November 28, 2022
Convenience stores, or C-stores, have been around for over 100 years, and have weathered various market storms that other industries have struggled to manage. Convenience is a commodity in itself, and it’s why even with today’s modern instant gratification and online retail culture, the C-store remains profitable and popular.
Starting one isn’t too hard, but there are plenty of specifics that will apply to your unique context, and you need to be prepared for these. There’s no substitute for good market research, and if you have figured out which business model you’ll go with, you’ll be halfway there.
There’s a guide to how to do all this coming up, but first, let’s look at the industry and what makes it so robust.
Convenience Stores: An Industry Overview
Current global market figures for convenience stores suggest a $2.2 trillion industry with an expected CAGR of 5.56% up to 2028. A lot of this growth is down to emerging markets, but the CAGR for the US market looks to be very similar. Demand is driven by a rise in the popularity of convenience as a general concept and a reduction in limits on opening hours.
While online shopping dominates the convenience market, there will always be a niche for the option to physically browse options in a hurry, and a well-placed convenience store provides for this. The flexibility of out-of-hours shopping creates a strong driver for the growth of convenience stores, as does increased urbanization in sprawling cities with growing residential areas.
Challenges to the industry come from the ever-increasing online shopping industry, with e-commerce careening into the market with an 11.9% CAGR projected until 2030. Still, the market for this remains a fraction of the size for now, and convenience stores must face other roadblocks to become successful. These factors include:
- Increasing real estate prices
- Evolving consumer needs
- Optimization of the supply chain
- Maintaining small inventories of fresh goods
- Incorporating digital spaces
Still, the industry has its place, and knowing how to open a convenience store is as much about picking the right location as it is about planning for these challenges. However, once you’ve found a spot to set up, there are plenty more things to consider. We’ll get to a step-by-step guide to cover these considerations very soon. Before we do, it’s a good idea to take a look at what it might cost to get off the ground, and how you’ll be planning to recoup these costs.
How to Start a Convenience Store: Startup Costs and Revenue Streams
Opening a convenience store can be a relatively low-cost endeavor, or it can be a very expensive one. There are a lot of factors at play that will determine this, not least, the business model you’re planning to follow. There are multiple types of C-store; here are a few:
These can either be a part of the gas station company or in partnership with them. They’re primarily aimed at drivers, and the convenience element is clear here: when customers come in to pay for their fuel, they are presented with a convenient way of stocking up on essentials or making an impulse buy.
With the rise of pay-at-the-pump, the spontaneous purchase streams might be dwindling, but there will still be a need for drivers to kill two birds with one stone on their way home.
These are typically smaller outlets of larger supermarkets or chains of convenience stores like 7-11; they offer a limited range of the essentials, usually at a higher price, and can be run as a franchise. They will have a good mix of cold drinks, fresh coffee, and household essentials. Modern chains are increasing their food sales and staying competitive by upgrading their services to drive-through and quick-service restaurant-style offerings.
These are the traditional, family-owned local stores, often found on street corners. They’re smaller, have a unique inventory, and may cater to more niche markets that reflect the local residents. These stores are still going strong, and are a great place to find imported goods like world foods. The majority of convenience stores in the US are individually-owned.
So, the type of store you’re planning will make a difference to your startup costs. Not least in terms of rent. A chain will have more shops, and a family corner shop will likely (but doesn’t have to) be in a cheaper part of town.
Your initial costs will also include your inventory. As with any brick-and-mortar retail project, starting inventory will take a huge portion of your initial costs, and this will scale with the size and diversity of your store and its inventory. Expect to pay anything between $10,000 and $1 million at the extreme ends, and more likely to be around $100,000 when you include licensing rent, and the other costs involved in getting to the big day.
The good news is, there’s a premium on convenience in your favor. Markups in convenience stores may be more than 20% higher than in supermarkets, which goes a long way to covering the operating costs; costs that will be higher due to the nature of small deliveries.
The other good news is that the most expensive items in your inventory should be the big money-makers. Beer, cigarettes, and lottery tickets will all require you to get the proper licensing before opening up, but they’ll be some of the biggest revenue streams for your store in most places.
As of 2018, this translated to an average of $4 million per store, though this average is skewed by large and small-scale stores, and will vary a lot with the size of the shop.
Other revenue streams are available to the right store owner, and there is a tremendous diversity available, which allows savvy business people to tailor their products and services to the needs of their local community. While cigarettes and food remain the two major sellers, some other revenue-generating options might be:
- Pharmacy services
- In-store ad space
- Home delivery services
Depending on your local market, you may find that some of these are useful and others don’t fit at all. Your market research should tell you exactly who your customers will be and what they’re looking for, and we’ll go into that in more detail shortly. First, there are the ongoing costs of opening a convenience store to consider.
How to Open a Convenience Store: The Ongoing Expenses to Expect
Opening a convenience store is only the first step of the way. There will be ongoing costs to consider in your budget, especially if you’re planning to have enough funding to ride out the first difficult months. Once you’ve got the licensing, rent, insurance, and inventory costs covered, consider the following recurring expenses:
- Staff wages – If you’re running the place by yourself, this won’t be as much of an issue, but remember that convenience stores need to be convenient at all hours of the day, so it’s likely you’ll want help.
- Distribution – Your inventory will need restocking often, and sometimes irregularly, so you’ll need to factor this in, especially for fresh produce.
- Waste – With perishables, there’s always an element of waste that has to be accounted for. Consumer behavior can be erratic and fresh produce can’t always wait for the right buyer.
- Rent – This is an obvious one; whether you’re making a profit or not, you’ll still have to pay for the space you’re using.
Reducing your ongoing expenses can be as simple as managing your inventory well. We’ve got some tips on how to boost profitability for you to look at after the next section, but before we get ahead of ourselves, let’s go through a step-by-step guide on how to start a convenience store.
How to Start a Convenience Store: A Guide
So you’ve looked over the pros and cons, and you’ve got a feel for the kind of project you want to work on. Ideally, by this point, you’ll have settled on a business model and a location, too. You’ll need to know the rent prices, and a handful of other things like licensing laws and insurance costs before you spend your time on market research, but assuming you’ve reached that stage, it’s time to enter the first phase of setting up a business:
The Business Plan
This is your guiding document for everything you plan to do in your company. It’s generally separated into a six or seven-page account that leads the reader through your research, into your solutions, and how promising you think your financial prospects will be. Let’s break it down.
Page 1. Executive Summary
This will be where you compile a shorthand version of what’s in the document. Don’t worry about this so much right now – there’s nothing in it yet. You’ll fill this out when you’re done.
Page 2. Market Analysis
Here, you’ll detail all the work you’ve put into finding your ideal customers, and what they’re missing in their lives. You’ll detail what they need, where they want to find it, and how much they’re willing to spend on it. This is the framework data for everything you’re going to be doing, and how you’re reaching the people who need you.
3. Your Organization
This is the structure of your company. It’ll detail who’s running it, what your business model is, and the legal intricacies of how it’s run. If you have key staff members, here is where you’ll name them and describe their contributions.
4. Products and Services
This will be a list of your inventory, how much you’ll be selling everything for, what your promotional offers and discounts will comprise, and so on. At the very least, categorize this section by revenue streams and back it up with references to your market research.
5. Sales and Marketing
You have put a lot of work into figuring out how to be competitive, now you need to explain how this translates to the strategies you’ll employ for getting people to learn about you and pay attention. Then, it’s going to detail how your sales strategies will work and how you’ll make the conversions you need to hit your revenue targets.
6. Financial Planning
Here’s where you’re going to put your financial projections, using the market research you’ve done in step 2 as your base assumptions. From these, you’ll have to include some detailed and accurate financial projections if you want to gather any approval or attention from loan providers or investments.
For help with this, we've built a very simple DIY convenience store financial projection template. It’s totally customizable and designed with C-stores in mind. Plus, it has free support, so we can tweak it with you if needed!
Once you’ve got all that, it’s time to secure some of the paperwork you’ll need to have by opening time.
Register and license your business
Depending on your state, this is going to involve different processes. You need to look up the local regulations for registering a business and make sure what you register covers what you’ll be selling.
Registration won’t be very expensive and should be a relatively simple process, but licensing could take a little longer. This isn’t the place to look for advice on your local regulations, so be sure to do your due diligence there.
Alcohol, lotto tickets, and drugs will obviously need deeper regulatory compliance than toilet paper and shoe polish, but it’s best to put a lot of work into registering the right business and making sure you have all the licensing requirements for what you’ll be selling, regardless of what it is.
This stage comes in somewhere between the previous two, in many cases, but for the sake of simplicity, it’s going in third place. You should at least know who you’ll be approaching for money by this stage and have chosen between banks and investors. For small stores, you’ll usually be looking for a loan, but larger ones might benefit from some Angel funding.
If you do go with investment, make sure the principles and direction of the person you’re dealing with match your own and see if they can contribute some industry experience to really get more bang for your buck.
Open and Market
Now you’ve got the money, it’s time to stock up, get your marketing strategies off the ground, and work on the grand opening. You should have enough for at least three months’ operation cost, if not more. If your business plan was compiled right, you should know exactly how you’re going to market, too, but don’t be afraid of some trial and error in the early days.
For a little help with that, consider our best practices.
Opening a Convenience Store: Best Practices for Profitability
Now that you’re up and running, it’s time to take a look at how to improve those margins. We’ve got four easy tips for you on that:
Pay attention to your inventory – The small details matter! Placing your products strategically can make a big difference to overall sales. The convenience part of a convenience store is what your customers are willing to pay extra for, so consider an element of hospitality and make their visit as smooth and simple as possible. Stock what they need, and make sure they can find it! Then, track your inventory closely and make sure to restock where necessary. A customer who leaves without finding what they want is unlikely to return.
Make paying easy – Having multiple options to pay contributes significantly to the customer experience. Paying via phone app, or making sure you have enough checkout areas is key to reducing wait times and streamlining the customer experience. Monitor your sales volumes at different times to pool your resources where it counts to speed things up.
Of all the stages in your customer journey, the one that you have the most control over is payment, so it’s a simple ‘hack’ to streamline this and improve the experience for your visitors.
Have (nice) bathrooms – A quick stop might include a short call if you have a customer bathroom that’s in good condition. The state of your bathroom is a reflection of the quality of your store, so keep it clean and tidy too. Have regular inspections and a cleaning schedule.
Have a good view of the store – Shoplifting is going to put constant pressure on your overheads if you don’t arrange the place in a way that can be easily guarded. Cashiers should be able to monitor customers from all angles, so consider low shelves where necessary, and mirrors.
Opening your own convenience store can be a really good way to get compensated for your hard work, but there are some important things to consider before you jump in. Thankfully, a good business plan and realistic c-store financial projections should take care of most of the hurdles before you even spend any money. One last plug, you can check out our projections template built specifically for convenience store planning.
With the right research, and by following the best business model for your location, you can quickly take a good market share and be earning a profit in no time. This step-by-step guide should put you on the right path, but don’t underestimate the power of your own research to help you fit into your specific location with your customer profiles.