Held Sept. 15-17, the National Advisory Group brings retailers together to build profits and relationships.

The 2013 National Advisory Group (NAG) conference, which kicked off on Sunday, Sept. 15 at the Loews Vanderbilt Hotel in Nashville, ended Tuesday with a golf outing at Hillwood Country Club.

On Tuesday, Sept. 17, the morning sessions included a presentation from Impact 21 Group, which gave a competitive channel overview, from the current state of the c-store industry to what the competition is doing. Next up, Brian Milne, energy editor and product manager for Schneider Electric/DTN Energy, presented on understanding the changing demand for fuels and alternative fuels.

NAG is part of Harbor Communications and the Convenience Store Decisions Group. It is an association driven by retailers for retailers and is an organization committed to building profits and relationships.  NAG is aimed at small to mid-size convenience store chains and the executives that run them.

Competing In A Blurred Channel Environment
Rob Gallo of Impact 21, spoke on the challenges and competition facing c-stores as well as the opportunities for differentiation.

“There is a seismic shift going on right now. There are a lot of channels going after c-store very hard,” he said. New format stores, fuel offers and core categories are now being offered by competitive channels as the lines between channels continue to blur. Dollar stores, for example, are targeting grocery and c-store customers with tobacco, alcohol, refrigerated and frozen foods and larger format stores. Dollar General is opening 635 stores in 2013, and Family Dollar is opening 500 this year, and sees potential for 18,642 stores. Dollar Tree is opening 340 stores this year and sees potential for 7,000 Dollar tree stores in the U.S. What’s more, Walmart Express is expanding toward smaller format stores, many of which have fuel and pharmacy as well as a c-store assortment. “It’s something that merits watching,” said Gallo.

Meanwhile, c-stores hold 80% market share for U.S. motor fuels. Gas margins as % of revenue hit 5.1% in 2012, the lowest it has been since 2007. While cigarettes are in decline, snacks and beverages are showing solid growth and foodservice is differentiating top performers. In 2012, c-store sales growth was up 5.6% over 2011. C-stores sales growth outperformed drug stores and warehouse clubs in 2012 but lagged behind dollar stores (9.6%), grocery (3.5%) and restaurant (9%) channels, according to the U.S. Department of Commerce. Meanwhile, craft beer sales have doubled in the past six years and are set to triple by 2017.

The single biggest differentiator for c-stores is location, Gallo noted. He suggested stores could add other services to further differentiate themselves, such as acting as a delivery location for Amazon Locker, eBay now, Google, etc.

To stay successful, chains need to consider the unique needs of Millennials. “They want relationships and they don’t want it to only be one way—they want to have a say,” Gallo noted. Getting connected through social and mobile platforms and delivering content that interests them is key.

Above all, and for customers of all demographics, “We need to make sure we keep that local relationship and make it memorable,” he said.   

Fuels Update
Brian Milne, energy editor and product manager at Schneider Electric/DTN Energy spoke on the changing demands for fuel and alternative fuels. He noted that while price has long been and remains a primary factor in fuel choices, trends, especially among the younger demographic, are showing dynamic changes in the fueling experience. For example, when shopping for a new vehicle, 87% looked for fuel efficiency, 82% for cost and 71% for safety. Meanwhile, a long-term shift toward less driving is afoot, as only 69% of 19 year olds had drivers’ licenses in 2011, compared to 87% in 1983. Aging baby boomers are also driving less.

The NACS Consumer Fuels Survey in June found 44% of respondents wanted more alternative fuels to choose from in 3-5 years. Alternative fuels today include biodiesel, electricity, ethanol, hydrogen, natural gas and propane. Driving the demand for new energy options is high fuel prices. “When the price of oil is at 3% of GDP, the customer is more cautious buying gas and when it’s over 6%, demand drops sharply,” Milne noted, adding that gas has been at 3.5% of GDP or higher for some time. Crude oil prices are higher than they should be due to uncertainty in the Middle East, Milne noted. If the U.S. dollar grew stronger, that would weaken the price of oil. The FED, however, has been keeping the dollar steady to lift unemployment as much as possible.  

Among alternative fuels, E85 offers opportunities including a cost benefit to the consumer compared to gasoline. Flex fuel sales are growing and some government support could be available. But it also offers challenges. It can only be used in a flex-fuel vehicle, and offers less energy content compared to gasoline, which can lead to higher per gallon costs. There’s also the potential that misfueling by consumers could result in lawsuits. Above all, customers are often unaware the option exists or how to go about using it. “Customers are just not familiar with ethanol depending on their location,” Milne noted. Getting the word out to customers is an important first step.

Electric hybrid vehicles are another option for customers, but the vehicles are seen as extremely pricy. The safety, recharging and disposal of batteries is a potential concern, and the vehicles offer only limited horsepower and driving range before needing to recharge. Once again, customers are not fully aware or are often misinformed when it comes their options regarding the technology. On the positive side, a hybrid allows one to change to gas on a long trip or drive without the need for liquid fuel with an overnight charge. Also, some more affordable models are making their way into the market and the cars sharply reduce and eliminate tailpipe emission.

Compressed Natural Gas (CNG) is mostly being used by fleets and utilities today. There’s a high cost barrier to enter the market with refueling stations costing roughly $350,000. While it has an excellent per gallon cost compared to other fuels, and an abundant U.S. supply exists, there is limited infrastructure, limited vehicle choice and low consumer interest in natural gas vehicles.

Milne also outlined challenges and opportunities in other alternative fuel categories, such as diesel and propane, as well as government attitude, price trends and other factors impacting the progress of alternative fuels.

Networking and Information Sharing
The NAG conference provided ample networking opportunities and cocktails in the “Pow Wow and Hospitality” room, which was open throughout the conference, to a group dinner and entertainment evening at Margaritaville. NAG’s Information Exchanges, held on Monday, placed attendees into small groups of non-competing chains to discuss relevant business issues. The information exchanges are the heart and soul of what makes NAG a unique experience for retailers to share information that can grow profits.

For information on next year’s conference and registration information, stay tuned to www.nagconvenience.com.