Wells Fargo Securities LLC found that low gas prices are allowing customers to trade up on in-store merchandise in the fourth quarter.
Based on its recent “Tobacco Talk” and “Beverage Buzz” surveys, Wells Fargo said that gas prices and foot traffic were the largest positive factors impacting c-store sales in the fourth quarter, with 100% of respondents indicating lower gas prices had a favorable impact on sales relative to last year and more than three-quarters suggesting foot traffic had improved.
“We expect stronger same store sales growth and merchandise margins given: (1) lower gas prices giving “consumers extra money in their pockets which is leading to more frequent visits as well as increased purchases”; (2) the “halo effect in other categories from the increases in tobacco sales [as a result of] CVS getting out of the tobacco business”; and (3) consumers “trading up” and “treating themselves” during trips to c-stores independent of frequency of visit (traffic) or quantity of items purchased (basket size),” noted Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo.
Herzog noted that the largest beneficiary of lower gas prices appears to be categories like craft/import beers and tobacco, in which a consumer is purchasing the same quantity of product (e.g. six-pack of beer, pack of cigs), but able to upgrade to a higher priced/premium product. She added, “We note that these premium products generally carry more attractive margins, which we expect will translate to solid margin expansion in merchandise categories on top of the strong sales growth.”