Convenience Stores and Gas Stations
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Industry Overview
The convenience store (c-store) industry includes about 60,000 companies with combined annual sales of $200 billion. Major companies include 7-Eleven, The Pantry, and the retail divisions of large oil companies like ExxonMobil and BP. About 70 companies operate 100 or more stores. The industry is highly fragmented: the 50 largest companies hold less than 40 percent of the market. The average store has annual sales of about $2 million.
Competitive Landscape
Demand depends mainly on the volume of car driving, which in turn depends on economic activity. The profitability of individual stores is closely linked to location and product mix. Large companies have advantages in buying gasoline at bulk prices, but small companies can compete effectively by having superior locations. Annual revenue per worker is close to $300,000.
Products, Operations & Technology
The industry sells mainly gasoline (65 percent of revenue); groceries (12 percent); cigarettes (11 percent); beer and wine (4 percent); and prepared food (2 percent). About 15 percent of industry revenue comes from c-stores that don't sell gas, typically in urban locations. An average c-store covers 1,500 to 2,500 square feet and has three to four gassing stations with a total storage capacity of 30,000 gallons. Traditionally, merchandise sales are geared to impulse buying of high-margin goods by walk-in customers. A typical store may stock from 500 to 1,000 different items.
An average store may sell close to a million gallons of gasoline per year; the average gross profit per gallon is about 13 cents. Chains not owned by oil companies generally buy gasoline from major oil companies or independent refiners under multiyear supply contracts, with delivery from local terminals at the "rack rate" (local market price). Contracts usually specify minimum annual purchases and may contain incentives for taking a high volume. The gas sold at stores may be branded or unbranded. Single-store operators often pay higher wholesale prices for gas. Typically, the gasoline inventory at each store turns over every seven days.
Given the limited space in a store, deciding what merchandise to sell is a key function of management. Merchandising often concentrates on goods with high volume (beverages) or high margins (drugs), or goods with low margins but that draw customers into the store (such as lottery tickets, toilet paper, and milk). Chains monitor their merchandise mix very carefully using highly sophisticated sales tracking computer software that can identify, for example, products that are often bought together, or products that sell best at lunchtime, etc. Local managers often have some latitude in adjusting the merchandise mix to suit local needs and tastes. Merchandise is typically bought from several wholesalers, often under long-term supply contracts. 7-Eleven uses a single national distributor for all its grocery products, while beverages and snacks are bought from other wholesalers. A large chain may operate its own distribution system, with regional warehouses that package shipments from several wholesalers into daily deliveries to individual stores.
