There is little doubt that 2021 was a historic year for the convenience store industry. But far more important than simply recapping its major events is analyzing them to accurately forecast the events of 2022.
Here are six vital areas that influenced the c-store landscape in 2021, and will again in the new year:
Mergers and Acquisitions
The c-store industry saw increased consolidation among both retailers and their suppliers in 2021, and many expect it to continue.
One of the largest drivers of this trend was, and continues to be, the impact of COVID-19. Both retail and manufacturing sectors have faced increased labor and supply chain issues, making it more difficult to operate. This has convinced companies on both sides to find selling their business a more attractive option than they would have if there had been no pandemic. At the same time, private equity and other funding sources are looking for essential businesses that have been able to weather the impact of the pandemic. This makes the c-store industry an attractive investment.
“It seems every time you go to any c-store publication someone is being bought out by companies that are backed by venture capitalists,” said John Montoya, vice president of J.R.’s Country Stores Inc. in Pueblo, Colo. “What do they know that we don’t? Over the last two years we have had companies, mostly venture capitalists, calling us to purchase our stores.”
“While the on-again/off-again 7-Eleven acquisition of Speedway grabbed headlines, more attention should be paid to the attrition in smaller companies,” suggested Ryan Mathews, president of Black Monk Consulting in Royal Oak, Mich. “As far as future M&As go, there still a lot of ‘dry powder’ out there which, combined with relatively reasonable interest rates, means we should see more activity in 2022.”
The activity that the c-store industry has already seen over the past year will open the door for mid-level organizations operating in out-of-strategy markets to expand. Large organizations like 7-Eleven are strategically acquiring chains that operate both in and out of their target demographic, and many of the stores that lie outside of them may be sold off to mid-level chains. As with beverage consolidation, the trend could provide opportunity for the remaining independents to offer something unique to the consumer.
Increased FDA Scrutiny
The Food and Drug Administration (FDA) increased its scrutiny on tobacco and vape in 2021. The big news in 2021 was FDA’s decision making when it came to approval or denial for pre-market tobacco applications (PMTAs).
On Sept. 9, 2021, the FDA announced it had taken action on approximately 93% of the more than 6.5 million PMTAs accepted, including issuing marketing denial orders (MDOs) for more than 946,000 flavored vape and e-cigarette products.
The FDA issued marketing granted orders to R.J. Reynolds (RJR) Vapor Company for its Vuse Solo closed electronic nicotine delivery system (ENDS) device and accompanying tobacco-flavored e-liquid pods, specifically, Vuse Solo Power Unit, Vuse Replacement Cartridge Original 4.8% G1, and Vuse Replacement Cartridge Original 4.8% G2. Then on Oct. 19, it announced it was issuing marketing granted orders to U.S. Smokeless Tobacco Co. LLC (USSTC) for four oral tobacco products under the brand name of Verve. The four products are: Verve Discs Blue Mint, Verve Discs Green Mint, Verve Chews Blue Mint and Verve Chews Green Mint.
The market is still waiting on FDA decisions for other major brands, including JUUL.
Nicotine delivery products are still a staple of the c-store industry, and that is not about to change. But they are sure to remain targets.
Government regulations will continue to dictate what c-stores put on their shelves. Retailers need to be comfortable only being able to target traditional vape users with their assortment.
“NACS reported that both (tobacco and vapes) saw increased in sales in 2020 over 2019,” noted Steven Montgomery, president of b2b Solutions LLC in Lake Forest, Ill. “That is the good news. The bad news is the increased pressure on both traditional products and the newer ones like vaping.”
Cigarettes are facing several issues that are likely to cause year-on-year sales declines. These include increasing the age requirements for purchase, higher taxes and bans on flavors for cigarettes and vape, including menthol. In April 2021, the FDA announced its plans to propose tobacco product standards within the next year that would ban menthol on the federal level as a characterizing flavor in cigarettes and ban all characterizing flavors (including menthol) in cigars.
Increased FDA scrutiny means increased work to keep up with changing standards and/or bans on ENDS and tobacco, as well as a higher probability that stores will be fined. Some c-store retailers are considering creating small tobacco centers within their stores, with only shoppers aged 21 and older allowed access.
Others are less optimistic. “I don’t think there is any serious question the pressure on tobacco and vaping companies is going to continue until the day they are effectively driven out of business in the United States,” said Black Monk’s Mathews. “There’s just no counter trend to suggest that these products won’t be under near continuous scrutiny and criticism.”
Growth Of CBD
Cannabidiol (CBD) saw increased acceptance and growth in 2021, with more c-stores offering the product.
“No question, the category is booming,” said Mathews. “But — as in the case of tobacco — I see troubled regulatory waters ahead for CBD suppliers. Right now it’s the ‘Wild West’ in terms of product quality, ingredient labeling, product claims, etc., but that’s not going to last forever. In fact, those major players who have been sitting on the sidelines may ask for more regulation to drive independents and smaller suppliers out of the industry.”
Eric Patterson, merchandise manager for Beacon & Bridge Market in Grand Blanc, Mich., acknowledged CBD’s strength but believes it could lose ground in c-stores in states where cannabis is legal. “In demographics where recreational marijuana is legal, I think customers are choosing to make their purchases at reputable dispensaries rather than the corner c-store.”
In states where cannabis is legal, c-stores can carve out a place for themselves with this market offering accessories from screens to papers to pipes that cannabis users routinely need to replenish and find ways to partner with local dispensaries by offering coupons or gift cards, where legal. By catering to this segment, they can position themselves as a destination not only for accessories but for CBD.
Enhanced Payment & Loyalty Systems
America has been slowly inching toward a cashless society for years, a trend accelerated by COVID-19.
In 2020 and 2021 the pandemic pressured more c-stores to start offering mobile apps, if they didn’t have one before, as well as self-checkout lanes, order-ahead, delivery, curbside pickup and the ability to pay within a mobile app via contactless payment. Still others are offering frictionless stores that skip the checkout process all together.
“(Contactless payment) is the future in c-stores,” declared Patterson. “Before the pandemic customers wanted convenience. Now they want convenience and safety. Contactless payment is their solution. There is a reason there are more people in the self-checkout lane at Walmart than the clerk-manned checkouts.”
Convenience stores that are not on board with this trend will be left behind, Patterson predicted. “In a way it is beneficial for operators, too. Everyone is struggling to find help, and everyone is struggling to get quality work out of their current staff. Contactless payment and self-checkout will give operators the ability to either save on their bottom lines by reducing labor or become more efficient inside the store.”
Knowing your customers and connecting with them is critical and finding ways to bring programs down to a personal level will provide an opportunity to grow sales.
In 2021 many c-stores took their in-app loyalty programs to the next level with more personalization, using data to learn more about their customers and then better targeting offers to shoppers based on their preferences.
Supply Chain Struggles
The much-publicized delays in the supply chain in 2021 left many c-stores facing out-to-stocks in numerous categories. Retailers and their suppliers looked for additional and alternative sources for products and substituted alternate products and/or sizes to fill gaps. Some retailers got creative using local products to fill in for absent SKUs.
Two primary drivers were the source of supply chain issues in 2021 — offshore production and a shortage of truck drivers. Americans love inexpensive products, which has led many to speculate that manufacturing won’t be returning onshore in the foreseeable future. Nor does there appear to be a quick fix for the driver shortage, which means that for at least the immediate future, headaches will persist.
“We are set up for a collapse in our distribution system if (President Joe) Biden’s new laws regarding vaccination go forward,” said Rich Abel, director of stores for Fastrip Food Stores in Bakersfield, Calif. “There are not enough truck drivers right now, and there will be a lot fewer if enforcement kicks in, and then where will we be? In the meantime, we have a record number of ships that are not getting unloaded, and little real action being taken to ‘git r done.’”
On Nov. 27, President Biden noted in a Facebook post that “Because of the actions we’ve taken, in the past three weeks, the number of containers sitting on docks is down 33% — and shipping costs are down 25%.”
But Abel said he sees the problem continuing into 2022 and only slowly getting better — or drastically worse if the nation loses 10- 20% more truck drivers due to vaccine regulation.
Vaccine regulation may or may not come to fruition. At press time, U.S. District Judges in Louisiana and Kentucky had blocked the Biden Administration from enforcing two vaccine mandates.
As shoppers now prepare for the holiday season, the latest COVID variant — Omnicron — has reared its head. Time will tell how it might further impact supply chain issues.
Labor Challenges Persist
As with the supply chain woes, there appears to be no short-term relief in sight when it comes to labor shortages. Thanks to COVID-19, people have come to think of work and their value as workers differently, which means labor costs are increasing and most retailers continue to have trouble finding and retaining staff.
The number of workers that have left the job market exceeds five million, and estimates continue to increase. With the labor pool shrinking significantly, retailers are having an even more difficult time finding employees. There is also the concomitant pressure to raise wages at the same time cost of goods is increasing.
The year ahead will present c-stores with the task of navigating a tightwire act — balancing sales, retail prices, labor costs and more — while maintaining sales and profitability. It won’t be easy.