Recently, I mentioned that one of the trends in the convenience store industry is that total fuel sales are falling. We are selling fewer gallons of gasoline each year. This obviously has a huge impact on the revenue stream and profitability of a convenience store that sells fuel.
As this trend continues, convenience store operators are going to have to look at two major issues. The first is capital expenditures. The investment needed to sell gasoline is huge. Underground tanks and piping, canopies, dispensers, signage, environmental testing and compliance, concrete, and POS all add up to at least 40% of the cost of putting in a new convenience store (excluding land costs) and, sometime, over 60% of the total cost. Is such an investment going to be worth it with fewer gallons being sold?
Retailers may have to seriously reconsider their gasoline offer. Do I really want 12 dispensers in front of the store? Does the canopy need to be that big? Does the fuel brand really make that much of a difference to the consumer? Do I really want to be in the gasoline business?
What will be interesting to see is whether gasoline margins are going to increase as fewer gallons are sold. Gasoline retailing has always been the most price competitive businesses around. It is the only product where the price is advertised on the street so that everyone knows what it is and can compare it with your competitor’s price across the street. If margins go up then such costly investments may continue to make sense.
The second question facing owners of existing gasoline sites is: How am I going to make up the lost profits? Fewer gallons being sold means that customers will make fewer trips to the site to solely buy fuel. This is could be a double whammy for a store operator – you lose both the gasoline profit and the inside sales profits because the fuel customer makes less trips to the store.
The two ways to combat this is through having outstanding customer service and a superior store offer. I put them in that order because you may have the best store offer around – the right products at the right price – but if the consumer does not have a good experience then they will not return.
As I’ve written before, good customer service comes down to having a good team through a strong selection program, training the team members so that they are confident as to the duties and responsibilities, and allowing the team members to have the latitude to meet customer needs. Combining these elements leads to a winning customer service program.
Having a superior store offer is the icing on the cake. Make sure that you have the right product selection and mix that will attract your customer base. Creating promotions and excitement in the store that will keep the customer coming back. Price your products in a fair way so that your customer feels like they are getting value for money.
The industry, and your local market area, is always changing. Thinking ahead about the next competitive issue will keep you ahead of the curve. In this case, you will be in a position to mitigate the negatives associate with the fall in gasoline consumption.