Convenience Stores

# Executive Summary * The convenience store industry is rapidly evolving from traditional fuel stops into technology-driven food destinations, with digital ecosystems and loyalty programs becoming the primary battleground for customer retention. * Foodservice has definitively replaced tobacco as the core in-store profit engine, forcing operators to compete directly with Quick-Service Restaurants (QSRs) on quality, freshness, and value. * Persistent inflation and rising operating costs are pressing margins and traffic, creating a clear divergence between efficient, value-oriented operators and those struggling with higher cost structures. * The highly fragmented market is undergoing accelerating consolidation, as larger, well-capitalized players acquire regional chains to gain scale, technology, and market share. * Financial performance is bifurcating: companies successfully executing on digital and foodservice strategies are posting strong growth, while others face declining sales amid consumer spending pressures. * Capital allocation is focused on two paths: aggressive investment in M&A and new store builds, or significant capital returns to shareholders through buybacks and dividends. ## Key Trends & Outlook The most critical trend reshaping the convenience store industry is the integration of digital technology, which is transforming the customer relationship and creating significant competitive moats. Leading operators are building comprehensive digital ecosystems that merge payments, personalized loyalty rewards, and omnichannel ordering, with digital channel revenue projected to grow 25-35% annually. This strategy directly boosts profitability by increasing visit frequency and ticket size while lowering operational expenses, as seen with Fomento Económico Mexicano, S.A.B. de C.V. (FMX)'s Spin platform reducing its cost to serve by 48%. Companies like FMX, with its Spin ecosystem boasting over 14.5 million accounts, and Murphy USA Inc. (MUSA), whose loyalty members show an 11% increase in merchandise transactions, are leveraging loyalty data from millions of members to drive targeted promotions and gain market share. Failure to invest in these capabilities will leave operators unable to compete effectively in the next 3-5 years. The pivot to high-quality, made-to-order food is the primary driver of in-store growth, with prepared foods now the largest merchandise category. This shift places convenience stores in direct competition with QSRs, as 72% of consumers now view them as a viable alternative. Success requires significant investment in fresh ingredients and kitchen operations, but the payoff comes in higher margins and destination-driven traffic. Casey's General Stores, Inc. (CASY) is the standout example, with its pizza program driving a 13.2% increase in prepared food revenue and contributing to a robust 41.9% inside sales margin. The largest opportunity lies in leveraging digital platforms to launch new, high-margin revenue streams, such as retail media networks and financial services, monetizing the high volume of customer traffic. The primary risk is margin compression from persistent macroeconomic headwinds, where slowing consumer traffic and rising labor costs erode profitability, particularly for operators who have not invested in operational efficiencies or a compelling foodservice offering. The long-term shift to electric vehicles (EVs) also presents a risk to the traditional fuel-centric business model. ## Competitive Landscape The U.S. convenience store market is highly fragmented, with 152,396 stores, 60% of which are single-store operators, creating a ripe environment for consolidation. This fragmentation is rapidly giving way to an accelerating trend of M&A, exemplified by Casey's General Stores' acquisition of Fikes Wholesale and its 198 CEFCO Convenience Stores for $1.145 billion. This dynamic is shaping distinct competitive models among the leading players. Some of the most advanced players are building integrated digital and physical ecosystems. This core strategy involves leveraging a vast network of physical stores as a platform to build a sticky, high-frequency digital ecosystem encompassing payments, loyalty, and financial services, aiming to own the customer relationship far beyond the in-store transaction. The key advantage is the creation of powerful network effects, generation of invaluable customer data, and the opening of new, high-margin revenue streams in digital services, which are extremely difficult for smaller competitors to replicate. However, this model requires massive, sustained capital investment in technology with a long payback period and carries high execution risk in building and scaling a consumer-facing tech platform. FMX exemplifies this model with its Spin by OXXO digital wallet and Spin Premia loyalty program, integrated across its massive store footprint, turning stores into hubs for financial services and e-commerce. Another successful approach focuses on becoming a foodservice-first destination, competing directly with fast-food chains. This core strategy prioritizes a best-in-class, made-to-order food program to serve as the primary traffic driver, with fuel and traditional convenience items becoming secondary purchases. This drives high-margin sales, creates strong brand loyalty, and differentiates from fuel-focused competitors, insulating the business from fuel margin volatility. The key vulnerability is that it is operationally complex and labor-intensive, requiring a robust supply chain for fresh ingredients and consistent execution across hundreds or thousands of locations. Casey's General Stores' identity is built around its made-from-scratch pizza, which is priced competitively against national chains and drives its industry-leading 41.9% inside sales margin. Finally, a significant segment of the market competes on a low-cost fuel and value proposition. This core strategy attracts price-sensitive consumers with an everyday low-price (EDLP) fuel offering, supported by a highly efficient, low-overhead operating model, where in-store offerings are optimized for speed and value. This model is resilient during economic downturns, as low operating costs allow for competitive fuel pricing, driving high volumes, and a simple, repeatable store format allows for rapid, capital-efficient expansion. However, it is highly exposed to fuel margin volatility and is less differentiated on in-store offerings, making it vulnerable to competitors with superior foodservice or digital engagement. Murphy USA Inc. (MUSA) exemplifies this, with its strategy of co-locating near Walmart and maintaining a small-box format to minimize costs, allowing it to consistently offer competitive fuel prices and drive traffic. The key competitive battlegrounds are now in digital customer engagement and the quality of prepared food offerings. ## Financial Performance Revenue growth is sharply bifurcated, reflecting divergent strategies and market exposures across the convenience store industry. Growth rates range significantly, from Casey's General Stores' robust +11.5% year-over-year (YoY) in Q1 FY26 to Arko Corp.'s (ARKO) -11.8% YoY decline in Q1-25. This bifurcation is driven by two of the report's key themes: growth leaders are benefiting from large-scale M&A and strong consumer reception to enhanced foodservice offerings. In contrast, laggards are feeling the direct impact of macroeconomic pressure on consumer traffic and are undergoing strategic portfolio optimization that can temporarily reduce revenue. Casey's +11.5% growth exemplifies the success of an acquisition-heavy strategy, while ARKO's -11.8% decline is clear proof of the impact of consumer spending pressure and its dealerization strategy. {{chart_0}} Margin performance hinges almost entirely on the mix of in-store sales versus fuel. Inside sales margins are strong, with Casey's reporting a 41.9% inside sales gross margin in Q1 FY26. The divergence in profitability is a direct result of the Foodservice Revolution. Companies that successfully shift their sales mix toward high-margin prepared food and beverages are better able to absorb volatile fuel margins and rising operating costs. The most profitable operators are those winning the battle for in-store, non-fuel spending. Casey's 41.9% inside sales gross margin is the key metric proving that a successful foodservice strategy translates directly to superior profitability. {{chart_1}} Capital allocation demonstrates a clear split between aggressive growth investment and shareholder returns. Companies are making distinct strategic choices based on their maturity and market position. Well-positioned players are deploying capital to consolidate the fragmented market through M&A, as seen with Casey's $1.145 billion acquisition of Fikes. Mature, cash-generative operators are choosing to return significant capital to shareholders via large-scale buybacks and dividend growth, exemplified by Murphy USA's new $2 billion share repurchase authorization through 2030. The industry's balance sheets are generally healthy and liquid across the major players, providing flexibility for capital deployment. Debt-to-EBITDA ratios are manageable, typically below 2.0x for leaders. Strong cash flow from operations, even in a challenging macro environment, has allowed most major operators to maintain robust balance sheets. This financial strength is a key enabler of the industry's consolidation trend, providing the necessary firepower for acquisitions and strategic investments. Casey's healthy 1.8x debt-to-EBITDA ratio, even after a major acquisition, is a representative proof point of the industry leaders' financial stability. {{chart_2}}