Preliminary Data from NACS State of the Industry Summit. By Angel Abcede

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1 Preliminary Data from NACS State of the Industry Summit By Angel Abcede Though enduring a sluggish second half of 2012, c-store retailers overall enjoyed a record-breaking year for both sales and margins, with category successes in packaged beverages, beer, snacks and foodservice. At the annual NACS State of the Industry (SOI) Summit, presenters reviewed overall numbers, analyzed categories and pointed out areas of success and challenge. With declining demand in core categories of cigarettes and fuel, Kevin Smartt, conference presenter and CEO of Kwik Chek Food Stores Inc., Bonham, Texas, announced areas where the industry knocked it out of the park, calling for retailers to examine tobacco-pricing and cold-vault strategies to better stand their ground and exploit upward trends. Overall, the industry broke the $700 billion threshold in sales for 2012, with numbers up 2.7 % to $700.3 billion from $681.9 billion in Pretax profits continued their growth trend, rising 3% to $7.2 billion, having hit $7 billion the previous year. The victories were tempered, however. Facing falling demand, core categories of fuel and cigarettes did manage to remain stable for retailers taking part in the SOI study. Fuel gallons rose 0.1% to 135,121 per store per month, while 81

2 cigarette sales fell less than a percentage point (0.9%) to an average of $51,863 per store per month. Pointing out how sales flattened out in the second half of the year, Glenn Plumby, SOI presenter and vice president of operations for Speedway LLC, Enon, Ohio, said multiple factors the jobless recovery, more fuel-efficient cars, even Hurricane Sandy may have had an effect. Photo by Diane Smutny Drawing Tobacco Lines The positive news about tobacco came with the surge in sales of electronic cigarettes, along with the promising growth of other tobacco products (OTP) in general. Using numbers provided by Nielsen Syndicated Convenience Tracking (total United States), NACS researchers said e-cigarettes accounted for a mere 2.6% of OTP sales last year but experienced 100% growth year over year. The impressive increase prompted NACS to create a new subcategory for e-cigarettes to better track the trend in the coming years. Though OTP contributed only 4.4% to the average c-store s annual sales (cigarettes contributed 36.3%) in 2012, its growth trend is robust and continues to show promise. Smartt compared the total merchandise sales and margin growth to OTP, showing how OTP did better on both fronts. Growth percentages indexed back to January 2010 show merchandise sales in general rose 9%, as did margins, while OTP rose 20% in sales and 16% in margins. Cigarettes, on the other hand, showed a 3% increase in sales and a 4% decrease in margins. Though Smartt could not deny the declines, he told retailers to stand their ground. His industry study group of noncompeting c-store retailers advised him to review his tobacco selling and merchandising strategies. Prior to the review, his sales numbers mimicked the downward trends he d been seeing at the SOI conferences. I needed to work on our total retail cigarette strategy and think about how aggressive I wanted to be, Smartt said. It s a total focus. We put speed racks under the counter for top-moving items. We invested money in buying racks and expanding our presence of category, but price was the predominant [strategy we enhanced]. Smartt Snacking: Snacks account for three of the top five growth areas in c-stores, Kevin Smartt pointed out. The result was a reversal of trend lines. In 2012, things started to turn up, and they re still ascending, he said. Snack Surprise When identifying standout categories, Smartt showed attendees a ranking of topgrowth categories in terms of sales and in-store margin dollars. Three of the top five growth areas were in the snacking category: alternative, sweet and salty snacks, with liquor and cold dispensed beverages topping the list for sales, and milk and cold dispensed in the top five for margins. Sales growth since January 2010 has documented the snacking trend. Alternative snacks (including meat snacks) grew sales 33%, compared to the base 9% increase for the total merchandise segment. Sweet snacks were up 25%, salty 21% and candy 17%. We re back at the plate, swinging and connecting, Smartt said. Root drivers for these trends, he said, included healthier eating, more bridging between meals and meal replacement. He also congratulated manufacturers for rising to the occasion and addressing ingredient combinations, calorie counts and portion size. There s no doubt snacking is hot, he said. And if you re a supplier, it s a great story to tell retailers. Drinking Up Beverages Calling packaged beverages the industry s golden category, Smartt cited a 20% sales increase for the category over the past 36 months. Energy drinks, sports drinks and water continue to surge forward with 20% increases in sales and 19% in margin. We re back at the plate; we ve hit a home run. Alternative drinks are experiencing a rapid growth trend of 16.8% and accounting for 23.1% of category sales; however, carbonated soft drinks (CSDs) accounted for 36% of the category but grew at only a 3.9% pace, according to Nielsen Syndicated numbers. Smartt predicted that in the next three years, alternatives may pass CSDs. Product innovation accounts for much of the growth, Smartt said. Beverage functionality, or drinks having ingredients or formulations specifically 83

3 addressing a need state, has been influential. Probiotic juices, protein milks, therapeutic beverages for post-exercise consumers are looking for it, he said. And retailers must be willing and quick to accommodate those sets and change. He challenged retailers to review their cooler door counts and potentially add doors, as his company has done. Look at your competitors, he said. This is a category that will grow for us. What will you have to do? New Thirst for Beer Another segment picking back up for the industry is beer. A national average that includes stores that don t sell beer puts sales increases at 7.6%, but for those selling beer, 2012 saw a 13% jump in sales, Smartt said. The industry experienced a similar increase in margins. Though cross-channel competitors are entering beer sales, Smartt suggested knowing the competitor and the target demographic. Premiums continue to account for half the category sales, but microbrews saw a 76.2% increase in sales in 2012, while superpremiums and flavored malt beverages saw double-digit increases, according to Nielsen Syndicated data. From his perspective, Smartt said manufacturers are targeting millennials, who are driving demand for sweeter products with higher alcohol content. Another area to watch is specialty imports. Smartt s Texas-based chain sees a lot of movement in beers from Mexico. Overall, it s a subcategory in which space is premium and where [retailers] need to demand movement, he said. Finding Foodservice At 15.8% sales contribution, foodservice continues to drive new revenue to the industry, with standouts in the category including frozen dispensed and cold dispensed beverages, and commissary items. Trends show gross profit dollars outpacing sales by about 4%, according to NACS CSX numbers over the past three years. Foodservice as a whole maintained high margins, with prepared foods at 52.4%, frozen dispensed beverages at 52.5% and hot dispensed beverages at 60.5%. sales were $16,308 for prepared food, $899 for frozen dispensed and $5,869 for hot dispensed. Here s the hard part about food, Smartt said. It s not like we re all selling the same pack of cigarettes. For foodservice, someone s selling chicken, someone has a franchise or is doing a proprietary program, so it s difficult for us to get an in-depth look at foodservice. He suggested retailers review numbers from quick-service restaurants (QSR) to evaluate the potential of their own foodservice offers. If you sell pizza, look at a Pizza Hut, he said. That s who we need to be benchmarking against. That s how we ll raise the bar on foodservice. And while foodservice accounted for about 16% of inside sales, top performers are clearly embracing the category as a way to thrive as other core categories flounder. Top-quartile companies did almost triple that of second-quartile companies in prepared foods and almost double in hot dispensed beverages. SOI numbers also indicated potential trends some logical, some dubious. For instance, top performers made more on foodservice but less on cigarettes, possibly using cigarettes as a traffic driver. At the same time, bottom performers sold a lot of foodservice but barely made money at it. Clearly we have an ongoing debate, Smartt said. Retailers need to understand what they re making. Summarizing Results In looking back at his observations, Smartt said SOI numbers for 2012 told both category-specific stories and those of a broader scope: OTP remains strong, with the growth of smokeless and e-cigarettes helping address falling demand for cigarettes. Snacking is sizzling. Manufacturers are meeting a demand for healthier alternatives, with calorie-controlled packaging and healthier ingredients. Packaged beverages are a homerun category but, Smartt said, Don t get sleepy because we ve had success. Examine your cooler size and reinvest. Beer innovation is chasing demand, hitting a chord with millennials, who prefer sweeter options with higher alcohol content. It means space is at a premium, with high turns a prerequisite for all products. Foodservice trends continue upward, but Smartt advised benchmarking against QSR chains with equivalent menu selections as a way to motivate growth. Lastly, Smartt asked retailers to get involved with the legislative process. Look at how many of our categories are facing punitive [mandates]: cigarette taxation, menu labeling, anti-caffeine and anti-sugar [efforts], he said. Our voice needs to be heard. Editor s Note: Data presented at the 2013 NACS State of the Industry Summit was preliminary and derived from company submissions as of March 31, Final industry data will appear in the NACS State of the Industry Report of 2012 Data, available for order online at 84

4 total industry C-Store Sales and Margin Contribution For 2012, sales and margins moved in similar upward trajectories, with foodservice accounting for a growing share of overall profits. Fuels as a contributor reflected an overall decline in demand, staying stagnant in terms of both sales and profit contribution. Dollar Sales Contribution Category Dollar share Point change Fuel 71.5% +0.1 Merchandise 23.3% 0.4 Foodservice 5.2% +0.3 Gross-Profit Contribution Margin Point Category dollar share change Merchandise 48.9% 3.2 Fuel 28.2% 0.8 Foodservice 22.9% +4.0 Industry Store Count Single-store operators represented nearly 63% of the total convenience store count in 2012, growing their numbers by 0.7% to hit 93,819, according to the NACS-endorsed TDLinx count. The number of chain locations rose 0.9% as well, a faster pace than in Year Single stores Chain stores ,876 59, ,612 56, ,395 54, ,615 76,044 84, , ,081 84, ,162 89, ,611 90,683 89, ,308 90, ,492 91, ,526 93,209 54, , , Source: TDLinx Total Industry Sales Total c-store sales broke the $700 billion mark at $700.3 billion in 2012, up 2.7% from 2011 and an astounding 18.5% from recessionary lows in the period. Fuel sales, tempered by continuing demand destruction, rose 2.9% a far cry from the record jump of 26.4% in 2011, when soaring gas prices elevated sales. Inside sales kept their steady pace at 2.2% growth with foodservice a highlight, increasing 8.7% as a subcategory in 2012 over Year Inside Sales in billions Fuel Sales in billions $104.1 $165.3 $112.0 $171.0 $109.3 $ $116.2 $ $132.1 $ $151.1 $ $163.6 $ $168.5 $ $173.9 $ $182.4 $ $190.4 $ $195.0 $486.9 $ $

5 total industry Industry by Chain Size Single stores and small chains continue to dominate the industry, as reflected in the SOI study for Larger chains reporting more than 500 stores are the next highest grouping and accounted for a large share of stores represented in the study. industry Chain size store count 1-10 stores 67.0% 501+ stores 14.6% stores 7.9% stores 5.1% stores 5.4% Source: TDLinx In-Store Sales and Gross-Profit Breakdown In-store gross category sales* PCYA** margin dollars* PCYA** Foodservice $24, % $13, % Merchandise (including cigarettes) $111, % $29, % Merchandise (less cigarettes) $59, % $22, % Cigarettes $51, % $7, % Total $133, % $41, % * Selling Price Per Gallon The average selling price for fuel rose 2.8% in 2012 to hit $3.55 per gallon. $3.50 $3.00 $2.50 $2.00 $1.50 $ $1.79 $2.29 $2.50 $2.82 $3.19 $2.35 $2.71 $3.45 $ State of the Industry Report of 2012 Data Fuel: Sales and Gross-Margin Dollars Fuel gallons rose a meager 0.1%, with sales up 2.9% among retailers in the same-firm sample. Fuel margin decreased 2.6 cents per gallon (CPG). Per store per month PCYA* Sales $479, % Gallons 135, % Gross-margin dollars $23, % Fuel margin CPG CPG 2.6% Fuel margin net credit-card fees CPG 3.9% State of the Industry Report of 2012 Data 88

6 Expenses and Productivity Same-Firm Productivity* For the 2012 study, retailers in the same-firm sample were divided into deciles and quartiles by store operating profit to determine how the best retailers compared to the rest. This top decile of retailers earned 25% more than stores in the survey s top quartile. Still, top-quartile companies did six times better than companies in the bottom 25%. Labor Productivity Expenses Legislative efforts to curb credit-card fees led to a marked slowing in charges for 2012, contributing to a relatively low rise in total direct store operating expenses. Wages and benefits were up 3.2%, with many retailers concerned over what changes in mandatory health-care requirements will bring in Direct store operating expenses Item 2012 expense* PCYA** Wages and benefits $21, % Credit-card charges $7, % Utilities $2, % Repairs and maintenance $3, % Supplies $1, % Total $41, % Total less credit-card fees $33, % Wages and benefits Item 2012 expense* PCYA** Wages $17, % Payroll taxes $1, % Health insurance $1, % Workers compensation $ % Other benefits $1, % Total $21, % In-store sales per labor hour $ $85.76 $96.03 $73.14 $67.65 In-store gross-profit dollars per labor hour $37.13 $31.02 $25.09 $21.38 $18.89 Labor cost per hour $17.65 $15.26 $13.00 $12.15 $12.25 Nonmanagers annual turnover 70.4% 74.6% 75.3% 83.8% 81.7% Managers annual turnover 20.7% 19.8% 18.0% 18.9% 24.0% Facility Productivity Gallons sold 225, , ,003 89,397 89,843 Merchandise sales $171,757 $132,225 $99,421 $84,787 $73,335 Foodservice sales $46,142 $33,978 $12,630 $13,696 $10,030 In-store gross-margin % 30.9% 32.1% 30.0% 31.4% 28.9% Cigarette gross-margin % 12.6% 13.6% 16.2% 16.5% 15.9% In-store sales per square foot $ $64.66 $38.06 $37.75 $32.26 Capital Productivity Store operating profit $32,771 $24,543 $12,558 $8,451 $3,869 Break-even CPG EBITDA** $29,314 $23,487 $10,376 $8,298 $4,118 Net profit margin 2.42% 2.34% 1.20% 1.20% 0.05% ROCE*** 19.16% 17.33% 7.97% 9.37% 2.33% ** Earnings before interest, taxes, depreciation and amortization *** Return on capital employed State of the Industry Report of 2012 Data Sample size: 226 firms; 27,444 stores Source: NACS; preliminary data. Final data to appear in the NACS * 90

7 category review In-Store Sales Trends The makeup and rank of the industry s top 10 categories held steady despite overall industry sales increases that appeared to show advances in areas of foodservice, packaged beverages and beer. However, small declines in cigarettes were evident. In-Store Sales Contribution Category in-store sales Cigarettes 36.3% Foodservice 15.8% Packaged beverages 14.7% Beer 7.6% OTP 4.4% Leaders in Merchandise Sales According to the same-firm sample, cigarette sales fell 2.7% in 2012, averaging $51,863 per store per month. Sales of alternative and salty snacks grew in double digits, as did the milk category. Category Sales dollars* PCYA** Cigarettes $51, % Packaged beverages $21, % Beer $16, % OTP $6, % Salty snacks $6, % * In-Store Gross-Profit-Dollar Contribution in-store Category gross profit $ Foodservice 27.1% Packaged beverages 18.8% Tobacco 21.0% Center store (snacks/candy) 13.7% Beer (all industry average) 4.6% Beer (only stores selling beer) 8.0% All other 14.8% Top Gross-Margin Earners Packaged beverages led as the top gross-margin earner in Packaged sweet and salty snacks posted double-digit gains in sales and gross-profit dollars among these categories, according to the same-firm sample. Gross Margin $ Category margin % Margin $* PCYA** Packaged beverages 39.4% $8, % Cigarettes 14.3% $7, % Beer * 18.4% $3, % Salty snacks 38.2% $2, % Candy 47.3% $2, % OTP 30.5% $2, % Packaged sweet snacks 33.3% $1,101 N/A Ice cream 45.9% $977 N/A General merchandise 39.5% $798 N/A Milk 29.8% $685 N/A * 92

8 category review Category Breakdown by Quarters for 2012 Both sales and margin numbers revealed a sluggish second half of 2012 the industry. Cigarette numbers dipped into the negative realm, while other strong categories fell off considerably. Sales Per Store Per Month PCYA* Category Q1 Q2 Q3 Q4 Cigarettes 0.5% 0.2% 1.3% 0.9% Packaged beverages 9.8% 8.6% 5.4% 4.1% Beer 9.4% 7.5% 4.4% 3.6% OTP 6.7% 5.8% 6.4% 6.8% Salty snacks 15.7% 12.0% 7.9% 5.6% Candy 11.3% 6.0% 5.2% 4.9% Packaged sweet snacks % 7.0% 0.2% Milk 3.6% 0.9% 0.9% 2.8% Ice cream 15.5% 12.1% 2.9% 2.6% General merchandise 5.1% 9.8% 11.0% 8.3% Gross-Profit Dollars Per Store Per Month PCYA* Category Q1 Q2 Q3 Q4 Cigarettes % 2.3% Packaged beverages 8.5% 8.0% 5.9% 5.9% Beer 10.1% 8.7% 5.2% 1.5% OTP 2.4% 3.3% 0.8% 5.3% Salty snacks 18.1% 12.9% 8.6% 7.1% Candy 10.1% 3.3% 3.5% 3.1% Packaged sweet snacks 16.7% 11.0% 5.2% 0.9% Milk 16.9% 21.2% 15.8% 2.3% Ice cream 18.6% 12.4% 4.1% 6.6% General merchandise 5.1% 17.3% 2.1% 8.0% Source: NACS; preliminary data. Source: NACS; preliminary data. 94

9 CIGArEttES 17.7% in-store gross-profit dollars Sales by Subcategory* According to preliminary NACS State of the Industry figures, cigarettes supplied more than 36% of in-store sales, with premium brand sales averaging $38,897 per store per month. 36.3% in-store sales Sales by Quartile* top-quartile retailers generated more than two times as many cigarette sales as bottom-quartile operators. $100,000 $80,000 $60,000 $40,000 $20,000 $91,001 $61,229 $38,813 $33,218 $29,094 Subcategory Sales Breakdown three-quarters of c-store cigarette sales were premium brands in 2012, according to IrI. Subcategory dollar PCYA* Premium 75.0% 1.3 Branded discount 15.9% 7.1 All others 9.1% +1.7 Source: IRI Subcategory Dollar sales Premium $38,897 Branded discount $8,246 Subgeneric/private label $3,579 Fourth tier $1,089 Imports $52 Total $51,863 Gross Profits by Quartile* top-decile retailers earned 1.4 times the gross profit on cigarettes as top-quartile operators, according to preliminary NACS State of the Industry data. $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $11,462 $8,321 $6,279 $5,486 $4,639 Gross Profits by Subcategory* Cigarette gross-profit dollars fell nearly 3% in Gross Subcategory margin dollars* margin % Premium $5, % Branded discount $1, % Subgeneric/private label $ % Fourth tier $ % Imports $7 14.2% Total $7, % Source: NACS, preliminary data. Final data to appear in the NACS * 96

10 foodservice 27.1% in-store gross-profit dollars Sales by Subcategory* Foodservice sales growth was strongest in first- and secondquarter 2012, according to preliminary figures. Subcategory dollar sales* PCYA** Prepared food $16, % Hot dispensed beverages $5, % Cold dispensed beverages $4, % Commissary/packaged sandwiches $1, % Frozen dispensed beverages $ % 15.8% in-store sales State of the Industry Report of 2012 Data. Sales by Quartile* Among retailers, hot dispensed beverage sales for the top decile generated 1.6 times that of top-quartile operators, according to preliminary NACS State of the Industry figures. Subcategory Prepared food $29,595 $22,229 $8,452 $6,936 $9,060 Hot dispensed beverages $11,854 $7,252 $3,031 $3,434 $1,655 Cold dispensed beverages $5,504 $4,741 $3,883 $2,836 $1,637 Total N/A $33,978 $12,630 $13,696 $10,030 (including subcategories not shown) Subcategory Sales Breakdown Foodservice supplied nearly 16% of in-store sales in 2012, according to preliminary NACS State of the Industry data. Share point Subcategory dollar sales change Prepared food 61.1% 1.2 Hot dispensed beverages 17.9% 0 Cold dispensed beverages 13.7% +0.9 Commissary/sandwiches 4.6% +0.2 Frozen dispensed beverages 2.7% +0.1 Gross Profits by Quartile* Gross profits from foodservice rose 13.2% to reach an average of $13,545 per store per month within the same-firm sample. Subcategory Prepared food $16,088 $12,536 $4,309 $3,548 $4,397 Hot dispensed beverages $7,452 $4,650 $1,591 $2,034 $660 Cold dispensed beverages $2,863 $2,520 $1,873 $1,247 $714 Total N/A $19,632 $6,220 $9,939 $4,521 (including subcategories not shown) Gross Profits by Subcategory* Dispensed beverages saw some of the biggest increases in margin dollars in Gross Subcategory margin dollars* PCYA** margin % Prepared food $8, % 52.4% Hot dispensed beverages $3, % 60.5% Cold dispensed beverages $2, % 51.7% Commissary/sandwiches $ % 36.7% Frozen dispensed beverages $ % 52.5% * 98

11 PACKAGEd BEvErAGES 14.7% in-store sales Sales by Quartile* Packaged beverages hit a home run in 2012, enjoying a 7.0% increase in 2012 c-store sales. $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $31,849 $24,670 $17,672 $14,160 Gross Profits by Quartile* $10,607 top-quartile operators generated 2.5 times the packagedbeverage gross profits as bottom-quartile retailers. $15,000 $12,000 $9,000 $6,000 $3,000 $12,483 $9,718 $7,048 $5,497 Gross Profit by Subcategory $3,889 Packaged-beverage margin dollars rose nearly 8% year-overyear, according to preliminary NACS State of the Industry figures. Gross Subcategory margin dollars* margin % Carbonated soft drinks $2, % Alternative $1, % Sports drinks $ % Juice/juice drinks $ % Bottled water $ % Iced tea (ready to drink) $ % Enhanced water $ % Other packaged beverages $ % Total $8, %. Sales by Subcategory* Carbonated soft drinks (CSds) supplied nearly 36% of average monthly c-store packaged-beverage sales, according to preliminary 2012 NACS State of the Industry data. Subcategory dollar sales** Carbonated soft drinks $7,602 Alternative $4,878 Sports drinks $1,985 Juice/juice drinks $1,837 Bottled water $1,816 Iced tea (ready to drink) $1,183 Other packaged beverages $1,077 Enhanced water $739 Total $21,117 Source: The Nielsen Co. * 18.8% in-store gross-profit dollars Subcategory Sales Breakdown Each packaged-beverage subcategory grew sales in 2012, with alternative beverages, sports drinks and enhanced water seeing some of the strongest growth, according to Nielsen figures. Subcategory dollar sales PCYA** Carbonated soft drinks 36.0% +3.9% Alternative 23.1% +16.8% Sports drinks 9.4% +13.0% Juice/juice drinks 8.7% +6.7% Bottled water 8.6% +8.8% Other category contributors Subcategory dollar sales PCYA* RTD iced tea 5.6% +8.7% Enhanced water 3.5% +12.5% Other packaged beverages 5.1% +20.0% Source: The Nielsen Co. 100

12 BEEr in-store sales 7.6%(13.0% for stores selling beer) Top-quartile operators generated 1.2 times the beer sales as bottom-quartile retailers Beer sales rose 4.7% year over year, with top-quartile operators generating 1.2 times the sales as bottom-quartile retailers. $25,000 $20,000 $15,000 $10,000 $5,000 $20,337 $15,280 $14,012 $14,785 $12,817. Because of state and local restrictions on beer sales, retailers were ranked into deciles and quartiles by beer gross-profit dollars rather than store operating profits. Subcategory Sales Breakdown C-store beer sales rose nearly 5% in 2012, with imports, superpremium and craft seeing the biggest increases, according to Nielsen data. Subcategory dollar sales PCYA* Premium 52.3% +1.4% Budget 11.6% +0.2% Popular 10.2% +0.6% Imports 10.1% +8.8% Flavored malt 4.9% +13.4% Other category contributors Subcategory in-store sales PCYA* Superpremium 4.2% +18.5% Microbrews/craft 4.1% +76.2% Malt liquor 2.5% +0.6% Nonalcohol 0.1% 0.6% Source: The Nielsen Co. C-store beer sales averaged $16,506 per store per month in 2012, according to NACS State of the Industry figures C-store beer sales year over year rose nearly 5%, according to NACS State of the Industry figures. Subcategory dollar sales* Premium $8,631 Budget $1,915 Popular $1,684 Imports $1,667 Flavored malt $809 Superpremium $693 Microbrews/craft $677 Malt liquor $413 Nonalcohol $17 Total $16,506 Source: The Nielsen Co. and NACS; preliminary data. Final data to appear in the NACS in-store gross profits 4.6%(8.0% for stores selling beer) Gross Profits by Quartile* top-quartile operators generated 1.2 times the gross profits from beer as bottom-quartile retailers, according to NACS figures $2,832 $2,800 $3,086 $2,455 Top Second Third Bottom quartile quartile quartile quartile. ; Because of state and local restrictions on beer sales, retailers were ranked into deciles and quartiles by beer gross-profit dollars rather than store operating profits. 102

13 other tobacco ProduCtS 4.4% in-store sales Sales by Quartile* top-quartile retailers earned 1.4 times the sales in other tobacco products (otp) as bottom-quartile operators did. $10,000 $8,000 $6,000 $4,000 $2,000 $8,763 $6,921 $5,657 $5,224 $5,007. Sales by Subcategory* C-store dollar sales of otp rose more than 6% in 2012, according to preliminary NACS State of the Industry data. Subcategory dollar sales Smokeless $4,016 Cigars $2,109 Papers $210 Pipe/cigarette tobacco $118 Other products and pipes $118 Total $6, % in-store gross-profit dollars Subcategory Sales Breakdown Smokeless c-store sales rose nearly 7% in 2012, according to Nielsen. Subcategory dollar sales PCYA* Smokeless 61.1% +6.7% Cigars 32.1% 1.2% Papers 3.2% 3.0% E-cigarettes 2.6% % Pipe/cigarette tobacco 1.8% +2.0% Other 1.8% +36.2% Source: The Nielsen Co. Gross Profits by Quartile* top-decile operators earned 1.9 times the otp gross profits as bottom-quartile retailers. $3,000 $2,500 $2,000 $1,500 $1,000 $500 $2,702 $2,062 $1,946 $1,532 $1,397 Gross Profits by Subcategory* C-store margin dollars from otp rose more than 7% in 2012, according to preliminary NACS State of the Industry data. Gross Subcategory margin dollars* margin % Smokeless $1, % Cigars $ % Papers $ % Pipe/cigarette tobacco $ % Other products and pipes $ % Total $2, % 104

14 SAlty SNACKS 3.7% in-store sales Subcategory Sales Breakdown C-store salty-snack sales rose more than 11% in 2012, according to Nielsen data, with several subcategories enjoying double-digit gains. Subcategory dollar sales PCYA* Potato chips 26.7% +8.2% Other salty snacks 16.7% +14.4% Tortilla/corn chips 15.5% +8.0% Nuts/seeds 13.6% +15.8% Puffed cheese 8.3% +5.3% Other category contributors Subcategory dollar sales PCYA* Mixed 5.8% +15.3% Crackers 5.4% +9.9% Pretzels 4.4% +17.5% RTE popcorn 3.6% +18.9% Sales by Subcategory Sales of salty snacks averaged $6,297 per store per month. Subcategory dollar sales** Potato chips $1,681 Other salty snacks $1,052 Tortilla/corn chips $976 Nuts/seeds $856 Puffed cheese $523 Mixed $365 Crackers $340 Pretzels $277 Packaged popcorn $227 Total $6,297 Gross Profits by Quartile* top-quartile operators earned nearly twice the salty-snack gross-profit dollars as bottom-quartile retailers did. $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 Sales by Quartile* top-decile retailers generated about three times the saltysnack sales dollars as bottom-quartile operators, according to preliminary NACS State of the Industry data. $10,000 $8,000 $6,000 $4,000 $2,000 $3,391 $2,604 $9,048 $6,230 $2,009 $4,701 $1,811 $1,461 Gross Profit by Subcategory* C-store margin dollars for salty snacks rose more than 12% in 2012, according to preliminary figures. Gross Subcategory margin dollars* margin % Potato chips $ % Other salty snacks $ % Nuts/seeds $ % Tortilla/corn chips $ % Puffed cheese $ % Crackers $ % Mixed $ % Pretzels $ % Packaged popcorn $ % Total $2, % $3,317 $3, % in-store gross-profit dollars 106

15 candy 4.5% in-store gross-profit dollars Gross Profits by Quartile* Top-quartile retailers earned 1.6 times the candy gross-profit dollars that bottom-quartile operators did, according to preliminary NACS State of the Industry data. 2.9% in-store sales Sales by Quartile* Top-quartile operators moved 1.5 times the candy sales that bottom-quartile operators did, according to preliminary NACS State of the Industry data. $5,000 $4,000 $3,000 $2,000 $1,000 0 $4,901 $4,592 $3,934 $3,785. Subcategory Sales Breakdown Nielsen figures show c-store candy sales up 5.6% in 2012, with bagged/peg and novelties/seasonal enjoying the biggest increases. Subcategory dollar sales PCYA* Chocolate bars/packs 36.2% +5.1% Gum 21.3% 3.7% Bagged or repackaged peg candy 19.1% +13.6% Novelties/seasonal 8.9% +17.7% Nonchocolate bars 8.0% +3.3% Candy rolls, mints, drops 6.6% +8.0% $2,999 $2,500 $2,000 $1,500 $1,000 $500 $2,230 $2,198 $1,617 $1,519 Gross Profit by Subcategory* Candy gross-profit dollars rose more than 2% in 2012 to average $2,119 per store per month. $1,358 Gross Subcategory margin dollars* margin % Chocolate bars/packs $ % Gum $ % Bagged or repackaged peg candy $ % Nonchocolate bars $ % Novelties/seasonal $ % Candy rolls, mints, drops $ % Total $2, % Sales by Subcategory* C-store candy sales rose more than 4% in 2012, according to preliminary NACS State of the Industry figures, to average $4,481 per store per month. Subcategory dollar sales* Chocolate bars/packs $1,617 Gum $954 Bagged or repackaged peg candy $856 Novelties, seasonal $399 Nonchocolate bars $359 Candy rolls, mints, drops $296 Total $4,481 Source: The Nielsen Co. 108