐In Daily customer, or the familiar "Bubba" who drops in daily as a break from workThe Local Loyalist who thinks of the stores as the center of theThe Local Loyalist, who thinks of the stores as the center of the neighborhoodThe Over‐Stretched Mom, who shops on the way home from work to fill in the gapsThe Mobile Professional, who stops in during the commute for coffee and competitively priced gasoline;The Highly Hesitant, who visits for snacks, but otherwise avoids c‐storesThe Long‐Distance Driver who drives for a living and wants familiarThe Long Distance Driver, who drives for a living and wants familiar brands of gasoline and clean bathrooms

U d diGen Y & beyond:


Born Between: 1977 and 2002


Cultural influences: dot com bustCultural influences: dot‐com bust, Internet, September 11, mp3, Iraqi War, Paris Hilton, Facebook, Twitter

Brand loyalty measured in: DaysBrand loyalty measured in: Days

U d t diTeens (Ages 14‐20):


A teen participant of the NACS/Coca‐Cola Leadership Council Teen Study was asked why he chose a specific store over another. He responded:

“It's close and I needed gas and a Hershey bar and a Coke ”

( g )

It s close, and I needed gas and a Hershey bar and a Coke.

Notice the description wasn't a "candy bar and a drink."


Check your oil?


Check your oil?

U.S. youthb t 12 d 19

Understanding consumersbetween 12 and 19

each spend on average almost

$100 per week orb t $180 billi

Check your oil?about $180 billion

totalper year

Gen X (baby bust):


Born Between: 1965 and 1976


Cultural influences: television AtariCultural influences: television, Atari 2600s, personal computers, grunge, health, the environment, latch‐key kids

Brand loyalty measured in: It dependsBrand loyalty measured in: It depends on…– Loyal to brands that perceive

responsibility over statusresponsibility over status

– Disloyal to brands that perceive status above responsibility

Gen X (baby bust):


Loyal to brands that perceive responsibility over status– HondaHonda

– Apple

Disloyal to brands that perceive status above responsibilityabove responsibility– Rolex

– Hummer

Baby Boomers:


Born between: 1946‐1964

Age: 42‐60

y

Cultural Influence: The 1960s, Vinyl, Vietnam War, Kennedy Assassination, Woodstock, Easy Rider, Moon Landing

Brand Loyalty Measured in: Years

Baby Boomers:


First “ME” generation –driven by wealth and successsuccess– After growing up rebelling

against their parents’ wealth and success…

By the end of this year, they will reportedly spend $3 trillion a year

Baby Boomers:


While mostly “brand fixed,” still just as likely to switch brands as younger buyers

33% of cons mers older than 50 agree it is “risk ”

y

33% of consumers older than 50 agree it is “risky” to buy an unfamiliar brand

36% of consumers 16‐34 feel the same way

30% of consumers 35‐49

Understanding consumersBaby Boomers:

Woman make the vast majority of purchasing decisions – spending trillions of dollars each year. And one huge segment of this demographic wields

y

Check your oil?

g g g pmore spending clout thank any other: Boomer Women between the ages of 41 & 60.Women are going to control two‐thirds of the

lth i th US th iconsumer wealth in the US over the coming decade.Over the same period of time, the Boomer woman demographic will grow 30 percentdemographic will grow 30 percent.We know they buy 20 oz bottles of Diet Coke…and fruit, pizza, milk, and candy bars…why don’t they buy them from convenience stores?

Baby Boomers:


Today, this is the generation that knew better than their cautious,

y

,fuddy‐duddy parents

The generation that protested, that had ideals and marched to the beat of defiant music: "Street Fighting Man," "We Want the World and We Want It Now," "Hope I Die Before I Get Old.“

Baby Boomers:


It's the generation that pursued pleasure, proclaimed "I can have it

y

p , pall" and refused to grow old ‐‐ “60 is the new 40," etc

And now, after years of taking , y gcredit for changing the world, baby boomers are taking the rap for the reversal of fortune that's shaking the world

Cuspers (“late boomers”):


Born roughly between 1954‐1965– Barack Obama, born 1961

p ( )

Barack Obama, born 1961

– Sarah Palin, born 1964

Value traditional notions of family but see men and womenfamily but see men and women as equals in parenting

Go back to older American values ‐‐ civility, community,civility, community, responsibility ‐‐ yet keenly embrace technology and use the Internet naturallyy

Cuspers (“late boomers”):


For marketers, they are a fast‐emerging challenger brand that's

p ( )

g g gfascinating to watch as it defines itself and attracts fans.

Cuspers define themselves by p ywhat they’re not: greedy, selfish, confrontational, hung up on past battles.

African Americans:


By 2050, African Americans will account for 14.6% of our nation’s population, increasing 71%

In 2008, African American ,buying power increased to 921 billion dollars – 189% increase over the last 18 years

Source: U.S. Census Bureau

African Americans:


In 2001, 27% of married couple families earned $75,000 or more

By 2004, 31.4% of single adults were earning $50,000 or more

80% of adults have earned at least a high school diploma

65% are in the workforce

Source: U.S. Census Bureau


“The store in the African‐American market is brand, brand, brand, brand.”

‐ Cathy Von Frange

Partner, Yankelovich Market Research

African Americans:


Use brands as a badge or symbol

Makes them more assured there will be quality and service behind a brand name

Source: “Power Play,” Alison Embry of Convenience Store News

Understanding consumersAsian Americans:

Extremely brand loyal, especially the younger generations

Brands as badge of statusg

However, can be very fickle and switch brands often and easily, but usually return to the original brand

Source: 2007 VNU Business Media, Inc.


“I believe the good brand name always has the good quality ”always has the good quality.

‐ Zhi Ying, Asian Americang,Source: 2007 VNU Business Media, Inc.


Check your oil?


1. California 35.1% 29.2%

% of State Pop% of Total U.S. Hispanic. Pop

Rank by # of c-stores

2Check your oil?2. Texas

3. Florida4. New York

36.9%19.8%15.6%

19.3%8.1%6.9%

134

5. Arizona6. Illinois7 New Jersey

31.4%11.9%16 1%

4.3%3.5%3 2%

-10

7. New Jersey8. Colorado9. New Mexico

16.1%20.1%43.7%

3.2%2.1%1.9%

---

10. Washington 6.9% 1.0% -

U d t diUnderstanding consumers

##66Rank by # of

c-stores

1. North Carolina +394%2 Arkansas +337%

Established Metros

New Destinations

Check your oil?

##55

2. Arkansas +337%

3. Georgia +300%

60%

52%

4. Tennessee +278%5. Nevada +217%6. South Carolina +211%7. Alabama +208%

14%19%

8. Kentucky +173% 1990 2000

U d t diUnderstanding consumers

Check your oil?

Bottom lineBubba is not the only customer in town…and you better get to

Bottom line...

know yours and cater to their needs– Teens

– Gen X & YCheck your oil?

Gen X & Y

– Boomers

– Cuspers

B W– Boomer Women

– African, Asian, & Hispanic Americans

– Military

– Tourists

– Truckers

– Stay at home MomsStay at home Moms

– …and more!

CHANGING OPERATOR LANDSCAPECHANGING OPERATOR LANDSCAPE

Industry consolidationM& A Activity 2005 ‐ 2008

Over 200* convenience and petroleum retailers were acquired totaling more than 6,000 stores.

M & A Activity 2005 2008

Check your oil?Major oil companies are divesting company owned and operated sites

F l l d di d f h d iFuel replacement costs and credit card fees have driven dozens more out of the business just this year.

90,000 of the 145,000 + convenience and petroleum sites are

*Companies with 30 or more stores

90,000 of the 145,000 convenience and petroleum sites are operated as single store operations.

Companies with 30 or more stores

Industry consolidation

Consolidation and divestiture– Small to mid‐sized companies are acquired ; new owners divest less profitable | desirable locations.

– More operators became adept at rationalizing their site portfolios and sold or leased less profitable | desirableportfolios and sold or leased less profitable | desirable locations to dealers

– Integrated Oil Companies quit the retail business and divest to chains and jobbers

– 7‐ELEVEN and am|pmmove to total franchise models

Changing operator landscapeNew Americans

New Americans continue to grow in both presence and influence in our industry. A strong work ethic and sense of accomplishment helps immigrants take control of their own

Check your oil?

accomplishment helps immigrants take control of their owndestiny.

Immigrants from places like India or Pakistan have two h i h h i i hi fi d j bchoices when they arrive in this country: find a job or own a business.

In other countries retail is considered one of — if not, theIn other countries retail is considered one of if not, the most — honorable professions, at a similar level of how doctors or lawyers are respected in the U.S. Retailers in these areas are perceived as the people who most help theirareas are perceived as the people who most help their communities.

Small operator profiles

Influx of immigrants to the industry– India

Pakistan– Pakistan

– Korea

– Egypt | Jordan | Lebanon | Iran

– Eastern Europe

Many small operators were college educated, had previous business ownership experience or bothbusiness ownership experience, or both

Small operator profiles

Small operators owned the majority of their sites while the rest leased– Majority sold fuel

Most had little to no understanding of fuel marketing when entering the business– …other than US‐born “mom & pops” who grew up in the businessbusiness

Small operator characteristics

We identified two major types of small business operators– The Shopkeeper (majority)

– The Entrepreneur (minority)

Small operator profilesSmall operator profiles

May own other businesses

The EntrepreneurThe EntrepreneurLeases or owns their site

The ShopkeeperThe Shopkeeper

Little family involvement

Will keep some semblance of financials

Runs a cash flow business.

Has family work for free but pays for room & board, college

Their next generation family members continue the business

p y , gtuition, car, cell phone, etc.

Next generation will typically not continue the business

More challenging to work with…tenacious negotiators and typically savvy

Shopkeepers are the hardest to reach and are a challenge to motivate yp y y

businesspeople

Small operator profilesWho’s more important?Who’s more important?Who’s more important?Who’s more important?pppp


The EntrepreneurThe Entrepreneur


They both are important and are the future of

The EntrepreneurThe Entrepreneur

They both are important and are the future of our industry…and so, we’re all affected by

the growth of small operatorsthe growth of small operators

DIFFERENTIATIONDIFFERENTIATION

Reality isReality is...

Check your oil?

H d diff ti t l ?How do we differentiate ourselves?

Bottom lineBottom line...

Check your oil?

We are over assorted!!!

Bottom line...Bottom line...

12’ of oil and auto parts4’ of pet food


Who knows what this is?


Who knows what this is?


What if we could find a better use for that space?





Salsa Sale

Bottom line...Bottom line...What if we could find a better use for that space?

’ !It’s BBQ TIME!

Bottom lineWe can replace slow moving items with products that tie in ith hat e sell

Bottom line...

with what we sell– Ice, beer, and soda: pop up and traditional coolers

– Hot dogs and hot dog buns: single use grills

Check your oil?– Gasoline: single use and traditional gas cans

– Bottled water: filtered water sold in refillable containers

– All kinds of cold beverages: fresh popcornAll kinds of cold beverages: fresh popcorn

We can sell smaller, “auto‐friendly” sized products– Diapers & wipes

– Band‐Aids

– Duct tape

– Fact is, there are hundreds of product ideas…we just need fresh , f p j feyes to help us…

Bottom lineOur industry puts up with more crap than any other channel

Bottom line...

– Credit card fees and mandates

– Perception that we make a huge profit selling motor fuels

– Customers driving to hell and back to save 40¢ on a fill upCheck your oil?– Regulation after regulation including new FDA control of tobacco

Despite a rough year, we’re bound to sell more stuff as consumers become more time starved and looking for aconsumers become more time starved and looking for a “reward” – We need to understand our customers better

– We are squeezed by space

– We need to know our competition better

– We need fresh eyesWe need fresh eyes

OPPORTUNITIES NOWHEREOPPORTUNITIES NOW HEREOPPORTUNITIES NOWHEREOPPORTUNITIES NOW HERE

http://www.nacsonline.com/NACS/RESOURCES/RESEARCH/Pages/NACSCoca‐ColaRetailingResearchCouncil.aspx

Th kThank you

C I f• Contact Info

Michael DavisVP Member [email protected]

+1 703 518 4246

888 843 5705

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