Hourly wages are a growing part of doing business in the convenience store industry.
By Fran Duskiewicz
In the 30 years that I worked for Nice N Easy, I never had a true job description—many job titles, but no job description.
I asked once if I should have one and was told, “your job description is five words: break even before fuel income.”
Make no mistake, we were a retail company that sold fuel and we knew that we could not rely upon the vagaries of the fuel business to ensure our success. We had to do it inside the store. It was my job to figure out the best way to get it done.
I relied upon one of my favorite books to help me create a strategy, “The Bill James 1977 Baseball Abstract.” This is the book that inspired Billy Beane of the Oakland A’s and which led to the movie “Moneyball” and also the Moneyball phenomenon—the idea that data can contradict our gut-level beliefs—inspiring the other phenomenon of analytics in sports.
Yup. I was the first.
What I gleaned from the book is that if you want to figure out why successful performers are successful, do regression studies on the data they produce and look for common metrics that have meaning. This also allows you to disregard metrics that you thought were important but which, ultimately, are not.
When I did regression analysis on our stores that historically broke even before fuel income, two metrics showed up every time—$30 gross margin per labor hour and a 3:1 ratio of gross margin dollars to payroll dollars. These two productivity metrics became the foundation of our budgeting, pricing and store selection processes. And, they worked beautifully.
DIFFERENT THEORIES
You don’t have to be an Einstein to figure out that the link between the two metrics is an average hourly wage of $10. That average has been in place in our company and in our industry for years. What happens to strategies of labor budgeting and pricing if that average hourly wage goes to $15 or even $12.50 an hour?
The 3:1 margin to payroll ratio is the most crucial, because that represents real dollars on a profit-and-loss report. If labor increases 25% to 50%, the other metric of $30 margin per labor hour goes out the window. It might have to be $40 per hour. That’s a scary proposition.
The knee-jerk reaction might be to cut hours, but that’s not a viable solution.
However, there are options that I recommend a c-store act on, which might be effective in easing budgetary concerns including:
Stop giving away margin unnecessarily with ridiculous promotions on coffee and fountain drinks. In fact, stop doing that entirely with any product that is identified as producing “labor-free margin dollars.” That’s the advantage we have over Starbucks, Dunkin’ Donuts and Tim Horton’s. They will absolutely be forced to increase their retails.
Lobby state governments to increase state minimum pricing on cigarettes. If a state doesn’t have such a group, you and colleagues can lobby to get one established. We’ve been fighting for years to get New York’s raised from 8.6% to 20% with no traction. Now’s the time get it done. Again, we’re talking about “labor-free gross margin.”
Make sure you have unit pricing for every foodservice item you prepare. Also, make sure a labor component is included. If you need 75% margin to cover waste and labor to get you to a real goal of 60%, then that’s your retail.
If you have not done a time study on your prepared foodservice, then buy a stopwatch and time how long it takes to prepare key items. If it’s six minutes, that would represent $1 labor. That would jump to $1.50 with an average hourly wage of $15. You will have to make that adjustment.
Our industry has reacted with remarkable speed to challenges such as this in our recent past, as retailers joined study groups, compared data and flocked to events such as the National Association of Convenience Stores’ (NACS) SOI Summit and the annual National Advisory Group (NAG) meeting.
We’ve been in a rather prolonged period of decent fuel margins and maybe we feel a bit insulated from this threat. However, that economic situation can change in a heartbeat.
In the meantime, maybe you want to assume my old job description: Break even before fuel income.
