The global COVID-19 pandemic has prompted people and companies everywhere to reconsider how we connect and do business, and the convenience store industry is no exception. Ten, or even five years ago, you probably never imagined the sigh of relief you might feel in mid-2020 when finding your favorite brand of toilet paper, then in short supply, at your local 7-Eleven. You probably didn’t know you’d soon be able to have your favorite snacks delivered from that same corner store in the middle of a lockdown or snowstorm, and you almost certainly didn’t expect to be able to make that purchase directly and securely from your bank account, using your cell phone, in a matter of seconds.
Open Banking Payments are an example of how advancements in tech and increased focus on the consumer experience stand to make your favorite convenience store, well… even more convenient! These advancements are poised to strengthen the industry and bolster its value for consumers nationwide.
Recent Industry Trends
Convenience stores (“c-stores”) primarily sell fuel, food, beverage, and tobacco merchandise in convenient locations that are generally open during extended hours across a wide geographic footprint. The last two years have been especially difficult as locations all across the U.S. experienced a sudden decline in foot traffic following the start of the COVID-19 pandemic and reduced domestic travel. More recently, revenue is returning as several effective vaccines roll out, stay-at-home orders are lifted, and consumer confidence recovers. Even so, uncertainty persists and setbacks are expected as new variants affect populations and communities in unpredictable ways. The rise of remote work also means fewer trips to the gas pump for many Americans who no longer have a daily commute. Gasoline, a common draw for many c-store shoppers, has a slim profit margin of only 1.4% on average. The National Association of Convenience Stores reported a 15.4% decrease in total industry sales in 2020, with a 26.1% dip in fuel sales in the same period.
While a typical convenience store owner traditionally might not have planned 5 years ahead or reserved funds for expansion or innovation, challenges from the pandemic have prompted leaders in the space to review their models and find new ways to meet the changing needs and expectations of consumers. Many adapted by consistently stocking more high-demand items and rolling out new services. For example, customers have turned to their local c-stores more often for essentials like groceries, paper products, and cleaning supplies.
Consumers have also taken advantage of prepackaged food offerings and new delivery services as a way to stay safe during the pandemic. In doing so, retailers offset declining fuel sales with revenue from digital ordering and delivery of other items in inventory. Despite the overall drop in total industry sales in 2020, inside sales crept up 1.5%, and basket size increased by 18.4%, signaling a new opportunity for c-store retailers. Industry experts predict that contactless payments and delivery services are here to stay as consumers have become accustomed to these added conveniences.
Stores are adopting a new last-mile fulfillment strategy with delivery services to combat lost sales from lower foot traffic, but another, more longstanding challenge remains: the high costs of credit card payments. According to research by ‘The Association for Convenience & Fuel Retailing,’ consumer preferences for more touch-free transactions and the recent coin circulation shortage led to a record increase in card usage at c-stores. Data published for 2020 alone showed 74.6% of all transactions were paid by cards (both debit & credit), and overall processing fees paid by the convenience store industry reached upwards of $11 billion.
Swipe fees remain one of the highest operating costs for c-store retailers after labor. Card fraud committed at fuel pumps also poses an ongoing threat for consumers and a major liability for stores. One in five millennials reports being a victim of “skimming,” where their card information was stolen at the pump and unauthorized transactions were made in their name by malicious third parties. EMV (“chip card”) technology can reduce skimming, but the necessary upgrades are expensive for convenience store retailers to front and can cut into already precious reserves for these small businesses. As of April 2021, major credit card companies no longer cover the cost of chargebacks from fraud committed at pumps where EMV tech is not available. This liability now falls on c-stores.
Fulfillment Extension While Saving On Margins & Boosting Security
Vroom Delivery is a convenience store partner offering a full-stack, flexible e-commerce solution for delivery orders. Vroom enables convenience stores to operate and manage their e-commerce and delivery services, route orders between one or multiple third-party delivery services, or combine approaches. For example, stores can have their drivers make deliveries but opt to divert some orders to third parties (DoorDash Drive, Skipcart, or Tortoise) during busy periods or when their staff are unavailable to drive. For store drivers using Vroom’s proprietary driver app, Vroom helps collect signatures and photo IDs, coordinate multiple orders, plan routes, and track delivery times through any mobile device. For stores opting to use multiple third-party delivery services, Vroom’s tech can automatically route individual orders to the most recommended delivery service at that moment based on delivery destination and driver network availability. The delivery process is fully white-labeled with stores retaining access to their customer data to communicate with customers directly. Delivery pricing is also set at a flat rate instead of highly variable commissions otherwise paid in third-party delivery apps.
For consumers across the U.S., Vroom provides a smooth, fast, and transparent purchasing experience through their easy-to-use, mobile-optimized website and apps for iOS and Android devices. Vroom’s platform is also a catalyst for the trend of increased basket size in the convenience store space first noticed in 2020. The average total of a purchase made through Vroom is $44: roughly 5x greater than the average in-store purchase made at c-stores.
Vroom Delivery marries several functions that would typically be handled by separate companies and tech in a traditional, clunky supply chain. The ability to weave these functions together, lower delivery costs, and deliver delightful user experiences through one platform makes Vroom a key partner for c-store retailers looking to tap into the rapidly-evolving U.S. food and beverage e-commerce delivery market- a market projected to reach a roughly $250 billion valuation by 2025.
By leveraging Vroom Delivery, c-stores can provide new value for consumers to satisfy their changing preferences, including an easy, secure payment experience. Trustly, Inc. and Vroom Delivery recently announced a partnership to allow consumers to pay directly with their bank accounts. Shoppers placing delivery orders will be able to log into their bank without account or routing numbers and authorize transactions via Trustly’s platform. More details about the partnership are available here.
Recent industry trends make the Vroom and Trustly partnership timely and well-suited for success. First, Open Banking Payments are a great contactless option, removing friction from the consumer experience and meeting the expectations of younger consumers as e-commerce grows. Second, payment costs with Trustly are roughly half that of credit cards, resulting in significant savings. Finally, Trustly’s bank-grade security limits risk for all parties and can offer a comforting counterpoint to card skimming fraud concerns that linger in the minds of many consumers. Shoppers today expect their payment information to be kept secure, and no business seeking repeat customers can afford errors on this front.
For Trustly, working with Vroom Delivery is a great step forward in our commitment to revolutionize the payment space and offer independence from the card networks that have dominated and chipped away at the profits of small business owners. Based on our experience in global markets, we believe this will be a breakthrough in the U.S. convenience store domain where cost savings are critical. We look forward to serving both c-store retailers and their customers by reducing chargebacks with our cutting-edge fraud prevention technology. We celebrate our partnership with Vroom Delivery as a cost-effective opportunity for many stores to simultaneously innovate, save on margins, and create a safer, better customer experience.