The Future of the American Convenience Store

[montizzle]

The future of convenience stores is an interesting topic that intersects a few major cultural shifts in the post covid world. I've been thinking about this topic a lot for the past couple months, so I'll try to break it down by topic here. Would love to hear everyone else's opinions, as every family member I've tried to corner into this discussion has managed to escape.

 

Electric vehicles

 

Throwing away the valuation arguments, I don't think anyone disagrees that our future is going to be one where electric cars are the majority. Those cars are going to need power stations outside of one's home. The obvious solution currently seems like installing quick charge stations at gas stations. To my knowledge however, the technology to fully charge as quickly as a full tank of gas is far away. Do the convenience stores attached to gas stations therefore need to adapt by luring in customers for a longer experience? How would this be done, service based (charge and a haircut? shoeshine?) or do they develop more enjoyable lounge type atmospheres where customers can enjoy a cup of coffee? Will customers ever want to spend time at gas stations? If they really don't want to (I don't think they will), will they technology develop instead for replaceable batteries?

 

Commercial real estate

 

Some are predicting covid to be the catalyst that finally kills off Malls and shopping centres in favour of online shopping. If that's the case, will those malls (at least partially) convert to distribution centres? It seems plausible, Malls are generally located near population centres and close to major transportation routes . Convenience stores are similarly strategically located, on a more localized scale. Could they become a sort of secondary distribution centre, bringing orders to the final last mile step of their journey? Partnerships with shipping companies and large convenience store chains seem likely to me

 

DoorDash/SkiptheDishes/Ubereats influence

All of these delivery companies have seen an explosion in use thanks to the pandemic. Some convenience store chains include their products on this service, allowing customers to order say a bag of chips delivery from their phone for a small premium.  It's unclear how many customers are paying the premium for convenience vs. for preventing sickness. It'll be interesting to see how sticky this customer base is post-covid.

 

Cash free society

 

Before the pandemic cash was becoming an increasingly uncommon payment method. Now that covid has required essentially all businesses to create cash free payment methods, cash seems to be nearly obsolete. Many independent convenience stores would benefit greatly from cash payments for tax reasons. Will this lead to increased pressure on independents, and accelerate consolidation by big chains? I'll admit, this last one's a bit of a stretch, however I do think that the industry is going to consolidate greatly. Big chains by virtue of their size can make the major changes in operations and outside partnerships easier than small mom and pops.

 

In summary, I think major changes are on the horizon for convenience stores, and I'm surprised this isn't talked about more. Personally, I don't see how the mom and pops will be able to compete. Convenience stores don't sell the quality products that help insulate mom and pop restaurants from large chains. It may be just a matter of time before independent convenience stores go the way of independent grocers

[SharperDingaan]

Just to stir the pot ;)

 

Electric Vehicles. Look to Europe. Quick charge already exists and has been standard practice for some time. Problem is that the plug-ins are often not compatible, but it is getting better. Drivers charge at home and plan their trips; if they need a charge part-way it's either at the destination, or a service centre along the way - car charges while they have a coffee inside.

 

CRE: Malls exist to be levelled. When the community was new, land was cheap, and the central mall was the highest/best land use. With the community developed, and the mall now a transit hub, it's worth much more as housing development. Level the old and build new.

 

DoorDash, etc. Look at the eateries/grocers. Lots of eateries are banding together to create their own delivery service, and centralizing kitchens (ghost kitchen in a cheaper location, cooking different menus, and delivering). Grocers offer timed delivery of one-line shopping. Long overdue and not going away.

 

Hard for the chains to change rapidly - it's both quicker, and more effective, to just bankrupt and restart new. Much easier for Mom/Pop but they have to be open to change. Arguably, close the store, put the capital into a van, and deliver for the grocery stores and ghost kitchens instead - still the convenience business, just done a different way.

 

SD

 

 

 

[mattee2264]

 

Very easy to play this. Just buy Alimentation Couche Tard. They already have experience with EV charging stations as they have quite a presence in Scandinavia. And the plus side of waiting to charge your car is that you will end up buying more of their fresh food offerings etc. And with a lot of mom and pop stores under pressure they can continue to consolidate the market which is still relatively fragmented. Also they will benefit once people start driving again.

[StubbleJumper]

Those cars are going to need power stations outside of one's home.

 

Yes, recharge stations will be required, but possibly not at many as people think.  For the typical guy who drives to work and back home every day, stops at the grocery store, and then drives his kids to soccer after supper, he already has plenty of battery capacity for daily use.  When he gets home from the kids' soccer, he'll just plug his car in from his house electricity and he'll be ready to roll again the next morning.  With this type of use as his primary pattern, his behaviour will change from stopping to buy gas once every 10 days or two weeks to instead plugging his car in overnight at home once every 3 or 4 days.  The only time when range might be a problem for him will be on weekend trips out of town, or longer vacation trips.  Instead of going to the gas station 25 to 40 times per year (ie, every 10 days or two weeks), he might only use a paid-recharge facility 10 or 12 times per year when he exceeds his car's range.

 

There is, however, a group that will be dependent on paid-recharges, and that is people who are living in houses and apartments without private parking.  The people currently using on-street parking cannot simply park their car in their garage or on their driveway and plug their car in overnight.  In some municipalities these people who do not have private parking spot are not numerous, but in other municipalities such as Montreal, there is heavy reliance on on-street parking.

 

With current technology that requires perhaps 30 minutes for a basic recharge, I don't view existing gas stations as a model that can shift effectively into electric.  The better model would be McDonalds, Starbucks, Dunkin, etc partnering with some outfit to electrify their existing parking lot.  So, if you imagine yourself taking a trip that exceeds your car's range, you've probably already driven for 4 hours and you need to take a break to drink a coffee, or eat a burger anyway.  So you just plug your car in while you take your break.  You probably wouldn't at all want to pull into a Shell station, plug your car in and then twiddle your thumbs for the next 30 minutes.  But, all of this is a reflection of current battery capacity and current charging times....all of that could be drastically different in five years.

 

However it evolves, the gas station/convenience stores are in a bit of long-term trouble.  They make their money from the traffic of people buying gas, not from the gas itself.  The price of gas is ridiculously competitive so the margins aren't great, but they just hope that you'll buy a pack of smokes, a couple of lottery tickets and a gallon of windshield washer fluid while you're stopped for gas (the margins *are* great for those items!).  When they lose the traffic from the gas re-fills, are all of those convenience stores viable?  I don't think so, but time will tell.

 

 

SJ

[Xerxes]

For re-charge stations and convenience stores, a good view is to see what Couche-Tard (the owner of Circle-K) has been doing. They bought a convenience store network in the Baltic states, Norway, Sweden etc. some 7-8 years ago (I believe) and used that microcosm to study how electrification will impact consumer behavior and capture its lessons for the future of North American market. Some years later, they are still in business even with all the electric cars in those Northern European countries.

 

The reality (IMHO) is that convenience stores are what they are "convenience stores"; some of them happen to have gas/plug-in stations some don't and are just convenience stores. Doesn't mean that whole thing is going to go away due to electrification in my opinion.

 

https://corpo.couche-tard.com/en/business-units/europe/

[montizzle]

 

Very easy to play this. Just buy Alimentation Couche Tard.

 

Yeah I've been looking into this one. One of the concerns I have with it and am trying to learn more about is how much WFH will affect it. Their earnings calls touched briefly on volumes being down on products typically bought on the morning commute. How much of that volume will come back? Will consumers be more likely to stop in if they switch to a blended work schedule (perhaps that gas station snack is a novelty when you pass it once a week?).

 

It's definitely a time will tell scenario, I don't think anyone can say much about WFH with certainty yet

[Spekulatius]

Those cars are going to need power stations outside of one's home.

 

Yes, recharge stations will be required, but possibly not at many as people think.  For the typical guy who drives to work and back home every day, stops at the grocery store, and then drives his kids to soccer after supper, he already has plenty of battery capacity for daily use.  When he gets home from the kids' soccer, he'll just plug his car in from his house electricity and he'll be ready to roll again the next morning.  With this type of use as his primary pattern, his behaviour will change from stopping to buy gas once every 10 days or two weeks to instead plugging his car in overnight at home once every 3 or 4 days.  The only time when range might be a problem for him will be on weekend trips out of town, or longer vacation trips.  Instead of going to the gas station 25 to 40 times per year (ie, every 10 days or two weeks), he might only use a paid-recharge facility 10 or 12 times per year when he exceeds his car's range.

 

There is, however, a group that will be dependent on paid-recharges, and that is people who are living in houses and apartments without private parking.  The people currently using on-street parking cannot simply park their car in their garage or on their driveway and plug their car in overnight.  In some municipalities these people who do not have private parking spot are not numerous, but in other municipalities such as Montreal, there is heavy reliance on on-street parking.

 

With current technology that requires perhaps 30 minutes for a basic recharge, I don't view existing gas stations as a model that can shift effectively into electric.  The better model would be McDonalds, Starbucks, Dunkin, etc partnering with some outfit to electrify their existing parking lot.  So, if you imagine yourself taking a trip that exceeds your car's range, you've probably already driven for 4 hours and you need to take a break to drink a coffee, or eat a burger anyway.  So you just plug your car in while you take your break.  You probably wouldn't at all want to pull into a Shell station, plug your car in and then twiddle your thumbs for the next 30 minutes.  But, all of this is a reflection of current battery capacity and current charging times....all of that could be drastically different in five years.

 

However it evolves, the gas station/convenience stores are in a bit of long-term trouble.  They make their money from the traffic of people buying gas, not from the gas itself.  The price of gas is ridiculously competitive so the margins aren't great, but they just hope that you'll buy a pack of smokes, a couple of lottery tickets and a gallon of windshield washer fluid while you're stopped for gas (the margins *are* great for those items!).  When they lose the traffic from the gas re-fills, are all of those convenience stores viable?  I don't think so, but time will tell.

 

 

SJ

 

This is a pretty good framework. assume fewer, but longer stops reg cars and make sure it is worth it. It could see something like Cracker Barrel doing very well if they add charging stations in their parking lots, as ther restaurants are already destinations in a way. Same for McDonalds or open air shopping centers close to highway exits that offer a variety of options to keep folks entertained for the duration of the charge.

 

Smaller standalone convenience stores may suffer loss of traffic though.

[Castanza]

Those cars are going to need power stations outside of one's home.

 

Yes, recharge stations will be required, but possibly not at many as people think.  For the typical guy who drives to work and back home every day, stops at the grocery store, and then drives his kids to soccer after supper, he already has plenty of battery capacity for daily use.  When he gets home from the kids' soccer, he'll just plug his car in from his house electricity and he'll be ready to roll again the next morning.  With this type of use as his primary pattern, his behaviour will change from stopping to buy gas once every 10 days or two weeks to instead plugging his car in overnight at home once every 3 or 4 days.  The only time when range might be a problem for him will be on weekend trips out of town, or longer vacation trips.  Instead of going to the gas station 25 to 40 times per year (ie, every 10 days or two weeks), he might only use a paid-recharge facility 10 or 12 times per year when he exceeds his car's range.

 

There is, however, a group that will be dependent on paid-recharges, and that is people who are living in houses and apartments without private parking.  The people currently using on-street parking cannot simply park their car in their garage or on their driveway and plug their car in overnight.  In some municipalities these people who do not have private parking spot are not numerous, but in other municipalities such as Montreal, there is heavy reliance on on-street parking.

 

With current technology that requires perhaps 30 minutes for a basic recharge, I don't view existing gas stations as a model that can shift effectively into electric.  The better model would be McDonalds, Starbucks, Dunkin, etc partnering with some outfit to electrify their existing parking lot.  So, if you imagine yourself taking a trip that exceeds your car's range, you've probably already driven for 4 hours and you need to take a break to drink a coffee, or eat a burger anyway.  So you just plug your car in while you take your break.  You probably wouldn't at all want to pull into a Shell station, plug your car in and then twiddle your thumbs for the next 30 minutes.  But, all of this is a reflection of current battery capacity and current charging times....all of that could be drastically different in five years.

 

However it evolves, the gas station/convenience stores are in a bit of long-term trouble.  They make their money from the traffic of people buying gas, not from the gas itself.  The price of gas is ridiculously competitive so the margins aren't great, but they just hope that you'll buy a pack of smokes, a couple of lottery tickets and a gallon of windshield washer fluid while you're stopped for gas (the margins *are* great for those items!).  When they lose the traffic from the gas re-fills, are all of those convenience stores viable?  I don't think so, but time will tell.

 

 

SJ

 

This is a pretty good framework. assume fewer, but longer stops reg cars and make sure it is worth it. It could see something like Cracker Barrel doing very well if they add charging stations in their parking lots, as ther restaurants are already destinations in a way. Same for McDonalds or open air shopping centers close to highway exits that offer a variety of options to keep folks entertained for the duration of the charge.

 

Smaller standalone convenience stores may suffer loss of traffic though.

 

Didn’t Cracker Barrel start as a gas station? Or they at least offered gas at one point in time.

[montizzle]

https://www.bloomberg.com/news/articles/2021-01-12/circle-k-owner-couche-tard-said-to-explore-purchase-of-carrefour?srnd=premium-canada

 

Or maybe the future is to transition into full on grocery. Kind of makes sense. Couche-Tards invests heavily on data science regarding customer patterns, logistics, cashierless checkouts. Seems well suited for a grocer.

[jasonchin]

Saw this article being shared on Twitter:

 

https://image-src.bcg.com/Images/BCG-Is-There-a-Future-for-Service-Stations-July-2019_tcm9-223783.pdf

 

Some good insights on the possible scenarios and solutions. End of day, companies must be open to adapt and innovate. Certainly good opportunities down the road. I can see some parallels between ATD and KR whereby innovation is required to stay relevant.

[DooDiligence]

https://www.bloomberg.com/news/articles/2021-01-12/circle-k-owner-couche-tard-said-to-explore-purchase-of-carrefour?srnd=premium-canada

 

Or maybe the future is to transition into full on grocery. Kind of makes sense. Couche-Tards invests heavily on data science regarding customer patterns, logistics, cashierless checkouts. Seems well suited for a grocer.

 

Fly in the ointment?

 

www.bnnbloomberg.ca/billionaire-arnault-would-take-hit-from-sale-of-carrefour-stake-1.1548457

 

edit: www.fr24news.com/a/2021/01/couche-tard-plans-to-invest-us-3-6-billion-to-support-carrefours-offering.html

[KCLarkin]

DD, the deal is already dead:

https://financialpost.com/news/canadas-couche-tard-drops-20-billion-carrefour-takeover-plan-after-opposition-from-france-govt

 

[DooDiligence]

DD, the deal is already dead:

https://financialpost.com/news/canadas-couche-tard-drops-20-billion-carrefour-takeover-plan-after-opposition-from-france-govt

 

Oops, I missed that.

 

I thought the writeup posted by jasonchin was interesting.

People still go to convenience stores for purchases other than gas.

A smart operator could leverage locations as the landscape changes for ICE.

[mranski]

My guess is the Cstore is a viable niche long term, in spite of the impact of EV and declining fuel sales.

Anecdotally the 7eleven near me has constant lineups, but the vast majority don’t seem to be fuel customers.

The ABC stores I visited in Hawaii seem to be very busy mostly without pumps.

My guess is the number of service stations has been declining anyway due to land availability, municipal approvals and for other reasons. Couche Tarde recently bought Circle K in Hong Kong, and considering land constraints there, the stand alone cstore must be viable in their plans.