How to Open a Convenience Store

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From streaming media content to curbside pickup, we are living in the age of instant gratification. Consumers value merchants who meet needs immediately; something successful convenience stores accomplish expertly. These stores promise speedy transactions for busy patrons purchasing food, beverages, toiletries, tobacco goods, and more. With medium barriers to entry, an aspiring entrepreneur who is well-versed in all aspects of the industry can find success as a convenience store owner. This guide will cover relevant trends, financial considerations, and strategies to help budding business owners pursue convenience store ownership.

Industry Summary: MOM & POP POWER

Each day, bodegas, corner stores, and mom & pop shops serve 160 million customers – the equivalent of half the U.S. population. According to the National Association of Convenience Stores (NACS), the country’s 153,000-plus convenience stores bring in nearly 11% of retail and food-service revenue. Fuel is sold by nearly 80% of all convenience stores. Likewise, about 80% of all U.S. fuel is purchased from these stores.

IBIS World projects that by 2023, industry revenue will grow to $29.9 billion. This is due, in part, to lower unemployment and higher income levels. Although the industry is growing, the rise is relatively slow. The industry’s contribution to GDP is predicted to grow 1.7% over 10 years to 2023. Compared to the projected GDP growth rate of 2.2%, the convenience store industry is lagging. In addition, proprietors must be prepared for the challenges of a particularly competitive market due to moderate barriers to entry, industry saturation, and market fragmentation.

Single-store operators rule the convenience store domain. The top two chains hold less than 40% of the market share, as indicated by IBIS World. In fact, mom & pop small business operations employing fewer than five people account for 68.1% of total stores. Independent owners operate at low profit margins of around 2%, as detailed in a CNBC report. However, wise shop owners recognize that high-margin packaged and prepared meals account for over 21.7% of industry sales and focus on sales of these items. Moreover, busy patrons will pay a premium for convenience. Therefore, even the most modest corner store can buck the trend through sharp inventory management and clever pricing.

Industry Trends: GOODS ON-DEMAND

The technological era in which we live has stoked consumers’ sense of urgency. Expedited service models have placed goods and services at customers’ fingertips. In other words: consumers want their needs met now. The most enterprising convenience store owners know how to capitalize on this instant gratification mindset to turn a profit.

An investigative report by CNBC revealed that the average convenience store visit lasts under four minutes and 65% of items sold are consumed immediately. A staggering 83% are devoured within an hour.  Location, product selection, and store design are lures that can hook today’s on-demand shoppers.

Merchandise should also reflect area demographics. For example, stores located near business complexes would want to consider stocking premium coffee and hot food items. Higher-priced items should be placed at premium shelf locations at eye-level. The nation’s high employment rate and increased spending have led to more impulse purchases. Indulgences, such as candy and magazines, should be placed near the cash register to stimulate impulse buys.

Tobacco products are a major driver of convenience store sales. With a greater emphasis on health, the number of smokers – and the demand for cigarettes – is anticipated to drop and could impact store earnings. Conversely, the demand for healthier grab-and-go food options is on the rise. Shrewd business owners will keep a close eye on market trends, demographics, and other factors in order to customize inventory for primary clientele.

Target Market: CORNER SHOP CONSUMERS

Convenience store patrons are not characterized by their loyalty. Thus, proprietors must offer products and services that exceed expectations in order to attract customers and earn repeat business. Product availability and speed of service are paramount for the typical corner shop consumer. In this arena, convenience trumps price.

Millennials are prime customers for shops that stock high-margin pre-made and packaged meals and common household goods. As reported by the USDA, Millennials keep fewer items in the fridge and prefer convenient, pre-cooked meals. In fact, patrons from ages 25 to 44 – including Millennials, busy families, and young professionals with some discretionary income – are reported to account for almost 40% of revenue. 

An owner with a deep understanding of the target market and area demographics can tailor their corner store to the locale. Consistent staples, distinctive offerings, and hometown favorites should be stocked regularly to effectively meet consumer demand.

Financial Overview

Startup costs for a convenience stores vary depending upon size, location, and product selection. Initial investment can range from $10,000 to $1 million according to Entrepreneur.com. Most aspiring proprietors will find it necessary to obtain financing or seek investors.

Upon opening, owners must maintain the delicate balance of raising revenue and curtailing costs. Accounting software and point-of-sale (POS) systems are invaluable to discerning owners. This software may be used to evaluate sales, adjust inventory purchases, and achieve maximum revenue. For those looking for a fiscal boost, it is recommended to periodically reevaluate your business model and identify strategies to trim expenses.

Convenience Store Startup Costs

  • Equipment and supplies
  • Inventory
  • Business software
  • Licenses and permits
  • Franchise fees, if applicable
  • Working capital

Potential Earnings

In 2017, $1 of every $30.90 spent in the U.S. was pocketed by a convenience store, and revenue is creeping upward according to Convenience.org. This could mean higher incomes for owners. Additionally, according to NACS, 1991 was the last time the convenience store industry reported a net lost. This is positive news for blossoming bodegas and fresh franchises.

Business structure, location, and other factors determine an owner’s take-home pay. According to  Indeed.com, the average store owner earns about $66,000 per year 

Steps to Starting a Convenience Store

Step 1. Write your Business plan

Before opening a convenience store business, set the stage for success by creating a business plan and gaining a keen understanding of the market.  Not only will a bank require you to have a business plan in order to get funding, but multiple studies have shown that a business plan helps increase the odds of starting a successful business. A well thought out convenience store plan will serve the entrepreneur as the road map for their business, helping them achieve their business goals.

Related:
How to write a business plan
Free sample business plans

Step 2. Form a Business Entity

A business entity refers to how a business is legally organized. There are four primary business entities to choose from which include the sole proprietorship, partnership, corporation and LLC.  Each type of entity has its own pros and cons such as liability exposure, costs and administrative requirements. 

Related: Comparison of Business Entities

Step 3. Select your Location

With a solid business plan in-hand, it is time to choose the ideal location with maximum traffic and minimal competition. Convenience stores should be located in high-traffic, visible areas in which there are no nearby grocery stores. These shops will be attractive to customers who desire to complete quick purchases without making longer trips to large chain stores.

A store will need to be located in higher-traffic locations which typically equates to high rent or purchase price.  

Related: Choosing a business location

Step 4. Apply for Business Licenses and Permits

Some of the common local, state and federal registrations will include a sales tax permit, Employer Identification Number, and Occupancy Permit among others. 

Most notably, convenience store owners who elect to sell regulated items such as tobacco, alcohol, lottery tickets or fuel will need additional state licenses. Independent corner stores are held to many of the same regulations as major grocers. Reach out to The Occupational Safety and Health Administration for help with navigating complexities associated with convenience store ownership.

Related: Common business licenses, permits and registrations by state

Step 5. Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a convenience store is another.  The cost to start a convenience store can be very high, with a majority of the costs going towards remodeling, fixtures, security system, signage and inventory.  Funding for a new start-up can be difficult as banks are typically going to want the borrower to have good credit and be able invest 15-25% of their own money.  

Related: Finding the money to start a business  

Step 6. Get your Marketing Ready

Now that you are getting close to opening, it’s time to get marketing materials planned and created. It’s important to understand your market and what media they consume, so you can effectively reach out and let them know you’re open.

Related: Low-cost ideas to market a new business

Step 7. Hiring Employees

Finding good employees for a convenience store will be challenging and the owner will either need a flexible schedule or management staff to cover employees who don’t show for their shifts.  It’s important to constantly be looking for reliable employees to staff the store in addition to running background checks and random drug testing. 

Related: Hiring your first employee

Things to Consider Before Opening A Convenience Store

You might feel prepared to launch your convenience store, but before you do, closely assess these three challenging areas: Staffing, systems, and security.

Convenience stores suffer from high turnover rates. Costs associated with training new personnel coupled with climbing wages can cause profits to dip. Brainstorm tactics to retain staff and offset expenses.

POS systems are instrumental in helping prudent store owners manage inventory and finances. Install the newest software and stay abreast of technology that can modernize processes.

Historically, convenience stores have been targeted by criminals. However, according to NACS, robberies have decreased by 16% over a decade due to security and training improvements. Hire security professionals to install and monitor equipment, remain vigilant, and utilize common sense when it comes to safety.

RESOURCES

It is beneficial for entrepreneurs to join industry organizations and attend trade events. Here are some organizations that may help you to expand your professional network.