Fueling Growth: Changes
- Keywords:
- convenience stores
- growth
“The only thing that is constant is change.”—Heraclitus
Gas stations have been around for over 100 years. For most of that time, the concept was simple: Whether you’re driving a Ford Model T, a Chevy Bel Air, or one of today’s hybrids, you drive up, get your gas, and go. And while most consumers think there hasn’t been any change to the industry over the years, gas and convenience store operators know they can’t move forward by sitting still.
In March, my colleagues and I attended the M-PACT 2019 Show in Indianapolis, and change was on everyone’s mind. Consumer preferences, government regulations, and ownership transitions are just some of the forces driving change in the industry. Because of the size of these changes and the capital needed to implement them, owners need to have a well thought-out strategy to get ahead of these changes, determine the necessary financing sources to implement the strategy, and continue to grow.
Store Modernization
Gone are the days when gas stations only sold gas and consumers made their decisions on the price of regular unleaded. Pulling off the roads today, consumers can look for a familiar name and its loyalty program, or even just the lighting and appearance of the site. Driving around town, consumers want one-stop shopping where they can pick up food for dinner and get a gallon of milk for tomorrow’s breakfast.
To make room for these changes, gas station operators are increasing the square footage of their convenience stores and modernizing their look. While dealers will sometimes help with these efforts, operators still must bear most of the increased costs and responsibilities with these expansions. And as they build these new shelves and expand their offerings to include more perishables, operators need to pay attention to more supply lines and increased working capital needs. As most operators don’t have the cash on hand to cover the $400,000 per site to upgrade (according to Andy Jones, National Association of Convenience Stores Vice Chairman of Research1), they often need to look for outside sources of financing to make the needed improvements.
Government Regulations
Every time a new policy is enacted, operators need to take a closer look at their budgets. In recent years, operators have had to deal with strengthened fuel storage tank guidelines, changes in E15 regulations, and the EMV compliance deadline coming up next year. These changes are not cheap, and the costs can be multiplied because some of them require downtime.
How should multisite operators handle these upgrades? Should all of the sites be done at once, which could materially impact cash flows? Or should operators stagger the upgrades with the risk of having some sites closed during peak seasons? Each operator will need to do what’s right for their stores, but connecting with peers or advisers can ease the decision-making process.
Operators should also continue to be proactive with whichever decision they make. They should speak with their partners (such as suppliers, consumers, employees, and banking partners) to ensure that everyone is on the same page. This way, their downtime won’t have a lasting impact on any of those relationships, and they can continue to focus on the operations of their stores.
Ownership Transitions
According to NACS, single-store operators currently constitute 62.3 percent of the roughly 153,000 c-stores in the U.S., which is a slight decrease from 63 percent the previous year because of industry consolidation.1 By and large, however, it’s still an industry for family-owned operations that have been built up over decades. As the current teams of ownership and management near retirement age, what’s the appropriate next step?
Historically, new generations have been part of operations, so ownership has transferred from parent to child, but sometimes those transactions need to be financed. And if the next generation doesn’t want to remain involved, maybe a management buyout or an ESOP conversion is appropriate.
Owners may also consider divesting to a larger chain or an MOC (Major Oil Company) as they reenter the retail space. The stores they build can continue to have a future after they choose to relax, but the key is finding a transition that works for them. Choosing an adviser and banking partner can help these owners in the decision-making process and provide them with the capital needed to make the transition.
Change will always be a part of an industry as old as gas stations—it’s the only way it can survive. Staying aware and getting ahead of changes within the industry will reduce some of the stress owner’s face around growing their business and help them stay focused on the core operations.
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Doug Chinery
Fuel Services Relationship Manager
“The only thing that is constant is change.”—Heraclitus
Gas stations have been around for over 100 years. For most of that time, the concept was simple: Whether you’re driving a Ford Model T, a Chevy Bel Air, or one of today’s hybrids, you drive up, get your gas, and go. And while most consumers think there hasn’t been any change to the industry over the years, gas and convenience store operators know they can’t move forward by sitting still.
In March, my colleagues and I attended the M-PACT 2019 Show in Indianapolis, and change was on everyone’s mind. Consumer preferences, government regulations, and ownership transitions are just some of the forces driving change in the industry. Because of the size of these changes and the capital needed to implement them, owners need to have a well thought-out strategy to get ahead of these changes, determine the necessary financing sources to implement the strategy, and continue to grow.
Store Modernization
Gone are the days when gas stations only sold gas and consumers made their decisions on the price of regular unleaded. Pulling off the roads today, consumers can look for a familiar name and its loyalty program, or even just the lighting and appearance of the site. Driving around town, consumers want one-stop shopping where they can pick up food for dinner and get a gallon of milk for tomorrow’s breakfast.
To make room for these changes, gas station operators are increasing the square footage of their convenience stores and modernizing their look. While dealers will sometimes help with these efforts, operators still must bear most of the increased costs and responsibilities with these expansions. And as they build these new shelves and expand their offerings to include more perishables, operators need to pay attention to more supply lines and increased working capital needs. As most operators don’t have the cash on hand to cover the $400,000 per site to upgrade (according to Andy Jones, National Association of Convenience Stores Vice Chairman of Research1), they often need to look for outside sources of financing to make the needed improvements.
Government Regulations
Every time a new policy is enacted, operators need to take a closer look at their budgets. In recent years, operators have had to deal with strengthened fuel storage tank guidelines, changes in E15 regulations, and the EMV compliance deadline coming up next year. These changes are not cheap, and the costs can be multiplied because some of them require downtime.
How should multisite operators handle these upgrades? Should all of the sites be done at once, which could materially impact cash flows? Or should operators stagger the upgrades with the risk of having some sites closed during peak seasons? Each operator will need to do what’s right for their stores, but connecting with peers or advisers can ease the decision-making process.
Operators should also continue to be proactive with whichever decision they make. They should speak with their partners (such as suppliers, consumers, employees, and banking partners) to ensure that everyone is on the same page. This way, their downtime won’t have a lasting impact on any of those relationships, and they can continue to focus on the operations of their stores.
Ownership Transitions
According to NACS, single-store operators currently constitute 62.3 percent of the roughly 153,000 c-stores in the U.S., which is a slight decrease from 63 percent the previous year because of industry consolidation.1 By and large, however, it’s still an industry for family-owned operations that have been built up over decades. As the current teams of ownership and management near retirement age, what’s the appropriate next step?
Historically, new generations have been part of operations, so ownership has transferred from parent to child, but sometimes those transactions need to be financed. And if the next generation doesn’t want to remain involved, maybe a management buyout or an ESOP conversion is appropriate.
Owners may also consider divesting to a larger chain or an MOC (Major Oil Company) as they reenter the retail space. The stores they build can continue to have a future after they choose to relax, but the key is finding a transition that works for them. Choosing an adviser and banking partner can help these owners in the decision-making process and provide them with the capital needed to make the transition.
Change will always be a part of an industry as old as gas stations—it’s the only way it can survive. Staying aware and getting ahead of changes within the industry will reduce some of the stress owner’s face around growing their business and help them stay focused on the core operations.
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