Does Your Future Lie Inside or Outside Your Store

In the not too distant past there were two distinct industries – gas stations and convenience stores. The gas stations sold fuel and repaired cars. The convenience stores sold replenishment goods that people bought to re-stock their pantries when they did have time to go to the supermarket. Then time pressed consumers began looking for ways to combine their purchase occasions and the convenience industry as we know it was borne.

That’s history. Today very few locations (less than 15%) are being built without both a c-store and fuel offer. The reason is simple – land cost too much to devote to a single use format. In fact, today’s the offer is also very likely to include a car wash and some type of foodservice. The basic formula is simple – offer the time staved consumer multiple reasons to stop at the site. For the c-store retailer, the more complementary revenue streams the better (all other things being equal).

The question for the future is “where is retailer’s future income coming from”. This past year we have seen gasoline margins disappear under competitive pressure and credit card processing cost and then we saw them reach very high levels as retails head back towards $2.00 per gallon. Many retailers who were crying at the beginning of the year are currently running to the bank with “extra” cash. Hopefully are c-store/fuel retailers understand that this may be the future of fuel retailing. When is bad it is a disaster and when it is good it can be unbelievably great. But do you want your future to depend on these wild cyclical swings?

Since 2000 over 60% of all c-store revenue has come from fuel.¹ Sound good but the reverse is true when you look at gross margin dollars. The National Association of Convenience Stores (NACS) reported that since 2003 that 65% or more of a c-store’s margin dollars have come from inside sales.²

This trend is likely to continue and many have predicted that it will only get worst. Many people today see gas as a commodity and that does not bode well for gasoline margins. Many leading retailers are adapting their business models to allow them to survive is they make no money on gasoline, not for a month or even a few, but for a year or more.

The question is are you ready for a world where you make no money selling fuel? If not, what are you doing to get ready? Our oil company clients don’t like to hear this but retailing fuel is relatively easy. You have three products that you don’t even have to handle. They are pumped into your tanks by your one supplier (for the most part) and pumped out by the customer. In fact, many customers even use CRINDS to pay for their fuel so you don’t even have to wait on them.

Inside the c-store, it not so easy. You have many different suppliers – some who you have to pay cash other that offer credit. Some who take their own orders and stock their product, but many who require you to order and stock the product. And heck that only gets the items into the store. Now you have to price, display, promote, etc. the items.

There is not question in our mind that the future of the c-store retailer lies inside their store. Yes, you will still need to sell gas because it drives traffic and the availability of gas is one of the principle reason people select a c-store. However, your profits will come from the inside – bank on it.

¹2006 NACS Fact Book

²2006 NACS SOI