C-store profits shrink despite surging fuel prices

That may be a small amount of good news for local convenience store owners, whose profit margins have been shrinking despite soaring fuel revenues.

On April 11, a day after a government report predicted gas prices would peak in May with a national average of $2.87 per gallon, the National Association of Convenience Stores revealed that 2006 store profits fell 23.5 percent nationwide, while industry sales reached a record $569.4 billion.

Total convenience store sales increased by a record $74.1 billion, or 15 percent, in 2006, while nationwide fuel sales increased 17.9 percent to $405.8 billion, according to NACS. In-store sales increased 8.3 percent.

But NACS said motor fuel gross margins fell 1.7 cents to 14.7 cents per gallon – a 5.7 percent decrease from 2005 and the lowest level since 1983.

Local perspective

To illustrate that discrepancy locally, take a look at two of the area’s largest convenience store chains: Rapid Roberts and Cody’s Convenience Stores.

Rob Wilson, who owns 22 Rapid Roberts, said fuel sales account for 75 percent of his revenues but less than 5 percent of his profits. Tom Cook, director of operations for Cody’s, said fuel sales bring in 70 percent of revenues but also less than 5 percent of profits.

“It’s out of proportion with inside sales,” Wilson said. “It’s like a loss leader, anymore. As prices have gone up, the uses have gone down as everyone tightens up. But everybody wants to keep that same volume and that same number of customers coming in, and so that drives down the margin on the street. It’s a very price-sensitive commodity.”

Cook said Cody’s uses signage and coupons at the fuel pumps to drive inside sales.

“Gas is almost a necessary evil that we all live on to drive customers into our stores,” Cook said.

Credit cards add to the crunch, costing convenience stores a 3 percent fee per transaction. Wilson instituted a prepay policy at a quarter of his stores to combat drive-offs, which he said occur daily. With prepay, most consumers use credit cards.

Wilson said smaller convenience store operators are being forced to sell to larger competitors; he’s seen more mergers in the last two years than in the previous eight years combined, he said.

That’s why Cody’s is growing so aggressively. The chain was established in 2002 with a single store in Rogersville and now has 17 locations.

“As we grow, hopefully we can be frugal enough and control our capital expenditures and spread out our costs,” Cook said.

Cook said 30 percent of Cody’s customers shop inside the stores. To increase that number, Cody’s is expanding food offerings, including the chain’s first espresso bar at its 2904 E. Sunshine St. location.[[In-content Ad]]