"TRENDS IN C-STORE MERCHANDISING"
PACIFIC OIL CONFERENCE
GRAND SIERRA RESORT, RENO, NEVADA, SEPTEMBER 18, 2012

Opinions are great but I tend to look at data. The more you can cross-reference the data from multiple sources, the better.

Who is your target customer? Specifically, for the store, who is your target customer? At Chevron, we had lots and lots of data on gasoline customers but we didn't have data on c-store customers. We went out and did some research and we found out quickly that gasoline customers weren't going to do it for us.

There is a group of customers who are super heavy c-store customers. They are in there all the time. If they are thirsty, they go to the c-store. If they are hungry, they go to the c-store. They use the store as their refrigerator. They are there two or three times a day. They are way more valuable to your business than the gasoline customer who might come into the store once every third time they filled up their car.

Heavy c-store customers account for less than 10% of the general population but account for up to 30% of sales.

Merchandising can be a fairly big and broad activity. We're 1,800-2,000 SKUs per store in Chevron Extra Mile stores. Some have a few fewer, some a few more, but that's about average.

When the economy was worse, we saw a lot of changes in our beer category sales. It's not that we were selling less beer. We were selling a lot less premium beer. Budweiser took a hit, Corona, Tecate, took a hit. Beer drinkers were still going to drink but they were drinking something cheaper.

In the last 12 months, we've seen a comeback to Bud, Bud Light, Corona — you know the brands. We're selling less of the discount brands than we were. We're also seeing dramatic growth in craft beers.

Who is buying beer? Millennials and Hispanic consumers. Millennials are people born between 1977 to 1994. These two categories are growing. The thing about millennials is they don't like to drink what their parents drank. A lot of them don't want to drink the beer their parents drank. For a good portion of those, they don't want to drink beer. There has been a big uptick in hard liquor, wine, and other liquids that provide the same kick as beer. Is your planogram set up for next year? With beer, it's the only category where every store has its own unique planogram. We think it's that important. There is that much difference in store-to-store demand. We do that with 700 stores. We do it in conjuction with one of our major suppliers — they draw up a draft.

We look at a five day supply of beer. Every item on the plan, in the cooler, has 5 days of supply. We all know all days are not created equal. Beer spikes so high on Fridays that we want to make sure that we're not out on the shelf. You know customers aren't going to ask 'Hey, do you have any more Corona?' They're going to look and, if you don't have it, they're going to leave.

According to the U.S. Census bureau, there was a 42% Hispanic population growth in the U.S. between 2000 and 2010. What does that mean to your business? It's important because they can be very loyal customers.

Hispanic males are 21% more likely to drink beer at least once a week than non-Hispanic males. There tends to be more of a preference to drink beer as opposed to hard liquor. On average, Hispanics consume 71% more beer per occasion than non-Hispanics. You have a real, solid group of potential consumers that's growing from a population perspective. What are you doing to attract them?

Millennials are going to make up 40% of the total 21+ population in the next 10 years. It's a big mass of humanity. If they don't want to drink beer, what are they going to drink? And how are you going to get it in your stores?

Energy drinks, to me, are a game changer. It slowed down a little bit with the bad economy but it's back at it again with double-digit growth again this year. There are three leaders in the energy drink market: Red Bull, Monster, and Rockstar. There are hundreds of energy drinks out there to choose from but, in my store, you have to have those three.

The innovation from energy drink companies has been amazing. The things that take hold from them take hold in a big way.

We probably see 30-50 new energy drinks a year.

There is energy drink product out there that sells for 99 cents. Quite honestly, we don't want to trade people down. We have customers willing to pay $2.49. Why would I want to trade them down to 99 cents? For other retailers, that fits their target audience perfectly.

Customers are looking for more from their beverages. It's the idea of functional beverages — like coconut water or protein. If you're not selling something with coconut water, you might want to look at that.

How does this translate to space on the shelf? The seed I would like to plant with you is as these trends and changes happen, are you looking at how you are allocating your space? We sit down every year with our beer category manager and our beverages category manager and reallocate every store.

Right now, in terms of dollar amounts, we're selling 3 times more in energy drinks than we are in CSDs. I'm expecting we'll go to four times more in a year or two, selling $4 in energy drinks for every dollar's worth of Coke we sell. I never would have thought that would happen. But here it is.

Energy drinks used to be seen as a crutch. Now they're seen as an enabler. I'll have my energy drink and then I'll go ride my dirt bike or go skateboarding.

One of the things that really surprises me is how many multi-packs and how many cases of energy drinks we sell. People are now drinking energy drinks socially. Socially at home is the number one place people say they are drinking energy drinks. To me, it screams an opportunity. The whole idea of "two for" or multi-pack or case purchases is where we do our promotions. We haven't done a single can promotion for over a year. I'm amazed at the number of cases we sell. Who has $40 or $45 for a case of Red Bull? But, if you have people coming over, you don't want to run out.

E-cigarettes. According to AC Nielsen, over the past 4 quarters, E-cigs have grown at 104%. I would say it's higher than that. There probably aren't too many other segments that are growing at that pace that are sitting inside your store right now. Even at that pace, less than 1 in 5 adult smokers have tried one, so there's a pretty significant growth opportunity here.

E-cigs are moving more toward the feel of a traditional cigarette.

E-cigs are available in disposable and rechargeable. Right now, disposables are outselling rechargeables 2 to 1. But, I think, sooner or later, one of these will take hold and the other will drop.

I would suggest you look into E-cigs if you don't already have them. There are lots of companies, lots of brands out there. I don't think it's going to go away.

According to an industry survey, 73% replied that they believe E-cigs are "here to stay." 10% replied that they think it's just a fad. And 17% answered "other." What I know is my retail customer wants them.

On average, there is probably a 20-30 item changeover in the cooler per year.

Most new products fail. But, even the ones who fail, are going to get some trial. We want to make sure we have those products at that time and then, if they don't work, we take them out.

We're continuing to add wine wherever we can. Usually there is a very limited selection of cold wine plus an end cap display.