should you add to your ad budget

Advertising is a severely underutilized tool for convenience retailers, according to one industry guru. So, how much should you allocate for your ad budget—and where should you invest it?

Each year, convenience retailers spend an estimated $300 million in advertising.That sounds like a lot of dough, but John Matthews, president of marketing consultingfirm Gray Cat Enterprises, says that’s not enough for an industry that rangup sales of nearly $400 billion last year.

“To put that into perspective, McDonald’s spends that much in about three to four months,” Matthews says. “The c-store industry doesn’t make the investment to build brands as much as industries like fast food and automotive do.”

There is no hard and fast rule regarding how much a business owner should allocate to his or her marketing budget, but conventional wisdom says 5% of gross sales is a good starting point. Assuming that conventional wisdom is way off—say, by 4%—the convenience store industry still falls more than $3 billion shy of reinvesting even 1% of its gross sales back into a marketing budget.

Matthews, whose 20-year marketing career includes significant time spent with Clark Retail Enterprises, Little Caesar’s and Jimmy John’s, cites a couple of reasons why he thinks convenience retailers don’t shell out the big marketing bucks.

“Petroleum is a huge commodity business,” he says. “It’s the only product people buy that they never see. It’s also the only industry in which pricing is displayed and can change on a daily basis.”

Petroleum marketers don’t have the luxury of advertising “price” like a car manufacturer or fast food giant can; there’s no 99¢ “value menu” at the gas pump. Inside the store, the current business model creates some unique marketing challenges.

“C-stores are a collection of a number of other products and a number of other brands,” he says. “The products sold are other companies’ products. I think that’s a reason why the industry is not as aggressive as fast food.”

Casting a wide net
Assuming that a c-store chain commits to an aggressive marketing budget, thenext question is “Where do I spend the money?”

“I think television, because of the expense, can only be used by the largerplayers,” Matthews says. “Because the convenience store business is a more impulse-drivenindustry, radio is more effective because listeners hear the spot and react.You get more impulse impressions from radio, compared to someone sitting andwatching television, then jumping into their car and driving into your conveniencestore. That’s not to say I don’t like television, however.”

The advertising medium where Matthews would like to see c-store operators increase their marketing budget most is on consumer database marketing programs.

“Loyalty and frequency card programs let retailers communicate frequently and inexpensively with customers who are in the store often and buying all different kinds of products,” he says. “I’m a big advocate of loyalty programs, especially considering that the volume of customers at a c-store dwarfs that of a fast-food restaurant. If you think about that in sheer numbers, imagine if you had a loyalty program that allowed you to track where all of your customers spent their money.”

The reason Matthews is becoming a bigger fan of loyalty programs is that he sees the future of marketing in all circles moving toward a more customer-centric focus rather than a brand-centric one.

“The more c-stores can learn about their customers, the better served theyare by knowing what their customers come in and buy,” he says. “You can proactivelycontact all of your Marlboro buyers to let them know there is a special. Ifyou think about what Starbucks has done with their loyalty card, it’s incredible.Loyalty card sales represent 11% of their business. If you have a Starbuckscard in your pocket and you’re near a convenience store and a Starbucks, you’regoing to choose Starbucks. Retailers have to develop that kind of loyalty. Youhave to transfer some of your brand-based dollars to developing these loyaltyprograms.”

Of course, a sophisticated loyalty program isn’t built overnight. Plus, retailers have to constantly hunt for new customers.

“That’s why I still think that, as a marketer, you have to cast a large net to let people know you’re out here,” Matthews says. “Retailers still have to cast a very large net by doing some broad-based marketing like radio or sponsoring an event. It’s a nice marketing combination because a loyalty program is direct marketing and a radio-type campaign elevates the brand.”

Mass-reach brand marketing and implementing targeted individual customer marketing programs are headquarters’ responsibility. But just as important, Matthews says, is storelevel marketing.

“A lot of people forget about the local store marketing opportunities that you can do in the immediate trade area of each store,” Matthews says. “What are some of the key target areas? Have you developed a school program? A hospital program? Do you sponsor a tee-ball league? Are you doing the things that imbed a particular store in the community? It’s not that sexy. There’s a lot of grunt work and sweat equity, but that’s what builds the loyalty around each store, and it’s the collective amounts of single-store loyalty that really make a strong chain.”

Major league
If John Matthews were to visit with the folks from Daily’sConvenience Stores (Nashville, TN), he’d probably like what he saw.

The chain’s 64 stores saturate a 40-mile territory in central Tennessee. Daily’s relies heavily on billboards and radio to build brand awareness and generate “direct response” storetraffic for special promotions and sponsorships. Individual stores also focus on community service programs. In all of its marketing endeavors, Daily’s has been savvy about involving vendors who can help shoulder some of the expense.

“The last couple of years we’ve developed two major annual promotions in conjunction with our vendors,” says Ron Motley, director of marketing for Daily’s. “We use radio for event marketing. Our vendors are involved through co-op, so they’re mentioned in the commercials as well.”

Daily’s partners with NASCAR and a Nashville country music station for one of its major promotions.

“We give away trips to major races like the Coca-Cola 600, Pepsi 400 and Sharpie 500,” Motley says. “The radio commercials encourage people to come in and register to win. Plus, we have an interactive road course simulator that people can ‘drive’ at a different store each week. It’s on a trailer and it’s called the ‘Budweiser 8 To Go.’ We’ve done it for three years and it gets bigger each year.”

The other radio campaign the chain does is “Daily’s Ultimate Fan Zone.” The chain uses radio to encourage listeners to come in and register to win tickets to various sporting events, including Atlanta Braves, Nashville Predators, University of Tennessee and Vanderbilt games. Tickets are given away every single day. Daily’sreceives an even bigger boost from its partnership with the National Football League’s Tennessee Titans radio network.

“We have a live broadcast every Wednesday night before a home game at a differentstore,” Motley says. “They give away five pairs of Titans tickets. Customershave to come by and register to win them, and we always have increased traffic.”

Daily’s Ultimate Fan Zone ends with a bang. Every ticket winner qualifies for one of several “Super Prize Packages,” which include tickets, airfare, hotel accommodations and spending money for trips to see the Predators play a road hockey game, th
e SEC football championship and the Peach Bowl (both in Atlanta) and the NFL Pro Bowl in Hawaii. Motley says the buzz generated by these prizes is priceless.

“This has become huge,” he says. “Every fall, people start talking about it. Whenever you go to meetings or cocktail parties, people want to talk about it.”

The radio promotions drive traffic to the stores and create a consistent level of awareness throughout the fall season, specifically. To keep its name “out there” all year, Daily’s uses an annual billboard campaign.

“Daily’s came into the market four and a half years ago, so we needed to getour logo out there—and we chose billboards,” Motley says. “Then we co-op’d ourbillboards with product promotions so people would associate our name with awell-known product name. We’ve done well because even though the majority ofour stores are Shell-branded, we’ve been able to establish a whole differentbrand.”

About 25% of Daily’s marketing budget goes to charity.

“We also support the Vanderbilt Children’s Hospital,” says Motley. “In the last four years, we’ve raised almost a half-million dollars through our Daily’s Cup golf tournament. It’s another form of advertising.”

Daily’s most well-known charitable program is “The Forgotten Angels” campaign every Christmas. The Salvation Army does the Angel Tree program, which allows needy parents to register their children to receive gifts at Christmas.

“For whatever reason, about onethird of the kids don’t receive gifts,” Motley says. “So our employees adopted the ‘Forgotten Angel’ tree. Our customers buy toys and bring them back to us, and we give them to the Salvation Army. Our radio partners and Lamar Advertising (billboards) donate a lot of free advertising to help promote this.”

Space invaders

Lots of convenience store chains buy billboard space to increase business. But Jr. Foods (Jonesboro, AR) sells billboard space to increase business.

For $800 a month, companies like Pepsi, Yarnell Ice Cream and Krispy Kreme promote their products on their retailer customer’s 12′ by 48′ billboards (or 12′ by 24′ positions for a smaller investment).

“When we do our vendor negotiations, after we make the deal with them, we ask them to do their advertising with us,” says Jim Quinn, co-owner of Jr. Foods. “We’ve gone beyond the point of using just our store locations. We have one leased property and are in the process of leasing another property just for billboard structures. It costs about $80,000 to put up the structure. The [cost of] land is where it hurts you.”

As far as dirt is concerned, Vice President Wade Quinn says abillboard structure requires a circumference of just 3′.

“But you have to account for the air rights,” he says. “We’ve done leases where people get 25% of the revenue and we get to use the ground for free. I haven’t been able to find a piece of ground inside Jonesboro for less than $100,000.”

Jr. Foods lures billboard advertisers away from competitors by offering free board production for customers. But when billboard positions do go unsold, Jr. Foods has a couple of options. Sometimes it uses the space to promote its own stores and promotions. Other times, it uses billboards as “chips.”

“Our current radio advertising contract is partially traded out, and so is our landscaping,” says Wade Quinn. “We also trade with ArkansasState University and we get scoreboard advertising in return. Signage is pretty pricey inside the stadiums, so we like that.”

In addition to trade-out ads, Jr. Foods invests about $2,500 per month to advertise and promote its 14 stores.

“Our radio contract runs us about $2,200 per month,” says Wade Quinn. “Every Wednesday, [a local station] airs a ‘Community Breakfast’ show from one of our stores, during which anybody working for a non-profit organization can schedule time and the hosts will talk to them about what they’re promoting. We see an increase in sales every Wednesday morning.”

In addition to the radio show and the billboards, Jr. Foods also advertises its brands by sponsoring local Little League teams, schools and other community programs.

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