Murphy USA set on low-cost strategy despite shrinking margins

Dive Brief:

Although its food and beverage margins are down 2.2% year over year, convenience retailer Murphy USA is intent on keeping its low-cost format in place, and “will not compromise our value proposition in the market” just to achieve short-term results, CEO Andrew Clyde said during the company’s first-quarter earnings call Wednesday.
As part of its low-price strategy, Murphy has “intentionally lagged” broader QSR price increases by 10% over the past two years, Clyde said. Moreover, during this past quarter, the retailer’s food and beverage operating costs were up 6%, he noted.
While Murphy’s stores don’t traditionally offer a fresh foodservice program, the company said in early March it planned to “execute distinctive branded [food and beverage offerings]” over the next decade with the help of QuickChek, the retailer it acquired in 2021.

Dive Insight:

Despite the continued loss in profits, Clyde said he expects food and beverage costs to moderate when paired with more measured and targeted price increases that align with the company’s low-cost value proposition. He added that he expects to see an improvement in performance in the near-term.

“We are seeing retailers willing to accept volume losses because they are making it up with higher pricing,” Clyde said. “Given this dynamic, we are well positioned to improve sales and gain customers from stepped up advertising, building brand awareness and communicating value through improvements to the QuickChek loyalty platform along with enhanced promotional activity centered around our core prepared food offer.”

Food and beverage operating costs weren’t the only expenses Murphy dealt with last quarter. The company’s total operating expenses were $15.6 million higher this past quarter compared to Q1 2022, mainly due to labor costs, store maintenance and payment fees, according to its earnings report.

Yet amid food and beverage dips and high expenses, Murphy experienced the second-highest first quarter net income and EBITDA in its history, Clyde said during the call.

Inside the store, total merchandise contribution increased 6.5% compared to the year-ago figure due to higher unit sales volumes and retail prices. Additionally, tobacco dollars grew 4.9%, while non-tobacco contributions increased 9%.

Murphy USA operates more than 1,700 stores in 27 states. Murphy USA stores are typically located near a Walmart store, while Murphy Express stores are standalone sites.