Economic uncertainty is causing retailers to be cautious as they plan for the upcoming year, but investments in technology, social media and foodservice appear to be expanding.
By David Bishop, Contributing Editor.
The outlook for 2012 depends largely on the focus of the question. What is clear based on the CSD/Balvor 2012 Convenience Retail Outlook Survey is that the macro environment will remain challenging, while the forecast for the industry and specific retailers is much more positive.
Just as there are many different factors impacting the business going into the year, the strategies that retailers are pursuing is nearly as varied. The goal of the survey was to examine where convenience retailers will most likely concentrate efforts in 2012 across a range of topics, including fuel rewards programs, use of social media and strategic focus with foodservice and merchandise.
The survey shows a higher percentage of retailers have a negative outlook for this year. The current sentiment represents a sizable shift as the net outlook score, which measures the difference between optimistic and pessimistic view, is 20 points lower than when retailers started off last year. This dramatic downgrade illustrates a growing concern that there are still tougher times ahead for the economy.
This change in outlook actually pales in comparison to the view now held by consumers, based on an analysis of year-over-year results from Fannie Mae’s monthly survey. What’s startling is that 75% of the population today has a negative outlook for the U.S. economy, which is a 15-point increase versus last year.
The observation has been made numerous times that convenience retailers are more resistant to recessionary pressures. This may help explain why retailers have a positive outlook for their business this year as compared to when entering 2011.
The net outlook score for a retailer’s own company remains extremely high, at 83% currently, indicating that most retailers—or at least those surveyed—believe their companies are well positioned to outperform the broader market, or at least their competitors, in 2012.
That national retail price for regular gasoline averaged $3.54 in 2011 and remained above the $3 price level throughout the year. Given the impact that these elevated retail prices have on consumer expenditures, it’s no surprise that consumers are responsive to retail deals that provide some economic relief at the fuel pump.
As a result of the higher retail fuel prices, the average U.S. household spent $650 more on motor fuel purchases in 2011 versus 2010, according to Balvor estimates.
Looking back two years, consumers paid almost an additional $1,000 to fuel up in 2011 as compared to 2009 when the average price per gallon was $1.20 less, so the impact is real and significant.
Part of the reason that consumers express such a gloomy view for the future is that household income hasn’t kept up at all with inflation.
The Fannie Mae survey highlights that 18% of households report lower incomes versus 12 months ago while another 66% indicate income is about the same.
These insights haven’t been lost on convenience retailers as 30% of convenience retailers surveyed currently provide a “cents-off-per-gallon” discount program in exchange for using a certain methods of payment. This is a 12-point increase in the number of retailers who offer such a program as compared to just two years ago when 18% of convenience retailers offered such programs.
About 14% of the retailers offer reward-based programs that can translate into even larger savings per gallon, depending on the points earned. Although some midsized retailers do offer this type of program, it still skews toward larger store operators.
Protecting the motor fuel business remains a top priority for convenience retailers in 2012. The importance of doing so may explain why more than three-quarters of the retailers surveyed are concerned with the impact that competitive discount or reward programs may have on their business performance.
Inside dollar sales are expected to grow approximately 3.6% in 2012. Foodservice appears ready to gain a larger share of the in-store business as the sales targets estimate a 4.7% gain this year while retailers anticipate that merchandise categories will grow 3.4% during the same time period.
Retailers are becoming slightly less positive about the foodservice business this year as the net outlook score declined by 5 percentage points to 67 points. Higher cost of goods and increased competition are two key factors weighing on most retailers’ bottom line today.
In fact, even with skyrocketing commodity costs that show no sign of reversing in the near-term, only 13% have raised hot coffee prices recently with another 10% indicating that they’re extremely likely to do so this year. However, just over 10% have reduced margin pressure while still remaining price competitive by introducing a smaller cup size to their program.
What’s evident is that more retailers are investing in upgrading hot dispensed beverage equipment, which 36% have either already completed upgrading before 2012 or are extremely likely to upgrade during the next 12 months.
Looking at the merchandise side, 71% of the retailers are positive about the prospects for merchandise in 2012, up six points versus last year.
Adding new products or leveraging multi-vendor displays tops the list with 23% and 22% of retailers having added or being extremely likely to add this year, respectively.
Even though just 13% of the retailers are increasing focus on private label programs this year, larger retailers are leveraging their scale to build this part of the business. Retailers operating 51 or more stores are more than 2.5 times more likely to be pursuing this strategy as compared to the average.
Whether it is text messaging, social media sites, or any number of communication platforms, reaching consumers off-site is rapidly changing these days.
Facebook is second only to Websites today and its role will continue to grow as nearly 60% of all c-store retailers plan to increase the use of Facebook in 2012, according to the CSD/Balvor survey. Midsized retailers, those with 51 to 200 stores, are the most likely to expand their Facebook activity this year.
Text messaging and e-mail marketing are also both experiencing strong usage growth as convenience retailers are increasing the use of each 43 and 46% respectively. Retailers operating 11 to 50 stores are the most likely to leverage texting more while retailers with 200 or more stores are the most likely to increase e-mail marketing campaigns in 2012.
Expect to see a dramatic rise in the number of retailers using social media to promote hot beverages. For instance, 10% of the retailers indicate that they are already doing this and another 26% said this is something that they’re extremely likely to launch this year.
Convenience retail continues to demonstrate its ability to resist many of the downtrends associated with recessionary times.
This track record is likely why the outlook for the industry in 2012 is up 7 points versus last year at this time with 78% of the retailers expressing optimism as they understand the value that convenience retailers can deliver to today’s consumer.
That outlook is driven by a relentless focus on finding ways to offer greater consumer value both inside the store and at the pump.
Much of the value is being created by the retailer’s willingness to reinvest in the business in ways that enhance the current offering and as a result encourage more consumers to spend a greater share of their wallet at convenience stores.
Insights from the CSD/Balvor 2012 Convenience Retail Outlook Survey are based on a total of 155 convenience store operators, representing more than 21,000 stores. Retailers completed the online survey between Oct. 25 and Nov. 4, 2011.