As gas prices fall, drivers spending more inside the store

At the 7-Eleven/Shell gas station next to Charlotte’s Little Sugar Creek Greenway, a lunch rush of construction workers and businessmen crowd in line to buy soft drinks, juice, pizza slices and chips.

“It’s normally busy like this (these days),” said manager Lorraine Bruster, who calls many of the store’s lunchtime “regulars” by name. It’s an easy stop for drivers heading uptown to grab, for example, a $2.50 pizza and Big Gulp combo along with their $1.74-a-gallon gas.

The Kings Drive store is reaping some of the benefits of the cheapest gas prices in recent history. Average prices of unleaded gas in the Charlotte region are the lowest they have been in over seven years – or since January 2009 to be exact, according to AAA.

Cheap gas mean drivers are more likely to stop in the convenience store to buy something with the extra cash left over from filling up their gas tanks, said Jeff Lenard, vice president of strategic industry initiatives at the National Association of Convenience Stores.

“Low gas prices don’t make drivers thirstier, and they don’t make them hungrier. But they do give them permission to satisfy that thirst or that hunger immediately instead of waiting until they reach their final destination,” Lenard said.

The NACS is still crunching the 2015 numbers, but in a recent survey of convenience stores, 78 percent reported an increase in food-service sales for 2015, and 64 percent reported an increase in fuel gallons sold.

Already the numbers are showing that people are more likely these days to stop into a convenience store. A recent NACS survey showed that 41 percent of drivers went into the store in January 2016, compared to 35 percent in January 2015.

At QuikTrip, or QT, the sales of full-service items like pizza, hot pretzels and specialty hot and cold drinks have been climbing most noticeably, said Mike Thornbrugh, QuikTrip’s manager of public and government affairs.

“We have seen very steady, strong inside sales, and we have to relate some of that to the additional discretionary income people have,” Thornbrugh said, adding that because QT is privately held, it does not release sales figures.

QT has played a part in heating up Charlotte’s convenience store landscape: the expanding Tulsa, Okla.-based company now operates 35 stores in the Charlotte metro area. The largest chain, 7-Eleven, has also been growing in the Charlotte area, and two other major players are in the midst of merging after Circle K’s parent announced plans to buy Kangaroo Express.

Impulse purchases

AAA estimates that the drop in gas prices last year saved Americans a total of $115 billion. But they seem to be spending the savings more on experiences like travel and dining out, rather than on purchases at brick-and-mortar retailers. Holiday sales, for instance, rose 3 percent, less than the expected 3.7 percent, the National Retail Federation said last month.

Consumers see the savings from cheap gas as an income supplement that they’re more likely to spend on impulse purchases, said UNC Charlotte economist John Connaughton.

And a Gatorade or pack of gum at a local Circle K fits that bill.

“Well over 50 percent of families live paycheck to paycheck. Two-thirds of people who experience windfall income know they’ve got it, and they’re making decisions about what to do with it,” Connaughton said.

Another convenience store purchase that’s felt a tailwind from the cheaper gas prices is cigarettes, which have been experiencing sales drops for years.

In a recent earnings call, R.J. Reynolds Tobacco Co. said overall cigarette volume declined just 0.5 percent in the fourth quarter, buttressed by cheap gas and employment gains.

And outside the convenience store, drivers are sometimes opting also to buy more expensive grades of gasoline, which can be around 15-20 cents pricier than unleaded. About 70 percent of stations’ total sales dollars are from gas, the NACS estimates, although that figure has shrunk as the price of gas has fallen.

“It’s a fact that both mid-grade and premium sales have increased, and we tie that directly to the lower price of gasoline,” QuikTrip’s Thornbrugh said.

Credit cards

One industry that’s not loving the cheap gas prices? Credit card companies.

Nearly three-quarters of sales at the gas pump are made on plastic, according to NACS. And because credit card companies base their swipe fees off a percentage of the total purchase amount, they’re paid less when gas prices are so low.

“Convenience stores are very happy because their credit card fees are lower,” NACS’s Lenard said.

The low gas prices are already weighing on some credit card companies’ financial results.

Gas prices had a one percentage point drag on payments from Visa credit cards in the first quarter, and weighed on debit cards by two percentage points, Visa’s Chief Operating Officer Vasant Prabhu said in a recent call discussing the company’s financial results.

This story was originally published February 20, 2016 at 1:00 AM with the headline "As gas prices fall, drivers spending more inside the store."