The Least Profitable Section of a Gasoline Convenience Store: Insights and Analysis

When it comes to operating a gasoline convenience store, many businesses overlook the true profit drivers, focusing instead on the predictable revenue from gasoline sales. However, an in-depth analysis reveals that certain sections are not as profitable as others.

Commonly Underperforming Sections

After decades of operations, it's quite evident that fuel sales themselves are not as profitable as they might seem. Most revenue is actually generated from convenience goods such as food, beverages, and health products. Let's explore why certain sections may underperform and how strategic placement impacts overall profitability.

Low Sales Racks

While many sections contribute to profit, there are some that consistently underperform. In my experience, we had a variety of food items such as protein bars and granola bars that rarely sold. The medication rack and personal care sections, including soap and shampoo, also struggled with profitability. Additionally, the toy rack and sunflower seed racks might have been eliminated to reduce inventory carrying costs and improve profitability.

The Inherent Profit Structure

The gas station's strategy revolves around attracting customers with loss leader items like fuel, which may be sold at or even below cost to drive foot traffic. This strategy is common among supermarkets as well, where basic necessities like bread and milk are often sold at a minimal profit or even at cost to encourage sales in more profitable sections.

For example, customers might buy a Coke or water at a premium price from the convenience store, which is significantly higher than a regular store. This convenience and 24/7 availability can lead to higher spending on non-fuel items.

Unpaid Services

Even essential amenities like the restroom should generate profits but instead, they have to be maintained at no cost to the business. This poses a paradox: How can a business operate with a seemingly non-profitable service in a highly commercial environment?

Invoking Historical References

Historically, convenience stores have evolved to become integral parts of local communities. A not-so-distant past with Exxon highlights their transition from offering automotive services to focusing on food and beverages. The fountain sodas and bottled water became popular, while newsstands and milk sales, once among the largest profit items, saw a decline.

Another reason for the integration of convenience stores with gas stations was the increased demand for 24-hour service, which required minimal technical skills and equipment, unlike the mechanics and repairs business that was previously a part of these establishments.

Conclusion

While gasoline sales are a crucial part of a convenience store's business, the real profit drivers are often non-fuel items. Understanding and strategically managing these sections can significantly impact overall profitability. Whether it's through loss leader pricing or maximizing the use of in-store amenities, the goal is always to attract customers with the least profitable sections and drive higher revenue from more fruitful ones.