January 01, 2003
10 ways to make a buck in 2003
A new year brings new opportunities to improve the bottom line. Here"s how 10 of the industry"s most inventive retailers are boosting profitability and redefining the term "convenience" for the year to come.
1. Jolly Roger
Jimmy McCarthy shows his entrepreneurial Christmas spirit by selling trees, wreaths and other items to spread holiday cheer—and turn a cool profit.
For Jimmy McCarthy III, Christmas in Florida is about time away from the convenience store business. But instead of heading to the Caribbean or Europe, he dons his gloves and hacksaw and spends his "downtime" selling Christmas trees.Two friends approached McCarthy with the opportunity in 2000, and the director of operations for Hialeah-based Tom Thumb Food Stores (14 stores) has been hooked ever since; if he runs the lot effectively, he can net $5,000 to $20,000 in tree sales in five weeks.
Selling Christmas trees, like any business venture, requires the willingness to learn, which McCarthy and his partners discovered in 2000 after investing too heavily in equipment and labor. McCarthy decided to go it alone for the 2001 and 2002 seasons, using expertise gleaned from years in the c-store business as a guide.
"Just like c-stores, you want to check out how your competition is priced," McCarthy says."Plus, it's all about presence.We [McCarthy and his employees] all wear T-shirts and aprons we had made up especially for the lot so customers can spot us—and every customer is greeted."
Other valuable lessons McCarthy has learned to improve the business:
- Signage: McCarthy spent several-hundred dollars on signage and lights to catch the customer's eye. Once the lot becomes established, he says, it should stay in the same place for the future, if possible."About 80% of your volume is return business," he says."[Customers] will come back every year if they're happy with our trees."
- Labor: In 2001, McCarthy paid lot staffers $6 per hour, plus tips. By 2002, he optimized labor productivity by hiring salaried lot managers, who helped better organize schedules for tipped employees.
- Equipment: After the 2001 season McCarthy found that newly purchased electric chainsaws wound up collecting dust. By talking to other lot operators, he learned that handsaws were more affordable and inspired patrons to tip more. Like the electric chainsaws, McCarthy also unnecessarily purchased new tents in his first year that he had to assemble, disassemble and store in the off-season. In 2002, he rented the tents—with all gruntwork included in the deal—at a fraction of the cost to buy them.
- Variety: Just like in the cooler or on the shelves of the snack aisle, variety rules the day on the tree lot, too. McCarthy offers some of the best Christmas trees in South Florida, in a range of sizes and price points, from $20 to $120.
With a full year under his belt, McCarthy also figured out how to buy better. In 2001, he sold about 575 trees out of a total inventory of more than 800. In 2002, he rented an additional lot and offered about 750 trees per location. He expected to sell all of his trees, at a profit of $10 per tree after factoring in expenses.
One piece of new equipment he did purchase was a $100 wreath-making machine, which he used to sell wreaths made from tree "scraps" for $20 to $25 each. He also sold poinsettias, tree stands, disposal bags and other items to make his sites onestop shopping destinations.
—Kate Buczko, Associate Editor
2. Check checkers
A check-cashing service automatically brings more money into the store. Systems equipped with biometric readers help it stay there.
Khalid Hafeez doesn't get bent out of shape when customers give him the finger. In fact, he makes it mandatory if they want to use his newest profit center. Before cashing their payroll checks in Hafeez's stores, customers need to be fingerprinted by a biometric reader, which simplifies the check-cashing process for customers and eliminates instances of fraud. Inside sales are up despite the "criminal treatment," and Hafeez has learned invaluable information about his customers. (No, not their previous-arrest records.)
Hafeez, who owns and operates two Amoco Food Shops in Ft. Meyers, FL, was sick of getting burned by customers cashing bad checks in his stores.The new system takes the stress out of the process for Hafeez because once a customer gives a digital fingerprint, the vendor—BioPay LLC—has a running count of the customer's past history. If any "negative information" surfaces when a customer tries to cash a check, the system will tell Hafeez to deny it.
"You can only get burned once with this system," says Hafeez."We implemented it more than a year ago, and it's helped a lot with accounting and curbing fraud.And we're actually getting feedback that tells us how many customers we get, how many checks we cash and how much money they spend in our stores."
The system works independently of the point of sale and requires zero training, Hafeez says. His stores cash 1,500 to 1,800 checks per month, charging 1% to 1.5% of each check's total amount as his fee. He says it's been well worth the $7,500 he spent on the system, along with a $60 monthly fee for sharing data. If a customer bounces a check or does something fraudulent in any of the 200,000 locations on the system, all retailers on the system are alerted.
Prior to implementing his current system to aid in fraud prevention, Hafeez determined whether or not he cashed a customer's check based on what his gut told him.An employee has to ask for the customer's driver's license as the primary means of tracking the customer in the event of a problem. Hafeez admits it was a cumbersome and unreliable process that inconvenienced the customer, took days to isolate problem checks and left him with knots in his stomach. But that's all water under the bridge now. The new system provides detailed reports that have helped him discover that 40% to 45% of customers who cash checks in his stores give some of that money right back to him in the form of gas and merchandise sales.
In addition to improving sales, the system doubles as a loss prevention tool. Hafeez recalls an instance where one time a couple of "street toughs" came in a store to cash a bad check. Once the men realized they had to be fingerprinted to get their cash, they took off running.
"Only the bad guys seem to mind," says Hafeez."It's a [fraud] deterrent and a profit center."
— Bill Donahue, Managing Editor
3. Coming clean
Car washes—automatic and self-serve—are helping Pit Stop recover revenues lost to depressed cigarette sales.
When Case Marshall opened his first convenience store in 1984, he figured that cigarettes would be a core profit-driver for decades to come. But with state tax increases driving the price per pack to nearobscene levels, Marshall now spends his time figuring out how to survive without cigarettes. Finding success with new profit centers—like car wash—has been a good first step.
All 16 of Marshall's Pit Stop Convenience Stores are scattered throughout small towns in central New York, just outside of cities like Syracuse and Rochester. Being a New York retailer means dealing with the highest taxes and toughest tobacco retailing regulations in the country.
"That's why we're looking into different things, like the car wash," says Marshall. His first car wash opened last September in conjunction with his newest ground-up in the village of Port Byron (pop. 4,000).The wash has three bays—two self-serves and one touchless automatic.
"The automatic generates about $2.50 for every $1 the two self-serves bring in," says Marshall. "We've had it for about four months now; the high month is about $7,000, and the low is about $3,000. I'm expecting a good ROI; in the first month, I paid my bills for it and had some left over."
Not counting the building costs, Marshall says self-serves typically run about $20,000 per bay.The automatic is pricier, at roughly $130,000 per bay. Marshall bought all of his equipment from supplier PDQ.
"If you're thinking about getting in the car wash business, don't just look at equipment cost; look at who provides the best service after the sale," he says."Because when it breaks, it usually breaks because it's so busy, so you want it fixed fast."
Since all of his equipment is in its infancy, Marshall hasn't had many problems that expert help. But when the touchless does go down, it's usually-something small that he can fix himself, and he knows about the problem immediately.
"If something goes wrong, the computer that runs the car wash automatically sends me a message on my pager," Marshall says."Plus, being in such a small town, I usually get a phone call at home from a customer right after I get the page."
Aside from minor issues that require Marshall's attention, the car wash is self-sufficient.The only labor addition came from a facility maintenance person who cleans the equipment, fills the soap and performs other simple day-to-day tasks.
"That aspect made the car wash very attractive to us because labor's the biggest hassle in operating a store," Marshall says."So we were able to add a new profit center without adding all the problems associated with normal store operations."
But Marshall admits that "normal" store operations are a thing of the past."It's important for us to find new profit centers that fit the customers' needs," he says."We're not to the point where we can live without cigarettes, but we're trying."
—Dave Scopinich, Contributing Editor
4. In the hunt for big bucks
Hunting and fishing licenses typically yield small margins but can provide a big boost to store traffic in the right location.
A card game unfolding before sunrise-at the Eckerty Y is a sure sign that the Sunoco-branded store is anything but typical.The "Y" itself stands for the location of the store at the Y intersection of Indiana Highways 145 and 64. But the most unusual aspect of the Eckerty Y lies in a draw that has transformed the tiny store into a destination of sorts: deer checking.
Nestled in the hills of southern Indiana, about 50 miles west of Louisville, KY, the Eckerty Y specializesin serving the needs of hunters and fishermen; the store sells more bait than candy bars.
Customers essentially dictate store hours, opening at 5 a.m., though doors close anywhere from 8 p.m. to 10 p.m. But on the third Saturday of November, it's not the usual shoppers who crowd the lot in the predawn hours; it's the first day of deer hunting season, when outdoorsmen don their "camo gear" and track down the biggest bucks they can find.
The Eckerty Y is an official deer check station for the state of Indiana, a place where hunters are required to report to tag and register "taken" deer with the state's Department of Natural Resources.
In the past, Eckerty Y has been among the state's busiest check stations, tagging as many as 200 deer in a single day.Although deer season lasts 15 days, the first day remains the busiest for the store. Over the course of the day, hundreds of hunters amass at the Y to compare their takes or to simply "hang around to see what comes in," according to one hunter. While Thompson makes only 75¢ from the sale of each $24 deer license, hunting season provides an ideal opportunity for the Eckerty Y to capitalize on sales of soda, beer, cigarettes and other in-store merchandise.
"Tradition is the reason we provide this service," says Eckerty Y Owner John Thompson."We've been doing it ever since we took over the store—and who knows how long before that. I have to hire two additional people to provide the check station, and the only thing we get from it is the hope that the hunters will spend some money while they are here."
More than one-third of the store's retail space is devoted to hunting and fishing supplies.The store also sells a few guns, even though they cannot legally be displayed. It also sports a number of mounted deer heads and fish. Even the hot/cold beverage center sits below a pair of mounted bucks.
—John Blair, Contributing Editor
5. Return to the ice age
A new machine enables a Southeast retailer to make, bag and sell its own brand of ice, maximizing sales and profits, while optimizing labor.
Packaged ice typically constitutes less than half a percent of a convenience store's total sales volume. But in warmer regions that thrive on tourism dollars, bagged ice—which carries an average profit margin of 60%—can become one of a store's biggest moneymakers.
At its two stores in Florida—Destin and Bluewater Bay—York Convenience Stores goes through packaged ice more quickly than employees can stock it.And since the Hattiesburg, MS-based retailer has streamlined its in-house ice-bagging process, labor costs have been slashed by up to 75% and the company is focusing on building upon sales that are already six times higher than the industry average.
Destin and Bluewater Bay are ideallylocated for packaged ice sales. From college kids looking to be close to Panama City, to families looking for a quiet resort town, Destin's 200 condominiums and rental units are packed from Spring Break through Labor Day, and the Destin store is located two blocks off the main accessway to the beach.The store in Bluewater Bay has a built-in customer base with one of the largest airforce bases in the country and a community of 5,000 households, most of which are retired military personnel. Each store may see between 2,000 and 3,000 customers per day, and between Memorial Day and Labor Day each store sells approximately 1,500 bags of ice per week—a considerable feat when most stores consider themselves lucky to sell 250 bags per week.
While volume was high at both stores, packaged ice wasn't much of a profit center because of all the labor it required, as well as out-of-stock issues. Destin and Bluewater Bay employees bag ice in-store year round, but to supplement the seasonal volume, packaged ice is purchased from a local distributor. However, when Jim Burge, operations manager for York Convenience Stores, agreed to test an automatic ice maker/ bagger, the Follett Ice Pro, he took the first step to making a big difference in his employees' jobs—and his company's bottom line.
"Bagging ice has always meant tremendous labor for our people," says Burge."They would sit there for an hour scooping, weighing and tying off 7-lb. bags.The stores would be busy, so they could only spare time to do it twice a day, but it was just barely enough to keep up with the volume. And it was a job nobody wanted. Now with the Follett [Ice Pro] all our cashiers have to do is staple and stock the bags of ice, the machine does the rest. It's cut our bagging time by 60% to 75%, and the job went from an hour-long ordeal to a 15-minute chore. Our associates can restock the ice merchandiser four times a day rather than just twice."
York's trial units were purchased for $4,000 each.While Burge still buys ice for the Destin and Bluewater Bay stores to cover peak summer holidays, purchases have been cut in half. Burge raised the price for a bag of ice from 99¢ to $1.29—a small bump that has York pulling in a cool profit on its packaged ice.
"The machine has already paid for itself," says Burge."We buy bags of ice for 65¢, but now we're buying half as much ice and we're bagging it in a fourth of the time.With this machine, the only cost is the labor.We've always needed at least two people per shift, but now my cashiers' time is better spent servicing the customer."
— Kate Buczko, Associate Editor
6. Loyalty for sale
Retailers are "franchising" their loyalty programs to other businesses, creating opportunities to increase profits beyond the four walls of their stores.
When Dan Willie first dreamed up a Frequent Flier program for his company on a plane trip home from Nashville, he never imagined the program would spread to four states, with more to come.Willie, along with his company's "braintrust," came upon this soon-to-be profitable profit center by thinking of ways to increase loyalty among customers of his 10 Oasis Stop N Go convenience stores and two truck stops.
"This was in February 2000, and nobody seemed to know about much about it," says Willie."The more we dug in, we found that there was no real card system I could go out and buy. So we created our own."
Willie's pieced-together electronic loyalty program—KickBack Points— rewards customers based on buying frequency and volume.And what started as a way for Oasis Stop N Go (Twin Falls, ID) stores to cultivate loyalty has blossomed into a "village concept" now used by nearly 100 businesses in Idaho, Nevada and Utah, with more to come in Texas.The program carries a startup cost of less than $700 per store.Willie admits that margins are low; the program's success is based on high volume, so profits from selling the program to other retailers will come in time.
"Right now, we're just doing it for fun,"Willie says."KickBack Points will eventually make some money, but there was a big upfront investment on our behalf.As we go forward, we're being very careful about the retailers we work with." He's quick to warn that KickBack Points cannot right a sinking ship—but neither can any other loyalty program.What it can do is help retailers increase business by 4% to 8% per year. "A loyalty program is a long-term customer builder. If people sign on and think they're going to double business overnight, they'll be disappointed."
Another profit opportunity exists in the licensing arena.The company recently inked a license agreement for the state of Texas with Nick Davis and Larkin Toler, formerly of Planobased One Stop Food Stores. Such agreements are determined on a perstate basis, based on the likelihood of new prospect opportunities.
Since its inception, KickBack Points has taken on a life of its own. Willie recently appointed Oasis Stop N Go CEO Patrick Lewis to the position of CEO of KickBack Points.Willie says the transition is a sure sign that 2003 will bring significant growth to the loyalty program.
Don Rennie, president of 30-store Rennie Petroleum (Richmond,VA), had a similar situation in 2002. He spun off a company called StreetNet LLC to handle the growth of his proprietary loyalty program, Connected Rewards (see How Rennie's Got Connected, May '02, p. 52).Ted Fogarty, once Rennie Petroleum's chief financial officer, exited the retailing business to focus on the development of Connected Rewards.
Rennie, still the majority shareholder in StreetNet, has influence over the Connected Rewards program, but Fogarty handles the day to day operations. Now in seven states, StreetNet has implemented Connected Rewards terminals in more than 200 sites—convenience stores and other like-minded businesses—at less than $1,000 per location, or $39 per month on a leased program, with "incidentals."
Playing the visionary
Robert W. Eaves III, president of Right Stuff Food Stores (Atlanta, GA) says he sent his first e-mail message just a few years ago. But that hasn't stopped him from creating a Webbased loyalty program that ties together online merchants and " traditional" vendors to let customers capitalize on reduced Web and in-store purchases.The loyalty suite—running off FuelServiceProvider.com (FSP)— is bonded to in-store Internet units customers can use to check e-mail free of charge. Like Rennie and Willie have done, Eaves eventually wants to "sell" FSP to other retailers.
"Our primary customer for FSP right now is Right Stuff, and the chain is almost like a guinea pig since I own the stores and [FSP]," says Eaves."We've declared war on other formats that are slowly eating away at our pie, and we're going to recapture what we've lost—and then some."
FSP provides direct links to online merchants that offer cost savings on key products and services, driving loyalty at Right Stuff stores in the process.The site has helped give a necessary brick-and-mortar "home" to merchants with an online presence only, according to Eaves.
"Many [consumers] still don't have computers, and even if they do they don't have high-speed access to check their e-mail," says Eaves."When we roll out to other retailers, our target is the independent chains."
After the "pilot" with Right Stuff, FSP will continue rolling out regionally, starting with stores in Georgia, with hopes to roll out nationally. Eaves's goal is to make FSP free to the consumer and free to the retailers that join; presently, everyone except the customer pitches in to defer costs. Eaves farmed out the development of the site, but he's preparing to bring maintenance in-house to reduce operating costs.
—Bill Donahue, Managing Editor
7. Speed sells
High-octane racing fuels draw new customers and add extra zip to the bottom line.
Certified Oil Co. (Columbus, OH), an independent jobber for Sunoco and CITGO, has been selling 110-octane racing fuels at its stores for more than a decade. Company Supply and Distribution Manager Danny Boyd says the 50,000 gallons of racing fuel he sells every year pale in comparison to regular unleaded sales—but the added gallonage does help pay the bills.
"Of our 120 locations, we have racing fuels in only five stores," says Boyd."Sales have gone up every year as racing has become more popular, and it has been a nice bottom line niche for us.The only downside is that you need to dedicate a tank to it year-round even though you don't always have the revenue year-round."
Other than posting signage marked "Not For Road Use" at pumps dedicated to racing fuel, Boyd says the company hasn't had to jump through many hoops to sell the product.And it hasn't had to advertise either, other than signage provided by Certified's supplier, Bazell Oil Co. (Logan, OH).While Boyd wouldn't mind seeing some additional promotional support from the majors, word of mouth seems to be doing the job.
Bazell Oil Division Manager Terry Thompson says his company, which supplies racing fuels to racetracks and marinas in 13 states, hasn't promoted the sale of racing fuels to convenience retailers—until now. Fire marshals cracking down on fuel sales at racetracks have opened up another market for Bazell to infiltrate and created a new profit opportunity for fuel marketers. Depending on their proximity to racetracks or marinas or even upscale neighborhoods, convenience stores can move 5,000 gallons to 20,000 gallons of racing fuel per site per year, according to Thompson.
"Some stores have put in storage tanks for K-1 (kerosene) and found out maybe they're not returning like they hoped," says Thompson, whose company markets racing fuels at only one of the five Crossroads stores it operates."Margins are roughly the same as kerosene at $1 or more per gallon. But more importantly, the business is growing year to year."
Convenience stores selling racing fuels are a "marriage that makes sense," says Thompson, but they're still not for everyone. Of all the sites Bazell Oil reviews as to whether or not they should carry racing fuel, only 10% qualify.As a rule, stores within 30 miles of a racetrack would make suitable candidates to carry 110-octane professional fuels. But a greater opportunity may exist for 100-octane "street legal" fuels.
—Bill Donahue, Managing Editor
8. General strike
A more aggressive strategy in the general merchandise category has helped fuel dramatic margin growth for companies like Balmar Petroleum.
Unconventional items like the Razor Scooter and a singing fish known as the Billy Bass have flown off convenience store shelves in recent years.Now, Richard Oneslager, president of Balmar Petroleum (Englewood, CO), thinks he's tuned in to the next big thing.
But before launching the Webbased share group Retailers Radar Network with a colleague, Oneslager says information on potential general merchandise "fireballs" like these was almost impossible to come by. Now, by reading magazines geared toward other industries and monitoring Web sites specializing in liquidations and closeouts, hot new general merchandise items yielding higher price points and terrific margins regularly find their way into Balmar stores.
When the West Nile Virus scourged much of the nation over the past two summers, Balmar stores sold scores of towelettes containing deet, the prime ingredient in mosquito repellent. He says it's been a great "on-the-go" item. He's also had success with a dashboard-mounted Sticky Pad that can hold a cell phone, sunglasses or almost anything else "even if you round the corner at 80 miles per hour," Oneslager promises. Items like these, which can often be found for $1 and sold for three to four times that much, have helped Oneslager reclaim lost margins. Retailers that still use their best real estate to blow through items that don't afford any margin puzzle him.
"[Retailers] have this great real estate but they're selling 12-packs for $1.99," he says."Isn't there something better we can do with that space?"
Convenience stores can make themselves miniature versions of the local Office Depot; ancillary computer items like tiny micro-drives, ministorage disks, PDAs and digital cameras are a good fit for some locations. Items retailing for $29.99 may still be too pricey for c-stores, but Oneslager says prices should drop below $20.
"Our goal is to ratchet up what customers expect to spend in our stores," Oneslager says."Right now it's $4, $5 or $6 items like the Sticky Pad. But $20 to $30 items aren't out of the question—and they typically have 50% margins or better."
—CSD Staff Report
9. Hot to trot
Wireless Internet communities—or "hotspots"—should help Lone Star Food Stores and other retailers lure new types of customers (and their dollars).
Bill Douglass is used to being ahead of the curve, but the curve is catching up. Five years ago, the president of Douglass Distributing Co. (Sherman,TX) started building new convenience stores co-branded with restaurants that featured built-in "road warrior" sanctuaries. Roadweary customers and professional travelers could sit down and plug in their laptops to check their e-mail, download files or surf the Web via hard-wired Internet ports similar to those now found in most hotel rooms.The ports saw modest usage, Douglass admits, but that's not stopping him from investing in wireless "hotspots" for the next two locations he's developing in 2003.
"Only the road warriors use the stations; it's a marvelous technology, but if you walked into one of our locations, only occasionally would you see someone using it.We wasted our money on that," Douglass admits. "We had full-booth setups, complete with printers—really ahead of its time. Has there been a lot of [usage]? Not nearly as much as we expected."
But if the technology's been so slow to take root, why keep investing in it? Like other things Douglass's progressive chain of Lone Star Food Stores has tried, wireless Internet services are slowly beginning to take hold in the rest of the industry. ConocoPhillips is proof of that.The company began deploying ZapLane hotspots using "Wi-Fi" (wireless fidelity) technology, also known as 802.11b, in 350 Circle K stores in the Phoenix market this month, courtesy of vendor WorkingWild (see Newswatch, Dec. '02, p. 10).
Road warriors are multiplying— and getting younger. Shipments of portable desktops, notebooks and servers will rise 8.3% in 2003 to 147.5 million units, then rise 11% to 163.8 million units in 2004, according to industry research firm IDC. Also, many universities now require students to carry laptop computers, a fact not lost on the cafÈs that helped bring Wi-Fi into the mainstream.
The technology requires a hidden box at each location that uses a radio signal to transmit the Internet to Wi-Fi devices already installed within the laptop or inserted in the computer's PCMCIA port. Users typically pay a monthly subscription fee.
By 2005 as many as 50,000 convenience stores could host Wi-Fi hotspots, according to one vendor. The added traffic from computerreliant road warriors should result in increased sales of fuel and in-store merchandise and, depending upon the Wi-Fi vendor, a fatter bottom-line from revenue-sharing agreements.
—Bill Donahue, Managing Editor
10. Ad it up
While slow to catch on due to past failures and high costs, in-store advertising networks still represent a huge sales opportunity.
Even though it failed, Onvance may have been onto something big. Over the course of eight months, stores participating in Onvance's TV-based advertising system experienced substantial growth in candy and snack items the network promoted.
Onvance, the brainchild of former Crown Central Petroleum auditor Alan Slothower, aired continuous segments of sports and weather, interspersed with 10-to 30-second spots for featured items. Some of the industry's most prominent suppliers—Kraft/Nabisco, Frito-Lay, M&M/Mars and Coca-Cola—joined in. Despite the success in increasing sales and drawing big names, Onvance filed for Chapter 11 protection and liquidated its assets in October of last year.
In a test in Raleigh, NC, monthly in-store sales rose an average of 6.8%—or $1,400 in additional profit— well outpacing the total industry. But the increased sales came at too high a cost; other suppliers balked at high "start-up" expenses, while retailers were put off by high installation costs.
Electronic in-store networks that combine content with coupons or ads are nothing new; progressive retailers like 7-Eleven and Clark Retail have implemented NGN's in-store networks in their stores for years. But all retailers will need to pay attention to new entrants, as vendors launch technologies with (hopefully) better cost structures than their predecessors. If present trends continue, these in-store networks should make more noise—and profit—in the months to come.
—CSD Staff Report
