Convenience channel growth decelerated to 1.7% in the first quarter of the year, underperforming all other retail channels, according to market research firm IRI’s “The Convenience Store Landscape Q1 2022” report released this week.
C-stores reported total Q1 sales of around $42.5 billion, but growth lagged behind MULO sales, which rose 6.2% in the same period. Comparatively, convenience sales were up 4.6% in Q4 2021 and prior to that rose 8.8% in Q1 2021. The 1.7% growth the channel reported was largely driven by a 2.1% increase in base dollar sales, as incremental dollar sales fell 6.1% year-over-year in the quarter.
Meanwhile, grocery channel dollar sales rose 4.6% and mass was up 7.7% in the quarter. Market share for convenience sales fell 0.6 points during Q1 to 17.2%, while grocery market share was down 0.3 points to 39.9% and mass increased its share by 0.6 points to 27.8%. Dollar sales in smaller channels, including drug (+10.4%) and club (+9%) also outpaced c-stores.
What impacted the results?
While the U.S. retail sector has faced a barrage of issues during the quarter, including continued supply constraints, IRI said inflationary pressures and price/mix changes across categories were the primary reasons for the convenience slowdown.
The results come amid broader macroeconomic issues, as the U.S. GDP fell 1.4% in the quarter (compared to 6.9% growth in Q4 2021) while inflation increased 8.5% in the month of March, the highest inflation spike in 40 years. Overall, year-over-year retail sales growth also slowed to 0.5% in March, compared to +5.1% in January and +0.8% in February. As a result, consumers are increasingly concerned about their finances; U.S. consumer sentiment was at a 10-year low, down to 59.4 in March, down from 62.8 in February and 84.9 in March 2021, IRI noted.
As wallets tighten, consumers were also finding fewer deals on shelf as promotional activity remained muted, according to the report.
“Consumers’ assessments of their current finances remained at low levels in Q1 due to high inflation, volatile oil prices and rising interest rates along with geopolitical unrest caused by uncertainty over Russia’s invasion of Ukraine,” the report stated. “Disruptions to the global supply chain caused by the pandemic are still causing shortages and driving up inflation.”
Despite the challenges, ecommerce sales continued to show strong results, up 17.6% year-over-year to $41.1 billion in the quarter. Casey’s digital sales increased 11% quarter-over-quarter in its Q3 fiscal year 2022 earnings report, while GPM Investments LLC, meanwhile, expanded its partnership with DoorDash to over 900 stores in 24 states.
“The pandemic accelerated growth of e-commerce, which hit $150 billion in 2021,” the report stated. “Dramatic investments by leading retailers will further expand e-commerce in the coming years. Many convenience stores have also invested in online ordering and delivery services to keep pace with the market.”
How did specific categories perform?
Beer and cigarettes, which combined represent 44% of convenience channel sales, fell significantly during the quarter; cigarette dollar sales dropped 4.8% while beer was down 3.1% (against an average price increase of 4.9% and volume declines of 7.7%). Both categories fared poorly in MULO as well, as sales fell 7.5% and 2.9% respectively.
However, non-alcoholic beverages, salty snacks and candy all served as bright spots for convenience retailers. Beverage sales were up 6.3% in Q1, against an average price increase of 6.8% and volume decline of 0.5%. Salty snacks rose 12.2%, with pricing up 8% and volume up 3.9%, and candy sales increased 10.1%, as pricing grew 7.9% and volume improved by 2%. Beverage sales in MULO outpaced convenience, up 10.9%, but salty snacks (+10.1%) and candy (+5.4%) reported slower growth in the broader retail space.
Store brands were also a positive dollar sales growth driver for convenience, up 14.1% in the first quarter, while national brands grew just 1.1% year-over-year. In MULO, store brands were up 5.9%, while national brands grew 6.3%.
Broken down by subcategories, IRI reported novelty candy (+35.2%), RTD cocktails (+34.5%), salads and sides (+32%), frozen foods (+28%), frozen pizza (+23.3%) and milk alternatives (+20.1%) as among the top growing categories in c-stores.
Unflavored malt liquor (-29.9%), performance enhancement vitamins and supplements (-24.5%), 1% milk products (-12.6%), and value beer (-12.2%), meanwhile, ranked among the fastest declining categories.
Looking ahead, IRI advised convenience retailers to manage price/mix to retain a consumer base as inflationary pressures are expected to remain high “for the foreseeable future and many shoppers will switch to value channels, like mass and dollar, as a cost-savings measure.” As well, retailers should invest in securing supply for key products and consider more targeted promotions to keep consumers in store.