The fuel and convenience industry is rapidly evolving in the U.S. and internationally with significant changes in technology, service offerings, food choices, payment options, and more.
In this blog series, TLM Technologies, a global company headquartered in the UK, with operations in the U.S., which has strong partnerships and thousands of installations at forecourt and convenience stores, large retailers, oil companies, independent groups, and sole proprietors worldwide, examines the international c-store market, including best practices in the UK, Europe, and the U.S.
What can European and UK fuel and convenience store owners learn from their counterparts in the U.S.? And vice versa? For this first post, we sit down with John Lynn, Non-Executive Director of the Board of TLM. He was formerly, Managing Director at MRH (GB) Ltd, a leading independent service station operator based in the UK, VP of Marketing for Europe for Chevron Corporation in the U.S. and has also worked for Texaco. Read on for trends he is seeing.
Q & A
Q: Thank you for your time, John. As we are looking at trends in c-store operations in the UK/EU versus the U.S., what are you seeing when it comes to trends in these markets? Who appears to ahead in the game?
A: C-stores in the United States have historically been more developed than those in Europe. If we turn the clock back 20 years, the U.S. was far ahead in providing main c-store categories like fountain drinks, confectionary lines, tobacco. But today, the EU is catching up quickly, and probably ahead in one to two categories.
In European countries, in particular, there tends to be a divide between Northern Europe and Southern Europe. C-stores in the UK, Ireland, Belgium, Netherlands Luxemburg, Germany tend to be more advanced. While those in Mediterranean counties, such as Portugal, Spain, Italy, tend to be less so.
Q: What trends, in particular, are you seeing in c-stores in Europe?
A: C-stores in Europe are picking up on a number of trends, including:
Food to go – with many increasingly offering hot, fast food. This is often being achieved through inserts in their c-stores for chains like Subway, Burger King, etc.
Charging points for electric vehicles – with smaller geographies and shorter driving distances between cities in many areas in Europe (unlike with the U.S.) and the uptake in hybrid and zero emissions vehicles, there has been an increase in charging points at many European c-stores.
Parcel drop off, similar to Amazon Click and Collect – is a big service being offered at c-stores in the UK. individuals can pick up parcels at a local service station on their way home versus having items lie on their porch until they get back,
Also in the UK, electronic utility/key payment options – particularly for those customers in lower socioeconomic groups to add money to an electronic prepayment key for utilities, such as electricity and then plug into a meter for service.
Q: Of the trends that you are seeing in the U.S. and the UK, which are doing well?
A: Advanced grades of gas, such as super (versus base grades) have done extremely well. All of the players in the UK and more developed EU markets have put in advanced grades like super diesel and gasoline. Margins on those products are significantly higher at 10-15 cents per liter, or 40 cents per gallon additional for these higher-quality options from Shell, BP, Exxon with increased detergents or octane boosters. Benefits include that there is always a demand. There is a sector of the population that wants to put the best in their car and is happy to spend more money. And there is also a misfuelling element where individuals may inadvertently choose the advanced grade and can’t be bothered to reverse the car.
Q: How are the markets for c-store real estate changing in the U.S. and EU?
A: In Europe, it’s a very concentrated market with a lot of consolidation happening. Operators are looking to maximize numbers of both Freehold and Leasehold locations.
Other markets have not yet had a shake out. In the UK, for instance, service stations are quite an attractive proposition now and some retailers are looking to own or lease as much freehold as they can.
If you look at the value of service stations in the UK over the past 15 years, the cash flow of sites and cost of real estate have increased significantly. If you bought stations 10 years ago, now you’re sitting pretty and could likely see a doubling in real estate value.
Q: How are companies increasing earnings before interest taxes, depreciation (EBITDA) to be more attractive for acquisition?
A: All stores are trying to maximize EBITDA with price optimization on fuel and dry/c-store goods. They are also looking to keep costs low with labor saving and scheduling software. A lot of stations are reducing operating costs, for instance, with LED and other lighting requiring less power, versus traditional lighting. Some in the UK are starting to use temperature compensating pumps to account for shrinkage of fuel when the temperature is low, and expansion when it’s high, given that sales are based on volume.
Q: How about technology? How is data being utilized by both countries for profitability?
A: C-stores in both countries are taking better advantage of data about their stores. Data capture is very good. Stores, like those in the UK, are capturing sales data, gross margin data in back office systems, and they are using software to maximize fuel gross margin through price volume optimization.
All c-stores are benefiting from where technology is headed. Some stores are using sophisticated algorithms to learn what competitors doing, recommend optimal fuel prices on main grades, and maximize station profitability of fuel.
On the c-store (in-store) side, data capture is less developed overall, but it’s getting there. Some of the more advanced stores are starting to collect line item data on what selling and not to start to price optimize in the c-store. With electronic shelf age labeling (used in some stores in the UK), back office data can be used to recommend the price that will immediately be put to shelf edge and can be changed during day. This can help stores to optimize margins for confectionery, tobacco, soft drinks in busy times.
At TLM Technologies, we are focused on transforming convenience store and fuel technology Internationally to give retailers tomorrow’s technology for managing c-stores today.