Interviewed by Denny Rubin | Published in NRC Newsletter, Summer 2015
Denny Ruben: What do you see happening in the economy near term?
David Nelson: We have now entered the seventh year of economic recovery and are now already beyond the average length of post-WWII economic expansions. Still, I believe the economy has room to grow as we see solid gains in employment and consumer spending, strong demand for autos and light vehicles, and home building and prices on a rebound. While lower energy prices have on balance been a positive for the U.S. economy, the Energy Belt is seeing lower investment and employment. Manufacturing which supports the energy industry like steel production has been hurt and a strong dollar is making it difficult for U.S. manufacturers to compete in a global marketplace.
Ruben: What is the Fed going to do?
Nelson: They are going to raise interest rates, but the question is when and by how much. As recently as March, most market forecasters thought that the first rate increase would be in June, but now the earliest expected first move is in September and an increasing number think it may be delayed beyond then. Long term we can’t have interest rates that are negative in real terms so the Fed does need to begin normalizing rates as soon as they think the economy is able to handle it. Given the very low current rate of inflation and global uncertainties, interest rates are likely to rise slowly and remain low relative to historical norms for the foreseeable future.
Ruben: Do you believe the challenges in the Chinese marketplace, coupled with the challenges for the European Union from the Greek crisis could alter the anticipated Fed move?
Nelson: The Fed will make its monetary policy decisions on the basis of the strength of the U.S. economy. China’s growth slowdown is part of the normal process of a maturing economy. The financial situation in Greece is very serious and the possibility of a Greek exit from the Euro is looming larger; however, the direct exposure of foreign investors from this crisis is limited. While a worst-case scenario of a Greek exit from the Euro leading to sizable financial and economic impacts on the global economy cannot be ruled out, it remains unlikely.
Ruben: With the lower gas prices, are consumers actually spending their gas savings?
Nelson: They are, but it took a while to get there. As motor fuel prices fell last fall, initially there was a jump in the personal savings rate and retail sales actually fell. Part of the decline in retail sales was attributable to the fact that consumers were spending less on fuels. Once consumers began to sense that the energy savings were more than a short-term, transitory shock they began to adjust their spending upward. By May 2015, retail sales (excluding gas) were up 3.5% year over year. Among the top 10 consumer spending categories, c-stores have the opportunity to capture a share of this increased spending in three categories – food and beverage, food services, and energy goods and services.
Ruben: Have lower gas prices and a revived economy done anything to reverse the decline in vehicle miles traveled?
Nelson: Absolutely. The Federal Highway Administration recently released April miles-driven figures that show a 12-month moving average of 3.076 trillion miles, which is a new record high and reverses what had been a 6-year decline. Year-over-year miles driven have increased 3.9%.
Ruben: What’s happened to the demand for gasoline?
Nelson: More miles driven has won out in the short run over improved fleet efficiency resulting in a 4% year-over-year gain in gasoline consumption according to the Energy Information Administration. Consumers have also changed the mix of new vehicles they are buying from 45% trucks and SUVs at the 2008 oil price peak to 55% truck and SUVS more recently.
Ruben: What’s happening to spending inside the store?
Nelson: Spending inside the store is on an upswing as well with year-over-year gains in c-store merchandise sales up 4.0% per retail location for the 12 months ending in April 2015. Considering that the rate of inflation has been essentially flat during this period of time means that these are real sales gains. Categories showing strong growth are packaged beverages, food service, salty and sweet snacks, frozen food, edible and perishable grocery, and health and beauty care.
Ruben: What are you seeing for motor fuel demand?
Nelson: From my work with Study Groups of petroleum marketing firms who operate convenience stores, it is definitely on an upswing. Using a same-firm sample of 88 companies operating almost 5,000 c-stores shows year-over-year increases of 2.2% in motor fuel gallons sold per retail location for the 12 months ending in April. Comparing the monthly change from April 2014 to April 2015 shows an even more substantial 3.3% increase.
Ruben: Can you explain a bit more about Study Groups?
Nelson: Sure. Study Groups provide a mechanism for a group of non-competing marketers to get together two to three times per year to exchange experiences, solutions and ideas to improve their businesses. On a monthly basis, members receive comparative financial and operational data to benchmark their performance against others in the group and against broader averages. The overall objective of a Study Group is to help members improve the performance of their businesses. Study Groups just celebrated its 30th anniversary. Almost 200 of our study group community celebrated the occasion with facilitators, support team members, study group members and friends getting together for a Seminar at Sea in the Western Mediterranean. Our website www.studygroups.com provides additional information or we can be emailed at info@studygroups.com.
Ruben: Are there Study Groups for different types of businesses?
Nelson: Yes, there are 46 separate groups representing a number of different business lines including full line jobber, wholesale (three types: commercial, dealers and convenience merchandise), lubricants and propane. We also have groups focused on specific functional areas such as food service, information technology, fuel management, operations management, next generation and CFO. Members of groups range from owner/CEOs to senior management responsible for functional areas in which we have a group offering.
Ruben: We understand that you have recently partnered with Kay Segal and Paul Reuter to form a new venture – the Business Accelerator Team. What is this all about?
Nelson: I am honored to have been invited by industry veterans Kay Segal and Paul Reuter to be on the BATeam. BATeam was formed to help companies succeed more quickly by providing insight, strategy, tools and consulting services to both suppliers and retailers. Today’s market place is extremely competitive. Within any competitive space, gaining traction and accelerating growth can be the determination of financial viability and long-term success. BATeam is a business catalyst firm focused on helping others reach their goals more quickly.
Ruben: How does the BATeam differ from Study Groups?
Nelson: Study Groups is focused on financial and operational benchmarking and on peer-to-peer sharing and learning. We see the BATeam filling a different void for knowledge, education, insight and consulting services to assist retailers and suppliers accelerate their growth. For more information, contact kay@thebateam.com and visit our website at www.businessacceleratorteam.com.
