Planning the Convenience Store of Tomorrow

Business changes and competitive landscapes are shifting faster now than at any time in history. The rate of change has accelerated due to the ubiquity of the Internet, the availability of low cost-high speed computers and, most recently, the proliferation of smart phones and the popularity of social networking sites like Facebook and Twitter.

The convenience store industry has changed dramatically over the past 30 years, but the ride we’re about to take is going to see the industry transform itself at a dizzying pace. Be prepared to regularly scan the c-store industry and adjacent industries like grocers, QSR’s and drug stores to identify emerging trends, and choose wisely as you invest in the areas that best fit your brand and will be valued by both existing and prospective customers.

There will be more losers than winners, as many current retail locations will be shuttered as reinvestment will not offer sufficient return. While this may seem a dire prediction, it is exactly the opposite. With most major oil companies exiting retail, there will be plenty of room within this increasingly fragmented industry for innovative, customer-focused chains to establish themselves as quality, regional brands, providing highly-valued, differentiated offerings to their loyal customers.

Some companies like Wawa, Thorntons, QuikTrip and Rutter’s have already positioned themselves as winners in this new era, but there is plenty of room for existing firms or new players to emerge as big winners in the next decade. The question is, “Will you be one of the winners?”

The disparity between the top quartile c-store chains and the rest of the industry is growing larger. Primary strategic distinctions can be found in five areas: branding, foodservice, managing customer relationships, employee commitment and business intelligence. Expect top performers to find other ways to stand out to consumers and, as Bill Reilly, chief marketing officer of Mapco Express likes to say “get them to always turn right into your store and not your competitor’s.”

Branding Options
The convenience store industry is unique in that most companies have a c-store brand and offer branded fuels like Marathon, BP, Exxon and Sunoco. In many cases the c-store brand is subordinate to the fuel brand. Savvy marketers realize the importance of their brand and have implemented strategies to strengthen their brand image and its connection with consumers. This is done through conventional methods like signage, interior graphics, advertising and community involvement, as well as new methods like loyalty, social media and digital in-store advertising.

Companies like Sheetz, Thornton’s and Spinx market their fuels and convenience stores under the same banner to further strengthen awareness of their brand. In addition, private branding gives them 100% control over their brand and the marketing programs they offer.

Developing a brand is a lot more than just a logo and store design. For a brand to truly connect with consumers, it needs to be clear to consumers what the brand represents in everything the company does from the appearance of its stores, interior signage, uniforms, customer service and social media to the way phones are answered at the corporate office.

If a clear business strategy, mission and operating philosophy have yet to be established, this should be done before a company embarks on building its brand, as the brand needs to be 100% aligned with the company’s goals and values for it to be believable and embraced by employees and customers. Whether you have one or 1,000 stores, your brand, when properly developed and nurtured, is one of the best ways to differentiate your store from your competitors.

Foodservice focus
It’s no secret that foodservice is critical for operators that want to remain successful over the next decade. With conventional fuel and tobacco sales expected to decrease, top quartile companies have been shifting their focus to foodservice to diversify revenue streams. Many others have dabbled in foodservice, but have yet to take the necessary steps to develop serious offers. Developing a robust foodservice program is in many ways similar to developing a brand. It is not something that just happens overnight, but is the result of a focused vision, a strong commitment and the right team. Foodservice programs will be dramatically more successful when professionally branded and presented within attractive, modern, customer-friendly convenience stores.

To make food a core part of your business, and maximize its success, you need someone in your organization whose primary focus is building your food programs. Otherwise, you will never achieve the level of success top quartile firms now enjoy. The most successful foodservice programs in the industry were not built by c-store people, but by “foodies” who know and love the foodservice industry. Whether you decide to offer franchise branded programs, develop a proprietary program to differentiate your stores, or some combination of both, chances of success are maximized when you involve an expert.

Customer Relationships
Customer service excellence is a proven method for building customer loyalty. It works great for companies like Nordstrom’s whose average basket size and profitability per basket dwarfs that of a convenience store. But how can you offer the same type of service at a convenience store? The answer is you probably cannot. However, you can provide best-in-class service for the c-store industry, which will strengthen ties with existing customers and reward you with a growing customer base and a larger share-of-wallet.

The first step in turning your company into a customer-focused organization is to make a pledge from the top that your goal is not to achieve customer satisfaction, but rather to build customer enthusiasm. This requires talking to your customers through interviews, surveys and focus groups to understand their key buying factors and how your company stands up to competitors in these key areas. This is what Sheetz did to change its course in 1988 when it noticed its store traffic was declining, according to “Customer Centered Growth” co-authored by Richard Whitely and Diane Hessan. Once you know what customers want or where they are dissatisfied, you can develop a culture and programs to cater to these unmet needs and wants.

In addition to having great customer service, technology now allows companies to connect with customers and get to know them as individuals. Electronic loyalty programs enable you to identify each customer and their shopping patterns, develop a stronger bond by acknowledging them on their birthdays, and using targeted offers to reward them for behaving in ways that make them more profitable to your company (see sidebar on left).

Employee Commitment
Having the right programs is only half the battle. You also need to hire outgoing, sales-driven individuals and provide them with consistent and effective training programs. You will also want to devise ways to reward and motivate the entire organization to make laser focusing on the customer their primary objective. Simply put, to be able to make your stores the best place to shop, you must make them a great place to work. Your brand, foodservice program, customer relationship programs and robust business intelligence tools won’t be as effective if you don’t have happy, satisfied, loyal employees.

How do you satisfy employees? First, treat them fairly. Surround them with like-minded, quality coworkers and offer them opportunities for personal growth. Second, provide them with the flexibility and authority to ensure they can deliver on your customer experience promise. Surprisingly, extensive research shows that one of the least important factors is the monetary compensation. So long as the base monetary compensation is reasonable, the other factors discussed above are more important in building, retaining and motivating a talented, customer-focused and sales-driven culture.

Business Intelligence
With the advent of computers, wide-area networks, scanning and loyalty programs, c-store chains now have a plethora of timely data at their fingertips. Most companies store vast amounts of data but do little to leverage the wealth of information sitting right under their noses. To make this point more clearly, consider how well you price gasoline and other automotive fuels. Who makes these decisions for you? Are they the right people and are they fully informed of key data such as weighted cost of product, replacement cost, accurate competitor pricing and a solid understanding of demand elasticity—how much each penny difference between you and your competitors impacts your volume, for example. Do you know what your break even fuel margins are and are you taking steps to lower them? Are you tracking your customer counts and taking steps to monitor and build that traffic?

Inside sales and profit margin management is complex when you consider the thousands of SKUs available at the average c-store. Add to that the actual impact to sales and profits from retail promotions both during and after a promotion, and you can quickly see why many companies struggle with effectively managing this data.

The most successful companies, however, are relentless at analyzing data, making decisions, monitoring the results and improving their decision making process to drive both short and long term profitability.

Where to Start?
To build a stronger, more profitable organization that will remain economically viable in the long run, you need to first make an honest assessment of your strengths and weaknesses, especially in the areas of branding, foodservice, customer relationship management, employee commitment and business intelligence. Also examine your real estate portfolio and determine which stores are truly core to your business strategy and mission and which are hurting your ability to properly position your company in the minds of the public. You may be better off divesting non-core assets or converting them to dealers under a different brand as RaceTrac has done with its Raceway dealer stores. This will enable you to focus your efforts on the right facilities and establish the right programs for these strategic assets.

Consider what your company would look like and the returns you could generate if branding, foodservice, customer relationship management, employee commitment and business intelligence were all strengths. To become strong in all of these areas will take time, leadership commitment and serious effort. If resources are limited, select one or two areas you think will have the biggest impact in the short run. Branding is the simplest to tackle and is a great starting point because it can provide a visible foundation for improving other areas.

As an alternative, you might want to examine how your competitors perform in each area, and focus on another area first, such as foodservice, either because your competitors are pulling away from you in that area or because none are doing well in this area and you see an opportunity to set your chain apart.

Make sure you communicate your goals throughout your organization so everyone is aware of the direction and can support these strategic initiatives and provide important feedback. The most critical step is to acknowledge the need for improvement and commit to elevating your performance in some of these key areas immediately.

Most companies are busy with day- to-day operations and fail to adequately spend time planning and improving their business processes. Over the next decade, we will see which companies transform themselves into top industry performers and which ones just stick to the basics only to find they are actually destroying value as their assets get older, their sales go down and they are no longer able to generate an economic return on investment.

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