gss_ex10-3.htm


    
      June 01,
2009

       

       

      Tracking
The Trends

       

      It
was wild ride for the nation's convenience stores in 2008, but despite the
stagnant economy and unprecedented fuel prices, industry profits held
strong.

       

      By CSD
Staff

       

      An
otherwise tough year for convenience stores was balanced out by strong retail
fuel margins from the unprecedented drop in wholesale fuels prices during the
fourth quarter of 2008, according to National Association of Convenience Stores’
(NACS) 2009 State of the Industry report. However, credit card fees continue to
take a toll on industry profitability. 



       

      Overall
convenience store industry profits rose 54% in 2008 to reach $5.2 billion,
reversing a two-year decline where profits dropped 42% over that period.
Industry sales jumped 8.1% to reach $624.1 billion, with both motor fuels sales
(up 10.1% to $450.2 billion) and in-store sales (up 3.2% to $173.9 billion) showing
growth.

       


      The
growth of in-store sales defied the overall trend in U.S. retail sales, which
fell 0.6% based on U.S. Department of Commerce data. It also came despite a rare
decline in the number of convenience stores, NACS reported. For only the third
time in the past 15 years, the industry store count fell 1% to 144,875, as many
stores closed because of the punishing economic conditions and record-low motor
fuels margins the industry faced during the first three quarters of
2008.

       


      The
convenience store industry sells an estimated 80% of the fuels purchased in the
U.S., and motor fuels sales continue to dominate industry revenues, accounting
for 74.5% of all sales dollars, in examining same-firm sales data. However,
overall fuel gallons sold declined 2.4%, according to NACS. Meanwhile because of
low gross margins on fuel (5.7%), only 31.7% of all profit dollars came from
fuels sales. 


      Credit
card fees continue to be the industry’s top pain point, surging another 10.5% in
2008 to reach a record $8.4 billion—-nearly three times the level just five
years ago.

       


      In-Store
Performance

      Once
again, cigarettes dominated in-store sales, accounting for nearly one in every
three dollars spent in stores, but cigarette gross margins continued to plummet,
falling to 15.3%. These low cigarette margins dropped the category to third in
terms of gross margin contribution. Meanwhile, foodservice, which includes
dispensed beverages and food prepared on site, continues to show strong growth,
accounting for nearly one in four in-store profit dollars.

       

      
        	 
      	 
      	
                As of the end of 2008, the number of locations now
      stands at 144,875 stores, a 1% decline from 2007.

                U.S. Convenience stores (as of
      12/31/08): 

                2008:
      144,875

                2007:
      146,294

                2006:
      145,119

                2005:
      140,655

                2004:
      138,205

                For
      just the third time in the last 15 years the industry’s store count
      decreased. The count also declined in 1994 and 2003.

              	 
      
	 
      	 
      	
                 

                TOP
      STATES FOR

                CONVENIENCE
      STORES

                (as
      of 12/31/08): 

                Texas:
      14,112 stores

                California:
      10,298

                Florida:
      9,303

                New
      York: 7,580

                Georgia:
      6,320

                North
      Carolina: 6,130

                Ohio:
      5,149

                Michigan:
      4,824

                Illinois:
      4,541

                Virginia:
      4,487 

                The
      bottom three states are Alaska (198 stores), Delaware (315) and Wyoming
      (350).

              
	 
      	
                 

                Nearly
      75% of in-store sales were from the top five categories:   •
      Cigarettes, 32.7% of in-store sales • Packaged beverages, 14.1% •
      Foodservice, 13.9% • Beer, 10.2% • Other tobacco products,
      3.9%

              
	
                 

                Nearly
      70% of gross margin dollars were from the top five categories, NACS
      REPORTED:   • Foodservice, 23.9% • Packaged bevs, 16.6% • Cigarettes,
      16% • Beer, 6.9% • Candy, 4.8%