The two largest expenses a convenience retailer often faces are labor and inventory, but costs can creep up anywhere. Experienced c-stores, however, have learned how to combat such costs.

By Howard Riell, Associate Editor

It is a truism in business that you cannot save your way to prosperity. Somebody probably also said once that containing operating costs will allow you to operate another day.

Probably many convenience store operators will attest that containing operating expenses must always be part of any well-rounded strategy. The two largest expenses a c-store often faces are labor and inventory. Cutting either category—especially when adding foodservice or other programs—requires careful upfront planning.

“I think c-stores have been very innovative at self-service initiatives, which allows customers to help themselves and save the retailers in labor,” said Neil Stern, senior partner in McMillanDoolittle LLP, a Chicago-based retail consulting firm. “These innovations (such as fountain, roller grill, dispensed beverage) have worked very well.”

LABOR MOVEMENT
Basic levels of labor are needed, of course, to keep the store clean, well-stocked and a pleasant environment.

“Cutting too much labor leads to a downward spiral; poor conditions which lead to lower sales,” Stern said.

David Collins, president of Birmingham, Ala.-based DC Oil Inc., which operates a dozen Quick Shop c-stores in central Alabama, believes the best approach to trimming operating costs should be multifaceted. One of the best places to look for savings, in Collins’ opinion, is in a consistent repair and maintenance itinerary, though maintaining high standards is a key objective.

Labor can prove a tricky place to cut costs, and requires strong management that can determine when the return on investment is warranted, said Collins.

“Do not let store personnel tell you how many payroll hours you need,” Collins said. “They always need more help.” In fact, Collins urged store operators not to stay open 24 hours unless their night-shift sales justify it. Other than store managers and supervisors, keep as many people as possible on hourly payroll, he added, and require that all overtime must be pre-approved.

Zarco USA Inc. of Lawrence, Kan. recently rolled out a program in development for seven years that not only reduces labor costs but improves speed of service and, as a result, has increased in-store sales.

“We have developed an at-the-pump ordering system that cuts payroll and increases sales all through automation,” explained Scott Zaremba, owner of the Zarco c-store chain. “I’ve been working on it since 2008, and for the last three years I’ve been testing it.”

This year, Zarco installed its third generation. The Siris Tablet is a patent-pending, 10-inch tablet that runs revenue-generating apps at the gas pump. The technology facilitates payment inside the store or at the pump via card reader or QR code, allows for text or email confirmation and has the ability to be integrated into an existing POS system.

Zaremba said that reducing costs was a major goal of the advanced program.

“Cutting my expenses overall and increasing the speed of a customer getting the product increases our bottom line, and were our goals,” Zaremba said. “One of our biggest issues in our business is speed, and we’re competing in the fast food world. Even at sit-down restaurants they’re using tablets to clear the tables faster because you’re able to pay for your items right at the table.”

The Siris program is expected to provide Zarco stores with a 20% labor savings because the technology speeds transactions.

“That enables us to limit the amount of kitchen payroll we have because we’re not backing (staffers) up by having them also taking orders. If you use a touchscreen inside the store (the order) goes instantly to the kitchen, but as soon as someone presses it they’re standing there waiting.”

KEEP THE QUALITY
Perhaps no category requires more thought-out, cost-cutting strategies than foodservice programs.

Collins recommended that convenience store operators always put their prepared deli foods as close to the main register as possible. “That way you do not have to staff a second or third register during non-peak deli sales times.”

C-store operators should also start out small with a few main items and be ready to add equipment and additional items quickly as demand rises. “That way, if demand is not there, you have not invested too much. There will be some sunk cost, and you must be prepared to lose it if your foodservice does not do well.” Timing is also key. “Do not stay in it too long if it is not working; 120 days and you should know.”

“Individual locations should look at their financials and focus on everything from credit card fees to labor,” said David Crawford, vice president of operations for Green Valley Grocery, a Las Vegas chain of 49 c-stores.

At the same time, he added, operators must be careful not to skimp on product quality when it comes to foodservice. “People want a good deal on good food and brands they know, not cheap products,” Crawford said.

A common mistake c-stores make when trying to trim the budget is lowering their foodservice cost of goods by purchasing lesser-quality ingredients. This can cause more problems than it solves, however, since customers’ perception of the offer—and trust in the retailer—can suffer immediately, and is seldom easy to restore.

Stern advised retailers to begin by asking themselves questions: “‘How can we be more efficient? How can we have a better experience at potentially lower costs?’” Stern also recommended not cutting programs that, if removed, might negatively impact the customer experience.

“Don’t cut costs so low that you abandon the basics: clean and in-stock,” Stern said.

PROGRAM PLANNING
Stern pointed out that it takes time to build successful programs.

“In the beginning of any foodservice program, expect higher levels of shrink, higher levels of labor, etc. until customers are expecting the program,” Stern said. “The worst examples that we see are having a by-the-slice pizza program as an example, where only one or two slices are out. Customers will be turned off and not buy.”

Operating costs can be kept low on foodservice programs through self-service, which Stern called a powerful tool. Another means is by developing better predictive tools for anticipating demand, resulting in having the right products at the right time. “Higher foodservice sales lead to higher sales and better margins. We would be thinking about how to increase sales first before reducing costs.”

From a development standpoint, Stern continued, smart retailers leverage their suppliers to create cooperative programs and generate new ideas. “It keeps costs lower and focuses on programs that can be practically executed.”

Failing to maintain stores and keep the tangible components can undercut a c-store’s capability of serving patrons.

“Your stores’ image will go down and ultimately sales with it,” Collins said. “How is it going to affect customer service?”

The bottom line when considering any cost-cutting step, according to Crawford, is return on investment (ROI). “Everything has a cost. You need to know the ROI before making a change,” he said. When it comes to programs like foodservice, retailers need to consult the numbers.

“You need to measure everything, labor, equipment, food cost, sales, margin,” Crawford said. “To effectively manage a category you must have metrics in place and receive timely information.”

There are, Crawford concluded, a lot of areas to look at when trying to trim budget fat. “Each company has strengths and weaknesses. Look at all your expenses, start at the top, the most expensive, and evaluate each one. Small changes to make a store more efficient can have a big impact on the bottom line.”

Crawford also recommended reviewing exceptions. “A higher-than-normal monthly utility bill is a sign you might have a repair-and-maintenance or operational issue.”