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.
Tobacco, lottery and ATM fees are their biggest sources of revenue? That makes it a good reason to avoid those things.
The only drawback to your evil plan of owning a convenience store is dealing with heavy staff turnover, working 18 hour days, 7 days a week, and pulling in an income that truly sucks. C’mon, you can come up with a better way to earn a living than that
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lol yeah, never be somebody else’s cash cow.
Human resources is probably the biggest challenge for any low-wage, long-hours store. I remember chatting with a manager at a Toronto Wal-mart (I just recognized the outfit and they said hello, I wasn’t complaining or anything.) The manager said they just couldn’t keep enough decent people who would show up to work, otherwise they’d keep all the tills open almost all day. That’s why I’d bring cash not active management to the table! lol
Out here most Mac’s stores have now added a gas bar (partnered with Esso and Shell stations). They also sell bananas, which I think is weird. There aren’t too many mom & pop variety stores around anymore.
Interesting, I was just reading about how Metro just sold half its stake in Alimentation Couche-Tard (most hilarious name, ever) after a big run up in its stock recently – http://ca.news.yahoo.com/metro-selling-almost-half-alimentation-couche-tard-investment-215759982–finance.html
lol bananas. Well, I guarantee they know what they’re doing. That should therefore go on the list hahah Not many Mac’s gas bars here, but the convenience stores are definitely everywhere.
ACT is a massive company and I was surprised when I learned they’re one of the biggest operators of convenience stores in the world.
Oh, one other revenue stream I thought of was adding a coin star machine. I’ve seen them pop up in grocery stores now (beside the dvd rental kiosk).
There’s a convenience store near my house called Green’s Pop Shop and next door is Green’s Bottle Depot. When you return your bottles they give you a ticket to go and collect your money from the Pop Shop. I rarely see people collecting their bottle return money without getting a slurpee, lotto ticket, pack of smokes, etc.
I couldn’t get over the bottle return thing in AB lol was totally unaware (and I had actually been to Calgary before lol).
Good idea — get in on a step of some government service, even if it doesn’t pay much or anything so long as it doesn’t cost much to implement e.g. putting a Canada Post red mailbox on site (I dunno how you go about getting one) and enjoy the added traffic.
Great ideas! I haven’t been in a convenience store recently but if they aren’t doing something simple like putting up a DVD rental kiosk they’re missing out.
There are some gas stations around me that act as UHaul dealerships. I didn’t realize that the terms were so awesome on them. It’s a no brainer for the locations that I know of and so easy. My uncle owned a gas station and convenience store for quite awhile and had a bakery system that worked kind of like Tim Horton’s products do now (frozen and ready to bake). They were fantastic and generated a solid amount of revenue as well. They also created lots of impulse buys from the awesome smells when you walked in the door!
I wish more places had reasonable food. Usually the choices suck really badly, especially if you’re vegetarian.
This one is more geared toward gas stations and the highway rest stop model is very different in Ontario vs the rest of the country, but having awesome bathrooms creates tonnes and tonnes of repeat customers. Anyone who regularly drives a long distance, for example going to visit friends or returning to a customer, knows exactly where all of the places with reasonable bathrooms are located. I really don’t get why more places don’t put money into good washrooms, they are a huge draw for traffic!
Par-bake and clean washrooms. Smart. Yes I wasn’t really thinking of “road stop” type places (e.g. with cash stations) but good ideas.
I wonder at that clean washrooms draw as well. I don’t care, I’ll drive all day without stopping. But my wife absolutely knows the places to stop along the way that have clean washrooms. When we’re travelling, that’s the convenience store/gas bar that we pull into, get gas, slushies, and have a wee.
Clean washrooms would definitely go on my hypothetical convenience store list. But only if it’s on a busy street that gets through-traffic.
Whenever we’re on a major Canadian highway, Wal-Mart is a choice stop location. They all have at least one family bathroom and two women’s washrooms which are — usually but not always — clean. We can re-stock the car, too.
Where in the world did you get that photo of Red Green and Margaret Atwood winning the lottery? Time was when arcade games would be a decent add-on, but not anymore. Did enjoy showing my daughter a real pinball machine at a campground convenience store last summer, though.
LOL zing.
Arcades, with the exception of the ones in movie theatres, are before my time. Sony Playdium in Mississauga was cool when I was a kid, but as best I can tell it’s not nearly as popular. If a few people my age get together, they’re bound to have the latest in accessories and games between them. Somebody may even have a 3D TV.
Everyone in my part of the country buys cheap smokes at the local Iindian reserve so smokes are not a big revenue stream. The loss of revenue from smokes was the end of several privately owned stores in my little city.
Shopper’s Drug Mart is my convenience store of choice. Long hours, lotto and the junk, pop and milk are cheaper than the 7/11 and the Pioneer 1 minute down the road.
I gas up at the 7/11 and I always see the hot dogs rolling on that warmer but I have never seen anyone eating one or buying one. Has anyone ever eaten a hot dog from 7/11? Are they still alive to tell about it?
I have eaten many lunches at 7/11. They do 2 for $3 hot dogs, and you can put free condiments, e.g. chili, cheese, sauerkraut, etc etc on. lol. My GF is disgusted but if we need to stop for lunch, it’s a cheap way to get a lot of food.
That’d be two problems in one. 1) eating lunch at 7-11 and 2) eating hot dogs.
Has watching the Simpsons taught you nothing?
lol so delicious. I will definitely need to tweet pics the next time I eat there.
Also I’ve been dropping comments on your blog but I think they’re getting snatched by your spam filter.
The C-store nearest me is pretty good at watching for fads and then selling the item. So when SillyBandz were all the rage, for instance, they made sure they had them in stock. LOTS of foot traffic and impulse buys.
I think theft is still a huge problem with most C-stores. Even with cameras, if 8 customers are in the store at one time and 3 of them are buying things, it’s pretty hard for the 1 staff member to patrol.
Shrinkage is a huge problem in any retail business model. Of course it’s small for cigarettes and lottery tickets (excluding employee theft) and I assume ATMs are pretty safe. The stuff from the aisles probably grows legs; I also heard energy drinks are commonly targeted.
Well I guess if you’re going to try for a five-finger discount, you have to juice up for the sprint….
lol awesome Mountain Dew commercial idea.
Big box stores can loss leader things like milk, etc, because of the average number of items per purchase. For example, a consumer puts, five loss leaders in their cart and 95 items that are regularly priced (or even high priced). In a cstore they won’t be filling up a cart with higher margin items, because they only buy one or two items. As for lotto, what an expensive pain in the ***. My lotto volumes require me to, on occasion, have extra staff, however, the lotto commission doesn’t even cover their wages. Sometimes an order deadline gets missed and shelves aren’t stocked because I’m too busy doing lotto. Due to the big box phenomenon, (which is killing c stores) less and less lotto customers purchase other items. It seems the big box stores are targeting cstores customers with
their loss leaders. When 2 litre pop is selling for under a dollar and they’re selling Delissio pizzas for 40% lower than wholesale cost, people don’t buy one or two, they stock up with dozens, in effect, moving the cstore to the basement of their home.
“in effect, moving the cstore to the basement of their home.” Very insightful observation re: what is apparently a key consumer trend in convenience store business.
I am extremely surprised about the lotto, that it takes so long and is low margin. One time at Mac’s, I was in line for 10 minutes behind a guy who literally spent over $100 on scratch tickets and lotto tickets (I had gotten a Froster, otherwise I would have just put the products back and left). That’s obviously only anecdotal, but usually convenience stores clearly separate out their lotto commissions and they are pretty fat (on paper lol).
Are my other statements re: tobacco (I know this has probably been deeply gouged by illegal cigarettes) and ATM fees accurate? Do any of those ideas strike you as useful for some cstores or are they similarly naive?
Sorry to burst your bubble, I happen to own one of the largest independent convenience stores in the country, and if you truly believe tobacco and/or lottery tickets to be profitable, you are delusional. Tobacco is the biggest liability that we have, and profits are such that we call it a loss leader. Lottery tickets are worse, and for the guys that believe a gas bar makes money, they [are wrong]. There is NO money in fuel for the retailer, in fact, because of the extra charges on so called ‘Premium’ credit cards, we make less than 1 1/2% on gas. Our profits lay in our food service and traditional convenience store fare, the gas, tobacco, and lotto are all only here to drive traffic. Don’t even get me started on milk pricing, we can’t even purchase it for what Wal Mart sells it for. Seriously.
Thanks for stopping by Fred.
I was surprised when the other gentleman discussed how the lotto isn’t profitable but if two actual owners agree then they’re probably right lol. I still don’t understand how that can be the case. I would greatly appreciate a cost breakdown. e.g. “This is the fixed cost of the lottery terminal”, “This is the commission % we get” but I understand that may be private info that can’t be shared. I just don’t get how a monopolized, inferior (i.e. inversely correlated with income) good with a generous commission could be unprofitable.
Same with tobacco — I understand that sales have been decimated by illegal cigarettes and that the government gets a gigantic tax margin, but I don’t get how it wouldn’t contribute decent marginal revenue.
As for gas, I’ve heard both that profit is a few cents per litre and that premium credit cards gouge a lot of the margin. Near Peterborough I always stopped at Ultramar, which I found to sell gas at a solid 3 cents+ discount below the area’s average. Can’t be much profit there.
Have you found that any of the listed ideas worked / failed? Are you considering implementing any? (You can ignore the milk lol)
Heh, I see you lightly edited Fred’s comment. The original, funnier version came by email. Anyway, interesting insights. I’m sure I’m a thorn in the side of a lot of retailers, since I routinely buy a few dollars worth of stuff on my walk and put it on my premium credit card. Shouldn’t somebody bust up Visa/MasterCard in order to add a couple of new competitors?
lol yes, I edited (with appropriate brackets) the bum reference.
And yeah, most definitely, there should be competition. But part of what keeps competition down is regulation. Just look at how Canada’s vaunted banking regulations have resulted in a perverse little oligopoly. Same for the telecom sector because of CRTC. But competitive markets don’t exist where the gov’t stomps them out.
Hi, another store in my area (population of around 20 000) located on main street already has a uhaul dealership. Would partnering up with uhaul even though there is one already established, be still a good rev gen stream?
and would it make sense to partner with Red Box to put a kiosk in my store?
I currently have a bricks-and-mortar style dvd rentals. And my town has a big dvd rental store just down the street (a size similar to a typical Blockbuster a few years back).
If you have competitors in town, why do you bother running a store at all? You compete.
As for whether you “should” — I have very little data about your store, the local market, and projections for UHaul / RedBox in a store with your foot traffic.
Finally, I’m a personal finance blogger, not a convenience store consultant but if you want to chat feel free to email me.
Hi, i’m late on this one but if this information could help you understand the industry:
http://www.acda-aqda.ca/FR_Rapport_ACDA_FINAL.pdf
(They was in french) Check the figure 25 on the page 23 for all margin proportion of sale by category.
Definitely not too late, thanks for adding to this discussion.