Yesterday, I stopped to buy diesel at a store that is located right off the interstate, along the path that I frequently travel from my home out in the country to the metropolitan area of Jackson, Miss.
I have been buying fuel there for over 10 years. The owner is not a customer of mine, but I enjoy talking about his business and how things are going. I have found that I can learn as much or more from non-customers as I can from customers I work with on a daily basis.
This particular convenience store retailer owns four stores and he is always complaining about how his profits are dwindling. I instinctively know what his real problems are, but I also know how to identify an individual who is set in his ways. Consequently, I do not want him as a customer.
Oftentimes, when a person becomes convinced of something, there is nothing you can do to cause them to change no matter how hard you try. Occasionally, I will drop a suggestion that’s usually met with a false narrative that has little or nothing to do with what I said. If he has been brainwashed into believing that more inventory on hand equates to more traffic, and that more traffic equates to more profit, you are not going to change his mind no matter how hard you try.
Although the dedication to his beliefs sounds perfectly reasonable, he has no statistics to back them up. “If not enough inventory to maintain customer service level means less profits, surely more inventory means greater profits.” Using the same logic, “If my doctor tells me I need to drink more liquids, drowning myself in the river should improve my quality of life.”
Most convenience store retailers have a favorite category they spend most of their time on. My friend in this story is all about tobacco, and his stores look more like tobacco stores with piles of convenience items in the middle, surrounded on one side by coolers, and windows crowded with tobacco advertising on the other two sides.
Usually, I have to jump up and down in the diesel lane in order to rise above the signs and catch their attention to turn on the pump. In other words, it’s a circus, and more than likely the reason for his dwindling profits than anything else. But since his concentration is on tobacco, I don’t think he even cares one twit about the rest of the stuff in his store. His vendors take care of that, and if he knew what his best-selling non-tobacco products are doing, it would surprise me to no end. This fellow is tobacco, through and through.
When you know what category a person’s interests are, most of the time you can bet that everything he or she believes to be true is related in some way to that category. Yesterday, his excuse for dwindling sales was all about the educational level of the customers he serves. Rural Mississippi is not exactly known as the bastion of superb education, and I can understand the effect that poor education has on his customers’ ability to afford tobacco products, but it’s obviously not the only reason for his negativity. He just doesn’t see a bright future, but he’s got so much invested in his business he believes his choices are staying the course or moving elsewhere.
The general location(s) of your store(s) has a great deal to do with how you make your money. If you don’t know how to adapt, you are always going to have trouble, whether you’re in La Jolla, Calif. or Hot Coffee, Miss.
Nevertheless, his overall plan is to cram his store full of anything and everything a passerby might be needing at any given moment in time, and he uses his fuel as a loss-leader in hopes that his customers will buy something inside his store. If the average customer buys less than two items, it makes sense to him the emphasis should be on an increase in store traffic. If that’s your marketing plan, then a failure in either of these areas is going to see things getting worse.
What you should be doing is figuring out how to get more items in the market basket, eliminating non-profitable traffic, and getting rid of the items non-profitable customers are buying.
In most convenience stores you can take from 10-15% out to the dumpster and you would be better off. Concentrate on the 30% of your inventory producing a profit and taking a hard look at the 55-60% you might be better off without. Through a process of repricing, moving or re-moving and replacing that inventory with proven, good sellers, you will not only improve your profits, but attract more profitable customers by cleaning up your stores.
Unfortunately, there is a stark correlation between my friends thinking and my own. For the past 17 years, I have been begging convenience retailers to let me help them manage their inventory. I teach them, and get them heading in the right direction; but, left on their own, they eventually slip back into their old ways. Why do they do this? Because they have been doing it their way a lot longer than they did it my way, and I don’t have time to run my business and theirs’ too, so they continue to see the debt pile up and the costs go out of control.
It reminds of the story about the two fellows that were driving from Arkansas to New York City to sell watermelons for $1 they had purchased in Arkansas for $1, and losing money on every trip. So, their solution was to buy a bigger truck. Just as a bigger truck would not solve those Arkansas farmers’ problems, convenience store operators who expect their vendors to bring them more inventory (which they have to pay for mind you) is not going to solve theirs’.
By and large, the problem is not that convenience stores are not selling enough, they are not MAKING enough after they pay all of their expenses. One person advises them to make their stores look more attractive, and the decoration they chose is more inventory that will not sell. But retailers don’t know that, because they have no idea what they ARE selling. Oh, they may know that Mountain Dew is a good seller in the ‘Drinks’ department, but if you asked them what their second or third best seller is, most of the time you will get a blank stare.
What’s your margin on the products you do sell? No, it’s not only the difference between the purchase price and the selling price. You’ve got employees on your payroll, the interests you would have earned if you had invested the money you paid for that excess stock into something more profitable, the employment costs over and above salaries, theft and shrinkage, property leases, the insurance, the refrigeration, the cost of promotions, and last but not least, the amount of confusion caused by excessive stock and how it affects your shoppers’ buying experience—it goes on and on.
The convenience store industry used to be easy. If you had the money to build a store on a busy street you were successful. It’s not like that anymore. The convenience store industry is a science, and most retailers are ill-prepared to deal with outside forces that are bearing down on them with ever, increasing force.
The good news is that almost all of your problems are solvable. But first, you need to accept the fact that you don’t know what most of those problems are, and most likely, you are wasting your time on the wrong problems and limiting your ability to solve the ones that matter. It may be time for a third party to take a closer look and advise you on what you need to do to turn things around.
Bill Scott is the author of two retail books, a convenience store retailing consultant and speaker, and the president at StoreReport LLC.