C-Store Valuations
The Convenience Retail Experts

The Convenience Channel Market Report
USA
Q1, 2011


 
MARKET OVERVIEW
As of Q1, 2011

Total Property Sales: 1,296 (2010)

Total Dollar Volume: $908,110,171 (2010)

Median Property Price: $793,958 (2011)

Median Price Per Foot: $350 (2011)

Average Cap Rate: 8.75% (2011)

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USA Convenience Stores Median Prices: 2006 to 2011

MEDIAN PRICE PER FOOT
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2004 - 2008

The Great Recession lead to price declines across all classes of commercial real estate.  The convenience industry followed this trend.  Costar reports that the median price of a convenience store in the U.S. declined 42% from 2006 to Q1 2011.  The graph shows a 2006 median price of $1,373,190 falling to $793,958 in the first months of 2011.  These prices reflect convenience stores with fuel service.  This decline is similar to the drop in the Moody’s National Commercial Properties Index, which fell 39% over the same period.

 

The magnitude of the annual price declines parallels the rise in capitalization rates.  In 2006, the average capitalization rate for convenience stores was 7.36%.  Rising steady in the following years, by 2011 the average capitalization rate increased 100-basis points to 8.35%.  Capitalization rates are a reflection of perceived investment risk.  The higher the rate, the higher the perceived risk.

 

Transaction volume has remained about the same.  In 2010, Costar recorded 1,296 c-store sale transactions across the nation.  In 2006, that number was 1,339.

 

Hypermarkets have significantly slowed their penetration into the U.S. retail fuel market.  According to EAI, Inc. only 180 fuel sites were added by hypermarkets in 2009.  This is down sharply from 528 new sites in 2005.  Mirroring the disillusionment in the industry, Home Depot and Publix never went ahead with plans to roll out fuel sites at their existing locations.  In a handful of cities, hypermarkets have captured 20% of the retail fuel market.  Nationally, their market share is thought to be about 9%.  It appears their market-share momentum is coming to an end.

 

The next emerging trend in retail fuel marketing is loyalty programs between mass merchandisers and branded fuel retailers.  This “Stealth Marketing” arrangement offers the customer discounts on the price of fuel at major oil branded locations through loyalty card credits at mass merchandisers.  The amount of the discount varies by the customer’s shopping volume at the participating mass merchandiser.  These discounts will reportedly range from 3 to 10 cents per gallon.  In turn, the fuel retailer is projected to achieve volume gains of 20% to 30%.  This arrangement is called “Stealth Marketing” because the price discounts are not publically advertized. 

 

The success of “Stealth Marketing” remains to be seen.  Will customers drive the distance to the participating convenience stores to save a few cents?  Currently, Shell is partnering with Kroger and Sunoco is partnering with Shop N save and Price Chopper.  If this latest marketing venture is successful, fuel sales will be returned from the mass merchandiser to the convenience channel.

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