Between the Lines: Good News/Bad News?
By Robert Roman

In April, I participated in one of the educational sessions at the National Association of Convenience Stores (NACS) State of the Industry Summit in Chicago. During my visit, I was able to sit in and listen to experts speak about some of the factors that are having an influence on our closely related industry. The numbers and opinions held few bright spots.

The good news in 2007 was that convenience store industry sales grew by 1.4 percent. The bad news was that pre-tax profits dropped by $1.4 billion as compared to 2006. According to NACS, higher energy prices and labor costs were partly to blame, but the single greatest factor was a $1.08 billion increase in credit card fees, which cut industry profits by 50 percent. Apparently, U.S. retailers are paying a credit card interchange rate of 1.75 percent, which is about twice what other countries are currently paying. The interchange rate is a fee that a merchant bank pays a customer’s bank when the merchant accepts cards using card networks such as Visa and Master Card for purchases.

ECONOMY

The general consensus about the economy was that we are in a recession. Most of the analyst’s believe that 2008 will be a challenging year, which may lead to a potential shakeout in the convenience store industry. Things that are having a negative impact on consumer perception and spending include rising fuel prices, the housing bubble, and rising energy and food prices.

The general outlook is that people will spend less, will stay close to home, and will be very careful in how they spend their away-from-home money. Consumers are becoming more willing to do things to reduce ticket averages and look for more cheaper and viable options. Consumers are also becoming more particular about getting the full value proposition from their service providers; marginal businesses will get weeded out.

One of the key messages was that no industry is recession proof, and merchants need to look through the numbers. The people who will be successful will be those who pay attention to the basics like reducing and controlling expenses as a percentage of gross dollars and those who make plans to move the business ahead rather than hunker down.

TIME TO BUILD

Moving the business ahead means merchants should look for new opportunities. If your business has a strong balance sheet, this may be a good time to borrow money to upgrade buildings and equipment because capital costs are low and the cost of building (concrete, sheet rock, plywood, etc.) is coming down due to the slowdown in housing and commercial development. This may also be a good time for investors and merchants to build new stores. For example, Bush’s 2008 stimulus package provides small- and medium-sized businesses with a 50 percent add-on depreciation for buildings and equipment which has the added feature of reducing quarterly tax payments in the next year.

INNOVATE

Another key message was the need for merchants to look at innovation as a way of coping with the economy and creating a competitive advantage. In fact, innovation was a common theme in many of presentations that were given during the educational sessions.

For example, John MacDougal, president of Nice N Easy Grocery Shoppes, laid out his company’s plan to become “green” in 2008. Some of the elements of this plan include a consolidated electrical panel to monitor and control all circuits and minimize energy consumption; special 1” thermal glass that reduces UV by 50 percent, lowers cooling costs, and creates a more comfortable environment; an energy management system that uses outside air to cool the inside of stores, which reduces HVAC use and costs; tank-less hot water system, which eliminates the need to heat water 24-hours a day; re-lamping stores with LED lights to reduce energy consumption and the need to change bulbs monthly to a projected five to ten years; and applying white rubberized coatings on rooftops to reflect sunlight and keep stores cooler in the summertime.

In the final analysis, the recession may be even more difficult for the car wash industry to deal with because, unlike the convenience store industry, most car wash operators do not sell goods and services that are essential to everyday life. As a result, car wash operators cannot expect to grow through cost reduction and reengineering alone. Arguably, innovation will become one of the key elements for achieving top-of-the-line growth and for increasing bottom-line results now and in the future.

Robert Roman is an analyst and lead consultant for RJR Enterprises, a consulting firm based in Clearwater, FL (www.carwashplan.com). You can reach Bob via e-mail at rjrcarwashplan@yahoo.com.