If you’re considering becoming a convenience store (“c-store”) owner, you’re in good company. According to the National Association of Convenience Stores (NACS), the United States boasts over 154,000 convenience stores that generate $233 billion a year in sales. What’s more, sales at 75% of c-stores grew for the 17th consecutive year in 2019. That’s a lot of years of sales growth!
What’s driving this growth?
Convenience stores have come a long way in recent years, benefiting from important changes in consumers’ need for convenience and speed and their willingness to pay for it. The need for small-scale convenience stores that provide basic consumer items has remained strong in recent years.
If those growth prospects are not enough to pique your interest in opening a convenience store, know this:
Amazon recently decided to enter the convenience store business – as a supplier. It is also piloting cashier-less convenience stores known as “Amazon Go” stores in Seattle.
We all know that where Amazon goes money follows!
You don’t have to be a big company like Amazon to run a successful c-store, however. 60% of the convenience stores in the USA are owned by individuals. If the idea of starting your own store sounds intimidating, then you can consider buying an existing one.
The Pros and Cons of Owning a Convenience Store
Before taking steps to learn more about how to open a convenience store, you’ll want to carefully weigh the pros and cons of c-store ownership. We’ve summarized the main ones below.
- Freedom to be your own boss – Join the ranks of 32 million small business owners.
- Steady customers – Generally, convenience store customers are based on a neighborhood or location and become regular visitors. This reduces the need to constantly acquire new customers and provides consistent business and market data.
- Financial stability – Although they sometimes have low margins, convenience stores typically don’t generally experience financial highs and lows associated with economic booms and busts.
- Relative ease to startup – Compared to many businesses such as restaurants, convenience stores are fairly straightforward to set up once you’ve identified what you need.
- High staff turnover – Staff issues can eat into profit margin in the form of training time and costs, mistakes, inventory theft, and illegal actions such as not carding for alcohol/tobacco sales, etc.
- Security and safety issues – Historically convenience stores have been targets for theft and crime.
- Inventory losses – Convenience stores are particularly prone to inventory losses both through theft and product spoilage. These challenges require constant management and result in lower margins.
- Long hours – If you are an independent owner you may find yourself having to work long hours to keep margins intact, especially during your first 2-3 years in business. Many customers expect to be able to go into a store late at night or early in the morning 7 days a week.
- Startup costs – It can cost typically between $50,000 and $100,000 to startup a convenience store. But this number can go as low as $10,000 (unlikely) and up to $ 1 million (if you have deep pockets). Much of this startup expense is invested in initial inventory, rent and deposits, and equipment.
Still interested after that list of cons? Keep reading!
Is Owning a Convenience Store Profitable?
Ah, this is the million-dollar question!
Can you in fact make a million dollars owning and running a convenience store? Well, that depends on a lot of things.
Historically, average convenience store profit margins have been quite low, hovering around 2% for independently owned stores. Convenience store owners must constantly manage high fixed costs including rent, inventory, and operating costs like utilities while optimizing product and pricing mix and attracting foot and car traffic.
C-stores of course mark up their products significantly over grocery stores or other retail outlets to account for the convenience factor and to take advantage of impulse buying. Typically, markups are as much as 10%-20% more than what a regular grocery store would charge, and sometimes higher for a really in-demand product.
A key to maximizing your profit margin is knowing your product margins and getting the product mix and display correct in your store. Below is a chart that shows the average gross margins for different types of products.
Most people assume that cigarettes and alcohol have the biggest margins. In fact, health and beauty and good old fashioned candy are among better choices for maximizing profit margins.
How much do convenience store owners make?
There is so much that factors into what you could earn as a convenience store owner, it’s hard to gauge what a typical take home store owners’ salary would be. According to Indeed.com, the average convenience store owner takes home $66,000 a year. Estimates provided by c-store owners on Quora and Reddit indicate that after a few years you can take home anywhere from $75,000 – $100,000.
Options for Opening a Convenience Store
There are three options for owning a convenience store:
1. Buy an existing store
2. Open a franchise
3. Start a convenience store
Option #1: Buy a convenience store
The advantages of buying an existing c-store are many. Depending on the existing business situation, they can include:
- An existing customer base
- Historical financial and other key information (i.e. foot traffic, rent history, product data)
- Ability to learn from the existing owner how to run the business
- Potential to purchase the business at a discount (i.e. if the owner wants to retire) and/or improve margins with better management
- No need to negotiate a new lease, supplier contracts, and other contracts
- Licenses and permits are in place
- Existing employees who know what to do
Despite these potential advantages, you should recognize that often the reason a store is for sale is that it’s losing money or the financial payback is not worth it to the owner. You’ll need to do your due diligence to understand the true reason the small business is for sale.
If you are buying a convenience store, as with any small business, you’ll need to do some due diligence (for more about due diligence read our article). Some questions to investigate are:
- Has all equipment been inspected recently and maintained? How old is it?
- Is the point of sales (POS) system modern? Does it track inventory and produce a balance sheet? Is it secure?
- What is the customer demographic? Do they have disposable income?
- How many vendors are there to manage and what are the contract terms?
- Is the store profitable and how can you be sure? Are the financials audited? Can you live off of these financials?
- If there are gasoline pumps on the property have they passed inspection recently?
- What are the best-selling products? If they are cigarettes and alcohol are you comfortable with those kinds of products being the bulk of your sales?
These are just a few examples of questions you’ll need to ask. After you’ve gathered this type of information you may find that you prefer to start a convenience store from scratch.
Option #2: Buy a franchise
37% of c-stores are part of a chain such as 7 Eleven or Circle K. There’s a good reason for this. A franchised convenience store has many benefits, not the least of which is an established brand name. The parent company provides you with guidelines and procedures, inventory lists, and pays for national marketing and advertising.
When purchasing or opening your own store, you would of course pay for all of these services out of your (already thin) profits.
What other benefits do you get with a franchise c-store?
Franchises provide many benefits over starting a store from scratch such as:
- Generally lower startup costs
- Faster time to profitability (generally)
- Guidance and support from the franchisor for both startup and ongoing operations
- National marketing and increased visibility
- Tradeoffs to consider with a franchise model are:
- Ongoing fees that must be paid to the franchisor out of profits
- Lack of total control over business policies and decisions
- Lack of control over brand
- Reliance on the financial strength of the parent company
Option #3: Start a convenience store
The advantages and disadvantages of opening your own convenience store from scratch are the opposite of purchasing a franchise or an existing store. You’ll have total control over:
- Vendor and product selection
- Choice of location
- Lease negotiation
- Store layout and equipment
- Profit margins
Regardless of which choice you make, much of what it takes to startup and run a c-store is the same.
So, let’s start with the biggest question – how much does it cost to open a convenience store?
Convenience Store Startup Costs
The cost of opening a c-store varies tremendously and depends on a number of factors. These include:
- Square footage
- Foot and car traffic
- Initial product mix and inventory level
One of the biggest startup costs for opening a convenience store will be inventory. According to the Small Business Chronicle typical startup inventory costs can reach around $20,000. Inventory costs will be driven to a large extent by the number of SKUs (stock keeping units) that you choose to sell, which in turn is largely driven by the size of your store.
The moral of the story?
Be careful about choosing the size of your store, as it will ultimately drive a large part of your startup and operating costs. Unless you have very deep pockets, buying a truck stop-sized store is probably not a great idea. In this case, it really is better to start small.
Other startup costs to include in your budgeting are:
- Equipment such as point of sale systems, refrigeration, and shelving
- Licenses and permits
- Remodeling and repairs
- Security systems
You will want to price out beforehand what these costs will be. If you find any excessive costs such as rent and remodeling requirements, or you think that you will have trouble obtaining enough financing to fund these startup costs, then reconsider your decision.
Licenses You Need to Open a Convenience Store
Typical licenses and permits that you will need to run a convenience store include:
- Sales tax permit
- Employer identification number (EIN)
- City or county business license
- Occupancy permit
- Alcohol and tobacco license
- Health and safety permits
- Lottery license
- Gas permits (i.e. EPA inspection)
Obtaining these permits requires money and time. For example, to obtain a health permit, you and your employees will likely have to take a food safety course. Likewise, to obtain an occupancy permit, you will have to ensure that your building and facilities are up to code.
A good place to start to find out what permits you will need is the Small Business Administration. You should also ask the current owner if you are purchasing a small business or franchise.
How to Successfully Open and Run a Convenience Store
When you’re operating a small business on fairly thin margins, it is critical to use every trick you can to manage your operations for profit. Following are 10 tips for increasing your chances of successfully running your convenience store.
Step 1: Create a store business plan
Because running a convenience store successfully means that you must be very attentive to your margins, it’s a good idea to create a business plan before starting up. In fact, if you require bank financing to open or buy your store, you will need to put together a business plan. This is true even if you are buying a franchise.
Don’t fret at the idea of doing this! This pre-requisite to opening a convenience store will help you to be more successful. When you put together your plan, you’ll have to gain an understanding of your market including competitors and customers. You’ll have to investigate and understand business drivers such as foot traffic, pricing and product mix and how these interact to drive revenue.
Part of creating your plan will involve costing out your startup needs and operating costs. You’ll have to put it all
together in the form of financial forecasts that can demonstrate to a bank (and to yourself) that you understand how to manage your margins and what the drivers of your business success will be.
Scared of business plans?
Don’t be! Check out Liveplan business plan creation software, an easy to use software that walks you through the steps of creating your plan and provides a lot of resources. Even better, Liveplan provides an example of a convenience store business plan created using Liveplan. (Note: do not copy and paste!)
Step 2: Select a good location
No matter how great your product mix, what your pricing is, or how much you advertise, if you choose a location that does not bring you a lot of customers looking for “convenience” then you won’t be successful. This is true whether you are opening a brand-new store or purchasing an existing convenience store.
How do you find foot traffic numbers? There are several ways that you can gauge traffic for a location:
- Sit outside and count customers for several hours (or pay someone to do this)
- Get this information from the existing store owner
- Ask the landlord (although you will probably want to verify numbers)
- Ask other businesses adjacent/nearby
- Use a service like locationgenius that tracks foot traffic via mobile phone data
What else makes a good c-store location?
You don’t want your store to be surrounded by two or three alternative stores, such as a larger grocery or chain pharmacy store. Your storefront should also be visible and not tucked away down an alley in an office building complex. A good location is one where you can gain regular clients, such as a neighborhood corner, a large office complex or a school zone. Your location should also have ample and convenient parking and be easily accessible.
Another location factor specific to convenience stores is theft and robberies. Since convenience stores are subject to theft and criminal action, you’ll want to investigate if the building is secure and consider the surrounding neighborhood’s crime and income profile.
Remember, however, higher traffic always translates to higher rent. Do the math in your business planning to make sure the higher rent is worth it! As an example, if you are scouting a store spot, look around for future construction projects or other factors such as seasonality that might inhibit traffic.
Step #3: Focus on financial management
Be proactive with your financials rather than waiting for problems to crop up. Study individual product sales and margins and tweak your purchasing and pricing accordingly. Notice discrepancies and sales and inventory which may indicate theft. Experiment with pricing and new items and track results. Watch your cash flow like a hawk. Constantly look for ways to lower costs, for example by negotiating new vendor contracts or cutting items that spoil quickly.
In a business based on high volumes and low margins you want to always be trying to optimize between sales volumes and price. for a convenience store, sometimes a discount of just $.10 on a soda can result in a 300% increase in sales volumes.
Step #4: Reward your customers
It’s especially important to build customer loyalty if you don’t have a national brand backing your convenience store. Keep customers coming back for impulse buys or favorite products and create a community out of your store by rewarding frequent purchases and providing interesting discounts. The knock-on effect will be more frequent visits, impulse purchasing and higher inventory turnover.
Step #5: Maintain a clean store
One of the drawbacks of a convenience store is that it sees high volumes of people daily. This makes it hard to keep bathrooms, floors, food areas, trash cans, etc. clean. For your store’s reputation, customer loyalty , and sales, you must maintain clean food spaces and bathrooms. Think about it, would you eat a hot dog from a place where employees use a dirty bathroom or leave spilled nacho cheese on the floor?
Step #6: Monitor your competition
If the store a block down sells coffee for $.99 and you are selling it for $1.19, you should consider that either you need to have much better coffee than your competitor and/or understand that some people and their impulses will go to your competitor. In the convenience store business, customers do pay attention to prices because they know they are paying a premium every time they go into a store.
Step #7: Invest in good technology and systems
It is critical for security and financial management to have an up to date point of sale (POS) system. A point of sales system helps you manage and keep track of sales, vendors, calculate store profit, and more. In addition, you’ll want to invest in state of the art anti-theft and security equipment like CCTV cameras, alarms, and cash register monitors to prevent losses, which you can use the point of sale system to keep track of.
Step #8: Understand your customers
It’s easy to just say that everybody’s your customer, given the common nature of convenience stores across the country. This is a big mistake. Due to the huge variety of potential products you could sell, the more you understand your potential customer base, the easier and less expensive it will be to stock the shelves with products that sell at attractive margins and high volumes.
Some aspects to understand about your customers are:
- Are the customers regulars who rely on the store for everyday goods? An example would be a businessperson stopping in for a coffee and donut every day.
- Do the customers come in for the community? If so, you want your interior to be inviting and perhaps offer a standup eat-in counter and train employees to be extra friendly.
- Are customers in a rush to get in and out? If so, you want the most popular last-minute products like milk and bread to be easily visible and accessible. You’ll want to staff up appropriately and have a quick payment system.
It’s also important to understand the demographic of your convenience store customers as well. Business people may want you to stock the New York Times and have cell phone chargers in a ready to grab location. Construction workers may want good deals on beer and may want the cashier to know what type of cigarettes they smoke before they have to ask. High school kids on a lunch break or after school will want a great candy and ice cream snack selection. If there is in fact a school nearby you may want to stock products of interest to women/mothers as well, like good coffee, premium face cream brands, makeup, baby diapers, healthy snacks, etc.
Step #9: Understand product and consumer trends
Remember a couple of years ago when fidget spinners were flying off the checkout counter of every convenience store? New always sells. Keep on top of what is selling and what isn’t and follow new trends such as CBD products, ready to eat meals and good coffee.
Not sure where to start following c-store trends? Some good industry resources for tracking trends in the c-store industry include:
In addition, it’s a good idea to be a member of convenience store trade associations:
- National Association of Convenience Stores
- American Petroleum and Convenience Store Association
- State Associations for Convenience Stores
- National Association of Truck Stop Operators
Step #10: Manage purchases well
A big part of running a convenience store is the management of inventory purchases. Inventory management drives your margins. If you purchase a convenience store, you’ll inherit a set of vendor relationships and associated products, which may or may not be a good thing. As part of your business planning, you’ll want to take a look at some of the biggest vendor contracts to determine if they are fair and if there is any room to negotiate to improve margins, working capital or product mix.
You’ll purchase most of your inventory through wholesalers and distributors. These may be wholesalers who carry nearly all the inventory you want, or vendors who specialize in different types of products. You can expect to carry at least 2,000 inventory items at your convenience store.
Generally, your vendor choices should be driven by product choices that your customer demographic wants. It’s also a good idea to “spread the wealth” among a few vendors so as not to be reliant on one. You may also save costs in doing so and find more inventory choices to suit your specific customer needs.
If you are opening up a convenience store from scratch, you’ll have to identify wholesalers and SKUs you want to sell yourself. Vendors will also conduct a credit check. If you have poor credit, you’ll find yourself in a not so great negotiating position. At any rate, most vendors will require you to pay upfront for your first order.
Financing a Convenience Store
As we mentioned before, it is likely you’ll need to put together a business plan with financial forecasts to obtain either startup financing and/or working capital financing. There are several common options for financing the startup and operating costs of a convenience store.
The types and availability of financing for your convenience store will depend in part upon the specific loan request you make. Financing options have traditionally been fairly broad. There are various loan purposes to consider as a borrower depending on whether you are looking to purchase an existing convenience store business, obtain start-up financing for a new store, seek capital improvements, pursue construction, or request financing for machinery, equipment, and inventory.
There are several loan types that have been used to finance convenience stores, which can be structured as fixed, variable, or fixed to floating.
A good place to start looking for financing is by contacting your bank to see if they can arrange a Small Business Administration (SBA) loan. The Small Business Administration’s (SBA) 504 and 7(a) loan programs are both popular alternatives. The SBA backs typically 75% of the full loan amount so that banks and lenders assume less balance sheet risk on the loan. Loan terms are structured based on the assets being financed.
Conventional loans are typically made by traditional banks and some non-bank lenders. These loans are not guaranteed by any third party and the bank or lenders assume the full risk of the loan. Therefore, credit standards are usually higher for conventional loans. Pricing and terms can be more flexible for conventional loans as lenders can price lower for stronger loan requests.
Keep in mind that when you seek financing from a bank, you must have good credit and be willing to put up about 15%-20% of the startup costs.
Convenience stores often use asset-based lines of credit for a variety of business needs. Asset-based financing can be either a revolving or term loan that is secured by assets such as accounts receivable, real estate, equipment, or inventory.
Seller Carry Financing
For buyers of an existing convenience store, it may be possible to negotiate financing with the seller. If you don’t have great credit and/or have some money to put down, this is a great option for opening your own convenience store. With this kind of financing, instead of receiving the full purchase amount, the seller finances all or part of the purchase price.
You negotiate with the seller the interest rate and terms of the financing. One benefit of seller carry financing is that the seller will be supportive of the transition and should offer training to ensure that the buyer is successful in taking the business operations over.
Merchant Cash Advance
Merchant cash advance financing is based on credit card receivables where the merchant cash provider will advance funds based on historical performance or credit card sales. This financing works well for businesses like convenience stores where there is a large volume of credit card sales. Merchant cash is considered short-term financing and can be funded quickly.
The Bottom Line
Starting a convenience store takes money, planning, time, and dedication. With careful planning and research, the right location, the right products on the shelves at the right price, and a lot of hard work, you can eventually earn a good living after opening your convenience store.
So, which is it? Will you stick with your 9 to 5 – 5 days a week? Or go for the 7 to 11 – 7 days a week?