By putting fuel volume in the proper light and focusing on growing that fuel capacity, it can boost inside sales.
By Jim Callahan, Contributing Editor
There’s indeed an important correlation between the gallons of fuel convenience retailers sell and the number of dollars earned as part of their inside sales.
Retail gasoline prices are among the most recognizable price points in American commerce. And with good reason: gasoline purchases account for approximately 5% of consumer spending in any given year, according to the Fuels Resource Institute. In 2017, the average household spent $2,450 for gasoline—about 4.3% of total household income.
No doubt, the dollars customers spend inside a convenience store, after purchasing their gas, is a significant amount as well. In fact, fuel sales are the single most important element in driving inside sales.
Of course, relying on fuel volume and fuel sales as the only measuring stick of a store’s business success is skewed. There are a host of factors that determine if a store is profitable, just like there are a host of factors when determining overhead costs.
There is a concept that was once prevalent in the industry that existing fuel gross profits should pay for the costs associated with the rent/lease/mortgage of a convenience store. What’s more, some owners still calculate electricity and other utilities into that figure.
Fuel retailers face the same question that all retailers face: sell at a low profit per unit and make up for it on volume, or sell at a higher profit per unit and expect less volume. Either way, margins on fuel sales aren’t that great.
Sometimes, fuel sales and the cost of doing business are linked.
For example, stores in areas in which real estate costs are higher may pass along this cost of business. Also, seasonal factors may apply. Store owners in areas where customer traffic dramatically drops off off-season may need to adjust their business model. Yes, selling fuel is complicated.
Still, there are operators that look at their profit and loss statements (P & L) and feel that inside sales are where their profit emanates from and they come to look at fuel offerings as a necessary evil, especially when they have to write that big check for a tanker full of gasoline and diesel.
Rather, maintaining healthy fuel volumes is good for overall business. Just don’t hang too big of a hat on those sales, as in relying on those fuel sales to cover much of the operational overhead. Hopefully, fuel is serving another important role: getting patrons inside the store.
Here are few things that might keep fuel volumes in perspective:
• Each and every operational department should contribute its fair share of the entire overhead of the store. That’s one way of knowing which departments are making a profit. Of course, there are various types of overhead costs and there are various ways for a store to conduct a thorough examination of its profitability.
• By putting fuel volume in the proper light and focusing on growing those volumes you will see and appreciate the correlation between the two. Inside sales in every single department will increase proportionally and you will have more profit in more categories.
• I grew up in the era of the major oil companies controlling retail pricing and watched in disbelief as they refused to acknowledge that companies such as QuikTrip, Wawa, RaceTrac and Sheetz often would price below them.
The independents didn’t have to steal the markets as the majors just handed it to them, thinking that they were not real competition because they did not fly a major oil flag. How did that work out for the majors? They eventually sold many of their stores and now are merely suppliers to both their branded customers as well as those same independents.
My best advice is to protect your fuel volume. Stabilize it first and then enable it to grow. Successful c-stores have earned their dominance in that strategy and the red ink they once had on their P & L’s protecting and growing their volumes is now a bright shade of black. And, they don’t plan on losing it.