Convenience Matters Intro:
[Music] Welcome to Convenience Matters brought to you by NACS. Whether it’s for food, fuel, drinks or snacks, about half of the U.S. population shops at a convenience store every day. We’ll talk about what we see at stores and what the future may hold for our industry.

Donovan Woods:
Rush hour. You know, for most of my life, I had a pretty good idea of what to expect and when to expect it. But as the pandemic continues to release its stranglehold on the us and the world more vehicles are back on the road. You see students going back to school, we see employees slowly heading back to work and the roads are getting, well, just a little bit busier. However, traffic patterns have changed the morning and evening commute seem to be spread over a longer period of time. And so we’re going to talk about that. We’re gonna talk about the change in transportation patterns, fuel demand, and what the behavior of consumers means for inside sales and your workforce moving forward. Welcome to Convenience Matters. I’m Donovan Woods with the Fuels Institute and NACS and I’m joined today by…

Chris Blasinsky:
Chris Blasinsky with NACS.

Donovan Woods:
Happy to have you here, Chris. And also, you know, Chris Blasinsky. We are joined by our colleague, Christopher Rapanick. He’s the director of business development with NACS and his team handles the premier benchmarking tool, and one that I really like that’s very comprehensive in its collection of data and trends that really every convenience retailer and those associated with the industry should have in their hands. And that’s the NACS State of the Industry Report. Christopher, we’re going to have to differentiate you guys.

Chris Blasinsky:
He’s numbers. He’s numbers. I’m words Chris, he’s numbers Chris.

Chris Rapanick:
I’ll answer to pretty much anything. Thanks for having me, guys. Thanks for letting me join you.

Donovan Woods:
Absolutely, absolutely. And you know, Chris, you guys – NACS – just released the State of the Industry (SOI) Report. And again, I find it fascinating just that you can collect this data and that it’s so useful and so timely when it’s released. Now, I’m sure it was pretty challenging when trying to compare trends to last year, I mean 2020, to past experiences and what we’re looking at today as we move forward. So from your point of view, what was that experience like and what did you see in the data as the country shut down? And honestly, just give us some behind the scenes. How did you guys actually pull this off?

Chris Rapanick:
Sure. So the SOI is essentially all retailer driven. So it comes directly from essentially the retailers financial reports. So as things kind of progressed, as people realized that the pandemic was going to be a real thing, it was probably just one of those like perfect storm situations where kind of everything we expected to see in the data happened. I don’t believe that there’s ever been a national disruption like we had for COVID, typically if you see this type of disruption it’s for a hurricane or a snowstorm or something like that, so it’s relatively regional. So this is the first time that we’ve ever seen national data be affected by something like this. And to be honest with you while I’m a lover of the data, it was very disheartening to see, how things were began to be affected the last half of March and into, especially the second quarter of 2020. All of those things that we were most afraid of kind of happened and cut the lifeblood off of the industry really with inside sales and transactions declining at a super huge rate. So it was definitely one of those things that you’d love to see the data lineup. It just, it was too bad that it was all kind of negative.

Chris Blasinsky:
I think two words ring out when we talk about 2020 and that’s demand destruction, especially when it comes to retail fueling you and I – we- had many conversations early on because we were paying attention to the numbers and seeing how bad things were getting. I mean, some stores were seventy-five percent less volume. It was scary. I mean, it was really a nerve-wracking time. Fortunately the industry did start to bounce back towards the end of the year. We can maybe talk a little bit about where we are today. ‘Cause I think we like to have 2020 in the rear view mirror at this point, it’s a comfortable place to see it. But you know, there’s a lot of lessons learned, but heading into where we are now, we’re heading into that third, fourth quarter time. What do things look like now? How have we have we bounced back?

Chris Rapanick:
So first, kind of an angle on that question and kind of back to what Donovan mentioned. I think the general practice has been people just kind of tossed out 2020 and are comparing ’21 to ’19. And those comparisons are starting to line up a little bit better than they had. But with that being said, if you want to kind of look at those numbers 21 versus 20 as you probably would expect when we got through that second half of March and things started to kind of kick in in April, it’s unbelievable. I mean, the CSX sample is showing us double-digit increases in food service. In some cases, a couple of the days I’ve seen triple digit increases in fuel sales. And typically the general response is that, well, of course it’s a lot better because April of 2020 was just so bad and that’s definitely the case. But the idea I believe for this industry is going to be from April until July. And that’s kind of going to be where we determine how this year looks. If we’re able to deliver – and when I say we, I mean retailers, not me personally – but if the industry is able to deliver these kinds of gains that we’re seeing in April and now early May, which is the most recent data set we have available in CSX, then I believe that the year is going to be good. The whole point is that we need just huge loads of gross profit dollars to kind of cycle those fuel margins from last year. So we need food service to be 50% up and we need inside sales to be 15% up or what have you. So I believe that’s going to be the question. I think we’re going to know in July to be quite honest with you, how this year is going to finish up and if it stays on track, like it is, I think everyone’s going to be super happy with how it ends. And what kind of testament is that to the industry when you think about probably the two worst years that you could be in business in this country or any country for that matter and it’s turned out, in some cases, to be a record 2020 for lots of companies and possibly a really solid ’21 to back it up. It’s pretty exciting.

Donovan Woods:
Interesting, interesting. You know, Chris Blasinsky, you mentioned a word that I want to just go back to a little bit and maybe Christopher, you could kind of expound on this a little bit. That the term demand destruction from my point of view, from the Fuels Institute, you know, we’re looking at the outside the store and we’re looking at whatever that demand was…not even just reduced, the word destruction means it’s completely changed. It’s gone. What does demand destruction really mean for inside, outside? Where did you see it really having an impact?

Chris Rapanick:
Well, the industry got pretty lucky, I would say when it comes to the merchandise side of inside, inside sales, we define this as merchandise and food service sales. So the idea for merchandise is that consumers still came into the stores to buy beer, to buy cigarettes, to buy snacks, in some cases also to buy bleach or soap or masks for that matter because in some cases, convenience stores were the only place that had them, and then in other places or other situations people didn’t want to go to a grocery store and stand in line or go to a big box store and find that they were out of all the things that they needed anyway. So the industry benefited in that fact that people bought larger packs of beer than they might normally buy. They bought more like take-home things and that kind of worked out well, as far as merchandise goes. On the other side, and this goes back to that kind of demand destruction piece, is that the foodservice business, which really drives profits on the inside, basically shut down. And what I mean by shut down, I mean, like people were not able to serve coffee or their fountain units were closed.

Chris Blasinsky:
Like literally shut down. {laughter}

Chris Rapanick:
Some of the larger companies that have a little bit more developed foodservice programs were able to do like the barista thing for coffee. The fountain business was still kind of out, but when we first started locking down, people were scared of eating out or seeing things that they weren’t familiar with. And, nobody wanted to grab a cup of coffee and pour it from a pot that you don’t know who the last person poured from was. So in between regulation number one, and number two, just consumer preference or consumer fear in this case foodservice was done in a kind of stayed that way. Really through May and into June come July, the prepared food business got a little bit better. And we saw that in some of the QSRs too, because people kind of develop the confidence in the fact that it was being made onsite. And there were obviously a lot of regulations and processes in place to stay clean. But still even now we’re just now seeing dispense beverages come back into where they would have been like 2019. So definitely demand destruction was just illustrated in foodservice.

Chris Blasinsky:
Yeah, I remember talking to Derek Gaskins of Yesway early on and we had conversations around what’s going to happen, what’s it gonna look like? And of course we don’t have that crystal ball necessarily. But you know, he’s a big proponent of how the industry is resilient and flexible. And some of the things that Yesway did along with other retailers was they went to crew served foodservice where it wasn’t just let’s just hang it up. But they, they relied on the instore employees and staff literally making the coffee for someone, making the fountain sodas and things like that. They didn’t give up on roller. They had the crew serve it, stuff that was normally in a bakery case with packaged. And in some instances, customers actually preferred that. They could just grab it already wrapped up nice and neat in the plastic or the plastic bag, and just be on their way. So I think I tip my hat to the retailers who really did whatever it took to continue meeting customers needs. And it’s, like you said, it’s going to be really, really interesting when we get to the State of the Industry Summit next year to see just how far this industry {indiscernible}.

Chris Rapanick:
It’s amazing how fast people reacted to it. And again, there are a ton of smart people here that work in this industry that I would say that probably 90% of them never thought what’s going to happen in the pandemic, but amazing how fast those changes were made to go to curbside or go to an app that people could order in. It’s just such a testament to the folks that are working in this industry. It’s amazing to me.

Donovan Woods:
You know, I thought, Chris, in terms of what you’re saying in terms of the fear of what was happening to say, a fountain beverage – who touched it last, things like that. But as from the consumer hat, I have two favorite stores are here in the Northern Virginia region of the state. And the moment I felt safer probably around May, June of 2020, to go kind of back out. And I was kind of getting sick of being at home and having things just delivered to me. It was nice to go into a smaller footprint place instead of a grocery store, because there were less people there and those stores had things like you said, pre-packaged even if it was just a bag of my favorite chips, it was already pre-packaged, and it always has been a…how do I say this…it’s a clean environment in most of these stores I’m thinking of, so I felt safe visually walking in. And I think that has a major impact on what people perceive as being safe.

Chris Rapanick:
Oh, totally agree. And it’s interesting to me too, that probably at the height of the pandemic, that you could go through your local shopping area or whatever, and see all of the QSRs with lines backed up for the drive-thru out into the street, and then you would see a convenience store on .that next corner that had pretty good food offer that didn’t have that. I think that probably historically people have thought a drive-thru was a waste of money in convenience, and now there’s Wawa that has specific drive-thru units now. I think that was one of the big things that caught us all off guard. But you know, back to that whole are you, do you feel safe or whatever? I think that people actually felt safer not seeing their food prepared, like the drive-thru of a QSR versus watching someone make their sandwich which is completely foreign to me.

Donovan Woods:
It’s terrifying we…

Chris Rapanick:
You have no idea what’s going on behind that window.

Chris Rapanick:
Just try to pretend like it’s not there and just try to close your eyes. It’s not happening. It’s not happening.

Chris Blasinsky:
You need X-Ray vision. {laughter}.

Donovan Woods:
No, no, I don’t want to know. {laughter} So, Christopher, I have to put my Fuels Institute hat back on a little bit and talk about the travel patterns and this kind of, isn’t just about fuel demand, but also inside the store and things like that. Were there parts of the country that you saw, for example, vehicle miles traveled definitely dropped in 2020, but then towards the end you started seeing it trend back towards normal. And then now in 2021, we’re definitely seeing more cars on the road. Maybe not the same time of day as usual, what we’re used to, but how has that actually affected the stores themselves? I know it’s regional and I know things are different, but could you kind of give us an overview of what you’re seeing in terms of foot traffic and people coming in stores, or even just coming to refuel and what time of day what’s that look like?

Chris Rapanick:
That morning day part, the breakfast commute, more people were coming in to get coffee, obviously that was affected the most. That lunchtime kind of stayed pretty steady. And then the evening day part actually developed a little bit of new business because a lot of folks were buying dinner to take home. And then the late night thing, I think that you guys probably saw this as well, during the height of the pandemic, there was no one out in my town at like eight o’clock at night, because number one, there’s nothing to do, but everyone was just weird that way, for sure. So you know, that late night where all of us have snuck into a convenience store after a concert or whatever, looking for a snack or a drink that kind of went away. So it was definitely…all of the business was compressed from let’s call it 9:00 AM through eight o’clock that night. And in some cases retailers had to make the decision to not stay open their normal hours because there just was no business for them. So that’s definitely something that’s coming back as people go to work in school. And there were regions that were more impacted than others. And I’m not gonna pick on someone’s decision on how hard or fast to, to lock down, but the Northeast, number one super strong in foodservice, so that business went away pretty quickly. And then number two, their lockdowns were so much worse than, let’s say the South-Central Region, which would be like Texas and Oklahoma. So with that be and said, absolutely, some regions took it tougher than others. If you look at the West – a lot of the business in the west is fuel gallons – and you know those guys definitely were locked down pretty hard, so it was just like devoid of any business. And those guys out west really struggled. They don’t have an established foodservice business as it is, so they didn’t lose theirs, but what they are used to doing as far as foodservice goes was essentially down to zero. So certainly I think it’s based on number one, how intense the lockdowns were and number two you know, what the expectation is for a convenience store. And if you look at some of our member retailers out in the Midwest area in some cases, those are the grocery store for a community. And obviously they were delivering the goods…”delivering the goods” {laughter} for things like produce and things like that that you may not be able to find elsewhere or in some cases, didn’t want to stand in that line. So, yeah, I think that it all depends. Now the good news is, as you know, we’ve talked a little bit about how the business looks, but transaction counts through April of ’21 have now surpassed the level of 2019. So if, again, if we kind of keep this pace, it’s going to be really good, but you know, you guys probably remember it’s been – and Chris could probably call me on this actual number – but it’s probably been three or four years in a row that transaction counts have declined in the industry. So not only now, are we beating kind of a softball pitch in 2020, but we’ve also surpassed 2019. So that’s nothing but good news. And again, keeping them at minimum, it’s going to be huge for this period until July, for sure.

Chris Blasinsky:
Historically you’re right, that the transaction counts have been down for several years now, but what was interesting with 2020 is that the basket size was up something like 18.4%, like something pretty, pretty significant. I don’t know if that’s a lasting…if that’s like a blip in the matrix for 2020 kind of thing, or how that is going to carry on.

Chris Rapanick:
So I’ve discussed this pretty heavily on this basket size thing. You know, I think that we can probably all agree that a portion of it was people spending more because they got two packs of smokes versus one, because they didn’t want to come back out again or back to that larger pack size and beer. But good news is that in ’21, we started out January and February with a $9 basket size. So the average for 2020 was $7.34, the highest it had ever been. So anyway, we started off really hot in January and February of ’21. And I personally was like, oh my gosh, we’re going to be able to not only keep this increase, but we may do better. And then of course, March, it kind of declined a little bit, but we’re still considerably ahead of 2020. And when you look at 2020 being a record year, there’s nothing even close. So if we happen to keep, I believe a basket size at like $7.25 or maybe $7.10, it would still be a huge increase in business for retailers as transaction counts come back because that was really a function of this whole basket size is that we did more in sales, but considerably fewer transactions.

Donovan Woods:
Got it.

Chris Blasinsky:
Yeah. We’ve definitely had some conversations over the months so far around. We’re talking about the industry bouncing back and this isn’t isolated to us. There is a labor issue going on right now. And as businesses are trying to come back and the customers are ready. They’re free at last. I’m taking the mask off and I’m going into the store; I’m going to the restaurants; I’m going to the bars. And they don’t have enough people to staff the locations. So that’s a tough, double-edged sword there.

Chris Rapanick:
For sure. You know, I don’t necessarily play into the whole Federal Government being a competitor and things like that because I don’t know what the details of someone’s life is, why they’re not going back to work. But it’s pretty clear that there are a bunch of people that have not decided to go back to work yet. And you know, this just really amplifies what convenience has kind of been dealing with for certainly the last few years is that, I believe, that a job in the convenience industry is probably not the most glamorous and most people or some people may think that it’s not necessarily…it may be below them. But you know, what I think most people don’t understand is, Is that this is an industry that you can move up very quickly, if for no other reason – because the turnover’s 120% every year. And look at some of the companies that are operating now that are really, really good employers you know, Sheetz or say, a Cumberland Farms. Those guys appear regularly in the top places to work kind of surveys or polls. You know, how awesome is it that someone starts work at QuikTrip and retires there. It’s amazing to me how some people think, “hey, this is not a great place to work,” but I think that if you’re willing to kind of stick it out, and this is maybe a little bit more of an older kind of thought process that folks that are my age may have had, but if you get in there and you do the hard stuff and you show that you’re a good employee, I believe that there’s room to move up. And I would guarantee that there’s plenty of room to move up in the convenience industry. So definitely something for people to think about, I think .

Donovan Woods:
Absolutely, absolutely. You know, I don’t think any of us want to relive 2020 for numerous reasons. And, I’m glad that we’re all here to be able to reflect on it. I think that’s a blessing in itself to be able to reflect on everything we’re seeing and what we can learn from that. Christopher, is there a place that you would recommend we can go and just pick up the SOI? How do we get that?

Chris Rapanick:
Certainly. So going forward, if you’re a retailer and you have not participated in the SOI data submission process, I suggest that you do that because you’ll get a couple of complimentary licenses to view the data. Suppliers and other NACS members that are not able to participate, you can go onto convenience.org and click on the Research Solutions tab at the top and that should take you right to the entire State of the Industry enterprise, where you can find historical SOI reports, as well as our Compensation Survey that we do annually as well.

Donovan Woods:
Thank you very much. And you know, for all of you who aren’t sure what SOI stood for, I should have actually said that as the acronym stands for State of the Industry.

Chris Blasinsky:
We like acronyms here. {laughter}.

New Speaker:
{Indiscernible chatter}

Chris Rapanick:
I believe your original introduction did say State of the Industry there, Donovan. So I appreciate that because I do the same thing. I say SOI about a million times a day.

Chris Blasinsky:
So Words Chris will say that once you say it in full, you can use the acronym after that.

Chris Rapanick:
That’s exactly what Words Chris would say. And we appreciate that.

Donovan Woods:
She’s a very kind editor. Yes, yes, yes.

Chris Rapanick:
And I will stop talking in the third person. {laughter}

Donovan Woods:
She’s very important to herself. Yes, yes, yes. No, no. And thank you again, Chris, for being here as well as you, Chris Blasinsky, for co-hosting with me and thank everyone else for listening and keep in mind if you’re a retailer listening you really can’t make decisions on the future until you look at what has happened in the past to kind of have some basis. And I truly encourage you, and I’m not just saying that because I work here, but I truly encourage you to find where you can find the best data and to find the most accurate information about your industry, the convenience industry. So take a look at the State of the Industry Report. And again, you can get that on convenience.org under the Research section. And again, thank you again, guys, for being here. And we thank you for listening to Convenience Matters.

Convenience Matters Outro:
Convenience Matters is brought to you by NACS and produced in partnership with Human Factor. For more information, visit convenience.org.