Convenience store sales climbed 20.2 percent to reach a record $474.3 billion in 2005, the third straight year of revenue growth of at least 16 percent, according to the 2005 State of the Industry report released by the National Association of Convenience Stores.

The industry’s numbers are based on a survey of convenience and petroleum retailers that cumulatively represent more than 21,000 U.S. retail locations.

In-store revenues grew an overall 9.6 percent to $144.8 billion, with merchandise revenues rising 9.7 percent and foodservice revenues growing 8.8 percent. On a per-store basis, combined in-store sales topped $1 million per store for the first time in history, reaching $1.036 million per store.

Strong sales growth also led to a strong increase in profits before taxes for the industry; overall industry profits jumped 17.1 percent to $5.84 billion, the third straight annual increase in pretax profits.

Credit card fees outpace profits growth
While overall industry profits showed a strong increase of $0.84 billion in 2005, credit card fees increased to an even greater extent. Overall, credit card fees in 2005 cost the industry $5.3 billion, a staggering 39.5 percent increase over the $3.8 billion in fees in 2004.

In 2005, credit card fees accounted for 7.8 percent of all gross margin dollars, up from 6.1 percent in 2004 and 5.8 percent in 2003. Only labor costs and rent exceeded credit card fees in 2005, but the gap between rent and credit card fees narrowed from 3.9 percentage points to 2.1 percentage points.

In examining the impact on motor fuels, credit card fees contributed an estimated 3.7 cents per gallon sold in 2005, including purchases paid for with cash. And, as wholesale gasoline prices have remained at elevated levels, the problem of increasing credit card fees is expected to be significantly worse in 2006, since total fees increase as prices rise, while at the same time more customers use plastic to pay for the higher cost of fuel.

Industry sales nearly double over the past three years, outpace other channels.

The nearly $80 billion increase in sales dollars over the $394.7 billion reported in 2004 continues three strong years of industry sales growth. In 2002, industry sales stood at $290.6 billion, and industry motor fuels sales were $181.3 billion as gasoline prices averaged $1.40 per gallon. In 2005, gasoline prices averaged $2.31, according to NACS data.

What is impressive is that the industry grew in-store sales by a strong 9.6 percent to reach $144.8 billion. Even after factoring in a 1.8 percent increase in the number of convenience stores and an overall increase of the consumer price index of 3.4 percent, the convenience store industry’s in-store sales clearly demonstrated real growth for the third straight year.

Moreover, the 9.6 percent increase in in-store sales surpassed that of virtually every other competing channel, according to U.S. Department of Commerce data. The only channel that saw growth surpass that of the convenience store industry was warehouse clubs/superstores, which grew 12.2 percent. Overall retail sales climbed 7.2 percent, and other competing channels didn’t match that level, including restaurants (7.2 percent increase), drug stores (6.0 percent increase), grocery stores (4.1 percent increase) and discount department stores (0.1 percent decrease).

Cigarettes top in-store category
Once again, cigarettes dominated in-store sales, accounting for more than one in every three dollars spent in stores. The top 10 categories in terms of percent of in-store sales were:
1    Cigarettes (34.4 percent of in-store sales)
2    Packaged beverages (13.3 percent)
3    Foodservice (11.9 percent) **
4    Beer (11.7 percent – but 14.3 percent when only considering stores selling beer)
5    Other tobacco products (3.8 percent)
6    Candy (3.6 percent)
7    Salty snacks (3.2 percent)
8    General merchandise (2.3 percent)
9    Fluid milk (2.2 percent)
10 Packaged sweet snacks (1.9 percent)

**Includes food prepared on site, commissary/packaged sandwiches and hot, cold and frozen dispensed beverages

Cumulatively, the top 10 categories accounted for more than 88 percent of all in-store sales. Of the top 10, packaged beverages, other tobacco products, general merchandise and packaged sweet snacks all gained in terms of percentage of overall sales.

In looking at top contributors to in-store gross margin dollars, cigarettes also topped the list, but with a far smaller percentage contribution: 18.5 percent. Also ranking in the top 10 were packaged beverages (13.4 percent), foodservice prepared onsite (9.5 percent), beer (7.4 percent), hot dispensed beverages (7.3 percent), candy (4.7 percent), cold dispensed beverages (3.7 percent), lottery and lotto commissions (3.6 percent), ATM income (3.4 percent) and salty snacks (3.0 percent). Cumulatively, items included in the foodservice category grew 30.4 percent to reach $10.3 billion, 23.7 percent of all in-store gross margin dollars.

Among the subcategories that showed the strongest sales growth were automotive products (85.7 percent increase), prepaid cards (68.5 percent), alternative snacks (49.2 percent increase) and a number of beverages, including alternative beverages (36.5 percent increase), bottled water (13.5 percent increase) and sports drinks (13.3 percent).

Complete 2006 SOI Report
The complete NACS 2006 State of the Industry report will be available in June and may be ordered by contacting NACS at (800) 966-NACS or www.nacsonline.com and click on “Shop.”

The SOI report will feature exclusive analysis on the trends and issues driving the industry’s performance in 2005. In addition to a focus on financial performance, store operations, store development and top quartile at the firm level, it will also provide unique cuts of the data at store level, same-store, and regional basis, and even by quartile to study top performers.