NACS (The National Association of Convenience Stores) NACS was founded August 14, 1961, as the National Association of Convenience Stores.

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1 NACS (The National Association of Convenience Stores) NACS was founded August 14, 1961, as the National Association of Convenience Stores. It is an international trade association representing more than 2,200 retail and 1,600 supplier company members. NACS member companies do business in nearly 50 countries around the world, with the majority of members based in the United States. Convenience stores sell an estimated 80 percent of the motor fuels purchased in the United States. NACS serves the convenience and petroleum retailing industry by providing industry knowledge, connections and advocacy to ensure the competitive viability of its members businesses. In 2007, the association shortened its name to NACS to reflect its global scope and expansion beyond the convenience store industry into all elements of convenience retailing. NACS also added a qualifying statement that better defines its presence at the retail fueling level: The Association for Convenience and Fuel Retailing. NACS Membership While 47 of the top 50 convenience stores in the United States are members of NACS, the majority of its members are small, independent operators. More than 70 percent of its total membership is comprised of companies that operate 10 stores or less. This membership base roughly tracks the industry as a whole. Of the 152,000-plus convenience stores in the United States, 63 percent are owned and operated by someone who only has one store. NACS also has supplier members. These range from small entrepreneurs, to the world s largest consumer packaged goods companies. NACS membership is broad, from smaller entrepreneurial companies, many of them new Americans, to CEOs from large convenience retailers like 7-Eleven (55,000 stores worldwide, with about 10,000 in North America), Alimentation Couche-Tard (7.800 stores in North America) and OXXO (13,000 stores across Latin America). Top supplier companies are also members, like Coca-Cola, Anheuser-Busch InBev and The Hershey Company. U.S. Convenience Store Industry Above all, convenience stores sell time. The average time it takes for someone to get in and get out with a purchase is 3 minutes and 33 seconds. No other channel has anywhere near that speed of service. And no other channel is such an important part of virtually every community in the country, and that is reflected in their overall sales. The U.S. convenience store industry had record in-store sales of $213.5 billion in Combined with motor fuels sales of $482.6 billion, overall industry sales for 2014 reached $696.1 billion, evidence that the value of convenience continues to resonate with consumers. Sales outstripped restaurants (projected at $683 billion for 2014), supermarkets ($620 billion) and drug stores ($238 billion, not including prescriptions). The industry s in-store sales of $213.5 billion represent an increase of 4.7% over 2013, which was itself a record year. Although more gallons of fuel were sold in 2014 than 2013, total industry fuel sales decreased by 1.8%, due to gasoline prices that were 3.9% lower in 2014 than the previous year.

2 In-store sales growth in 2014 was driven by sales gains in both foodservice and merchandise, with the highest growth in commissary (e.g., packaged sandwiches, deli salads) up 9.8%, salty snacks (up 8.5%) and packaged beverages (up 6.5%). Beyond sales, convenience stores remain an important part of the economy. The convenience and fuel retailing industry employed 2.43 million people last year (a 10.6% increase from 2013). Overall, convenience store sales represent about 4.1% or one out of every 24 dollars of the entire estimated $17.7 trillion U.S. gross domestic product. If total industry sales were compared to the GDP of other nations, our $697.5 billion industry would rank at #20, slightly lower than Saudi Arabia and just above Switzerland. Convenience store pretax profits increased in 2014 to $10.4 billion, due primarily to higher profit margins as wholesale fuel costs decrease. The industry saw an 17.1% increase in fuel margins this year, at an average of 21.9 cents per gallon for 2014 compared to 18.7 cents per gallon in In a same-firm comparison, the fuel margins also rose from 5.4% to 6.6% of fuel sales, a significant increase over Motor fuels continued to drive sales dollars, but in-store sales drove profit dollars. Overall, 69.3% of total sales were motor fuels, but motor fuels only accounted for 39.5% of profit dollars. The industry s bifurcation also continues, with a considerable difference between top quartile and bottom quartile performers although the gap was less pronounced this year in some categories. The year also brought unprecedented M&A activity in the convenience channel, mainly driven by Master Limited Partnerships (MLPs), with four of the top five firms by store count selling or acquiring stores in Here s how in-store sales were broken down in 2014: Tobacco (cigarettes and OTP): 37.4% of in-store sales Foodservice (prepared and commissary food; hot, cold and dispensed beverages): 19.0% Packaged beverages (soda, alternative beverages, sports drinks, juices, water, teas, etc.): 15.4% Center of the store (candy; sweet, salty and alternative snacks): 10.6% Beer: 7.7% Meanwhile, foodservice accounted for 33.0% of gross profit dollars, a 1.1 percentage point increase over While tobacco products constituted 37.4% of in-store revenue dollars, they accounted for only 18.0% of gross margin dollars. Packaged beverages were third, accounting for 18.8% of gross profit dollars. Many analysts suggest that the convenience store industry is recession resilient, since stores sell immediate consumption items, as opposed to durable goods. U.S. Convenience Store Count The U.S. convenience store count increased to a record 152,794 stores as of December 31, 2014, a nearly 1% increase from the year prior, according to the 2015 NACS/Nielsen Convenience Industry Store Count. The link between fuels and convenience retailing continues to grow. Overall, 83.5% of convenience stores 127,588 sell motor fuels, a 0.7% increase (930 stores) over page 2

3 Convenience stores account for 33.9% of all retail outlets in the United States, according to Nielsen, which is significantly higher than the U.S. total of other retail channels including drug stores (41,799 stores), supermarket/supercenter (41,529 stores) and dollar stores (26,572 stores). The convenience retailing industry continues to be dominated by single-store operators, which account for 63.0% of all convenience stores (96,318 stores total) and 83.5% of store growth in Among the states, Texas continues to lead in store count with 15,434 stores. The rest of the top 10 states for convenience stores are California (11,403), Florida (9,810), New York (8,247), Georgia (6,766), North Carolina (6,301), Ohio (5,539), Michigan, (4,907), Illinois (4,670) and Pennsylvania (4,604), which nudged Virginia out of the top 10. The convenience retailing industry has roughly doubled in size over the last three decades. At year-end 1984, the store count was 85,300 stores, at year-end 1994 the store count was 98,200 stores and at year-end 2004 the store count was 138,205 stores. The store count is based on the official definition of a convenience store: stores that include a broad merchandise mix, extended hours of operation and a minimum of 500 stock-keeping units (SKUs). Motor Fuels Sales at Convenience Stores There are 127,588 convenience stores selling fuel in the United States, and these retailers sell an estimated 80% of all the fuel purchased in the country. Overall, 58% of the convenience stores selling fuel are single-store operators more than 70,000 stores across the country. These small businesses often don t have the resources to brand their stores as anything beyond the brand of fuel they sell and promote on their canopies, often leading to consumer misperceptions that they are owned and operated by a major oil company. Over the course of the past five years, the markup on a gallon of gas has averaged about 18.9 cents per gallon. Retailers know that consumers are incredibly price sensitive and will go somewhere else to save as little as a few cents per gallon. Even with these low margins, retailers can still make a profit, usually only a few cents per gallon before taxes. To counter slim profit margins for fuels sales, store operators seek to drive profits by growing their in-store sales, especially on food and beverages. Virtually any item inside the store can carry a healthier profit margin than a fill-up at the pump. Circumstances can get even worse when fuel prices climb since the markup decreases while costs particularly credit card fees increase. Meanwhile, customer frustration and ire grows, and is often directed at the retailer. Large, integrated oil companies, especially since 2007, have exited the retail business to focus more on resource production and refining operations. ExxonMobil, Shell, BP and ConocoPhillips have either begun or completed the process of selling off all of their directly operated facilities. Of the 127,588 convenience stores selling fuels, less than 0.4% were owned by one of the five major oil companies as of June page 3

4 While the major oil companies are withdrawing from retail, their brands remain. In fact, slightly more than half of retail outlets sell fuel under the brand of one of the 16 largest refiner-suppliers. Virtually all of these branded locations are operated by independent entrepreneurs who have signed a supply contract with a particular refiner/distributor to sell a specific brand of fuel, but these retailers do not share in the profit/loss of their suppliers. Approximately 50% of the fueling outlets in the country have a major oil company brand or carry the brand of another refining company. The remaining 50% sell unbranded fuel. These stations often are owned by companies that have established their own fuel brand (i.e., QuikTrip, 7-Eleven) and purchase fuels either on the open market or via unbranded contracts with a refiner/distributor. The pattern of retail profitability is the opposite of what most consumers think. Due to the volatility in the wholesale price of gasoline and the competitive structure of the market, fuels retailers typically see profitability decrease as prices rise, and increase when prices fall. On average, it costs a retailer about 12 to16 cents to sell a gallon of gasoline. Using the five-year average markup of 18.9 cents (5.7%), the retailer averages about 5 cents per gallon in profit. In 2015, the average national retail markup on gas was 22.3 cents (6.6%). Over the course of a year, retail profits (or even losses) on fuels can vary wildly. In some cases, a few great weeks can make up for an otherwise dreadful year or vice versa. The History of Convenience Stores The first purpose-built gas station opened more than 100 years, a Gulf station that opened in Pittsburgh, Pennsylvania, in December The early gas stations didn t sell an array of food like today; they only offered fuel and what was called TBA (tires, batteries and accessories). Because of low fuel margins, gas stations expanded their product offers and added convenience items to their offer. Meanwhile, convenience stores began to sell fuel in the 1960s. The comingling of these trends led to today s marketplace where convenience stores sell an estimated 80% of the fuels sold in the United States. Convenience stores evolved from a variety of sources early in the 20th Century. They drew upon characteristics of many types of retail establishments in existence at the time: the mom-and-pop neighborhood grocery store, the ice-house (from pre-refrigerator days), the dairy store, and the delicatessen. The Southland Ice Company is credited with the birth of the convenience store in May 1927 on the corner of 12th and Edgefield Streets in the Oak Cliff section of Dallas, Texas. Uncle Johnny Jefferson Green, who ran the Southland Ice Dock in Oak Cliff, realized that customers sometimes needed to buy things such as bread, milk and eggs after the local grocery stores were closed. Unlike the local grocery stores, his store was already open 16 hours a day, seven days a week, so he decided to stock a few of those staple items. Joseph C. Thompson, one of the founders and later president and chairman of The Southland Corp. (which became 7-Eleven), recognized the potential of Uncle Johnny s idea and began selling the product line at the other ice dock locations of The Southland Ice Company. Further, these stores were open from 7:00 a.m. to 11:00 p.m., seven days a week thus the name, 7-Eleven. page 4

5 In addition to convenience store development at The Southland Ice Company, other types of stores were emerging. There were midget stores in the 1920s and motorterias or mobile convenience stores. Bantam and drive-in markets were also around in 1929 where motorists never had to get out of their cars. Delmat vending machine type of stores was also popular for obtaining milk, eggs, produce and fresh meat. Dairy cooperatives often ran dairy stores or jug stores as outlets for their operations. Sometimes supermarkets (which first appeared in 1930) had small outlets in rural areas for people who did not travel to the city enough for eggs, milk, etc. The pattern of the emerging convenience types of stores grew modestly until World War II (although they were not yet called convenience stores ). The big factor in all of these operations was fast service. The stores were most successful in warmer climates where the open front was a big attraction. The first cold weather convenience store opened in 1957 in Denver. In 1966, the U.S. convenience store industry first recorded $1 billion in sales. By the end of the decade, the industry had recorded $3.5 billion a year in sales. By the late 1960s, the amount of 24-hour convenience stores increased to meet the needs of a younger population and people who were working late night or early morning shifts. Not surprisingly, the first 24-hour store opened in Las Vegas in In 1964, remote self-serve fueling was introduced, but it would take more than a decade for fueling to grow at convenience stores. Only 2,500 stores had self-serve at the pump by It wasn t until the 1970s that retailers realized selling gasoline could be profitable and competitive. Today, the main competitors convenience stores face are those mentioned above as well as chain drug stores, superettes, supermarkets, dollar stores, warehouse stores, general retail stores, home delivery services and, of course, other convenience stores. The industry grew rapidly along with the consumer trend for convenience. The industry supplanted the neighborhood grocery stores and became established in new suburbs and areas too small to warrant a supermarket. Convenience store companies have been opportunistic and innovative, thriving in market niches too small for others to operate profitably. page 5