Convenience stores in the U.S. are feeling pressure as consumers change how they purchase snacks and drinks, according to Bloomberg. Retailers are being squeezed in the food department by fast food outlets and on the merchandising side by dollar stores that offer cheaper foods. Supermarkets also are reducing prices, and Amazon is offering fast delivery on basic items that people might normally buy at a c-store.
As a result of these trends, the $550-billion c-store industry last year saw their slowest sales growth since 2013, Bloomberg reported. This prompted the industry to offer online ordering, add higher-quality food items and beef up loyalty programs. Some chains have even experimented with home delivery.
The situation is also driving M&A considerations, which could mean more consolidation for the industry. 7-Eleven is on an acquisition trail, and Kroger's 784 convenience stores are now on the block. Iowa-based Casey's General Stores, a chain of more than 2,000 c-stores in 15 states, is being pressured by investors to consider a sale, according the news service said.
Between 1988 and 2016, convenience stores’ share of grocery sales doubled from 8% to 16%, according to The Food Institute. However, dollar stores have started adding grocery staples such as milk and eggs, which deters customers from making a separate stop at the convenience store. At the same time, fast-food joints are offering value meals, another detraction for c-store food offerings.
Convenience stores with gas stations have enjoyed a major advantage in the past. While gas typically makes up 60% of sales, the items bought inside provide two-thirds of a c-store's profit, Bloomberg pointed out. But with Costco and Safeway, among other retailers, offering gas discounts to member shoppers, the convenience aspect isn't as convenient, or relatively cheap, as it used to be.
Several retailers are trying to bridge the gap between supermarket and c-store to achieve maximum gains. Hy-Vee, a Midwestern supermarket chain, recent announced it would open two Fast & Fresh hybrid convenience stores in Iowa. The stores will be around 10,000-square-feet and include fresh foods, an assortment of groceries and a Market Grille Express restaurant, in addition to fuel pumps. The company plans to build similar outlets in the Twin Cities area of Minnesota, where it already operates c-stores and supermarkets.
Kroger, which has its own army of convenience stores, also has entered the hybrid market. Last year, the grocer unveiled a Fresh Eats MKT concept in Ohio that offers a pared-down grocery experience with an emphasis on prepared foods. Giant Eagle also is rebranding its GetGo gas stations at GetGo Café + Market locations, adding plenty of grab-and-go sandwiches, salads and fresh produce to boot.
Convenience store chains, which make up about 40% of the industry, aren't taking this competition lying down. 7-Eleven has adopted an aggressive stance and is piloting an online ordering, delivery and in-store pickup program in select Dallas stores. The c-store company also offers hundreds of grocery and nonfood products for purchase through its new smartphone app, 7-ElevenNOW.
It's clear that with today's fierce competition for consumer dollars, c-stores can't rest on their laurels. But neither can their fast-food, dollar store, supermarket or online grocery service competitors. As all of these businesses jockey for economic high ground, and their business models increasingly overlap, it's up to consumers to vote with their wallets. It's uncertain whether one format will reign supreme, or if the future of food retail is the further hybridization of these businesses.