Convenience stores should feel optimistic about 2017 considering the overall conditions of the U.S. economy thus far, especially when it comes to opportunities in foodservice.
In our latest research, Q1 Consulting found that all convenience store retailers expect grab-and-go foods to increase in demand this year compared to two years ago. This is important, particularly considering c-stores have counted on prepared foods to drive traffic and bolster profit margins.
Q1 expects growth to continue over the next 12-18 months due to some favorable macroeconomic factors that correlate directly to food away-from-home spending:
• The consumer drives 70% of economic growth and gross domestic product has been stable for the past year averaging 2-3% real growth. While recession remains on the horizon, other factors seem to be fueling the current economic cycle that has been in positive territory since 2009.
• Consumer confidence is at an all-time high. Consumers are more likely to spend on retail and foodservice items when they believe they are secure financially. The stock market daily hits new highs and the “wealth effect” is driving much of this optimism.
• Disposable income (DPI)—the money consumers have after taxes—has been stable to rising. A direct correlation to retail spending on food and beverage is DPI, which increased in the first two months of 2017. When consumers are confident and personal income ticks upward, retailers are often in a favorable position.
• Inflation has remained low. The consumer price index (CPI) dropped to 0.3% in March. Inflation for food has been hovering around 2.5%, with food-at-home inflation increasing faster than at restaurants. Convenience store retailers are able to offset higher retail food prices by increasing the mix of prepared food sales.
• Employment growth is strong. The unemployment rate dropped to 4.5% in March, showing that the job market is near full employment. Wage growth, however, has been relatively flat, and influences retail spending on food and beverage.
• Consumer spending is one area that is mixed. In March, retail sales for goods dropped at stores, restaurants and online by less than 1%. However, these figures do not include sales of services—such as healthcare and housing.
Moreover, Millennials are spending a share of their income on “experiences,” such as concerts and events, which are also not reflected in this data. Also, online sales—particularly delivery services—have been increasing sharply and Q1 expects c-stores will have to adjust to the new normal of this business disruptor and the Millennial shopper.
• There are clearly other indicators—such as capital investment, legislation (such as tax breaks), fiscal stimulus, healthcare reform and the policies of the new presidential administration that will impact convenience store retailers over the next 12-18 months that stakeholders must monitor.
From the retailer’s point of view, there are other sector-specific trends they believe will have an equal if not larger impact on in-store growth over the next 12 months. These include health and wellness (66%), an emphasis on delivery (47%) and snacking (46%).
As long as convenience stores continue to execute and listen to their patrons, they will continue to build a loyal consumer base that will help maintain prepared foods sales in a dynamic economic environment.
Consumer spending Down in March — Mixed
Disposable Personal Income (DPI) Up
Economic Growth (GDP) Positive
Employment Better than market expectations in March 2017
Wage growth Mixed
Inflation (CPI) Around 2.5% down in March
Consumer Confidence Highest level since 2000
Tim Powell is a senior analyst with Q1 Consulting LLC in Chicago. See more information on his practice at www.q1consultingllc.com.