Last year, we spent a lot of time looking at how gas prices were not only impacting gas station and convenience store visits, but also the broader retail category. In many ways, the swift and immediate consumer response to the gas price spike we saw last March ended up being the catalyst for a changing behavior and set the tone for the rest of the year. Up to that point, consumers had largely been able to shrug off food price inflation (which we partly attributed to mass merchant and larger format grocer’s willingness to keep pricing increases below competitors) as well as higher rent and healthcare costs, the spike in gas prices ended up being one of the key psychological triggers that prompted consumers to focus more on value and take on a more frugal mindset for much of the year.
Following our discussions with several gas station and C-Store executives this week, we thought we’d revisit the category. While c-store and gas station visits were able to initially shake off the shock of gas price inflation in the first half of 2022–especially with consumers looking to travel last summer–we’ve ultimately seen visitation trends stagnate compared to other consumer staples retail categories this year. Admittedly, the initial rush we saw to warehouse club and grocery store gas stations last March may have influenced these overall trends (we’ve updated and included our grocery store and traditional gas station indices below–recall that grocery-affiliated gas stations saw visits decline as food inflation negatively impacted grocery stores as 2022 went on), as did weather trends. Ultimately, however, we believe consumers are being more selective with gas station visits in 2023.
The negative year-over-year visitation trends for the gas station category do not necessarily reflect its overall health. Year-over-four-year visitation trends (pre- versus post-pandemic) for our gas station chain index (which represents roughly 47K locations across the U.S.) remain solidly ahead of pre-pandemic trends (below). We attribute the pre- to post-pandemic gains for our gas station index to (1) unit growth from many of the largest gas station chains; (2) an uptick in the number of grocery store and warehouse clubs with a gas station; (3) changes in consumer behavior (i.e., more gas station visits taking place closer to home due to work-from-home); (4) improvements in gas station and convenience store food and beverage platforms, which have driven increased non-gas visits; and (5) industry consolidation.
Consolidation is likely to continue in the years ahead and has been one of the key themes thus far in 2023, including Maverik’s acquisition of Kum & Go and BP's $1.3B planned acquisition of TravelCenters of America (which appears on track despite a last-minute bid for TravelCenters from c-store operator ARKO). What’s driving this consolidation? The most obvious reason is rising operating costs catching up with smaller operators, but there is certainly more to it than that. According to a BP release highlighting its rationale for the acquisition, “TA’s strategically-located network of highway sites complements bp’s existing predominantly off-highway convenience and mobility business, enabling TA and bp to offer fleets a seamless nationwide service”. However, geographic/location synergies are only part of the story, as BP plans to utilize its global scale and reach to “provide options to expand and develop new mobility offers including electric vehicle (EV) charging, biofuels, renewable natural gas (RNG) and later hydrogen, both for passenger vehicles and fleets.” We’ve spent time in the past looking at how EVs might change the commercial real estate market, but it’s already starting to have an impact on the retail category as well. Additionally, advertising and Retail Media Network opportunity played a part in Shell's recent $169M acquisition of Volta. Looking ahead, we expect consolidation to become a larger trend across the broader gas station and convenience category, driven by evolving consumer behavior, the shift to alternative fuel options, and other non-traditional synergies like advertising potential.