Bloomberg Businessweek - USA (2020-08-31)

◼ BUSINESS Bloomberg Businessweek August 31, 2020

11

PHOTOGRAPH

BY

SEAN

DAVIDSON

FOR

BLOOMBERG

BUSINESSWEEK.

DATA:

CONVENIENCE

STORE

NEWS

andbeverageofferings—especiallycoffee—thereby

increasingsalesandcustomervisits.Regionalchains

suchasWawa,Sheetz,andCasey’selevatedthe

convenience-storemenufrombeinga punchline

onTheSimpsonsintoa diningdestinationformany

time-pressedconsumers.Sellinghigher-marginbeer

andslusheesalsoevensoutthevolatilityofselling

gasoline,whichaccountsforabouttwo-thirdsofthe

industry’srevenuebutjust40%ofitsgrossprofit,

accordingtoConvenienceStoreNews.

Evenbeforethepandemic,thevolumeofgaso-

linesoldatthestoresannuallyhadbeendeclining

slightlyinrecentyears.Nowthereduceddemand

forfuel,inducedbyCovid,meansboostingsales

ofon-the-gofood andgeneralmerchandiseis

evenmoreimportantfortheindustry,whichsaw

annualnonfuelrevenuegrow10%overthepast

fouryears,to$235billionin2019.Butthecorona-

virushaspushedothertypesofretailerstodiveinto

e-commerce,promisingthequickservicethathad

alwaysbeentheraisond’êtreofconveniencestores.

GrocerystoreshaverampedupInstacartoffer-

ings,momandpopstoressignedupwithdelivery

apps,andrestaurantchainspouredmoneyinto

onlinetakeoutmenus.Amazon.comInc.mean-

whileisexpandingone-hourdelivery,whichin

somemarketsincludesconvenienceitemslikesoda

andrazors.AndinAugust,DoorDashInc.debuted

anonlineconveniencestorecalledDashMartthat

promisestoofferthousandsofitemsfordelivery

inlessthan 30 minutesfromitsowndistribution

centers.Thedeliverygianthasstartedtheservice

ineightcities,includingChicagoandPhoenix,and

planstoaddmorelocalessoon.

Convenience-storeoperatorsareofferinga wide

rangeofhome-deliveryitems,everythingfrom

milk,eggs,andDingDongstoTylenolandcoffee

filters.Butservingcustomersonlinebringsitsown

challenges—especially if it narrows stores’ already

thin margins because of the added cost of getting

goods to shoppers’ doorsteps. “There is this growing

pressure to explore delivery, but delivery is tough,”

says Jennifer Bartashus, an analyst for Bloomberg

Intelligence. “In the short term, it meets a need for

customers who don’t want to come into stores, but

there are questions about long-term profitability.”

John Nelson, who founded Vroom Delivery,

which offers stores an e-commerce platform, says

outsourcing delivery will eventually become too

expensive or it will lead to price increases to make

up for the cost. Plus, many states forbid third par-

ties from delivering lucrative items like tobacco

and alcohol; that could push convenience stores

to hire their own employees to make deliveries to

homes. “Even the big chains are going to have to

reevaluate their distribution models,” Nelson says.

There’salsothedilemmathatthebettera store’s

onlineofferingsbecome,themorecustomersmay

skiptheshoppingtriptoa brick-and-mortar out-

let. That often causes a hit to sales, because it

eliminates impulse purchases that in-store mer-

chandising is still very good at generating.

To improve results, e-commerce veterans use

data science and algorithms to increase online

order size. But convenience stores start at a disad-

vantage, having an average total purchase of just

$9, according to Convenience Store News, and now

they have to give a cut to delivery apps. Delivery

services charge 15% to 30% of a convenience pur-

chase’s bill—plus fees paid by the customer, which

can double the price of a small order. But if stores

aregoingtoremainconvenientintheeyesofshop-

pers,theydon’thavemuchchoice.“Consumersare

beingtrainedforinstantgratification,”Bartashus

says.“It’shardtoseethatchanginganytimesoon.”

Convenience-storechainshavetriedtoease

investorconcernsbypointingtoearlysignsthat

onlinecustomersarespendingmoreperpurchase,

especiallyafter9 p.m.,whenfewpeoplewantto

ventureout.Somehavesaiddeliveryexpansion

hasn’tcannibalizedin-storerevenue,butis instead

generatinga netsalesboostthat,evenata smaller

profitmargin,willmakethemmoremoney.

In theMidwest,Casey’s hadbeen usingits

owndriverstomostlydeliverpizza,itsmostpop-

ularfoodoffering.Whenthecrisishit,it wastest-

ingDoorDashin 30 storestoofferlongerhoursand

moreitems,accordingtoChrisJones,chiefmar-

ketingofficer.Withinweeks,thepilotexpandedto

600 stores.Thecompanysaidit isn’tworriedabout

Amazon,becausehalfitslocationsareintownsof

fewerthan5,000people—partsoftheU.S.wherethe

e-commercegiantdoesn’tyetofferspeedydelivery.

“We’vegota realadvantagebasedonourphysical

locations,”whichallowCasey’stomakethevast

majorityofdeliverieswithin 45 minutes,Jonessays.

7-Eleven,thelargestU.S.chain,whichwillhave

morethan13,000storesinAmericaaftercomplet-

ingitsacquisitionofSpeedwayconvenienceoutlets

fromMarathonOilCorp.,is goingall-inonhome

delivery.A yearagoit offeredtheservicein 200 U.S.

cities.Bymid-August,it wasscheduledtohavedeliv-

eryin1,300.“Thedefinitionofconveniencehas

rapidlyevolvedduringthispandemic,”saysChris

Tanco,7-Eleven’schiefoperatingofficer.“Delivery

expansionis heretostay.”�SandrineRastello,with

NicQueroloandEdwardLudlow

THE BOTTOM LINE Convenience shops were retail’s last big

e-commerce holdouts. Now that the pandemic has cooled their

gasoline sales, they’re rushing to expand their delivery offerings.

▼ U.S. convenience-

storesalesin 2019

Foodservice

40

Other

35

Alcohol 25

Packagedbeverages

andsnacks

53

Tobacco

83

Fuel

$414b