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Sector spotlight: convenience stores

While e-commerce has dominated the retail headlines for years now, certain mainstays of the brick-and-mortar retail world will never go virtual

While e-commerce has dominated the retail headlines for years now, certain mainstays of the brick-and-mortar retail world will never go virtual.  In fact, the increase in online retail sales actually helps these holdouts prosper!

The neighborhood convenience store falls squarely in that category.

Catering to the busy consumer on the move, specializing in a limited range of must-have items and impulse buys, the local convenience store has proved to be a lucrative business venture for those owners with the right combination of business sense, adequate capital investment, and – of course – the right location.

Location

Most businesses that are open to the public must give serious consideration to location.  But when it comes to opening a convenience store, this becomes the prime issue.

The entire reason convenience stores exist and thrive is because time-starved consumers who don't want to go out of their way or spend an hour weaving through the aisles of a big box store for milk and eggs will stop at a small neighborhood precisely because it's convenient.

A “convenience store” that's not convenient is simply a small, poorly stocked grocery store with gas pumps out front.

In addition to excellent road access (preferably on a main commuting path) and high visibility, the location for a prospective convenience store should be far enough away from other convenience stores to establish a significant local clientele.

The alternative is to set up shop very close to one or more established stores with the intention to compete with them directly by differentiating on product selection, price, or marketing gimmicks.  While this can work, it is a riskier proposition.

Independent or franchise?

While several large chains dominate the convenience store industry, independent stores are also very common, and can be equally successful, and even more profitable since franchise fees will not be required.

However, business owners interested in getting into a profitable convenience store quickly, and with little difficulty handling start-up planning, will likely find the ease and speed with which an established franchise such as 7-11 or Circle-K hits the ground running.

Opening a franchise location is likely to cost approximately the same as building a brand new independent store, and the franchise fees continue after the grand opening as well.  In exchange, the franchise owner receives detailed policies and procedures that have proved successful, help with marketing and promotion, and the instantly recognizable branding that is so important for a new business.

An independent store, on the other hand, has flexibility the franchise owner will never experience, as well as a larger profit margin, sans franchise fees.

In the end, this decision will depend on the individual business owner's taste.

Startup capital

In either case, a sizable level of startup capital will be needed to get a new convenience store off the ground and to carry it through the initial period during which the neighborhood needs to learn it is there.

As noted above, the costs of buying into a franchise or building a new store are often equivalent.  However, all other things being equal, an independent store owner will likely find that period prior to profitability will be longer than the franchise owner experiences.  Of course, after the profit line is reached, independent owners will build a larger margin.

While the figures cover a wide spectrum based on real estate values and other factors in various areas, the basic convenience store/gas station combination, stocked with all the standard products will require a startup investment of over $300,000 and will likely require monthly operating expenses over $20,000.

A busy gas station/convenience store can easily bring in $25,000 a month in profit, however a new owner will need funds on hand to cover those operating expenses and financing costs until the store begins turning a profit, which could take several months.

Personnel

Another important factor new convenience store owners must consider is hiring responsible and dependable employees to manage the store in your absence.  Often, a small store can be run by just one or two people, but it requires a high level of autonomy unless you want to be there personally fixing their mistakes day after day.

In addition to the myriad tasks your employees will need to keep up with, there is the matter of security.  Unfortunately, the convenience store environment – many small products that are easily stolen, and thousands of dollars of cash handled daily – becomes a magnet to unethical employees.  

Automated security measures can and do prevent some loss or allow for prosecution after the fact, but an even better and more cost-effective option for the new convenience store owner is to make an effort to attract and keep reliable and trustworthy employees from the start.

Industry Facts

  • There are currently nearly 150,000 convenience stores operating in the United States.
  • These stores account for over $680 billion in annual sales (or about $12,420 per store per day, on average).
  • Approximately 80% of the gasoline purchased in the United States is purchased at gas station/convenience stores.
  • 49% of consumers who bought candy at a convenience store never intended to do so.
  • The only item purchased by more convenience store customers every day than gasoline is coffee.

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Bruce Hakutizwi

About the author

USA and International BusinessesForSale.com Manager for BusinessesForSale.com, a global online marketplace for buying and selling small medium size businesses. The website has over 60,000 business listings and attracts over 1.5 million buyers to the site every month.

@BizForSaleUS

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