There are many different facets that you, the buyer, should research before you commit to buying a convenience store business. This article highlights what to look out for in a viable proposition. There is also guidance on due diligence and what licenses and permits you will need, as well as information on how to finance your venture.
Buying a convenience store can still be a fruitful investment in a sector that is relatively pandemic proof.
A buyer’s profile
To run a successful store, you need to have excellent communication skills with your customers, staff and suppliers. Build up a rapport with your frequent shoppers and show an interest in their lives; try to embed yourself and your store within the community.
When you first take over a new business you should expect to be hands-on. Base yourself on the shop floor to oversee how staff members are performing, establish what management style works for each employee and learn the art of delegation.
Experience in managing a store would be an ideal starting point. Qualifications are not compulsory but there are lots of additional support to help you succeed such as retail management courses, leadership seminars or training in website management.
Finance and statistics
There are online lenders available for Canadian entrepreneurs who are seeking a business loan to start their convenience store venture. Web-based company iCapital has funded hundreds of small business across Canada, boasting a fast and simple application process.
There are approximately 7,750 convenience stores across Canada, with close to 3,000 of them based in Ontario, the country’s most populated province. A majority of 4,070 stores hire between one and four employees.
Retail sales for convenience stores in Canada totalled around CA$7.92 billion in 2018. Profit margins are tight and sale figures are heavily reliant on tobacco and lottery ticket purchases, especially for independent stores.
What to look for in a business
Location is important when purchasing a convenience store; consider the local demographic, and footfall figures for passing traffic? Who is your competition? A city-based store may have greater turnover figures, but the rent will be higher too.
The physical condition of the store is an important factor; if you need to invest more money on renovations, calculate these costs before you make an offer. The size of the retail space and the location are two key factors in determining the asking price.
Scrutinise the store's accounts and track the various income streams to determine the varying margins. For example, groceries could attract 20% profit margins, but tobacco may be at 7%; without researching this, turnover figures could be misleading.
Licences and permissions
What permits and licenses does the shop possess? A successful convenience store should have a Tobacco Retail Dealer's Permit, a music licence and must be registered with the state’s relevant Alcohol and Gaming Commission for the selling of lottery tickets and alcohol.
As a convenience store owner, you will need to apply for licences and permits from the federal, provincial and municipal levels of government. The Canadian government resource BizPaL can help streamline your licence and permit search based on your location.
If you don’t have a big budget, you might consider buying a failing convenience store at a low price, with plans to add additional income streams onto the business. For example, obtaining a Food Handler Certification will allow you to serve food or beverages on site.
Due diligence
During the buying process, you will have to conduct due diligence, which will involve evaluating all operational and financial records, physical assets, employee information, customer data and any other records that will help educate your decision-making process.
You should make a checklist and review all necessary documentation before making an offer. For example, your financial information request should include audited financial statements for three years, a schedule of inventory, accounts receivable and payable, etc.
Review what intellectual property you will inherit within the sale, such as trademarks, copyrights, patent applications, etc. You should also examine copies of all real estate leases, deeds, mortgages, title policies, surveys, zoning approvals, variances or use permits.
Is it right for you?
Rent prices in desirable locations are on the rise, making trading margins tight and many retailers are dependant on tobacco and lottery ticket sales. Last year, an average of five convenience stores were closing each week in Ontario since 2018.
If you have the drive and dedication to make your convenience store succeed, there is a high chance you can enjoy a reliable, steady trade. Try to keep your store ahead of the curve and offer valuable services that embed your c-store in the community.
It is increasingly hard for independents to compete with the big chains, Quebec-based Alimentation Couche-Tard Inc. is one of the main players. The international retail network includes more than 9,800 convenience stores in North America.
As the saying goes, if you can’t beat them, join them – consider buying a convenience store franchise instead. It may cost more than buying an independent business, but there will be less risk, professional support, and the benefits of operating under an established company.
