C-store retailers have reported that supply chain disruptions have largely subsided. While they continue in various areas or product lines, they’re more manageable than they were in recent years. However, cost increases from suppliers remain a significant hurdle.
Matt Riezman, a partner at NexChapter, a c-store advisory firm, pointed to the latest CPI data that showed transportation and warehousing expenses continue to grow. “Those are expenses that hit retailers, both directly as well as indirectly, through the cost of goods from vendors, and so there continues to be supply chain pressure that’s going to continue to put pressure on prices. … When a category is seeing increased transportation and warehouse expenses, those are going to probably start coming through to the consumer,” he said.
Riezman emphasized that it’s imperative for retailers to have pricing and promotional strategies in place as well as a clear understanding of the value they’re offering customers.
For now, c-stores are doing what they do best — adapting. The PRIDE Stores, which has 17 locations in Illinois and Indiana, operates a large warehouse, so it has been able to bulk buy and self-distribute products, which allows it to provide a lower cost to customers. Meanwhile, Cubby’s Inc., which operates 39 c-stores in Nebraska, Iowa and South Dakota, scaled back or delayed certain projects to offset rising supplier costs.
Capital investments are being scrutinized more closely, particularly when it comes to new product lines such as bean-to-cup, “to ensure a return on investment is imminent,” noted Tom Bachrodt, general manager of HJB Convenience Corp., which operates seven Russell’s Convenience and Russell’s Xpress locations across Colorado, Michigan, California and Hawaii. There’s also added focus on enhancing the customer experience to drive sales and foot traffic growth, explained Raymond Huff, president of HJB Convenience Corp.
Despite high costs, PRIDE is committed to store growth and improvement. “To continue to be competitive your stores must be well maintained, and growth is crucial to help purchasing power plus market penetration,” said Mario Spina, owner and CEO of the PRIDE Stores.
Peter Rasmussen, CEO and Founder of Convenience & Energy Advisors, predicted wage growth for entry-level positions will remain elevated in 2025 as competition for workers continues.
Rasmussen cautioned that the cost of new builds and renovations is likely to rise in 2025, especially for small and independent operators, due to high construction material and labor costs.
“This is likely to slow down expansion plans for some c-store owners, especially in areas where land and real estate costs are also rising,” he explained. He added that potential labor shortages, influenced by a possible increase in deportations under the new administration, could exacerbate these challenges. As a result, he predicted an increase in merger and acquisition (M&A) activity, accompanied by decreased development of new-to-industry stores.
Also driving M&A will be the continued need for operational efficiencies, higher capital expenditures and economies of scale, Rasmussen noted. He expects large chains to pursue acquisitions of smaller regional chains to expand their footprint and market share, while smaller operators may choose to sell due to escalating costs, labor challenges or generational ownership transitions.
“The c-store industry’s M&A activity will also be influenced by private equity firms looking to capitalize on growth in convenience retailing, and today there is more private equity chasing deals than there are deals on the market,” Rasmussen said. “Add to that, upstream consolidation from our suppliers makes it incredibly hard for a smaller chain to compete with larger chains who can command better economies of scale and bulk pricing breaks.”
To stay competitive amid accelerating consolidation, c-stores must invest in technological innovation, targeted marketing with a focus on personalization, reaching customers via media channels, etc. to remain competitive, Riezman pointed out. “We see lots of examples in the industry of smaller operators who are making smart investments in the right places so that they can keep up and maintain a differentiated experience, a differentiated brand, and they’re winning even against the bigger players.”
As consolidation continues, the pressure on small operators to maintain that differentiated experience will only increase, he added. Amid heightened competition, retailers are expected to ramp up their investment in technology to stay ahead.
“The retailers that are making the right investments at the right time we see coming out ahead,” Riezman said.
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