Do you want to be MacGyver, the 80s special-ops agent and

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1 DATA SECTION Preliminary Data from NACS State of the Industry Summit By Samantha Oller Do you want to be MacGyver, the 80s special-ops agent and troubleshooter who can save the world with a paperclip? Or are you going to be MacGruber, the easily distracted Saturday Night Live parody who cannot defuse a bomb to save his own life? That was the question Kevin Smartt, CEO of Kwik Chek Food Stores Inc., Bonham, Texas, posed to attendees at the 2014 NACS State of the Industry (SOI) Summit. One case in point: the c-store industry s response to McDonald s McCafé hot-beverage program, which went on to become a key driver of growth for the fast-food chain and a real competitive threat to c-stores. Folks, we got caught flat-footed in 07 when McDonald s rolled out McCafé, Smartt said. We don t want to MacGruber this again. In 2013, hot-beverage sales fell 4% on a per-store, per-month basis, according to preliminary numbers from the NACS State of the Industry Report of 2013 data, with gross profits off 2.6%. While the specific factors leading to this decrease are unknown such as if weather was a factor retailers need to double down on foodservice. Total category sales rose only 2.4% in 2013, compared to an 8.7% increase in As an industry, we have to do better than that, warned Glenn Plumby, vice president of operations for Speedway LLC, Enon, Ohio, during his presentation of industry numbers. He pointed to the fact that quick-service chains McDonald s and Wendy s each saw a similar or greater same-store growth rate over the past two years, but they grew off a much greater sales base. Meanwhile, myriad issues are picking away at the industry s growth potential, from a sluggish economy to greater regulatory threats and changing consumer demographics. There are bright spots, such as strong sales growth in the alternative and other subcategories of snacks and packaged beverages. Figures from The Nielsen Co. show that c-store unit sales of other packaged beverages a subcategory that includes bottled coffee and protein drinks rose 26.3% in Dollar sales of alternative beverages, led by energy drinks, are now 72% that of WWMD: What would MacGyver do? said Kevin Smartt, urging retailers to face their challenges regulation, demographic trends, cross-channel competition head on and be creative with their solutions. 85

2 TOTAL INDUSTRY Total Industry Sales the category s biggest seller, carbonated soft drinks, according to preliminary NACS SOI figures. And alternative snacks, which include meat snacks and bars, saw a 30.5% jump in monthly sales per store, according to NACS. In tobacco, smoking alternatives e.g., e-cigarettes and other tobacco products were the greatest areas of growth. Nielsen figures show smokeless tobacco up 6.8% and e-cigarettes up nearly 129%, with units growing 149.5%. Kwik Chek saw a leap of more than 180% in unit sales for the subcategory but, as he explained, it took a little MacGyver-type action. We made it a mission to own this subcategory, he said. We took the challenge head on, moved fast, added multiple brands and at varying price points. The retailer even self-distributed some brands to the point that it is now one of the market leaders in its area. This is an approach that would serve all retailers well, no matter the category. What would MacGyver do? Smartt asked. MacGyver was known for facing challenges head on, using the resources he had available and overcoming obstacles at the end with positive results. In-Store Sales and Gross-Profit Breakdown For the first time, c-store industry inside sales surpassed the $200-billion mark. Year Inside sales Fuel sales 2002 $109.3 $ $116.2 $ $132.1 $ $151.1 $ $163.6 $ $168.5 $ $173.9 $ $182.4 $ $190.4 $ $195.0 $ $199.3 $ $204.0 $491.5 Industry Store Count The number of chain and single stores grew at about the same pace in 2013, with the former adding more than 2,000 sites. Year Single stores Chain stores ,395 54, ,044 54, ,770 53, ,574 56, ,957 55, ,683 55, ,567 55, ,049 54, ,815 54, ,209 54, ,819 55, ,056 56,226 Source: TDLinx The 2.5% increase of in-store sales in 2013 was a slightly better growth rate than in 2012, according to NACS same-firm sample. This group of firms has reported numbers for two consecutive years. Foodservice sales, which rose nearly 9% in 2012, crept up only 2.4% in In-store category 2013 sales* PCYA** 2013 gross-margin PCYA** dollars* Foodservice $24, % $13, % Merchandise (including cigarettes) $111, % $31, % Merchandise (less cigarettes) $67, % $25, % Cigarettes $44, % $6, % Total in-store sales $136, % $44, % Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. 87

3 FUEL Fuel: Sales and Gross-Profit Dollars Average Selling Price and Margin Per Gallon On a same-firm basis, fuel gallons rose 0.9% in 2013, while fuel sales fell more than 2% with a lower selling price per gallon. Fuel margins rose 2.3% in 2013, with the average selling price off more than 10 cents per gallon after three straight years of increases. Year Price Margin 2007 $ CPG 2008 $ CPG 2009 $ CPG Sales 2010 $ CPG Gallons 2011 $ CPG 2012 $ CPG Average selling price 2013 $ CPG Gross-profit dollars Metric Per Store Per Month PCYA* $457, % 132, % $ % $24, % Fuel pool margin CPG CPG 2.3% Fuel margin net credit-card fees CPG 3.4% Regional Fuel Trends: Sales Change The Western United States grew gallons and margin more than any other region in Measure Northeast Southeast Midwest South Central Central West Fuel gallons 1.8% 1.1% 1.0% 2.0% 0.8% 4.5% Fuel margin net credit-card fees 0.1% 1.8% 13.4% 8.7% 7.4% 20.6% * Percent change from a year ago Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. 88 CSP N AC S S ta te o f th e I n d u s try Summi t Spec i al I s s ue 2014

4 EXPENSES AND PRODUCTIVITY 4.4% Expenses Rise in direct store operating expenses, according to preliminary NACS data According to an analysis of data from firms sharing data for five consecutive years, expenses have growth at a faster clip than in-store gross-profit dollars. For the same-firm sample, direct store operating expenses grew 4.4% in While wages and benefits rose more than 3%, healthinsurance expenses grew only 0.7%. Direct store operating expenses Item 2013 expense* PCYA **** Wages and benefits $17, % Credit-card charges $5, % Utilities $2, % Repairs and maintenance $2, % Supplies $ % Total DSOE $40, % Facility expense $9, % Rent/occupancy $4, % Total DSOE and facility expense $50, % Wages and Benefits Breakdown Wages $13, % Payroll taxes $1, % Health insurance $1, % Other benefits $ % Workers compensation $ % Total $17, % Same-Firm Productivity* When broken into s by store operating profit, same-firm retailers showed big differences in their ability to generate sales and profits. For example, top- retailers had 3.6 times the foodservice sales as bottom- operators. The top also continues to distance itself from the bottom in employee turnover, with a nearly 19-point gap in annual manager turnover. Another big area of difference: break-even CPG was more than 9 cents lower for top operators. Labor Productivity Metric Top decile Top Second Third Bottom In-store sales per labor hour $ $86.56 $89.19 $80.61 $75.45 In-store gross-profit dollars per labor dollar N/A $2.04 $2.44 $1.83 $1.63 Total gross-profit dollars per labor dollar N/A $3.18 $3.53 $2.82 $2.79 In-store gross-profit dollars per labor hour $33.36 $28.57 $25.88 $22.27 $20.66 Labor cost per hour $15.26 $13.69 $14.49 $12.74 $12.32 Nonmanagers annual turnover 88.8% 80.6% 81.2% 91.3% 92.6% Managers annual turnover 19.7% 18.0% 20.5% 17.5% 36.6% Facility Productivity Gallons sold 221, , ,426 95, ,281 Merchandise sales $163,213 $132,106 $101,978 $86,127 $76,102 Foodservice sales $45,703 $34,572 $17,640 $10,075 $9,712 In-store gross-margin % 32.0% 32.7% 31.6% 28.6% 27.3% Cigarette gross-margin % 12.8% 13.5% 15.9% 14.3% 14.1% Average square feet 2,136 2,477 2,891 2,482 2,494 In-store sales per square foot $97.42 $67.09 $41.23 $38.74 $33.99 Direct store operating expenses per square foot N/A $20.69 $12.62 $11.89 $11.83 Capital Productivity Store operating profit $34,487 $26,593 $12,399 $8,506 $4,174 Break-even CPG Credit-card fees N/A $5,645 $5,159 $5,241 $8,248 EBITDA** $31,923 $25,406 $11,272 $7,347 $4,148 EBITDARL*** $35,545 $28,326 $16,825 $10,353 $8,879 Net profit percentage N/A 12.2% 13.8% 11.5% 10.0% Return on capital employed 16.90% 16.49% 8.80% 9.68% 0.36% ** Earnings before interest, taxes, depreciation and amortization *** Earnings before interest, taxes, depreciation and amortization with rents and leases added back in ** Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. 90

5 CATEGORY REVIEW In-Store Sales Trends Tobacco supplied 37% of c-stores in-store sales and 18.7% of its gross-profit dollars in On a same-firm basis, cigarettes generated the most sales, although they were off 3.5% from the year prior. Foodservice was the top profit generator, with prepared food and commissary contributing to its growth. Excluding foodservice, packaged beverages was the biggest contributor of gross-margin dollars, or $8,772 per store per month. In-Store Sales Contribution Cigarettes 32.4% Foodservice 18.0% Packaged beverages 15.5% Beer 7.9% OTP 4.6% Salty snacks 3.7% Candy 3.1% Packaged sweet snacks 2.0% Milk 1.6% Alternative 1.1% All other 10.1% Leaders in Merchandise Sales Category Sales dollars* PCYA** Cigarettes $44, % Packaged beverages $21, % Beer $14, % OTP $6, % Salty snacks $5, % Candy $4, % Packaged sweet snacks $3, % Milk $2, % General merchandise $1, % Ice cream and novelties $1, % In-Store Gross-Profit-Dollar Contribution Category Share of in-store gross-profit $ Foodservice 29.1% Packaged beverages 19.6% Cigarettes 14.4% Beer 5.0% Candy 4.5% OTP 4.4% Salty snacks 4.3% Packaged sweet snacks 2.2% Alternative 1.6% Milk 1.3% All other 13.6% Top Gross-Margin Earners Category Gross margin % Margin $* Packaged beverages 41.6% $8,772 Cigarettes 14.6% $6,532 Beer*** 21.1% $3,166 Salty snacks 37.9% $2,267 Candy 48.0% $2,156 OTP 31.6% $2,048 Packaged sweet snacks 35.3% $1,075 General merchandise 42.9% $848 Ice cream and novelties 45.4% $752 Milk 28.0% $630 Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. *** Stores selling beer 92

6 CIGARETTES 32.4% The top decile of c-store retailers by store operating profit generated more than $20,000 per store per month in cigarette sales than the top- operators. Top decile Top Second Third Bottom $79,796 $59,520 $38,202 $36,934 $31,567 Sales Breakdown According to Nielsen figures, more than 80% of c-store cigarette sales came from premium brands in PCYA** Premium 1.0% Branded discount 1.4% Subgeneric/private 4.7% Fourth tier 2.4% 14.5% M 4.8% Share of dollar sales 0.5% 80.2% Sales by Cigarette sales fell 3.5% in 2013 to settle at $44,751 per store per month. Dollar sales* Premium $35,886 Branded discount $6,496 Subgeneric/private label $2,167 Fourth tier $202 Total $44,751 Top- operators generated nearly twice the profit on cigarettes per store per month as bottom- retailers. Top decile Top Bottom $10,212 $8,010 $4,448 Gross Profits by Cigarette gross-profit dollars fell 5.7% in Average margin Gross margin % dollars* Premium $5, % Branded discount $ % Subgeneric/private label $ % Fourth tier $ % Total $6, % 14.4% Share of in-store gross-profit dollars Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. 94

7 FOODSERVICE The top of retailers by store operating profit rang up more than four times the sales of hot dispensed beverages of bottom- operators. 18.0% Top decile Top Second Third Bottom Prepared food $28,421 $23,857 $12,874 $8,547 $9,947 Hot dispensed beverages $6,806 $7,211 $4,340 $1,976 $1,758 Cold dispensed beverages $5,665 $4,454 $3,029 $1,868 $1,875 Total (including subcategories not shown) $45,703 $34,572 $17,640 $10,075 $9,712 Sales Breakdown All subcategories combined, foodservice supplied more than 17% of in-store sales on a per-store, per-month basis. Share of instore sales Prepared food 8.8% Hot dispensed beverages 3.8% Cold dispensed beverages 2.1% Commissary/sandwiches 1.3% Frozen dispensed beverages 1.3% For the three largest subcategories in foodservice, gross profits varied greatly between the top and bottom s. Top decile Top Second Third Bottom Prepared food $15,963 $14,260 $7,701 $4,448 $4,705 Hot dispensed beverages $3,737 $4,756 $2,518 $993 $652 Cold dispensed beverages $3,092 $2,507 $1,583 $912 $651 Gross Profits By * Sales by Prepared items supplied the greatest amount of foodservice sales in 2013, or $19,505 per store per month. Prepared food $19,505 Hot dispensed beverages $5,032 Cold dispensed beverages $3,104 Gross-profit dollars for prepared food rang up to $11,529 per store per month in Average margin dollars* Prepared food $11,529 Hot dispensed beverages $2,975 Cold dispensed beverages $1,702 Frozen dispensed beverages $1,290 Commissary/packaged sandwiches $642 Frozen dispensed $1,894 beverages Commissary/packaged 29 $1,817.1% sandwiches Share of in-store gross-profit dollars Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. 96

8 PACKAGED BEVERAGES Top- retailers by store operating profit enjoyed more than double the packaged-beverage sales of bottom- operators in Top decile Top Second Third Bottom $30,957 $25,082 $18,880 $14,295 $11, % Sales Breakdown 98 While CSDs contributed more than one-third of c-store packaged-beverage sales in 2013, according to Nielsen, alternative and other packaged beverages posted the greatest growth. Share of dollar sales PCYA** Carbonated soft drinks 34.3% 0.7% Alternative 24.6% 6.8% Sports drinks 9.4% 2.2% Bottled water 9.2% 2.2% Juice/juice drinks 8.7% 3.9% Other category contributors RTD iced tea 5.3% 0.9% Enhanced water 3.1% 0.7% Other packaged beverages 5.4% 21.1% Sales by Sales of packaged beverages rose 3.6% in 2013, according to same-firm figures. Carbonated soft drinks $7,231 Alternative $5,190 Sports drinks $1,990 Bottled water $1,935 Juice/juice drinks $1,846 RTD iced tea $1,128 Enhanced water $651 Other packaged beverages $1,143 Total $21,114 Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. Top-decile operators earned nearly three times the profit of bottom- retailers on packaged beverages. Top decile Top Bottom $12,438 $9,949 $4,208 Gross Profit by Packaged-beverage gross-profit dollars rose 5.4% in Average margin Gross margin % dollars* Carbonated soft drinks $3, % Alternative $2, % Sports drinks $ % Bottled water $ % Juice/juice drinks $ % RTD iced tea $ % Enhanced water $ % Other packaged $ % beverages Total $8, % 19.6% Share of in-store gross-profit dollars

9 BEER Compared to other categories, the differences in beer sales between top and bottom- operators in 2013 were relatively modest. Top decile Top Second Third Bottom $17,157 $14,325 $15,370 $13,091 $13,164 ; because of state and local restrictions on beer sales, retailers were ranked into deciles and s by beer gross-profit dollars rather than store operating profits. Sales Breakdown Nearly 52% of c-store beer sales came from premium labels, according to Nielsen, but imports, flavored malt beverages, microbrews and superpremium brands enjoyed the greatest growth rate in Sales by 7.9% (14.8% for stores selling beer) Sales of beer rose 0.7% in 2013, according to NACS same-firm sample. Share of dollar sales PCYA* Premium 51.9% 1.4% Imports 10.9% 8.9% Budget 10.4% 4.7% Popular 9.3% 3.4% Flavored malt 6.0% 23.7% Other category contributors Microbrews 4.7% 31.0% Superpremium 4.3% 9.5% Malt liquor 2.4% 0.7% Nonalcohol 0.1% 2.6% Premium $7,771 Imports $1,633 Budget $1,559 Popular $1,386 Flavored malt $903 Microbrews $708 Superpremium $639 Malt liquor $366 Nonalcohol $8 Total $14,973 On a per-store, per-month basis, top-decile operators generated more than $3,000 in gross-profit dollars from beer in Top decile Top Bottom $3,039 $2,627 $2,338 ; because of state and local restrictions on beer sales, retailers were ranked into deciles and s by beer gross-profit dollars rather than store operating profits. Gross Profit by Gross-profit dollars from beer rose 0.4% in 2013 among the retailers in the same-firm sample. Average margin Gross margin % dollars* Premium $1, % Imports $ % Budget $ % Popular $ % Flavored malt $ % Micro $ % Superpremium $ % 5.0% Malt liquor $ % Nonalcohol $2 14.5% (9.1% for stores Total $2, % selling beer) Share of in-store gross-profit dollars Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. 100

10 OTHER TOBACCO PRODUCTS 4.6% Top-decile retailers rang up about $2,000 more per store per month in OTP sales than bottom operators. Top decile Top Second Third Bottom $8,497 $7,392 $5,980 $6,481 $5,670 Sales Breakdown While smokeless dominated c-store OTP in 2013 with 60% of category sales, according to Nielsen, e-cigarettes posted a triple-digit growth rate. Share of dollar sales PCYA** Smokeless 60.0% 6.8% Cigars 28.8% 1.0% E-cigarettes 7.1% 128.7% Papers 2.7% 1.9% Pipe/cigarette tobacco 1.3% 0.4% Other 0.1% 9.9% The top-decile retailers by store operating profits earned about 30% more gross-profit dollars from OTP on a per-store, per month basis than those in the bottom. Top decile Top Bottom $2,503 $2,175 $1,911 Sales by OTP sales rose 6.6% for the retailers in the same-firm sample. Smokeless $3,889 Cigars $1,868 E-cigarettes $457 Papers $175 Pipe/cigarette tobacco $7 Other products $83 Total $6,479 Gross Profits by OTP margin dollars in 2013 rose 7.0% for retailers in the same-firm sample. Average margin Gross margin % dollars* Smokeless $1, % Cigars $ % E-cigarettes $ % Papers $ % Pipe/cigarette tobacco $2 26.1% Other products and pipes $ % Total $2, % 4.4% Share of in-store Source unless cited above: NACS; preliminary data. Final data to appear gross-profit dollars in the NACS State of the Industry Report of 2013 Data. 102

11 SALTY SNACKS 3.7% The top 10% of c-store retailers in the same-firm sample rang up more than three times the salty-snack sales on a per-store, per-month basis than the bottom. Top decile Top Second Third Bottom $9,227 $6,504 $4,412 $4,005 $2,962 Sales Breakdown Many of the salty-snack segments enjoyed strong gains in c-store sales in 2013, according to Nielsen. Share of dollar sales PCYA** Potato chips 25.0% 1.4% Other salty snacks 17.2% 7.0% Tortilla/corn chips 16.3% 9.2% Nuts/seeds 13.6% 5.9% Puffed cheese 8.5% 6.7% Other category contributors PCYA** Mixed 6.1% 7.6% Crackers 5.0% 3.5% Pretzels 4.3% 4.6% RTE popcorn 3.9% 14.9% Sales by Salty-snack sales among the same-firm operators rose 9.4% in Potato chips $1,491 Other salty snacks $1,029 Tortilla/corn chips $973 Nuts/seeds $813 Puffed cheese $510 Mixed $365 Crackers $301 Pretzels $256 Packaged popcorn $235 Total $5,975 Top-decile operators generated more than three times the gross profits of salty snacks on a per-store, per-month basis in 2013 than the bottom 25% of retailers. Top decile Top Bottom $3,530 $2,482 Gross Profit by $1,061 Salty-snack gross-profit dollars rose 8.0% in 2013 for retailers in the same-firm sample. Average margin dollars* Gross margin % Potato chips $ % Other salty snacks $ % Tortilla corn chips $ % Nuts/seeds $ % Puffed cheese $ % Mixed $ % Crackers $ % Pretzels $ % Packaged popcorn $ % Total $2, % Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data. 104

12 CANDY The top 25% of retailers in the same-firm sample saw nearly $2,000 more per store per month in candy sales than those in the bottom. Top decile Top Second $5,376 $4,632 $4,283 Sales Breakdown Third Bottom $3,389 $2,975 The greatest growth in candy as a percentage of sales came from bagged candy, according to Nielsen. Share of dollar sales PCYA** Chocolate bars/packs 36.8% 3.0% Bagged or repackaged peg candy 21.1% 15.1% Gum 18.7% 7.4% Novelties/seasonal 10.0% 6.1% Nonchocolate bars 7.3% 4.2% Candy rolls, mints, drops 6.1% 2.5% 4.5% Share of in-store gross-profit dollars Top- retailers earned 1.6 times the candy gross-profit dollars that bottom- operators did, according to preliminary NACS State of the Industry data. Top decile Top Bottom $2,375 $2,104 $1,492 Sales by Candy sales rose 1.2% in 2013 for retailers in the same-firm sample. Chocolate bars $1,652 Bagged or repackaged peg candy $948 Gum $840 Novelties, seasonal $449 Nonchocolate bars $325 Candy rolls, mints, drops $273 Total $4,487 Gross Profit by Candy gross-profit dollars rose 0.8% in 2013 to reach $2,156 per store per month. Average margin Gross margin % dollars* Chocolate bars/packs $ % Bagged or repackaged peg candy $ % Gum $ % Novelties/seasonal $ % Nonchocolate bars $ % Candy rolls, mints, drops $ % Total $2, % 3.1% 106 Source unless cited above: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data.

13 ALTERNATIVE SNACKS Sales Breakdown Meat snacks represent nearly 60% of the alternative-snacks subcategory. 6.8% 5.6% 1 PCYA** Meat snacks 3.9% Share of Health/energy/protein bars 6.4% dollar sales Other alternative snacks 6.8% Granola/fruit bars 3.9% 28.6% M58.9%.1% Sales by Gross Profit by Retailers in the same-firm sample grew margin dollars for alternative snacks by 30.6% in Average margin dollars* Gross margin % Meat snacks $ % Health/energy/protein bars $ % Granola/fruit bars $ % Other alternative snacks $ % Total $ % Source: NACS; preliminary data. Final data to appear in the NACS State of the Industry Report of 2013 Data 1.6 Share of in-store gross-profit dollars % Sales of alternative snacks rose 30.5% for retailers in the same-firm sample. Meat snacks $829 Health/energy/protein bars $403 Granola/fruit bars $79 Other alternative snacks $96 Total $1,