Something in the convenience store industry seems awry. On one hand, the industry is pushing fresh, prepared foods on its menus. On the other hand, convenience stores continue to profit greatly from tobacco products.
According to NACS, the Association for Convenience & Fuel Retailing, retailers have found that foodservice can entice new customers inside the store, and at a higher profit level than for items like gas. While NACS focuses specifically on gasoline sales, it should also be noted cigarettes are a low-margin product as well.
Margins for cigarettes and tobacco average about 15 percent, which is comparable to the products sold at Costco Wholesale Corp., Jeff Lenard of NACS told Crain’s Chicago Business. But what the products lack in margin for the convenience channel, they make up for in volume.
Last year, convenience stores garnered a whopping 86.9 percent share of cigarettes sold in 2014, compared to a 6.7 percent share for grocers and drugstores, according to the latest State of the Industry data from NACS.
‘Smoke ‘Em If You’re Not CVS’
Unsurprisingly, the tobacco market is shrinking largely because of high prices and health concerns. But the products have seemed to find a home in the convenience channel thanks to CVS Health’s decision to halt sales of tobacco products at its 7,000 pharmacies nationwide.
According to David Bishop of analysis firm Balvor LLC, CVS’ strategic change affects all of its pharmacy network providers, essentially creating a spillover effect that could benefit c-stores.
Unsurprisingly, the tobacco market is shrinking largely because of high prices and health concerns. According to Reuters/Ipsos poll, conventional cigarette smoking has declined to about 19 percent of adults. A new trend is on the rise, however, with one in 10 U.S. adults now taking part in vaping. However, analysts remain cautious, pointing to the fact that consumer safety perception is becoming increasingly clouded.
Where Does the Industry Go From Here?
The bottom line is that while convenience stores aren’t pharmacies, and being a one-stop destination is still the objective of these retailers.
That being said, convenience stores will continue to move away from the “smoke and cokes” perception that has defined the industry for decades. They will become the one-stop destination for increasingly health-conscious consumers with busy, active lifestyles.
The future is clear: Retailers who don’t adopt a versatile model will be left in a cloud of smoke.