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Convenience stores adapt to a changing environment

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Henry Armour, president and CEO of the Association for Convenience & Fuel Retailing, visited West Virginia recently. He sat down with The State Journal for a brief conversation on the state of his industry.

 

State of the business

There are 149,000 convenience stores in the United States, up about 2,000 from last year. They do sales of about $700 billion a year, with $501 billion of that being fuel sales. They have 1.9 million employees.

"In many ways a starter job for young people," Armour said.

Last year the industry handled 160 million transactions per day,

"Half the population of the United States comes to a convenience store every day," Armour said. Or, as some in the industry say, "If you haven't been to a convenience store today, you're coming tomorrow."

Even in the recession, the industry set records in sales and number of transactions.

Several chains are breaking the old mold that convenience stores are places to buy gas, ice and cigarettes.

"This has radically changed in the past 10 years," he said.

The trend toward full-service fast food operations and fountain drinks is growing, as is the percentage of in-store sales from prepared food and drinks. Food now accounts for about 25 percent of in-store sales.

 

Entry

"It probably is one of the most entrepreneurial retail channels," Armour said.

There are two models: franchise or independent. A franchise such as 7-Eleven can cost a person about $200,000 to get started. Going the independent route is more expensive.

"People are not saving their way to prosperity in the industry," he said.

Building a modern convenience store can cost a person $1 million for land and $2.5 million to erect and stock the building, he said.

"Because it is not the convenience store of the past. It's the convenient retailing center of the future."

 

Challenges

As with any other industry, the convenience store industry has its challenges. The big one present is the trend toward card swipe fees.

"It is absolutely — we think it is criminal — it is outrageous," he said

The industry paid $11.2 billion in fees last year.

"The credit card companies are making more than the operating companies," Armour said. "It is the second-largest expense in operating a convenience store, behind wages."

Because stores have to make up the money lost to fees somewhere, cash buyers are subsidizing credit buyers, Armour said.

Another problem facing the industry is what Armour calls "demand destruction" as consumers move toward vehicles that are more fuel-efficient.

The future problem is the Affordable Care Act, also known as Obamacare. Because of ACA regulations, stores will move toward fewer full-time employees and more part-timers, Armour said.

"Many companies that had subsidized family premiums, they're doing away with subsidized family premiums. They're doing away with any subsidization of family coverage so they can afford the employee coverage."

And they are reducing benefits for employees, too, he said.