Are C-Stores Starting to Slip?
Is Pay-at-the-Pump a Drain?

Beverage industry executives -- CSD, water, non-carb -- all recently voice concerns over weakening results in important, high-margin C-store channel.  For 1st quarter 2001, all major categories -- except bottled water and sports drinks -- registered volume declines in C-stores (table below).  Bottled water and sports drink C-store performance  lagged behind most other channels.  For example, water's grocery volume was up +40.2% vs up +3.4% in C-stores.  Sports drinks up +6.3% in groceries; up +5.4% in C-stores.  Franchise company executives and bottlers point to several reasons, but say  main concern is increased use by C-stores of "pay-at-the-pump" fuel dispensers.   Industry executive on C-store beverage results:  "It doesn't look good ... We're scratching our heads."

Pay-at-the-pump.  In U.S., there were 119,751 C-stores at year-end 2000; up just +0.3% from 1999.  C-store expert notes about 78% of all U.S. C-stores -- and 96% of new stores -- have gas pumps.  Problem comes from fact that number of C-stores offering pay-at-the-pump increased dramatically over last five years (chart).  At year-end 2000, 69% of C-stores offered pay-at-the-pump vs just 17% in 1995.  Several bottlers say pay-at-the-pump hurts beverage sales, as more consumers pay for gas outside and don't enter store where drinks sold.  Pepsi bottler: "Pay-at-the-pump is a huge issue.  It's difficult getting people into the stores, and gas companies don't want displays at the pumps."  Coke bottler: 1) "Pay-at-the-pump means people aren't buying as much inside the stores.  The biggest factor (in C-store weakness) is pay-at-the-pump." 'Closes the book.' 3rd tier bottler: "(People) don't go into C-stores as often.  They pay at the pump and drive off.  The high gas prices make it even worse.  (Consumers) see $2 more on the pump when they fill up, and then they really drive off instead of using that for a drink."  C-store expert: "(Pay-at-the-pump) closes the book on the transaction for a lot of people.  They don't go into the store as much."

Other reasons. Beyond pay-at-the-pump, executives/bottlers also cite gas prices, weather and CSD prices at C-stores. Pepsi bottler explains gap is widening between 12-pack pricing at C-stores and grocery channel.  Notes, "at C-stores, it's now 20¢-40¢ over grocery pricing."  Major cola company executive says, "it's not just pay-at-the-pump.  The typical (C-store) customer is being hit by the double whammy of increases in gas and cigarette prices."  J.P. Morgan's John Faucher: "Growth is slowing in converting gas stations to C-stores, so the (beverage) industry is feeling the impact of the loss of those format changes."

C-stores.  Beverage sales.  Bottler notes C-store CSD pricing trending up means $2.99 12-pack pricing is "becoming rare."  Data indicates C-store CSD pricing up +3.3% in 2000; up +1.8% in 1st quarter of 2001. Per-store sales.  C-store industry data indicates beverage dollar sales actually increased last year on per-store basis:  $106,000, up +14% vs 1999.  Data includes all non-alcoholic beverages. Danger sign.  But data also shows cold-bottle sales were down.  On per-store basis, cold-bottle sales were $23,000 in 2000, down -8% from $25,000 in 1999.

Against their self-interest?  C-stores' greater use of pay-at-the-pump would seem to hurt C-stores themselves, as well as beverage companies.  C-store expert says C-stores make about 9% margin on gas vs 30% margin on in-store sales.  Pepsi bottler:  "It's ridiculous. (C-store chain) is charging the lowest prices (for gas) in the area, yet pay-at-the-pump keeps people out of their stores."  Industry executive:  "I guess (C-store operators) had to put in (pay-at-the-pump) for their customers," says beverage executive, but "something doesn't sound so smart."

Ahead. All agree pay-at-the-pump isn't going away. Pepsi bottler says C-stores "have to do a better job with messaging and promotions at the pumps to (attract) people into the store.  Maybe, for example, if (consumers) could take their gas receipts into the store and get money off on chips or a soda, that might help."  Other ways to sell. 'Decline.' Bottler says in some cases, ice-filled containers near pumps may help, but "then people still have to go into the store and pay."  Asked about vendors or coolers near pumps, bottler says: "We can't (place them) near gas pumps for safety reasons."  Adds, "it looks like a long-term decline for (beverage sales in) C-stores."