I must be one of the luckiest people in the world. The reason I say this is because I am able to work in an industry that seems to have an endless future — or, as we say in business, it has a long horizon ahead of it. The business I am referring to is the convenience store, or c-store, business. Let me explain why I say this.
Over the years, I have owned over 40 different businesses and, as a business broker, sold over 500 businesses, so I have been exposed to a lot of different businesses. The majority of the 40 businesses I have owned are either out of business or are no longer viable business concepts; there are a few exceptions, one of which is the c-store business, which still manages to prosper. Also, since I specialize in the sale of c-stores, I spend my time working with c-store owners and operators and have become very intimate with the industry.
So why do I like the convenience store business so much and why do I think it is a great investment? Well, since I am a realist, I will start with the basics. The c-store is nothing more than a box — a building that is built like a box and just happens to be located either in the middle of a densely populated area or on a busy street or highway where lots of people pass by it each day.
And, inside this box of a building, we have retail inventory and services that appeal to people who are either in a hurry or do not want to invest the time to go into a big-box or discount store. Since a c-store sells these items and services to people who are in a hurry, they can charge a little more for these items. Sounds simple, doesn’t it? Well, that is because the concept really is that simple, but people and c-store operators often try to make it difficult.
The growth of c-stores
Now that I have given you my simplistic view of the c-store business, I will give you the statistical side of it.
As of Dec. 31, 2015, there were 154,195 convenience stores in the U.S., which was a 0.09 percent increase over the previous year, with 124,374 of these stores selling gasoline. Convenience stores account for 34.2 percent of all the retail outlets in the U.S., and of the 154,195 c-stores, 63.1 percent, or 97,359, are owned by single-store operators. Furthermore, the number of single-store operators is growing. In 2015, there were 1,041 new single stores opened.
The c-store industry itself has almost doubled over the past 30 years. From 1985 to 2015, the industry grew from 90,900 c-stores to 154,195 — a whopping increase of 63,295 stores.
Why has there been so much growth, and why has the convenience store industry continued to be profitable? It is pretty simple if you look at the way people live nowadays. We are a population that is always on the move with both of a family’s spouses working.
Therefore, there is not as much time being spent at home as there is at work, and people are hurting for more time. This trend is reflected in the convenience store industry with the introduction of more food services or prepared foods being sold within c-stores to help facilitate the growing needs of their customers.
Convenience stores have gotten bigger in a lot of areas, but the core issue of the store has remained the same and will continue to remain the same: to provide products and services to customers who are on the move.
Even if a customer is driving an electric car, for example, there is still a need for that customer to stop and recharge the electric car battery, use the restroom and purchase some ancillary products while they are waiting for the car to recharge.
So, if convenience stores have a good growth record and continue this trend, how profitable are they?
From my experience of owning a c-store and reading hundreds of profit and loss statements for c-stores, I can assure you that a convenience store can be a very profitable business.
We all know that we need traffic or lots of customers to make the business work, but with enough customers coming through the door based on the location of the store, you can make some very good money in this business.
As mentioned, the large majority of c-stores also sell gasoline. C-store owners and operators who sell gasoline will average about 18 cents a gallon gross profit.
Items such as tobacco products will average about 10 percent gross profit, whereas prepared food products will have up to a 40 percent gross profit margin. And if you have a location where there is a large transient or interstate customer base, you may want to sell some of the trinket items you often see on or near checkout counters, and these items will have a 100 percent markup.
Getting into the c-store business
So, what is the best way to get into the convenience store business? My suggestion is to purchase an existing c-store. It has been my experience that it is a lot easier to purchase an ongoing business, which already has the infrastructure in place with employees and is producing a cash flow — even if it is a small cash flow — rather than to start a new business from the ground up. I cannot stress this point enough, having both started and purchased dozens of businesses. Generally, if you are new to the industry, you are not going to know the ins and outs of the business, and you are bound to make mistakes; the goal here is to make the least amount of mistakes and create a positive cash flow and profits.
There are a lot of great resources available to anyone who may have an interest in entering the c-store business. The first place you would want to start would be with the National Association of Convenience Stores (NACS), and you can find them at www.nacsonline.com.
You may also want to subscribe to the c-store-focused industry publications, such as Convenience Store News (www.CSNews.com), CSP (www.cspdailynews.com) and Convenience Store Decisions (www.cstoredecisions.com).
There are a lot of details that go into making the decision to enter the convenience store industry, and there is not enough space here to explain the total amount of cost and profitability for a store. However, if you are seriously interested in the possibility of getting into the convenience store business, I can offer you a free electronic copy of my book, “The Art of Buying and Selling a Convenience Store: Inside Secrets of a Business Broker” because of the exclusive relationship I have with this magazine.
To acquire a copy of the book, please email me at [email protected] with the subject line “Free Book,” and we will provide you with a copy, which includes all of the details you will need to purchase a c-store.
Terry Monroe is the author of two books and numerous articles. He serves as an advisor, consultant, speaker, professional intermediary and a market maker for privately held companies, as well as assists in market valuations and has been involved in the sale of more than 500 businesses. In his 30-plus years of service, he has owned and operated more than 40 different businesses. To learn more about his “Expensive Experience,” he can be contacted at www.TerryMonroe.com.