Jeff Ernst, a package delivery driver, stopped at Gretna’s Kum & Go gas station Monday for the fuel he’d need for his day’s run: a sausage-and-egg croissant sandwich for breakfast, a king-size Reese’s Peanut Butter Cup for a snack, and a 44-ounce Diet Mountain Dew he said would last him all day.
Customers like Ernst, 58, are a big reason convenience stores are on a profitable run.
Gasoline is still the top source of sales at convenience stores, but food — especially prepared food like Ernst’s hot sandwich — has the highest profit margins, and store operators are revamping stores to sell more of it.
The convenience store industry set a record for in-store sales — or sales not including fuel — last year, up 3.2 percent to $233 billion, the National Association of Convenience Stores said. The industry also achieved its third straight year of pretax profits over $10 billion, though profits didn’t top 2015’s.
The strong run comes despite low gas prices. Fuel sales fell more than 9 percent last year, with the average gallon of gas down to $2.17 from $2.44 in 2015. That dragged down total industry sales; those fell 4.3 percent. Still, slimmer fuel margins didn’t dent profits. Gross fuel profit increased thanks to increased volume.
C-store operators expect 2017 to be another good year, the industry group said, though for some operators, including Iowa’s Casey’s, the fast pace of growth has slowed.
The industry’s optimism comes as American drivers have turned to gas-guzzling SUVs and pickups and are making more visits to gas stations. Paying less for gas frees up cash these consumers can spend on coffee, pizza and pop.
Consumers are also doing more of their total food shopping in what the industry calls “quick trips,” not well-planned “stock-up trips,” researchers say, and are inclined to pop into a convenience store for basics like milk, bread and eggs. Some gas station operators are even cashing in on the convenience food trend by opening stores with no fuel pumps.
Omaha operators have been revamping their stores to capture the growth, and more new stores are planned.
Iowa chain Kum & Go will open the first Nebraska location of its Marketplace concept store in Omaha this year, at 72nd and Pacific Streets. A second location may be on the way: building permits indicate a similar store is set for 180th and Burt Streets, but a company spokeswoman said she couldn’t confirm any plans.
The Marketplace stores are bigger than traditional gas stations at 6,000 square feet and up, and put the focus on food. Like at the remodeled Gretna store, an open kitchen is the first thing a customer sees when he walks in. Kum & Go also recently revamped its pizza recipe to better compete with chains like Casey’s and Oklahoma-based QuikTrip. Both of those heavily promote their pizza and allow customers to order pizza through an app.
At the Gretna Kum & Go, the changes are working.
A rush around 8:30 a.m. Monday brought in dozens of people, almost all of them men on their way to work in blue-collar jobs. Their trucks and shirts advertised their fields: plumbing, lawn care, carpet cleaning, basement remodeling, moving, electrical work.
When they walked into the store, setting off an electronic “bing bong” doorbell tone, some propped their sunglasses on the brims of their ball caps to better survey the selection: breakfast pizza, doughnuts, biscuit sandwiches, protein drinks, Gatorade and pop.
Bud Landolt, 30, was headed to Lincoln on a commercial heating and air conditioning job. He grabbed a slice of pizza topped with scrambled eggs and sausage in a triangle-shaped paper tray. He said he likes other gas stations’ pizza.
“I haven’t had it here, but I’ll give it a shot,” he said.
Dan Martinez, 50, a land surveyor, paid for a croissant breakfast sandwich in a clear plastic container. He had packed some fruit, but was tempted at the store to buy more food.
“I’m like, my stomach’s grumbling, and it’s fast,” he said.
Colton Anderson, 23, a Caterpillar mechanic with a pair of pliers on his belt, chose a foil-wrapped breakfast burrito, then grabbed a Mountain Dew Kickstart, then went back for a second burrito.
Store manager Dennis Bliss followed the rush of customers with a wet mop, cleaning up the chunks of mud that fell from the men’s work boots. He didn’t mind. Sales are up “tremendously” since the store remodel put food front and center.
“They always start at the food,” Bliss said.
Behind the counter of the open kitchen, food service manager Kim Mackstaller and her assistant, Michaela Ciechomski, hustled to assemble the pizzas and sandwiches out of ingredients like frozen sausage patties and processed nacho cheese. It wasn’t really homemade, but it felt that way to Jon Vaughn, 20, whose job is to change tires on semi trucks out on the Interstate.
“I’m not a fan of fast food,” Vaughn said.
He comes to Kum & Go four times a week and usually gets the sausage, egg and cheese croissant.
“Everything’s cooked here,” he said.
Kum & Go competitors Bucky’s, QuikTrip, Casey’s and Cubby’s stores also have added or expanded their kitchens and food offerings in the past few years.
The investment in new stores and bigger square footage is a bright spot in bricks-and-mortar retailing. Clothing retailers are filing for bankruptcy on a near-weekly basis this year, including Omaha’s Gordmans. Other retailers, like Kmart, J.C. Penney and Sears, are closing hundreds of locations.
And traditional grocery retailers have slowed new-store growth while struggling to turn a profit. They’ve slashed prices and seen margins erode as food prices have fallen. Restaurants are expecting dampened sales growth this year, especially in traditional full-service restaurants and buffets.
But for convenience stores, food service is an increasingly important part of profits. It grew from less than a quarter of gross profits in 2010 to more than a third last year — even though it makes up only 22 percent of sales, the industry association said. Tobacco is getting less profitable, especially cigarettes. Tobacco accounts for 36 percent of sales, but just 18 percent of profits.
Cubby’s, which has 36 stores and will add another in Iowa this year, offers full meal specials: lasagna on Mondays, tenderloin on Tuesdays, and so forth.
“We don’t like to go into a store now unless we can do our full line of food service,” Cubby’s President De Lone Wilson said. “Fuel is still the main thing, but the food supplements it nicely.”
Casey’s has been building and remodeling stores in part to capture food-service growth, although the company said this spring that comparable-store growth of prepared food is sliding. In recent quarters, same-store food-service growth has been under 6 percent; two years ago it was over 11 percent.
The company’s chief executive, Terry Handley, blamed the trend on trouble in the agriculture economy and on falling grocery store prices keeping customers home. Adding pizza delivery services to more Casey’s stores is one effort to increase sales, he told stock analysts in March.
It’s not as hot as hot food, but there is also growth for convenience stores in packaged snacks like sunflower seeds, jerky, bars and candy. Packaged food makers are rushing to develop new products to sell in these stores, and to acquire small manufacturers of these products.
Mondelez, the maker of Oreo cookies, sees convenience stores as a high-growth sales channel. The company is responding by launching new snacks this year, like the Véa line of crackers and bars, and single-serve packs of Ritz crackers, Chief Executive Irene Rosenfeld told food industry analysts at a February conference. Snacks have higher profit margins and growth potential, she said.
Kellogg Co., best known for cereal, now has half its business in snacks, including Cheez-Its and Pringles.
The company is rolling out new formats of classic cookies, crackers and snacks in on-the-go packaging, Deanie Elsner, president of Kellogg’s snacking business, said at the conference.
“That’s the way the consumer is consuming today,” Elsner said.