Do you want to start a drive through convenience store? If YES, here is a complete guide to starting a convenience store business with NO money and no experience. Since the first convenience store in the United States opened its doors for business in 1927, convenience stores have become an important part of every community.
Convenience stores not only provide employment for a large number of people in the community, they also make it easier for people living in the community to easily access the supplies they need daily without having to drive several miles to the nearest shopping mall.
What is a Convenience Store Business?
A convenience store is typically a small retail store that stocks everyday items such as packaged food, groceries, over-the-counter drugs, tobacco products, snacks, confectioneries, toiletries as well as newspapers and magazines. Convenience stores are usually open for extended hours to guarantee convenience for the shoppers, and some convenience stores are licensed to sell alcoholic products such as beer and wines.
13 Steps to Starting a Convenience Store Business
1. Understand the Industry
The US convenience store industry is a $41 billion dollar industry with an annual growth rate of about 0.3% according to a market research report on convenience stores in the United States prepared by IBIS World. The report also revealed that there are about 154,000 convenience stores across the country with a total sales of about $575 billion annually.
A study carried out by The National Association for Convenience and Fuel Retailing (NACS) revealed that convenience stores employ over 143,763 people in the country and the industry is expected to continue to grow at a rate of 0.2% per anumn between 2017 and 2022 as many more investors continue to join the industry.
Interesting Statistics About the Industry
Before you go on to invest in this industry, it is important to understand how the convenience store business operates and its impact on the United States economy. These relevant facts and figures would give you a clearer insight:
- There are at least 154,000 convenience stores in the US, which means that there is at least one store for every 2,000 people living in the country.
- 33.9% of all the retail outlets in the US are convenience stores.
- Food-service contributes at least 19.4% to the total sales generated by convenience stores daily.
- Sale of fresh and healthier food options have increased by at least 10% since 2014 as more consumers seem to be choosing healthier food options.
- Sale of alcoholic products like wines and spirits are also on the rise with a growth rate of at least 15.9% in 2015.
- Sale of E-cigarettes and tickets to sporting events are also on the rise with an increase of about 15% recorded between 2015 and 2016.
- Convenience store sales increase by at least 4.5% every year.
Why Start a Convenience Store Business in the US?
The convenience store business is one of the most lucrative and safest businesses that you can start. The industry is more than ten decades old but still continues to grow with a steady increase in sales revenue every year. There are records of several families who have turned the convenience store business into a family affair and some of these families are on top of the list of richest families in the United States.
If you are able to smartly run and manage your convenience store, it is a business that would make you very rich eventually. Convenience store businesses also provide you with ready-made, guaranteed customers. As soon as you set up your business, you can be sure that people within the neighborhood would visit your store to have their needs met hence you wouldn’t need to engage in too much marketing to get customers to patronize your business.
Another reason why starting a convenience store is a good idea is that it is relatively easy to start. If you are not looking at selling potentially hazardous items, you would be able to meet up with the licensing requirements for the business easily.
2. Conduct Market Research and Feasibility Studies
- Demographics
Another important thing you have to fully understand before you set up your convenience store is the demographic composition of your potential customers.
According to a research carried out by IRI Worldwide, at least 6 in 10 people who visit convenience stores are men and at least 22.2% of the customers are aged 50 and above, 19.2% are between the ages of 40 and 49, 22.2% aged 30-39, 25.2% aged 21-29, 6.9% aged 18-20 and 4.4% are under 18.
The average income bracket of convenience store customers are as follows:
- 22.7%- Under $20,000
- 16.4%- $20,000- 39,900
- 18.9%- $40,000-$49,900
- 14.4%- $50,000- $79,900
- 4.8%-$80,000-$99,000
- 4.0%- Over $100,000
Blacks and African Americans make up 20.2% of convenience store shoppers, while White/Caucasian make up 68.1% and about 1.3% are Asians/Pacific Islanders. 3.7 of the shoppers are multiracial while 6.7% are of other ethnicities.
- Psychographics
At least 68% of convenience store shoppers indicate that finding a convenient location is one of the major factors they put into consideration when choosing a place to shop. Many of them also revealed that they consider factors like how easily they can get in and out of the store, availability of gas, prices, good customer service, cleanliness and organization of the store, wide selection of products, stocking of their preferred brands and availability of loyalty programs.
Half of the customers who visit convenience stores spend less than five minutes in the store and most of them spend less than 30 minutes while shopping, hence product packaging and arrangement must be done strategically to be able to capture the attention of shoppers.
Two-thirds of shoppers visit convenience stores at least once a week and about three-fourths of the shoppers spend less than $10 per trip. Shoppers aged 35 and above visit the stores mostly in the evening while the younger shoppers visit in the morning.
3. Decide Which Niche to Concentrate On
There are different niche ideas in the convenience store industry that you can choose from. Some of the most popular ones include:
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Corner Shops
Corner shops are usually minimal sized neighborhood shops who stock mostly emergency grocery items for people living within the area.
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Kiosks
Kiosks are basically small sized convenience stores occupying less than 800 square feet space. Owners of kiosks are mostly petroleum marketers looking to provide additional revenue for their gasoline business. Kiosks usually sell only fast-moving items like confectioneries, tobacco, snacks and beverages. Most of them don’t sell grocery items and majority of the customers are transient shoppers who usually stop to buy gasoline.
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Mini-Convenience Store
Mini-convenience stores are larger than kiosks but smaller than traditional convenience stores. They are usually about 800-1,200 square feet in size and are also very popular with petroleum marketers as an addition to their gasoline sales business. Mini-convenience stores sell a minimal selection of groceries with food services usually absent.
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Limited Selection Convenience Stores
Limited Selection convenience stores occupy about 1,500-2,200 feet and offer a limited range of groceries and simple food services.
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Hyper-Convenience Stores
Hyper Convenience stores are very large stores occupying about 5,000 square feet. They offer a variety of products and some of them may have departments like a bakery, pharmacy and a sit-down restaurant.
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Online Convenience Store
Online-based convenience stores with home delivery services are also becoming increasingly popular. Customers are able to visit an online store and order for mostly non-perishable items that can be delivered to their locations within a very short time frame.
The Level of Competition in the Industry
The Convenience store industry is a very competitive one as there is most likely going to be at least one convenience store within the proximity of every neighborhood in the United States. Another issue regarding competition in this business is that you would have to compete with the big brand names in the industry that have held down a large portion of the market for many years.
Convenience stores also have to deal with other retailers and businesses who offer similar services such as supermarkets, grocery stores and food service businesses.
However, there are always enough customers to go round. You would have to come up with effective market penetration strategies to help gain the attention of your customers in the initial stages but as long as your products are always rightly priced and you continue to offer good customer service and attractive incentives to your customers, you would never fall short of customers to patronize your business.
4. Know Your Major Competitors in the Industry
There are a lot of well-known brands in the convenience store industry and some of them have been in the business for more than 30 years. Some of the most popular grocery stores in different states in America include:
- Tesco
- 7-Eleven
- Circle K
- FamilyMart
- Fresh Start
- Ampm
- ExtraMile
- Loaf ‘N’ Jug
- Gate Petroleum
- RaceTrac
- ABC Stores
- Aloha Island Mart
- Road Ranger
- Buddy’s Mart
- Kwik Shop
- Thorntons
- Royal Farms
- Cenex
- Break Time
- Convenient Food Mart
Economic Analysis
Convenience stores tend to operate with a strong degree of stability due to the lower pricing point of the products stocked by this type of business. Most of the products stocked by convenience stores are everyday life essential items hence there is less likely to be a drastic response to changes or decline in economic climates.
Trends analyses within the industry have however shown that online shopping is the future of convenience store businesses. A research carried out by Nielsen Global revealed that at least 50% of convenience store customers prefer to shop online but this doesn’t necessarily mean that brick and mortar convenience stores would be going extinct anytime soon as more than half of the respondents to the survey carried out by Nielsen Global revealed that they enjoy walking into a store to make their purchases as it provides an engaging and enjoyable experience for them.
Investors can find a way to leverage on both methods and satisfy both categories of customers by providing an online shopping alternative for customers who would rather shop online in addition to a regular brick and mortar convenience store.
5. Decide Whether to Buy a Franchise or Start from Scratch
Buying an existing franchise is a great idea because it helps you ease the set-up process. It also makes marketing and advertising your convenience store easier.
However, a lot of money would be required because you would have to pay a franchising fee out of your profit. You may also have no control over the pricing and stocking decisions of your products, but if you are confident that you can set up and manage a convenience store from the scratch without running it into the ground, it may be safer to take this route especially since it is cheaper and places all the control of your business in your hands.
6. Know the Possible Threats and Challenges You Will Face
Setting up a convenience store in the US is relatively easy. You would be able to get all the licenses and legal requirements you need for the business easily especially if you are not going to be selling any hazardous substances.
But it is very important to be aware of some of the challenges you may face when you start a convenience store business:
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Long Hours of Operation
Convenience stores usually have long hours of operation which is usually between 5am and 11pm daily. This means that you would have to employ more employees to runs shifts in order to keep the business open at the appropriate times and this would cost you more money.
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Theft and Inventory Losses
You may need to invest a lot of money in putting security gadgets in place to help reduce pilfering from customers and inventory thefts by employees. You may also need to insure your business against theft and inventory losses so that it wouldn’t cripple your business.
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Cleanliness and Organization
Your convenience store must always be clean and properly organized especially if you are going to be offering food services. This might also be a challenge especially if you have a lot of foot traffic in the store regularly.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
Before your convenience store business can become legitimate, you must give it a legal structure. This is a very important decision to take because it would have an impact on the tax structure of your business.
You should choose the sole proprietorship structure if you are looking to start a very small convenience store with little capital. Most well-known brands in the US started as sole proprietorships. This would give you complete control over your business but in the event that liabilities occur, you may have to pay for the liabilities out-of-pocket.
If you don’t have sufficient funds to set up your business and you are looking to bring in investors, you can consider the partnership legal structure where you and your partners would be able to share profits, equity and liability equally or according to a pre-agreed schedule.
Limited Liability Corporations are for the larger sized convenient stores with multiple branches. To be able to set up your convenience store as an LLC, you may have to register in all the states that your branches would be located and you may be required to have assets running into millions of dollars.
It is best to start as a sole proprietorship or a partnership and continue to grow your business but it is very important to contact your accountant or legal adviser on the best approach to take.
8. Discuss with an Agent to Know the Best Insurance Policies for You
Selecting the right type of insurance for your convenience store is also an important aspect of setting up the business. Some of the basic insurance policies you would be expected to take up include:
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General Liability
General Liability Insurance provides coverage for your convenience store in the eventuality that negligent acts or omissions lead to injuries or damages to the lives and properties of people within or outside the business. For instance, if someone walks into your convenience store and trips as a result of water spillage on the floor, this type of insurance would be used to compensate the injured if they decide to claim damages.
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Auto Insurance
Auto Insurance for convenience stores cover the vehicles used for the running the business.
- Property Casualty: Property insurance covers for losses or damages to any of the tools and equipment used for running the convenience store. You may need to purchase additional cover for food spoilage, liquor liability and other potential damages.
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Worker’s Compensation
Worker’s compensation is designed to cover for wage replacements and medical benefits of your employees should they sustain injuries while working for you.
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Burglary and Theft Insurance
This protects your business against burglary and theft.
9. Get the Necessary Legal Documents You Need to Operate
The legal requirements for setting up a convenience store in the US vary from state to state but mostly you would require the following:
- Evidence of business registration or certificate of incorporation
- Retail license
- Health Inspection
- Food Handlers certificate
- Food sellers license
- Liquor License
- Insurance Policy
- Business Plan
You should also find out if there are any specific legal requirements within your state or local community.
10. Raise the Needed Startup Capital
Finding the necessary funds to finance your convenience store business can sometimes be a challenge. You can explore some of these funding options for starting your convenience store.
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Small Business Administration (SBA) Loans
This is a government backed loan with relatively low interest rate. They are typically interested in financing small businesses and do not have stringent collateral requirements.
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Bank Loans
If you have a good credit standing with your bank, you can consider applying for a loan to finance your convenience store business.
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Local Economic Development Agencies
There are over 12,000 of such agencies in the US and they are usually focused on helping to achieve economic development within the country. However, some of these organizations would only fund expansion of already existing businesses.
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Crowdfunding/Peer-to-Peer Lending
You can also consider going on crowdfunding or peer to peer lending platforms to seek for loans or virtual partners for your business.
11. Choose a Suitable Location for your Business
There are a few important factors that you need to put into consideration before choosing a suitable location for your convenience store.
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Accessibility to Potential Customers
Neighborhood and highway convenience stores are very great for new entrants into the business as it guarantees easier access to potential customers.
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Competition
While competition cannot be avoided in this business, it is better to situate your business in a place where there are no popular brand name convenience stores or at least very far from them as most shoppers would prefer to shop in larger stores where they can choose from a large variety of products.
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Proximity to Gas Station
Proximity to a gas station is a major sales driver. The closer to a gas station your convenience store is, the more transit shoppers you would most likely get.
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Parking Space
A lot of convenience store shoppers would prefer to shop in a place where they can find parking space for their vehicles.
12. Hire Employees for your Technical and Manpower Needs
The manpower requirements for a convenience store largely depend on the size of the store. A very small establishment like a kiosk or a corner store can be managed by one individual but for the larger convenience stores, you would most likely need more hands.
Some of the staffing needs of convenience stores include:
- Cashiers
- Security
- Store Keepers
- Merchandizers
- Food Handlers
- Manager/Supervisors
- Bakery staff
- Accountants/Book Keepers
- Stock Clerks
As for technical requirements, you would need a number of equipment to manage your business especially for handling payments, inventory and preventing theft. Some of the equipment you might need include:
- RFID Scanners
- Anti-theft devices
- CCTV installations
- POS Software and gadgets
- Credit card terminals
- Touch screen monitors
- Customer pole displays
- Carts
- Sponge matting for fruits and vegetables
- Plastic bags
- Measuring Scales
- Shelving
- Freezers and refrigerators
- Stationery
- Office desk and chairs
- Computers
- Delivery vans
You may not have to buy all of these items if you are starting really small or operating a limited selection convenience store but as your business continues to grow, you may need all of these and more.
You can purchase the larger equipment from fairly-used dealers or on hire-purchase while some of the gadget suppliers can allow you to spread the costs over a few months.
13. Write a Marketing Plan Packed with ideas & Strategies
You have to create a solid marketing plan for your business in order to penetrate the market which is highly competitive. Some effective marketing strategies and ideas you can adopt for your convenience store business include:
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Create a Loyalty Reward Program
A Loyalty reward program offers customers monetary or discount rewards when they are able to reach certain milestones. This would help customers commit to purchasing from you because everybody likes freebies.
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Advertise Your Business
You don’t necessarily have to pay for television or radio advertising if you are a small store but you can leverage on some inexpensive but effective advertising techniques like printing and distribution of product catalogues with details about latest additions to your stock regularly, printing and distribution of flyers, advertising in community newspapers and publications.
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Offer Home Delivery Services
A lot of people are simply too busy to go out there to do their own shopping. This is especially true for senior citizens. You would be able to gain better attention and more loyal customers if you can get a delivery service running so that customers can get their supplies delivered to them at home.
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Make Use of Social Media
Social media networks like Facebook and Instagram allow you to target specific geographical locations so you can easily use them to get word out about your business and connect with your customers better.
Conclusion
As a convenience store owner, your focus should be on providing convenient and satisfactory services to your clientele. Treat them as a priority and they would keep coming back and may even bring their friends along.