By Bill Scott
Today, someone asked me, “what is the typical profit split at a gas station between inside sales and gas” on Quora. Here is my response:
I thought I had answered this question yesterday, but I will answer it again in a different way. My data shows that in the United States, currently 96.15% of an average convenience store’s income is attributed to gasoline and diesel sales. This percentage can vary somewhat depending on the location and the price of fuel at any specific point in time.
Generally, small convenience store chains with a few locations should consider fuel as the attracting agent to draw in customers. Believe it or not, this fact can give a small operator a huge advantage over a much larger chain. This is because a large chain cannot hire & train employees to manage their inside inventory properly, whereas a Mom & Pop operator with a few stores, employing ‘hands on management’ may be able to do much better.
Each store must make its profit from sales inside the store, and the amount earned has more to do with your knowledge of inventory management. It’s not hard. It can be learned easily. What products to buy, which ones not to buy, and what retail price to set that will result in the greatest overall profit. And that calculation is based more on the number of times a particular item is sold than it is on the profit made on the sale of a single item.
Consider this: Would you prefer to sell 100 items and make 50 cents each, or 200 items and make 40 cents each? Selling for a lower price can increase the number of turns, and in the case above, it could result in additional profits of $30 (100*$0.50) as opposed to $80 (200*$0.40).
Of course it’s not really that simple. An item priced too low can make a customer shy away from the item, because they think the quality of the product is inferior. Items priced too high can give you the reputation that your prices are too high. Only a computer can economically determine that figure through trial and error.
Suppliers have made the selection process more difficult by offering you ‘deals’ that can eat up all of your working capital and fill your store with excess inventory and junk customers will not buy, limiting your ability to display products that could sell and make you a profit. Today, the average convenience store has two to three times the amount of inventory needed to meet customer service levels.
In the year 2000, 70% of all convenience stores were owned by chains that ran 500+ stores. In 2016, 63% of all convenience stores were single-store owner establishments. In between there are many small chains working to grow their business.
There is a bright future ahead for small mom & pop chains, but only if they stop trying to run their stores like the major chains, because the numbers are telling us many of the big chains are finding themselves in trouble.
