By Jim Callahan
Name another business where it’s imperative that you post the price of your No. 1 selling retail product on a large illuminated sign by the road?
It’s not just lit up, but the display has to reflect the price down to 1/10th of a penny. And if either gravity or an employee not paying attention leaves a single digit placeholder blank, a large segment of your hard-earned customers will often bypass you and go to the next competitive retailer.
It’s an industry in which it’s a given that a great percentage of motorists will drive miles out of their way to save a few pennies per gallon. Often they lose money, depending on the make and model of the automobile, and what the gas prices are down the road.
Why do people regale family and friends with the tale that they found gas five cents cheaper than any place around, but think nothing of going in the same convenience store and paying 50 cents more for a candy bar than they would at Walmart?
So, why does the price of a gallon of gas have such a hypnotic effect on consumers? Simply, it’s what drives an economy that’s always on the go.
FUEL FOR THOUGHT
Know that if you’re not marketing your fuel aggressively, in a clear and consistent manner, your customer base will probably shrink and your business will lose long-term viability. Many times when fuel volumes shrink, instead of building gallons, operators will price units higher in hopes of generating enough extra gross profit to pay the overhead—an absolutely flawed way of thinking that has led to countless business failures.
Years and years ago, gas station operators settled on the foolish notion that fuel margins should pay the rent/mortgage as well as overhead of their facility and that extremely dangerous and foolish notion has, to a certain extent, survived. There’s really no rhyme or reason why fuel margins should be made to pay your rent/mortgage payment or your entire overhead.
Every operating component of your business should make its fair contribution to your cost of doing business and that contribution should be constantly evaluated to ensure that each department is carrying its own budgetary weight.
So the heart of the matter is: fuel sales are the life blood of a c-store or truck stop and if a large segment of consumers are willing to drive significantly out of their way to access the competitive fuel prices, and if those same consumers are much less price-sensitive when it comes to buying snacks and other offerings, then your business plan needs to closely emulate that tendency.
Grocers like Kroger and Big Box operators like Walmart have seen sales multiply greatly by selling fuel cheaper than most of us can afford and offering cents off loyalty programs while employing slightly higher inside-the-store retails that when coupled with more fuel sales add to robust bottom-line profits.
Caution: you don’t have to match these retailers’ prices; you just have to get close to them. The closer you can consistently get to them, the more your business can prosper.
The lessons learned are that the extreme sensitivity of fuel pricing demands that we price as competitively as possible so that we can both keep and grow our fuel sales, for the more fuel sales we generate, the more our less-sensitively-priced inside sales will grow. The good news is that when done correctly (and with patience) you can ring up significantly more fuel gross profit, as well as greater inside gross profit.
As your business prospers that can also have a hypnotic effect. Bring it on Walmart.
Jim Callahan has more than 40 years of experience as a convenience store and petroleum marketer. His Convenience Store Solutions blog appears regularly on CSDecisions.com. He can be reached at (678) 485-4773 or via e-mail at [email protected]