Gas stations line the roads and highways across the United States,
fueling the country's cars and trucks.
93% of Americans live within 10 minutes of one.
They arguably comprise one of the most important retail businesses in the
country. There are 152,000 convenience stores in the US.
That's 30% of all stores in the country.
Put another way, one out of every three stores in the U.S.
is a convenience store.
It's a $654 billion industry.
But those who follow it say most Americans know very little about it.
And it's actually rather misunderstood.
While convenience store retailing has so far been spared the sometimes
catastrophic disruptions that have hit other segments of retail, the
fuel and convenience business is going through some profound changes of
its own. For much of their history, gas stations have been, and still
are today, small, locally owned businesses.
For their owners, they often represent a path toward the American dream.
One of the things that a lot of folks don't actually realize is that
almost two-thirds of the industry is still single-store owner operated.
Meaning that your local gas station may be owned by somebody who lives at
the end of your street. But in recent years, the industry has
increasingly gone corporate.
The smallest companies, those with anywhere from 100-200 stores, are
being bought up by bigger chains or are otherwise going out of business.
And it is getting harder for the little guy to survive.
The first commercial fuel pump in the United States was sold to an
Indiana grocery store in 1885.
The kerosene pump was invented by a man named Sylvanus
Freelove Bowser. He patented his design two years later.
The first dedicated gas station opened in Pittsburgh, Pennsylvania within
two decades. But it wasn't until the 1970s when modern fuel retailing as
we know it today began to emerge.
The first oil embargo in the 70s really set the stage for convenience
stores to sell fuel. There was technology to sell fuel, but people
didn't really consider 'I can pump my own gas and save a cent a gallon'
or something like that. But that first oil embargo really changed the
philosophy of people, 'I'll pump gas, I'll save a cent.
Take the cost out of the system, it goes to the customer.'
The second oil embargo in 1979 raised the price of fuel above one dollar
for the first time, a huge price hike for the era.
Up to that point, fuel stations had been more like service stations, but
convenience stores began using a self-serve model that is common in 48
out of 50 states today.
Only Oregon and New Jersey still require a gas station attendant to pump
a customer's gasoline.
That brings us to today.
There are basically three places a customer buys fuel.
80% of convenience stores have fuel pumps attached and 80% of the gas in
the country is sold at convenience stores.
The other 20% is sold at standalone gas stations.
These are often attached to a traditional service station that does
repairs and inspections.
The other channel is what is called the hypermarket, a term for big box
stores such as Costco, Wal-Mart and Sam's Club.
These outlets sell three times the volume of a typical convenience store,
but there are only a few of them, so they comprise only about 10-15% in
terms of overall fuel sales.
As of December 2019, there were 152,720 convenience stores
operating in the United States, down less than 1% from the 153,237
stores in 2018.
I'd say the landscape of ownership and fuel and convenience can be very
hard to understand at times, and it can actually get very complicated.
There's many different models here.
There are more than 100,000 distinct companies in the convenience and
fuel retailing industry across the U.S.,
more than in any other sector of retail.
62.1% of the market is made up of single-store owners.
That is, as it sounds, owners who own just one store.
It is somewhat difficult to see this since many, if not most fuel
stations often bear some kind of corporate logo, typically from a
petroleum company such as Shell or Chevron.
Despite the corporate logo, though, these are still independently owned
businesses. Owners of these stores often have some kind of franchise
deal with the fuel provider to share costs, but the stores are not owned
by the oil and gas companies.
The other 37.9%
of the convenience and gas station market is controlled by larger chains,
which includes familiar corporate brands such as 7-Eleven and Circle K.
But most of the chains in convenience and fuel retail are regional.
WaWa, Sheetz, Race Trac, and Casey's General Store are all brands
well-known in different regions of the country.
About 15% of the total market is controlled by chains that are 500 stores
or more, and most of those are regional chains with a few national
brands thrown in. But that share of the market is growing.
In 2019, the largest chains added 312 stores over the
previous year and the second largest tier of companies in terms of store
count added 134 stores.
Every other tier lost stores with the biggest losses among independently
owned stores.
Part of the reason for this change is what the stores are selling and how
they look is changing dramatically as well.
As these businesses move away from the “cokes, smokes, and gasoline”
model, and more into products like fresh prepared food, some independent
and smaller owners are having a hard time keeping up.
Right now what we're seeing is some of these one-store operators are
finding it a little bit harder to stay in business with some of these
companies that are continuing to up the ante on food, because people are
time starved. When they come to buy gas, they're often looking to solve
other problems. 'Can I get a sandwich?
Can I get a drink?
Can I get all these other things?'
And the the one-store, and the one-stop shopping v
alue is just increasing more and more and more.
And that puts pressure on the smaller operators that maybe focus more
on, 'hey, I have a gas price and a good location.'
Convenience stores now also have to worry about competition from
retailers in adjacent segments of retail, especially those who might be
getting pelted with their own competition.
Convenience stores are so named because they offer convenience and they
are built around getting customers in and out of the store.
The typical visit to a convenience store lasts about three minutes and 30
seconds. But the rise of e-commerce, store apps and other technological
innovations have left consumers accustomed to a whole new level of
convenience that challenges the relevance of the traditional convenience
store. Convenience channel is really being influenced by companies
outside the convenience channel that are providing more easier ways for
consumers to be ordering in advance, to allow them to to walk in and
pick-up a product, pre ordered.
And so when people think of convenience, that's their new level of
convenience. So they're expecting that now.
So the convenience channel has to adjust to do that.
Amazon Go opened stores in certain cities around the country that you
use your app to log in, pick products off a shelf and you leave.
The internet and smartphones have also gobbled up whole categories of
merchandise that convenience stores once depended on.
When you look at stores 20 years ago, some of the top selling items that
you saw were film, maps, and a substantial amount of foot
traffic, as we all know, with somebody walking in and saying, hey, how
do I get to here?
And those directions, somebody would also say, hey, let me get a drink
while I'm in here. All that's gone.
What's the next thing that could be replaced?
There are other changes taking place that stand to further alter the
landscape. One such switch is the move away from fuel and toward cars
with electric power trains.
Tesla's CEO, Elon Musk has spoken about the kinds of experiences he
envisions for Tesla's Supercharger stations where just mostly filling
the battery on a car can take at least 20 to 30 minutes.
That stands to change how stores think about how they draw people in and
hold their attention. It might require redesigning stores, offering more
in-store experiences and so on.
So the question is: how does a store survive in this changing landscape?
Some are doing it by trying to outwork the problem, by, for example,
hiring family to keep the store running, keeping their labor costs low.
But whereas convenience stores used to survive by being pretty standard
in what they offered.
Fuel, of course, is a commodity.
But the store offer was almost a commodity and the way it was
experienced. The same the same snacks, the same beverages, the same
experience, really. It was the same from one store to the other.
We're entering an era now, though, where the leading brands are
differentiating themselves very strongly.
And you see this at the corporate level, but you also see this with the
successful independent retailers.
Brands that are thriving now are differentiating themselves and many are
starting to look more like restaurants.
Historically, there is a bit of a bias against food bought at gas
stations. Many now well-known regional chains grew out of that initial
complex environment where some stores began selling gas and some gas
stations began selling food.
For example, Wawa has built a reputation for its sandwiches and coffee.
Independent stores are carving out their own niches as well.
High Country Market and Gastropub is one such business.
Located in Round Rock, Texas, the store is a destination for food, craft
beer and high-end wine.
And it is attached to a gas station.
Before it was a gas station, regular convenience store, and people would
come in just buy like chocolates and buy little things;
if they wanted any medicine, if there weren't any bread, milk, bandages
or Band-Aids or whatever.
It was...it
started as a proper convenience store with a restaurant, a diner and
a small beer bar/wine bar.
But he found it difficult to distinguish himself from the competition, so
he diversified. If you want various kinds of good waters,
Kombuchas, at least 10 types of organic sodas, or regular sodas,
I will have those.
Walji said many other convenience store owners who have sought him out
for advice on transforming their own businesses sometimes seem
intimidated by the investments and the work involved.
Others lack the knowledge for making the transition.
Many businesses also simply don't have the space High country has.
Maybe I'm maybe a jack-of-all-trades, but it separates me from the guy
who's just going in to buy either a lottery ticket, cash a check or buy
a Coca-Cola walking out.
In a market that is crowded, changing, and like the rest of retail, more
than a bit uncertain, it helps to be creative.