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Convenience stores are often characterized by their late hours, which is convenient for customers who may be passing through the area as they travel. The stores vary in size, ranging from small kiosks to deluxe convenience stores. Regardless of the size and what is sold on the inside of the store, many convenience stores rely heavily on selling gasoline as a source of revenue.
Who is this business right for?
This business is for someone who doesn't mind working different schedules as needed. This is because convenience stores typically open early and stay open late, so if anything happens with your employees, you may need to cover an unexpected shift. The job involves a lot of interaction with strangers, so being a "people person" can be a useful quality. The job is also good for creative people who are able to successfully manage an inventory with a large variety while also showcasing the different products sold in creative displays.
What happens during a typical day at a convenience store?
Some of the daily activities of running a convenience store include managing the schedules of employees and scheduling, receiving, and unpacking shipments of inventory. You must be vigilant about the health and safety regulations regarding your store, particularly if you choose to sell food that you prepare yourself. You will be overseeing the payroll of your employees, and must monitor that there are no errors. A large part of any given day is spent setting up displays and straightening up shelves so that the store looks clean and organized for customers. And, of course, checking out customers throughout the day will consume much of your time.
What is the target market?
The stereotype of convenience store customers is that many of them only pop into the store when they need a specific item, such as when a significant other requests certain food or drink and the customer doesn't want to deal with the hassle of a full-size grocery store. While these customers are good, they are more sporadic. As such, the preferred convenience store customer is the neighborhood regular who comes in every day or two and sees himself as supporting the neighborhood. As such, he will be both a regular and a friendly customer, which is a great combination.
How does a convenience store make money?
Convenience stores make money by buying goods and selling those goods to customers. Typically, convenience stores sell things such as snacks, soft drinks, car accessories, lottery tickets, tobacco, sometimes alcohol. Your profit represents the amount of money you have taken in after you have subtracted how much you paid for these goods as well as any operational expenses accrued throughout the month.
What is the growth potential for a convenience store?
The growth potential of a convenience store is relatively steady. In the last three decades, the industry has doubled in size, so these stores now represent about a third of America's retail outlets. Recent research shows that it continues to grow as an industry, growing by one percent in 2015. And a successful convenience store owner may eventually branch out into owning multiple locations.
What are some skills and experiences that will help you build a successful convenience store?
Experience in working or especially managing a convenience store can be invaluable in helping you to run a store. Similarly, a formal education in something like business can help you with some of the aspects of the job, ranging from managing to accounting. Having a solid relationship with the community you set the shop up in can also help you become a solid fixture of the neighborhood more quickly.
What are the costs involved in opening a convenience store?
It can cost up to $50,000 to open your convenience store. Such an amount represents the cost of leasing an appropriate space, decorating the interior, and installing the point-of-sale system and any other technology you may require. You may need to purchase additional equipment based on any additional conveniences you wish to offer customers, from pay phones to fax machines and photocopiers. Depending on your state, lottery tickets often sell well, but carry an additional equipment cost. Finally, you will need to stock the store itself with the wide variety of goods that you intend to sell, which often comprises the majority of what you spend money on.
Read our convenience store purchasing guide to learn about the materials and equipment you'll need to start a convenience store, how much to budget, and where to make purchases.
What are the steps to start a convenience store?
Once you're ready to start your convenience store, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your convenience store is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your convenience store keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers. Save 15% when you create a business website with Weebly.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a convenience store?
One important tip is to make sure your store caters to women as well as men. Many convenience stores unintentionally cater primarily to men, which means they are losing a lot of potential business. Another tip is to research the competition, both within the city and throughout the state. Understanding what helps other convenience stores find success can help your own business be competitive.
How to promote & market a convenience store
Relative to other businesses, a convenience store doesn't need as much direct marketing because much of your traffic will be people who drive up as the need arises. Still, putting up billboards in the city or using bright and visible signage around your own store can help to get their attention. Similarly, you should embrace social media as a cheap way to engage customers and establish yourself within the community while also letting followers feel like insiders when they hear about deals. Speaking of that, many convenience stores use some form of loyalty programs. These may offer them all-purpose coupons or conveniences such as free coffee or food. This encourages regular visitations and may make customers likelier to come to your store than the competition.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Consider offering more "above and beyond" services at your convenience store. This may include a car wash, employees pumping gas and wiping windshields, and even employees greeting the door. This helps your customers feel pampered and makes them likelier to return. Consider some "outside the box" conveniences like having a Redbox rental station where customers can rent movies and video games. Embrace the kinds of loyalty programs mentioned above and don't forget that the best way to get a customer's attention is with attractive and organized displays within your store.
How and when to build a team
As businesses go, a convenience store is pretty straightforward. Employees are necessary to ensure the store is properly staffed and able to cater to customers during all hours of operation. Your exact coverage will be determined by the size of your store and the hours that you keep. Beyond that, you shouldn't need to expand the team unless you are expanding said hours or potentially opening another convenience store.
Read our convenience store hiring guide to learn about the different roles a convenience store typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.
State & Local Business Licensing Requirements
In most states, it is necessary to obtain the following licenses:
- Tobacco vendors license: Must be renewed annually (Tobacco Products tax license)
- A liquor license: Businesses involved in the sale of alcoholic beverages are required to obtain a liquor license from the appropriate state or local agency.
- A lottery retailer’s license: If a convenience store intends to sell lottery tickets (as many do) it will be essential to get a lottery retailer’s license. These licenses are given out by state lottery agencies.
More information regarding these licenses and how to obtain them can be found on your state’s local website.
Certain other state permits and licenses may be needed to operate a convenience store. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most states require retail businesses to obtain a seller’s permit. A seller’s permit enables states to record and collect taxes from goods (and sometimes service) sales.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
Convenience stores may also wish to look into applying for a resale certificate, which allows retailers to purchase goods intended for resale without paying sales tax.
If you sell food, you will need licensing from a local health department. Here are some tips for faring well on a health inspection.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
In order to play music in a business setting, permission must be acquired from the composer or license holder. Typically, it is possible to obtain a “blanket” license allowing a businesses to play music owned by a large catalog of artists and recording studios. Such licenses can be obtained from Performance Rights Organizations, such as ASCAP or BMI.
Certificate of Occupancy
A convenience store is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a convenience store.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your convenience store will be in compliance and able to obtain a CO.
How much can you charge customers?
The somewhat open secret of a convenience store is that you are able to successfully mark many items up by a higher percentage than your local grocery stores or supercenters do. Customers are effectively paying for the convenience of not having to spend the extra time and effort to visit the larger store. Effectively, you can charge customers about eleven percent more than an independent grocery store does and about 20 percent more than a mass store like Wal-Mart does. Overall, this is very helpful for your monthly profit margin.
What are the ongoing expenses for a convenience store?
Some of the primary ongoing expenses for a convenience store include your monthly lease and the cost of utilities. Beyond that, the biggest chunk of your expenses comes from inventory (which some research estimates may be up to 70 percent of your monthly spending) and labor. The exact costs of all of these expenses vary due to location, store size, exact inventory, and how much you choose to pay your employees. Note that paying them more than your local minimum wage will likely result in better loyalty and performance, which translates to greater profit for you.
How much profit can a convenience store make?
Generally, convenience stores are profitable propositions, with average gross profit margins upwards of $450,000. Profitable ventures may result in an opportunity to open other locations within a city or area, increasing your potential profits that much more.
How can you make your business more profitable?
Ultimately, some of the best ways to make your convenience store more profitable are to find ways to reduce costs. This includes reducing the amount of staff necessary to prepare and sell any food that you sell on site and trimming your hours down to what is reasonable for your town (for instance, you should avoid being open 24 hours in most cases). Offering some kind of drive-through to sell food and coffee will give you an edge over the competition. Finally, always consider things that will save your customer time, such as providing an ATM in the store for their convenience.