In a fiercely competitive world where declining fuelmargins are forcing companies to find new ways toincrease the bottom line, can small and mid-sizedconvenience store chains stay ahead of the game?
According to Jeff Morris, president and CEO of Alon USA, theycanprovided they manage cash and credit wisely, make a pointof communicating frequently with suppliers, focus on high turnersand maximize high margin items.
“If I owned 10 convenience stores that were not succeeding,I’d sell five to create cash flow, then focus on improving theremaining five,” Morris said. “Cash flow is the most importantfinancial metric of all.”
Morris’s dedication to free cash flow gets big results. Dallas-based Alon, which licenses more than 200 7-Eleven storesthrough its subsidiary Southwest Convenience Stores, recentlycompleted an ultra-low diesel fuel project at its Big Spring, Texasrefinery for a mere $17.5 millionabout 80% less than otherrefineries spent on equivalent projects.
Here are six steps Morris considers essential forgood c-store financial health:
Get local credit:
Obtain a modest ($25,000-$100,000) line of revolving credit witha small local bank. This increases your credibility with fuel and grocery suppliers and ability to get more credit. Small local banks will docash flow statements for you every day; if you don’t have a good relationship with a small local bank, form one. A lot of cash goes throughconvenience stores, and banks make money from managing cash.Running the money from your business through your local bankshould provide sufficient incentive for your banker to extend a revolving loan. If it doesn’t, go to a competing bank and offer to move yourbusiness there provided they extend your credit.
Stay in close communication with your fuel supplier and makesure your credit line goes up when gas prices do. You need themaximum possible credit line with your fuel supplier; if the priceof gas goes up 50′ a gallon and your supplier cuts you off, you’rein big trouble. If your credit arrangements with your current supplier aren’t the best, evaluate another supplieryou can even justifychanging brands to get higher lines. Above all, never bounce adraft or pay late!
Ditch slow turners:
Giving shelf space to slow movingitems ties up your credit line withno financial benefits. If necessary, ask your grocery supplierto deliver more frequently; switching from twice weekly to daily deliveriesallows you to use moreof your suppliers’ cash and less ofyour own.
Maximize high margins:
Any product with a profit marginlower than your operating expenses costsyou money to sell. Unfortunately, only about 20% of c-store productsprovide profit, and the top selling categories for most stores fail tobreak even. Concentrate on marketing items with a profit margin of30% or more. Keep a sufficient inventory of below margin items andturn them quickly; keep the counter near the cash register filled withhigh-margin items.
Leverage franchisor power:
The prices your franchisor pays for national brands are almostcertainly lower than those you can negotiate on your own. Buythrough your franchisor and focus on selling its high-margin proprietary products.
There’s a reason single store operators are the largest andfastest growing segment in the industry. Since they usually have better employee relations and cash control, small operators controlshrink better than large chains, where shrink can easily absorb mostof the net profit.
Finally, do as Morris does and make cash flow king. “I’m appalledat how many small c-store operators don’t even run a cash flowstatement,” Morris said. “I review our cash flow daily. Cash got us towhere we are today.”