I watch ICX.ca and the business section of Kijiji a lot. Convenience stores are constantly going up for sale (although I can’t comment on the number of actual transactions that result). Looking at the pictures and reading the descriptions of these businesses, I am often struck by how poorly the owners have diversified and grown their businesses. If a person wants to sell her store, why not take some simple steps to maximize the sale price? And so, today, I’m indulging an odd personal interest by writing about ways I think a proprietor could exploit new convenience store revenue opportunities, side-hustles, and profit centers. (Yeah, it’s one of those posts that you’re bound to assume is sponsored. Nope. No paid links in this article. I’m just weird.)
No, I’m not talking about selling ice, getting a rack of gift cards, and offering photocopies at 5 cents a page. There are lots of simple, low-hanging fruit like selling coffee, tacquitos, slushie machines, and hot dogs. If a convenience store doesn’t offer these, they almost invariably should. Not only are basic amenities a revenue opportunity, but they’re an attraction for foot traffic. Getting customers in the door is the logical antecedent step to increasing revenue. And for the love of goodness, please sell postage stamps.
In creating these suggestions for how to improve convenience store revenue, I considered three key principles.
1. There are specific business activities that generate the majority of an average convenience store’s profits: tobacco sales, lottery commissions, and ATM fees (typically in that order). It’s important to protect these profit centers as you add new offerings and, where possible, to nurture these profitable activities with new ideas.
2. It’s critical to look at what the market leaders (e.g. Mac’s) are doing. They put money into maintaining their competitiveness — everything from testing new income sources to tweaking their floor plans. In fact, if I could put up the entire $25,000 investment required to start a Mac’s franchise (a tiny investment all things considered) and split ownership with an active manager, I’d do it in a heartbeat; it’s such a perfect business.
3. My list is Canada- and Ontario-centric. This materially impacts my ideas. Some markets that I reference, like U-Haul Dealerships, are much more saturated in the US. Also, you can’t buy liquor at Ontario convenience stores which, in turn, destroys a lot of marketable revenue streams.
New Convenience Store Revenue Stream #1 – Become a U-Haul Dealer
Did you know that U-Haul has a significant network of ‘dealers’? These dealers are often businesses unrelated to transportation or rentals that, as a side hustle, offer U-Haul rentals for a commission. The dealer structure allows U-Haul to extend its geographical reach with very little capital investment. U-Haul Dealers collect an average commission of 21% and there’s no franchising fee or investment required. The key listed requirements are that a host business must have at least 2 or 3 parking spots as well as weekend hours — sounds perfect for a convenience store to me.
New Convenience Store Revenue Stream #2 – DVD Rental Kiosk
We all know that bricks-and-mortar video rental stores are officially dead. DVD rental kiosks now have more market share than video rental stores in the US, and they’re not far behind rent-by-mail services (which usually involve a subscription). The kiosk cost structure is very low — such kiosks require minimal labour inputs and have small layout footprints.
New Convenience Store Revenue Stream #3 – Payday Loans
A ton of people couldn’t care less about getting dinged $2 for withdrawing $40 and, until that changes, bank machines will remain extremely high-margin fixtures in convenience stores. But why not expand your ATM’s offerings? In Canada this business is underdeveloped, but there are many solutions that allow a convenience store to market payday loans, utility bill payments, and long distance cards. I’d use a machine that takes a cut of my revenue but offers live customer service to make it even more hassle-free.
New Convenience Store Revenue Stream #4 – Sell Baked Goods that Don’t Suck
A lot of convenience stores sell baked goods and pastry items, but they’re often dry and nasty-looking. I’m not sure if this problem is easily rectified, but if convenience stores offered fresh, delicious items I’d likely be a consumer. Perhaps a store could sell inexpensive bread, e.g. at cost, to improve volume and create a strong relationship with a bread truck or a local bakery.
Speaking of selling something cheap to improve volume: sell milk at cost. OK, so this isn’t a new side-hustle but it’s a valid tangent I assure you. Most Mom-and-Pop convenience stores I’ve been in charge $6 or or more for 4-liters of milk. Mac’s gets this right — their stores usually sell it for something between $3.99 and $4.49. Why? I bet it gets more people in the doors. When I need milk between weekly shopping trips, I stop by the local Mac’s (it’s 20-minutes closer than any reasonable grocery store). I can’t count how many times I’ve also walked out with 2-for-$4 energy drinks. Capitalize on my money stupidity; get people like me through the door and some of them will buy higher margin goods. Don’t try to make a fat margin on every product; gouge strategically.
New Convenience Store Revenue Stream #5 – Monetize Your Powerwall
I can’t think of a convenience store that doesn’t display a ton of advertising. Most are probably just promoting their wares but I’m sure some generate revenue — this is likely too common to call it a brilliant new profit centre. Suck up to a big ad buyer like Zoom Media and get a unit or two installed on your store front. But why not sell ad space on your powerwall? Powerwalls — the storage racks for tobacco that are typically situated behind stores’ counters — must, by law, be covered in Ontario. But this is a significant revenue opportunity. I’ve already seen Koodo (a cell phone company) buying ad space on powerwalls, and I’ve seen Mac’s use it to promote products. As soon as I saw the first powerwall covers go up back in 2008, I knew it was only a matter of time before it became prime ad space — but I didn’t expect that adoption would be so slow.
New Convenience Store Revenue Stream #6 – Add a Cigar Humidor
Cigars are expensive. Taxes are a huge component, but so is gross margin. Pretty much every convenience store has the accounting system in place to market tobacco products. Why not add a separate revenue stream with very little extra work? It’s unlikely to cannibalize your current tobacco sales very much. Plus you may be attracting a completely new shopper who wouldn’t otherwise visit your store.
New Convenience Store Revenue Stream #7 – Become a Telecom Distributor
Canada’s telecom sector has seen a lot of new low-cost phone services since 2009 when communist foreign ownership restrictions were eased. These upstart businesses often seek distributor relationships in their service areas. It’s another low-cost saturation play that can yield high margins on easy sales for a convenience store operator. Here’s Public Mobile‘s form for distributors. I doubt it takes much more than some floor space, some storage space, and a modicum of training for your clerks. Physical distribution is a big deal in the Canadian telecom market. Bell bought The Source and Telus picked up Black’s for a simple reason: each failing business chain had small locations in a ton of malls. Get in on this market while there’s space and excess profits.
While you’re at it, contact a wireless internet company like Xplornet about dealership opportunities. You may have to sign a non-compete agreement to become a dealer for a cellphone or internet provider but my point is that there are many telecom companies who want to give you a cut of sales for floor space.
And if you need feedback about your variety store, or want more ideas for additional convenience store revenue streams, let me know. We may be able to negotiate a heavily taquito-based compensation plan.