SCOTTSDALE, Ariz. — Of all the factors of a successful convenience-store operation, an often-overlooked component is daily customer count. Granted, the importance of customer count may vary among operators due to the size and demographics of their stores. But given that there are essentially two ways to grow sales—increase customers, or average sales per customer— customer count matters.
There are several ways we measure financial success in our industry, notably improved net income and EBITDA (earnings before interest, tax, depreciation and amortization). However, first we must concentrate on the top portion of the financial statement: increasing sales and improving net income by a stable or increasing margin percentage. All operators have their own measures for evaluating success, but I learned something a long time ago that is rarely ever addressed: Be aware of daily customer count trends and their relevance to the success of your business.
A New Standard
Several years ago, during my time as a market manager with 7-Eleven, we were having seemingly good midyear same-store results. We had a healthy increase in sales and our margin percent was driving a better-than-average improvement in gross-profit dollars. But one afternoon, the accounting supervisor stopped by my office. She had noticed that our average daily customer count was decreasing compared to the previous year and declining each month, and she wondered if this could be a problem.
After considering what she’d said, I learned two important things: First, listen to your analyst, and second, don’t let the good news hide the bad.
Fortunately, the packaged beverage and snack categories performed well enough at the time to make up for the dollars lost due to the onset of declining cigarette sales; however, our customer count continued to slip further as the unit sales of cigarettes declined. This was a short- and long-term issue, with the questions being: What categories were going to make up the difference in the future, and would they rebuild or increase the daily customer count? Within a few years, fresh and prepared foods, along with a few other key categories, became the focus and sales responded. But had daily customer counts grown as expected?
From there, we added two standard practices to our analysis: Evaluate whether promotions, new-product introductions and innovative new programs were generating greater sales and gross-profit dollars, and assess if customer count was also increasing. I needed verification that we were building the business by increasing our customer base rather than only through price changes, inflation or the good fortune of hot weather.
Consider all the disruption that is affecting c-stores today. Many would agree business is good and profits are allowing for reinvestment in people and infrastructure. Yet given the number of mergers and acquisitions and the slight decline in the number of c-stores, daily customer count is as important as ever.
It’s easy to determine which categories are increasing sales and contributing to greater gross-profit dollars, but it’s more difficult to figure out which are generating more customers. (For example, lottery, competitive ATM and fuel programs can build in-store traffic.) As the industry’s focus on prepared foods develops, is it bringing in more customers or just increasing the average transaction size of the current customer base? The same goes for the effort behind social media marketing and improved consumer data in today’s loyalty programs.
Tune in to the importance of customer count; a declining figure should sound an alarm. To counter the trend and attract new customers, a retailer could build larger stores or provide more space for new programs and greater line extensions in packaged and dispensed beverages in existing stores, and also improve the quality of foods, which enhances the consumers’ perception of the store. Adding the average daily customer count to your analytics may just help define how your strategy and tactics are working.
Bill Nolan is a partner with the Business Accelerator Team. Reach him at email@example.com.