FLORHAM PARK, N.J. -- In previous columns in this series (see “Related Content”), we looked at the relative importance of pricing, data and competition as convenience retailers try to fine-tune their business to win the race for volume. Using the analogy of retailers as high-performance race cars, we have identified pricing as the turbo charger, data the telemetry and competition as exactly what it is—the competition.
In this fourth article, we will focus on facilities and how they can impact volume performance.
Facilities are the powertrain of our performance car. Every part of a powertrain—the engine, transmission, drive shaft, suspension and wheels—has to balance and work well together. An engine that is too powerful for the rest of the powertrain can cause issues to both the transmission and the gears. And because all of the parts of the powertrain are so closely integrated, changing any individual component can be difficult.
The same is true of facilities. The physical building is not the only aspect to consider. A site’s facility is made up of a collection of important components: accessibility, interior layout, fueling positions, parking spaces and much more; all are crucially important to ensuring that the expected volume is achieved at each location.
Understanding the interaction of all these parts is also important. For example, Kalibrate’s data shows that there is often a correlation between the number of customer parking spaces and the success of driving customers from the pump into the convenience store. So, putting too many pumps on a location and sacrificing parking spaces could have a detrimental impact on convenience-store sales. And like a powertrain, changes to individual parts can be tough. Retailers do not want to make the mistake of building the wrong facility at a specific location, because altering it is not only time consuming, but incredibly expensive.
The Right Mix
So what are the right facilities? Unfortunately, the answer is, “It depends.” There is no cookie-cutter solution. Each site will require a different mix of well-balanced facilities to draw customers to that location. Some of the data that we discussed in Part 2 of this series—notably demographics and traffic—will play into the decision about which facilities are best suited to each individual site.
Best-in-class retailers understand who their competitors are in each market and accurately quantify decisions like how many fueling positions and parking spaces are needed to set them apart. They also precisely identify the best facility for any specific location to capture the available demand, while avoiding over investment and minimizing volume loss due to fueling capacity at peak hours.
Facilities that typically drive the most volume in the United States are those that offer the customer an open forecourt with sufficient pumps and fueling positions; a large convenience store with ample dedicated parking spaces and plenty of the typical convenience-store products like fountain drinks, coffee and snacks. Additionally a fresh-food offer is becoming increasingly important. All of this at a fair price.
Test Case
In one particular case, a client of ours was starting to lose market share. (The retailer’s market-efficiency score, a metric that we covered in Part 2, brought this to light.) The retailer asked Kalibrate to help determine the best way to turn the volume loss around. One combination that worked well involved a change in operations (longer opening hours) with two facility changes (adding diesel to the site and adding two gasoline pumps).
The results were impressive. These relatively simple alterations yielded a 44% increase in gasoline volume. A very welcome side effect was that convenience-store sales also increased by 13%. The client’s market efficiency increased significantly at this site, and it remains very positive to date.
With four elements examined, our high-performance race car is starting to look more complete. We have now looked at pricing, data, competition and facilities, resulting in a well-balanced powertrain with a turbo charger and telemetry that highlights our relative performance compared to the competition. I think that we are in good shape to win the volume race.
Coming in Part 5 of “The Race for Volume” series: Operations.
Ian Thompson is the senior vice president of strategy at Kalibrate.
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