Chris Rapanick:
Yeah, absolutely. So we’ve got a really good sample up through the first half of 2022. Obviously there are some things that have been on people’s minds, probably fuel price would be the number one. The second for retailers is probably direct operating expenses again this year, definitely seeing continued growth there. As folks are probably aware, when fuel prices increase, card fees go through the roof and we’re definitely experiencing that. Repairs and maintenance and utilities are following that as well. The labor issues continue for retailers, turnover is extremely high. Towards the first half of the year, we started seeing transaction counts on the inside decline.

Chris Rapanick:
When we got into $5 gas in May and June, folks stopped going into the stores. So we’re seeing declines of 2% or 3% versus 2021 and closer to 7% versus 2019, which we’ve been using as a benchmark. So a similar story, a different year. There are a few good things that we’ve seen. Baskets are still holding pretty steady so there is an increase in total for inside sales. Some of it we think is certainly driven by inflation, but baskets are holding steady. Fuel margins are actually really good this year, so there’s an improvement over 2021, which most people probably didn’t expect to see. And as an overall statement, I believe that we’ll carry through the year as profitable again, and probably have some improvement in profitability for the year, assuming that things stay basically as they are now. So, not so great news, but some things that aren’t so bad as well.

Chris Blasinsky:
Going back to fuels for a second, you’ve been saying now for a little bit that you don’t think fuel volumes will get back to pre-COVID levels. I imagine that will probably hold true for this year as well.

Chris Rapanick:
There’s a couple of different things that we can look at. We use our CSX database for our main benchmarking purposes and through the first half of the year, our CSX participants are flat or pretty close to flat. That’s pretty amazing in terms of fuel volumes. We also use data from one of our partners, OPIS, and they’re showing about 2.5% down in volumes for the same timeframe. So, their samples a little bit larger than ours and does include some of the smaller operators that may not be doing as well. But overall, yes, I would say that probably we’ll never see 2019 volumes again, and that carries over into a lot of other things. I believe that 2019, although we used that as a good benchmark at the NACS State of the Industry Summit this year, I believe that we probably as an industry should probably let 2019 go and start again in 2021 and use that to build on going forward. But fuel volumes as a whole, not quite there, and I would imagine that we’ve probably seen the highest fuel volumes that we’ll ever see in the United States already.

Chris Blasinsky:
You mentioned direct store operating expenses. Those have been a little out of control. I don’t want to overstate that control piece…

Chris Rapanick:
I’d say out of control is a pretty good statement.

Chris Blasinsky:
I was trying to soften the blow a little bit, but it’s been five, six years, at least—maybe more?

Chris Rapanick:
It’s probably been five of the last seven. There have been a couple of odd things. As foodservices developed, gross profits have been really good from foodservice. And so that’s offset it here and there, but as a general statement, direct operating expenses, especially on the wages and benefit side, have been ridiculous. In 2022, we’re in a double digit increase kind of environment where I think it’s 14% up over 2021, which was 20% up over 2020, which was flat to 2019 even though the business wasn’t there. 2021 and2022 has also seen utilities increase and a piece of that is probably fuel prices. And then repairs and maintenance, a piece of that is probably construction costs, all of those things have been super crazy as far as increases go. And then we get that special present this year as fuel prices have increased, we get the special present of card fees being up 23% or so over last year. And they were probably 15% or 20% over 2020 already.

Chris Blasinsky:
I think they were higher ,weren’t they? For 2021 might have been 25% over 2020?

Chris Rapanick:
Card fees came back with price in the last half of the year, but 2020 fuel was so cheap and there were very few transactions, so it’s hard to match against 2020. But certainly there have been two nasty years for card fees for retailers.

Chris Blasinsky:
And especially when gas prices hit $5 gallon.

Chris Rapanick:
Honestly, it’s hard to see a future for 2022 and probably early next year that doesn’t have some version of $4-plus gas. So you would like to think that card fees may decline some, but I would venture to say that’s probably not the case. There doesn’t seem to be any kind of sunshine on the horizon as far as it comes to supply on fuel. And I think probably in most of our lifetimes, this is the first time that there’s been a long term supply issue for fuel. There’s been here and there nickel and dime type things that lasted a year or maybe a year and a half, but never something where it’s hard to see the end. And that’s probably where we’re at with the situation with Ukraine and Russia.

Chris Blasinsky:
Oil is traded on the global market and we are not isolated here in the United States from what happens.

Chris Rapanick:
I don’t want to get overly political, but our current administration’s policies probably aren’t going to change based on the fact that once you get rolling in one direction, it’s hard to change that direction. Whether you’re a Democrat or a Republican, we’re all sharing that pain of fuel prices. It’s hard to turn that ship around. So theoretically you got a few more years of a Democrat in office. It’s probably not going change their policies that doubles up the situation where domestic production probably won’t come into play. And to be honest with you, we’re probably not a super great friend of other OPEC producing countries so it’s tough to see the end of high gas prices as it looks right now.

Chris Blasinsky:
And our industry, we sell about 80% of the fuel that’s purchased in the country. So it’s always how do you get someone inside the store for the higher margin items like the foodservice and the snacks and the beverages and things like that. But when it’s $5 gas…

Chris Rapanick:
I think we’ve also experienced the largest drop in terms of cents per gallon in the shortest period of time. So that’s also good news and that’s why I would like to say that I hope that maybe we settle in around $4 for the rest of the year. I think that would be great news. So hopefully that’s the case. I would also like to say that transactions are still out there and maybe as people begin to see that things are dropping, I think people tend to say, wow, you know, gas prices are dropping—maybe this is all over. And maybe they will go back inside because transactions at the pump are up 24% right now. So people are going on site, they’re buying fewer gallons and they’re paying for them outside and not going inside. So there are people at the stores, they’re just not going inside right now. So hopefully a positive result will happen from this.

Chris Blasinsky:
Well we are in the summer drive season. People are out there taking vacations. I pop on social media here and there and it doesn’t look like people are staying home, at least my friends.

Chris Rapanick:
Yep, absolutely. I would agree with that as well. I’m honestly hoping that when we get July data that maybe we’re closer to flat on the inside transactions. If we’re able to get back to flat for July through the rest of the year compared to 2021, I believe that would be pretty good news for the industry.

Chris Blasinsky:
What are you seeing inside the stores? Anything popping out that looks kind of cool or kind of problematic?

Chris Rapanick:
I would say that foodservice is kind of back to normal. Post-COVID took longer to come back than others. Dispensed beverages especially took longer than prepared food. This is what I tell folks and hopefully people believe this as well: You never knew who used the dispenser before you, but you know that your sandwich was made while you sat there and watched it and people were more likely to trust that. But I believe their trust in dispensed beverages has come back so we’re seeing that business come back, both cold dispense and frozen dispense are up in sales. I believe that they’re probably being promoted a little bit more heavily than they have in the past, and that would go to cold dispensed too. Margins are off on all the dispensed beverage categories, so that’s kind of the downside, but foodservice in general, sales are way up, margins aren’t great, but gross profit dollars in general are good. It is outpacing what the CPI is as far as inflation goes, it’s up double digits and folks are somewhere between 8% and 10% on the CPI. So at least it’s beating that. On the merchandise side, not as good. Merchandise is up about 5% or 6% versus the CPI.

Chris Rapanick:
Inside sales and merchandise sales in general are still positive, but you have to take into account that some of that is inflation driven. Baskets on the inside are still positive and growing a smidge but not as fast as they were. When you look at basket, as long as inside sales are positive and inside transactions decline, the basket is going grow a little bit so it’s a false flag, but it’s better than everything being negative. If inside sales are negative, then we definitely have a problem. So at least there is some silver lining to the cloud. If we can get the shopper inside, they’re back to buying cold dispensed beverages and coffee when they want it. The challenge for everyone is finding someone to staff the store so they can serve the customer when they come in and then getting folks to come back inside the store. Again, they’ve become a little wary of that, knowing what they’re going to spend at the pump.

Chris Blasinsky:
You and I are on the road a decent amount and talking to retailers. This year when started filming for Ideas 2 Go, we’ve visited stores that are brand new—it doesn’t seem like our folks are necessarily slowing down. You mentioned that DSOE with the construction costs, there’s certainly larger companies going all out with new concepts and next gen store models. I don’t see that slowing down, it’s remarkable to me that even in this type of climate that the growth is impressive.

Chris Rapanick:
I think that you and obviously NACS tends to gravitate towards the top performers in the industry and those guys that we generally visit for Ideas 2 Go are usually food-forward. The ones that you visited recently think that they can compete with any QSR out there and I believe that’s the attitude you have to have and I believe that they’re successful at it. Nothing against any of the NACS membership, but when you have the resources that some of these larger companies that have experienced success on the food side versus a guy who has one or two stores who doesn’t have necessary the resources, it’s a whole ‘nother ballgame.

Chris Rapanick:
When times are tough it’s not always easy to come by profit. I believe that those will are the ones that are going to rise to the top. Just like we’ve always said, if you don’t understand that fuel is going to go away and those margins that you earn on fuel are not forever, then you’re going to lose. These are the guys who listen to that message and they’re the ones who have been engaged with NACS and the ones who have been pushing the food programs. And they’re the ones who are reaping the benefits now, even though times are super tough. These guys believe they can go out and compete with a QSR day in and day out and they’re showing that they can.

Chris Blasinsky:
Everybody’s gotta eat, right? We’ve always served the customer as quickly as we possibly can, in and out in under four minutes. During the pandemic, they also grew accustomed to finding great quality food, like you said, that can compete with anyone out there and then pick up other stuff too. As we’ve been saying for quite some time, a lot of people will probably agree, that food is the future of this industry.

Chris Rapanick:
For sure. I don’t know how often you visit a QSR, but I live in a relatively small town and we have the normal selection and I’ll tell you that often than not, these guys have a line wrapped three or four times around the building. A local coffee purveyor in my area has a sign on the door that says our inside is closed because we don’t have staff. This has happened more frequently than I can count. I’m not necessarily a customer of this purveyor, but I go to pick things up for my wife and it happens all the time.

Chris Rapanick:
If convenience retailers, especially those that are food forward, are able to maintain their employee base and control turnover that they’re going to win based on that because consumers are tough. I believe they’re even tougher than they used to be and they don’t want to stand in line and they don’t want to not be able to go inside when they want to. I think that things are hard all over and when you see a fast food place that’s paying $17 an hour to get someone to come to work and still struggling, that’s a pretty good story to tell for a convenience retailer that has a full staff. I know a lot of them don’t, but if they do, then that’s definitely a story to tell. And I think that’s the main differentiator among a lot of our members, especially those that appear on the list of the top employers every year. That’s something to say, something to be proud of.

Chris Blasinsky:
Before I let you go, let’s just say I’m a retailer with 300 and something odd stores and I call you up and I say, ‘Chris, how are things looking for the rest of the year?’ What are you going to tell me?

Chris Rapanick:
I would say I would imagine more of the same. The talk of the big ‘R,’ the recession, is floating around and the odds are relatively good that that’s going to be the situation. I think that most retailers, especially if you’ve been able to make it to the level of 300 stores, that you’re probably good at controlling your costs. That would be something that I would definitely suggest with the price of things and inflation as it is now. We’ve been through recessions before without this inflationary environment as bad as it is now. I think that it’s going to be a little bit different, but if you’re able to come through this and stay on top of your costs, look at your menus, cut things that you can’t really afford to make anymore because they’re too expensive as far as what you can charge, make sure that you’re on top of your vendors, make sure that you’re willing to do price changes when necessary as you get increases from your vendors and do things like that with good controls, I believe that you’ll probably make it through whatever recession happens. I also believe that if a recession does take place, that we can expect that 3.6% unemployment to increase. And then that’s the opportunity for our members to go out and get good employees again. I would view that as an opportunity to be on the lookout for folks who you can beg, borrow sand steal from other industries, or from other retail channels.

Chris Rapanick:
I also think that there’s probably some really good operators in the B, C or maybe even A range that are probably going to want to call it quits as things continue to kind of get tough. There’s going to be some opportunities to snatch up some of those guys for some players that have been well disciplined and probably have some cash and want to grow.

Chris Rapanick:
When we’re talking at the State of the Industry Summit next year, we’ll be talking about another good year, another profitable year for the industry. It will definitely be a tough year, but I think we’ll be talking about another profitable year and we’ll be also talking about how to move forward. At the end of 2022, we will probably still be saying that we’re resilient and we know how to contract and expand when the time is right.

Chris Blasinsky:
Let me flip it around for a second. What if I have one to five stores, do I get the same commentary?

Chris Rapanick:
Well, maybe a little different in that particular case. Mainly because the expense situation because you can’t get out of a labor or a utility or a high fuel price situation as a small operator. It doesn’t change the fact that all of those things still exist. The benefit I believe of being a small operator is being nimble so you can make faster decisions and that is what’s good about being a smaller operator. This situation in this environment doesn’t really solve your problems. So I would make the same suggestions to those guys: Tighten up where you can and hopefully ride it out for as long as you can. In some cases it’s always good to look for an opportunity to get out if you feel like the time is right. And if you’re a good operator, if you’re someone who’s been running good stores and you’ve been profitable, there are folks who are willing to talk to you about helping you exit the industry. Sometimes that is the best choice to make.

Chris Blasinsky:
Although we don’t want them to do that.

Chris Rapanick:
Well would hate to see it.

Chris Blasinsky:
We don’t want o see anybody go, we want see them grow.

Chris Rapanick:
That’s right. That’s right. It all depends on how well you’ve prepared your company to last the tough times. Going bac two SOI Summits ago, when COVID first started and we had this conversation with Chuck Maggelet and Charlie McIlvaine and basically the subject was ‘What do you do? How do you make it through a time like this?’ The times have been basically the same since that conversation took place and to be honest with you, it’s hard to see an end to it again because the expectation is that COVID is probably going to have another run up this fall. The fuel situation is out of control, the labor situation is out of control. It’s a tough time. And at some point, when you look at that whole and when DSOE outstrips inside gross profit growth, it’s not a long term situation. You can’t do it unless you’re going to pull money out of your pocket for the rest of your life and you’re independently wealthy and can fund a store. It’s not possible to maintain. So that’s something that you should always consider.

Chris Blasinsky:
Chris, thanks for jumping on and giving us your insights and what the data is showing us. Like Chris said, we’re going to be in Dallas next year for our NACS State of the Industry Summit, which is when we reveal of our big numbers and trends and financial and operational performance for the industry. And that is going to be April 18th to the 20th. Also for those of you who are listening, the NACS State of the Industry Report of 2021 Data is available for sale on our website at convenience.org/SOIReport, and has tons of information and good, actionable insights that all of our members can use. So, Chris, thank for joining us and we’ll talk soon.

Speaker 1:
Convenience Matters is brought to you by NACS and produced in partnership with Human Factor. For more information, visit convenience.org.

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