Gas Guzzling Goes Gourmet ...

With more fuel efficient cars requiring fewer fill-ups; declining cigarette revenues and a growing preference among millennials for public or alternative transport, consumer visits to gas stations are under downward pressure. According to the NACS, the most common reason for entering a gas station convenience store (other than paying for gas) is to buy a drink, a snack, cigarettes, or a lottery ticket. However, over the period 2009-2013, the 35% of visitors who actually go inside have generated an increase in non-gas sales of 11.8%.

Increasingly, there is a blurring between stores that now happen to sell gas, and gas stations that happen to sell food. Both operate at relatively low margins with retailers only making pennies in profit on a gallon of gas. They both need higher margin offerings. According to a February AJC article, this is manifesting itself in the form of such new initiatives as the QT Kitchen at QuickTrip featuring flatbreads and smoothies; and Speedway and 7-Eleven offering a coffee lineup to rival Starbucks. Venerable chain RaceTrac opened stores that included walk-in wine and beer coolers; expanded coffee and shake options; fresh sandwiches and fruit cups and a mouth-watering Swirl World frozen yogurt bar.

The timing is right for these initiatives. With gas prices down on last year, the consumer at the pump has a bit extra to spend on a tempting treat. Additionally, millennials seeking a foot-accessible food source in their “neighborhood-style” developments are increasingly turning to convenience stores as a low cost option for lunch.

What is the takeaway here? We can see some clear parallels. Barnes and Noble used books and magazines to get folks into a store so they would buy expensive (and profitable) coffee as they browsed. In our scenario, gas is the hook that indirectly gets consumers into the gas station store, but as the power of that lure wanes, the consumer needs something more to make the convenience store a destination in itself. In the online world, free wallpapers and ring tones, or medical advice, creates traffic that generates advertising revenue. The common theme here is getting the consumer’s attention. If you can do this well you should be able to make money, even in an industry where ancient hot dog sausages on heated rollers is the legacy image of gas station food. The consumer just needs to be introduced to a new profit opportunity.

Put simply, the experience can become more important than the product. In this sector the losers are the fast food chains, whose segment share is down 3%. They, notably McDonalds, are failing to connect with the consumer and this leaves an opportunity for those with a new customer pipeline to “eat their lunch” (sorry!) by exploiting their poor differentiation.