Supply Scan

» Convenience Store Sales, Profits Showed Gains in 2008
An otherwise tough year for convenience stores was balanced out by strong retail fuel margins from the unprecedented drop in wholesale fuels prices during the fourth quarter of 2008, according to data released by National Association of Convenience Stores (NACS), Chicago.

Overall convenience store industry profits rose 54 percent in 2008 to reach $5.2 billion, reversing a two-year decline where profits dropped 42 percent over that period. Industry sales jumped 8.1 percent to reach $624.1 billion, with both motor fuels sales (up 10.1 percent to $450.2 billion) and in-store sales (up 3.2 percent to $173.9 billion) showing growth.

The growth of in-store sales defied the overall trend in U.S. retail sales, which fell 0.6 percent based on U.S. Department of Commerce data. It also came despite a rare decline in the number of convenience stores. For only the third time in the past 15 years, the industry store count dropped --1.0 percent to 144,875—as many stores closed because of the punishing economic conditions and record-low motor fuels margins the industry faced during the first three quarters of 2008.

The convenience store industry sells an estimated 80 percent of the fuels purchased in the United States, and motor fuels sales continue to dominate industry revenues, accounting for 74.5 percent of all sales dollars, in examining same-firm sales data. However, overall fuel gallons sold declined 2.4 percent. Meanwhile because of low gross margins on fuel (5.7 percent), only 31.7 percent of all profit dollars came from fuels sales.

Credit card fees continue to be the industry’s top pain point, surging another 10.5 percent in 2008 to reach a record $8.4 billion—nearly three times the level just five years ago.

Although unemployment levels nationwide were souring in 2008, there was good news with respect to the convenience store industry’s employment figures. The industry saw a modest 0.8 percent gain in number of employees, which rose to 1.73 million.

There were several significant differences between the industry’s top performers and bottom performers. Top quartile performers sold more than twice as much motor fuels as the bottom quartile (187,932 vs. 84,369 gallons per month). The top quartile performers significantly outperformed the bottom quartile inside the store as well—with merchandise sales of $124,797 vs. $75,753 per store per month. As a result, top quartile stores showed an average monthly pretax profit of $13,173 per month, while the bottom quartile lost $3,626 per month.

Once again, cigarettes dominated in-store sales, accounting for nearly one in every three dollars spent in stores, but cigarette gross margins continued to plummet, falling to 15.3 percent.

These low cigarette margins dropped the category to third in terms of gross margin contribution. Meanwhile, foodservice—which includes dispensed beverages and food prepared on site—continues to show strong growth, accounting for nearly one in four in-store profit dollars.

The industry’s 2008 metrics are based on the NACS State of the Industry survey based on data from 156 firms representing more than 20,000 stores. Complete data tables and analysis will be released in June in the NACS State of the Industry Report of 2008 Data.

» Well’s Dairy Saves Big With Microsoft Solution
The IT department at Wells’ Dairy Inc. is using virtualization and systems management solutions from Microsoft Corp. to support its business.

By deploying Microsoft virtualization and Microsoft System Center management software, Wells’ Dairy has been able to save more than $500,000 on hardware and software licensing costs.

The Le Mars, IA-based company wanted to optimize its growing datacenter operations, improve business continuity and build a more agile IT infrastructure.

To do that, the Wells’ Dairy IT department turned to virtualization, a technology which allows several servers to exist on a single piece of hardware yet run independently.

“We believe that a long-term vision of efficient and consolidated technologies delivers better value than short-term fixes, and will allow us to lead our industry from a business and technical standpoint,” says Mike Kooistra, director of information services at Wells’ Dairy.

After evaluating alternate virtualization software, Wells’ Dairy turned to Windows Server 2008 Hyper-V to virtualize critical business applications on Dell PowerEdge servers, and improve manageability of both physical and virtual IT systems with the System Center suite of management tools.

» ATA Supports Safe Transportation Act
The American Trucking Associations says it strongly supports the “Safe and Efficient Transportation Act of 2009,” which was introduced by U.S. Reps. Michael Michaud [D-Maine] and Jean Schmidt [R-Ohio] on March 30.
The bill will allow states to authorize the operation of more efficient commercial trucks, resulting in safer highways, cleaner air and less costly freight transportation.

The bill authorizes states to allow the operation of trucks on the Interstate Highway System with a gross weight of 97,000 pounds. Current law limits the weight of 5-axle trucks traveling on the Interstate System to 80,000 pounds. The legislation requires that trucks operating above 80,000 pounds must add a sixth axle to compensate for the extra weight. The extra axle adds two more brakes, preventing an increase in stopping distances and avoids additional pavement damage.

Most importantly, the operation of this new, more efficient vehicle will allow trucking companies to deliver the nation’s freight while making fewer trips. The result will be a reduction in the number of truck-involved crashes, less fuel use—and thus reduced emissions and carbon—and less congestion on our crowded highways. Fewer miles traveled also means less pavement damage, lowering highway maintenance costs.

While most Interstate Highway bridges are fully capable of handling the additional weight of these vehicles, some bridges will have to be strengthened or replaced on an accelerated cycle in order to accommodate the vehicles. It is important to note that there are no mandates in the bill.

The highways on which this vehicle will operate will be chosen by the individual states that choose to authorize their use, and states will be empowered to route these vehicles in a way that minimizes any additional costs. Nonetheless, the bill recognizes that additional bridge costs are possible, and vehicles authorized to operate under this legislation will be required to pay an additional fee.

“As part of our Sustainability Initiative, ATA supports a number of reforms to federal truck size and weight regulation,” says ATA president and CEO Bill Graves. “The use of more efficient trucks, such as those allowed under the bill, will significantly reduce the trucking industry’s carbon output,” he adds.

GREEN LOGISTICS

» Kraft Foods Goes Green With Hybrid Reefer
Kraft Foods Inc. added another green ingredient to its DiGiorno Pizza line—the first-of-its-kind diesel-electric hybrid delivery truck from Navistar International equipped with a refrigerated truck body for frozen and refrigerated capabilities.

“As part of our commitment to reduce carbon dioxide emissions, we are applying new technologies like this one, cutting down on the distances our fleet travels and partnering with governmental agencies,” says Mike Cole, director of transportation, North America, Kraft Foods, Chicago.

The International DuraStar Hybrid truck with RouteMax refrigerated body is a pilot unit and is the first of its kind on the road. The energy-saving system in this delivery truck is expected to offer Kraft as much as a 30 percent fuel saving vs. a traditional diesel powered truck.

The hybrid uses a mild parallel-type, diesel-electric hybrid architecture, developed by Eaton Corp., which leads to less diesel fuel use and fewer emissions. The hybrid-electric system utilizes a regenerative braking system to recover energy normally lost during braking, stores the energy in batteries and adds power back into the driveline during starts and acceleration.

In addition to the hybrid system, this truck also features RouteMax, a self-powered, extended-route cold plate refrigeration system offered exclusively through Navistar in cooperation with Johnson Truck Bodies.

Onboard power from the hybrid system provides power for the refrigeration solution to accelerate body temperature recovery during the truck’s daily operation, nearly doubling the length of time its cold plates provide cooling for cargo and protecting assets. RouteMax is an efficient alternative to a traditional diesel-powered refrigerated blower unit, saving as much as 1,400 gallons of fuel per year.

» Nestlé Waters Using Hydrogen-Powered Lift Trucks
Nestlé Waters North America Inc. has signed an agreement with Air Products to supply hydrogen and hydrogen fueling station technology for its Dallas facility, where it will be used to fuel a fleet of approximately 32 Class I hydrogen fuel cell powered forklifts to be used in daily operations.

Nestlé Waters is in the process of expanding its bottling and warehousing operations in Dallas and is converting its materials handling equipment to hydrogen fuel cell forklifts. The fueling station is to be installed and operational during the second quarter of 2009.

“This project is consistent with our commitment to environmental stewardship and sustainable ‘green’ solutions for which Nestlé aspires,” says Christopher Lyon, process improvement manager for Nestlé Waters Fleet Services, Greenwich, CT.

Air Products’ fueling infrastructure at Nestlé includes an outdoor liquid hydrogen storage and compression system, along with multiple indoor fueling dispensers for operator refueling. Air Products’ will fuel the fleet of Yale lift trucks fitted with Plug Power’s GenDrive hydrogen fuel cell power units.

The GenDrive systems can be quickly refueled by the lift truck operator in less than five minutes, completely eliminating the need to change, store, charge and maintain multiple lead acid batteries per lift truck.

There are many advantages to using hydrogen powered forklifts and other materials handling equipment. Hydrogen fuel cell-powered equipment needs refueling once or twice daily, depending on use. In contrast, traditional battery-powered equipment must be placed temporarily out of operation for battery replacement and required battery recharging approximately every four to six hours.

Additionally, hydrogen fuel cell forklifts are not adversely impacted by temperature or by operating in coolers and freezers, in comparison to traditional battery performance. Further, hydrogen-powered fuel cell equipment is more environmentally friendly because they do not involve lead-acid battery storage and disposal issues.

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