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How To Open A Convenience Store

How To Open A Convenience Store

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How To Open A Convenience Store

How To Start A Convenience Store

It’s no secret that in today’s time, instant gratification is king. Consumers value merchants who meet needs immediately, something successful convenience stores accomplish expertly. These stores promise speedy transactions for busy patrons purchasing food, beverages, toiletries, tobacco goods, and more. With medium barriers to entry, an aspiring entrepreneur who is well-versed in all aspects of the industry can find success as a convenience store owner. This guide will cover relevant trends, financial considerations, and strategies to help budding business owners pursue convenience store ownership.

Industry Summary

Each day, bodegas, corner stores, c-stores, and mom & pop shops serve some 160 million customers – the equivalent of half the U.S. population. According to the National Association of Convenience Stores (NACS), the country’s 153,000-plus convenience stores bring in nearly 11% of retail and food-service revenue. Fuel is sold by nearly 80% of all convenience stores. Likewise, about 80% of all U.S. fuel is purchased from these stores.

The global convenience stores market size was valued at over $2 trillion in 2021 and is expected to grow at a compound annual growth rate of 5.6% from 2022 to 2028, according to Grand View Research. IBIS World projects that by 2023, industry revenue will grow to $29.9 billion. This is due, in part, to lower unemployment and higher income levels. Although the industry is growing, the rise is relatively slow. The industry’s contribution to GDP is predicted to grow 1.7% over 10 years to 2023. Compared to the projected GDP growth rate of 2.2%, the convenience store industry is lagging. Also, proprietors must be prepared for the challenges of a particularly competitive market due to moderate barriers to entry, industry saturation, and market fragmentation.

Single-store operators rule the convenience store domain. The top two chains hold less than 40% of the market share, as indicated by IBIS World. In fact, mom & pop small business operations employing fewer than five people account for 68.1% of total stores. Independent owners operate at low-profit margins of around 2%, as detailed in a CNBC report. However, wise shop owners recognize that high-margin packaged and prepared meals account for over 21.7% of industry sales and focus on sales of these items. Moreover, busy patrons will pay a premium for convenience. Therefore, even the most modest corner store can buck the trend through sharp inventory management and clever pricing.

The technological era in which we live has stoked consumers’ sense of urgency. Expedited service models have placed goods and services at customers’ fingertips. In other words: consumers want their needs met now. The most enterprising convenience store owners know how to capitalize on this instant gratification mindset to profit.

An investigative report by CNBC revealed that the average convenience store visit lasts under four minutes, and 65% of items sold are consumed immediately. A staggering 83% are devoured within an hour.  Location, product selection, and store design are lures that can hook today’s on-demand shoppers.

Merchandise should also reflect area demographics. For example, stores located near business complexes would want to consider stocking premium coffee and hot food items. Higher-priced items should be placed at premium shelf locations at eye level. The nation’s high employment rate and increased spending have led to more impulse purchases. Indulgences, such as candy and magazines, should be placed near the cash register to stimulate impulse buys.

Tobacco products are a major driver of convenience store sales. With a greater emphasis on health, the number of smokers – and the demand for cigarettes – is anticipated to drop and could impact store earnings. Conversely, the demand for healthier grab-and-go food options is on the rise. Shrewd business owners will keep a close eye on market trends, demographics, and other factors to customize inventory for primary clientele.

Target Market

Convenience store patrons are not characterized by their loyalty. Thus, proprietors must offer products and services that exceed expectations to attract customers and earn repeat business. Product availability and speed of service are paramount for the typical corner shop consumer. In this arena, convenience trumps price.

Millennials are prime customers for shops that stock high-margin pre-made and packaged meals and common household goods. As reported by the USDA, Millennials keep fewer items in the fridge and prefer convenient pre-cooked meals. In fact, patrons from ages 25 to 44 – including Millennials, busy families, and young professionals with some discretionary income – are reported to account for almost 40% of revenue.

An owner with a deep understanding of the target market and area demographics can tailor their corner store to the locale. Consistent staples, distinctive offerings, and hometown favorites should be stocked regularly to effectively meet consumer demand.

This material is property of StartingYourBusiness.com

Checklist To Start A Convenience Store

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If you’re thinking about starting a convenience store, it’s important to do your research first. Here is a checklist to help you get started.

Step 1: Research the Market

If you’re planning to open your own convenience store, before doing anything else, start researching whether there is are enough customers to support a new convenience store. To get started, a few things I recommend doing at include:

Research the Industry: Start with a broad understanding of the convenience store industry. Look at recent reports and statistics from reputable sources to understand current trends, growth rates, and forecasts. This could include data on the size of the industry, customer spending habits, and popular products. You could look at websites of industry associations like the National Association of Convenience Stores (NACS).

Analyze the Competition: Identify and study your potential competitors. This can include other convenience stores in your area as well as other businesses that could offer similar products/services (supermarkets, gas stations, online grocery delivery services, etc.). Understand their strengths and weaknesses, the services they offer, their pricing, and customer perception.

Look at Area Demographics and Potential Locations: Understand the demographics of your target market. What is the average age, income level, occupation, and lifestyle of people living around the store’s location? Are there any large businesses or residential areas nearby that might provide a regular customer base? Location analysis should also include visibility, accessibility, and traffic patterns.

Research the Regulatory Landscape: Understand the legal and regulatory framework for convenience stores in your area. This includes permits, licenses, regulations about selling certain types of products (e.g., alcohol, tobacco), and any local regulations that apply to convenience stores.

SWOT Analysis: Based on your findings, conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). This can help you to strategically plan your business, taking advantage of your strengths and opportunities, while addressing weaknesses and threats.

Test the Waters: If you haven’t already, consider doing some hands-on research. This could involve working or volunteering at a convenience store (hopefully not a competitor) to get a sense of day-to-day operations and challenges. You might also want to survey potential customers to gather their input on what they’d like to see in a new convenience store.

Step 2: Write a Business Plan

Before opening a convenience store, set the stage for success by creating a business plan.  A business plan helps you crystallize your vision, establish clear goals and strategies, and develop an action plan, in addition to determining the financial viability of your store by forecasting revenue, costs, and profitability.

Not only will a bank or investor require you to have a business plan in order to get funding, but multiple studies have shown that a business plan helps increase the odds of starting a successful business. A well-thought-out convenience store plan will serve the entrepreneur as the road map for their business, helping them achieve their business goals.

When it comes to a convenience store business plan, while all sections are important, there are three sections that I believe are particularly crucial:

Market Analysis: A detailed understanding of your target market and competition is critical for a convenience store because success heavily depends on location and local demand. You’ll need to understand the demographic, shopping habits, needs, and wants of your local community. A strong competitive analysis is also important to understand your potential competitive edge.

Location Analysis: Given the significance of ‘convenience’ for this type of business, analyzing potential locations, their accessibility, visibility, and the traffic (foot and vehicle) they receive is extremely important.

Financial Projections: As with any business plan, a well-detailed financial section that includes sales forecast, income statements, balance sheets, and cash flow statements is important. Given the slim margins and high turnover of inventory in convenience stores, accurately projecting these numbers is particularly critical.

Related: How to write a business plan

Step 3: Search for a Location

With a solid business plan in hand, it is time to choose the ideal location with maximum traffic and minimal competition. 

High foot and vehicle traffic are particularly beneficial so convenience stores should be located in high-traffic, visible areas, optimally on a busy street or near a large residential area, business district, or school to ensure a consistent flow of customers.

Secondly, consider the demographics of the local population, as this will impact the kind of products you should stock. Higher-income areas might demand more premium products, while student-heavy areas might lean towards budget-friendly items.

Proximity to competitors is also key; a location without many similar stores or grocery stores nearby might be attractive to customers who desire to complete quick purchases without making longer trips to large chain stores. But, don’t rule out a location if there is a nearby convenience store, because this area could indicate strong demand.

While on the search for your new location, be sure to look at not only the price of the location, but any renovations that are needed.

Related: Choosing a business location

Step 4: Obtain Funding

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a convenience store is another.  

The cost to start a convenience store can be very high, with most of the costs going towards remodeling, fixtures, security systems, signage, and inventory.  Funding for a new start-up can be difficult as banks are typically going to want the borrower to have good credit and personally invest 15-25% towards the total startup costs.

Even though the cost to start a convenience store can be high, there are a lot of options to get funded, from friends and family, bank loans, Small Business Administration (SBA) loan guarantees, investors and more.

Related: Finding the money to start a business

Step 5: Acquire your Location

After securing funding and begin to acquire a location for a new store, you will need to get quotes and begin work on any renovations or repairs. This could include updating the electrical wiring, lighting, refurbishing the interior and exterior, etc. Make sure that the store layout is efficient and customer-friendly, with clear paths to navigate and visible product placement.

You will also want to take time to lay out the store in order to get all of the equipment in the right place and make the store easy for customer’s to navigate. There are several industry-specific software and resources available to help set up the layout of a convenience store. Some popular software options include SmartDraw and ConceptDraw. These software programs allow you to create floor plan examples and add walls, windows, doors, and fixtures from their large collection of floor plan libraries. You can also find resources and guides on retail store layout design and planning from sources like Smartsheet and Shopify.

Step 6: Register the Business

The next step in starting your convenience store is to make sure it’s properly registered and legal to operate. It’s important to note, however, that the exact process can vary from state to state, so you’ll need to check the specific requirements for your location. Here’s a general guide to the key registrations:

Form a Business Structure: The first thing you’ll need to decide is what legal structure is best for your business. This could be a sole proprietorship, a partnership, a limited liability company (LLC), or a corporation. Each of these structures has different implications for liability, taxes, and administrative complexity. Many small business owners opt for an LLC because it provides personal liability protection and has fewer administrative requirements than a corporation.

Related: Comparison of business structures

Register Your Business Name: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state.

Related: Tips and ideas for naming a convenience store

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain Business Licenses and Permits: Depending on your location and the nature of your business, you may need certain licenses or permits to operate. This can include a business license, Seller’s Permit, Employer Identification Number (EIN), sign permit, food safety permit from the local health department permit (if you’ll be selling food), and potentially others depending on your local regulations.

Most notably, vendors selling regulated items such as tobacco and alcoholic beverages will need to register federally with the Alcohol and Tobacco Tax and Trade Bureau (TTB), along with a tobacco license and liquor licensing from the state and local municipality. Sales of lottery tickets and fuel will also need additional state licenses. Independent corner stores are held to many of the same regulations as major grocers. Reach out to The Occupational Safety and Health Administration for help with navigating complexities associated with convenience store ownership.

Related: State guides for business licensing

Step 7: Source Suppliers

As an experienced convenience store owner, sourcing reliable suppliers is a critical aspect of your operation. Here are some tips to help you navigate this process:

Understand Your Inventory Needs: Identify the products your store will carry, and consider the needs of your local demographic. This includes understanding the variety of products required, from groceries to snacks, drinks, tobacco, and potentially ready-to-eat meals.

Research Suppliers: Look for suppliers who specialize in convenience store or small retail inventory. These might be large national distributors, regional companies, or even local suppliers for certain items. Online directories, trade magazines, and industry trade shows can be useful for finding potential suppliers.

Check Supplier Reputation: Before deciding on a supplier, check their reputation. Look for reviews or testimonials, ask for references, and check how long they’ve been in business. You can also ask other convenience store owners for their recommendations.

Evaluate Terms and Conditions: Consider not only the prices of the products but also the terms and conditions of the supply agreement. This can include minimum order quantities, delivery schedules, return policies, payment terms, and what support they offer if there’s a problem.

Diversify Your Suppliers: Try not to depend on a single supplier for all your products. While this can simplify the inventory management process, having multiple suppliers reduces the risk if one supplier can’t deliver. It can also give you more negotiating power.

Local Suppliers for Unique Products: Consider working with local suppliers for some unique products. This can differentiate your store from the competition, and many customers appreciate local products.

Negotiate: Don’t be afraid to negotiate with suppliers for better prices, especially if you’re buying in bulk. As your store grows and your order volumes increase, renegotiate your terms.

Build Relationships: Finally, build good relationships with your suppliers. Being a reliable and respectful business partner can lead to better service, better terms, and more willingness to help you out in a crunch.

Remember, the supplier you choose will significantly impact your store’s profitability and efficiency, so take your time with this process. A good supplier relationship can be a significant factor in the success of your convenience store.

Step 8: Set Up the Store

Things are getting exciting as all of the groundwork has led to physically setting up your convenience store. To do this right the first time, careful planning and execution is important.

Hopefully, preplanning the layout of your store will make this job easier, but inevitably, seeing the store in real life will uncover the need to make last minute changes to ensure the layout it is customer-friendly and allows for efficient movement and product visibility.

Once the layout is set, purchasing the right equipment is crucial. This includes refrigeration units for perishable goods, shelving for product display, a suitable point of sale (POS) system, and security equipment such as surveillance cameras.

When selecting a POS system, consider one that offers inventory management features, as this will greatly assist in tracking stock levels and identifying fast-moving items. This system should also support any specific needs you have, like accepting food stamps or selling age-restricted items.

Invest in high-quality, durable shelving and refrigeration units as these will see heavy use. Position your high-demand or impulse-buy items near the front of the store or by the cash register to encourage last-minute purchases.

For the back office, consider your needs for storage, office equipment, and staff amenities. Don’t forget exterior needs, like signage and parking.

In terms of specific tips, try to maximize the use of your floor space without making the store feel cramped. Pay close attention to your store’s entrance – it should be welcoming and display some of your attractive products. Also, keep in mind the importance of lighting; good lighting can make your store look more inviting and also deter theft.

Finally, prioritize cleanliness and organization from the start, as this greatly influences a customer’s impression of your store. Remember, the setup phase is an opportunity to build a store that’s not just functional, but also an inviting place for customers to shop.

Step 9: Hire & Train Staff

Hiring the right staff is an integral part of running a successful convenience store. Your employees not only help manage daily operations but also serve as the face of your business, directly interacting with your customers. Typically, convenience stores hire for positions such as store managers, assistant managers, and store clerks. The average pay can vary based on location and experience, but generally, store clerks may earn around minimum wage, while managers can earn a higher wage due to their increased responsibilities.

Finding good employees for a convenience store will be challenging, as convenience stores suffer from high turnover rates. Costs associated with training new personnel, coupled with climbing wages, can cause profits to dip, so to combat this, the owner will need to come up with incentives such as benefits, flexible schedule or management staff to cover employees who don’t show up for their shifts. Because of the high turnover, it’s important to constantly be looking for reliable employees to staff the store in addition to running background checks and random drug testing.

Related: Hiring your first employee

Step 10: Get your Advertising Ready

Now that you are getting close to the grand opening, it’s time to get marketing materials planned and created. It’s important to understand your market and what media they consume so you can effectively reach out and let them know you’re open.

Marketing a convenience store effectively involves a blend of strategies to attract a broad range of customers. Local community engagement can be a powerful tool, so consider sponsoring local events, teams, or community projects to build your reputation.

In-store promotions, like special deals or loyalty programs, can encourage repeat business and larger purchases. Seasonal product offerings and promotions can also draw in customers. Traditional advertising, such as leaflets, local newspaper ads, or billboards can still be effective, especially for reaching an older demographic.

While traditional marketing is important, don’t overlook digital marketing opportunities. A simple website with your location, hours, and information about your products and promotions can be beneficial. Also, use social media platforms to engage with customers, share updates, and promote deals. Especially in urban areas or among younger customers, online presence is crucial. You might also consider partnerships with local delivery apps to reach customers who prefer shopping from home. The best marketing strategy often involves a combination of these methods, tailored to the specific demographics of your area.

Related: Low-cost ideas to market a new business

Step 11: Prepare to Open

This list of steps will have covered many of the necessary items required to start your convenience store, but there are many other small things to consider. This list will vary for everyone, but some of the more common things include:

Business Insurance: Protecting your business from potential risks is a must. Obtain insurance policies that cover general liability, property damage, and workers’ compensation if you have employees.

When considering insurance, you may also want to consider your safety and security measures. Implementing appropriate security measures to protect your store and assets is vital for a convenience store. This includes installing surveillance cameras, alarm systems, and creating standard operating procedures for proper cash handling. Your customers and employees deserve a safe environment.

Related: What types of insurance does a convenience store need?

Bookkeeping: Establish a robust bookkeeping system from the start. Whether you manage it yourself with software or hire a bookkeeper or accountant, you need to keep track of sales, expenses, payroll, and other financial data. Regular financial reporting can help you make informed business decisions and is essential for tax purposes.

Bank Account: Open a separate business bank account for your business to keep personal and business finances distinct. This aids in managing your finances and is important for legal and tax purposes.

Payment Systems: In today’s digital world, accepting various payment methods is crucial. This includes credit and debit cards, contactless payments, and potentially mobile payment systems. Make sure your POS system supports these payment methods and is secure to protect your customers’ information.

Opening a convenience store is a big undertaking, but with the right approach, it can be a rewarding one.

Convenience Store Startup FAQs

How much does it cost to start a convenience store?

The cost of starting a convenience store can vary widely based on factors like location, size of the store, inventory, equipment, and whether you’re building from scratch or buying an existing store.

Lease or Purchase of Property: This can range from a few thousand dollars a year in rural areas to tens of thousands in prime urban locations. If you’re purchasing a property, the cost could be several hundred thousand dollars or more.

Store Setup (Shelving, Counters, etc.): The cost to outfit the store with shelving, counters, coolers, and other fixtures can range from $10,000 to $50,000 or more depending on the size and layout of your store.

Equipment: This includes cash registers or a point-of-sale system, security cameras, refrigeration units, etc. This could cost anywhere from $15,000 to $75,000 or more.

Inventory: Initial stock for the store could range from $20,000 to $50,000 or more depending on the size of the store and the range of products you plan to offer.

Licenses and Permits: This can vary widely by location and what you are selling, but might be around $1,000 to $3,000.

Insurance: Again, this can vary based on many factors, but you might budget $2,000 to $5,000 per year for a small store.

Marketing and Advertising: This will depend on your marketing plan, but it might range from a few hundred to a few thousand dollars.

Working Capital: You’ll also need some cash on hand to cover operating expenses until your store starts generating enough revenue to cover these costs. It’s generally best to have three to six months of operating expenses on hand, which could come out to $10,000 to $50,000 or more.

Adding all this up, a rough estimate might be anywhere from $100,000 to $250,000 to start a very small convenience store, not including the cost of buying or leasing a property.

According to a report by the National Association of Convenience Stores (NACS), the average initial investment for a convenience store ranges from $250,000 to $3 million or more, depending on the store’s size and location. This estimate includes expenses like lease or purchase of property, renovation or construction costs, equipment, fixtures, licenses, permits, initial inventory, and working capital.

If you’re considering starting a convenience store, you should prepare a detailed business plan with a thorough budget. You might also want to consult with a business advisor or accountant to make sure you’re considering all potential costs.

How much can a convenience store owner make?

The income from a convenience store can vary greatly based on a number of factors including location, size, product selection, and competition. The profit margin on sales is typically low in the convenience store business, often around 2-4%, so the profitability of the store often comes down to volume.

Here’s a simple example: Let’s say your store generates $1,000,000 (the average store generates around $1.7 million annually) If your net profit margin after all expenses (inventory, labor, rent, utilities, etc.) is 3%, that would result in a net profit of $30,000 per year.
However, there are many variables and potential additional income sources, such as lottery ticket sales, ATM fees, or income from a deli or foodservice operation, that can affect these numbers. Additionally, if the owner also acts as the general manager, this will boost profit as well.

Please note that this is a simplified example and actual profit can be significantly influenced by a variety of factors. For example, sales can be much higher or lower depending on location and competition, and expenses can vary widely as well. This is why careful planning and management is crucial in the convenience store business.

What is the NAICS code for a convenience store?

The NAICS code for a convenience store is 311811.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Resources:
National Association of Convenience Stores
American Petroleum and Convenience Store Association
Association of Convenience Store Retailers

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

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How To Open A Convenience Store

How To Open A Convenience Store

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