June 19, 2016

Who Stocks the Beverage Cooler?

Recently, I went to Nashville to help a close friend, who is managing a convenience store.  The two days I spent there were incredibly revealing.

Here are some of my insights:

Getting good, affordable, reliable help is critical and exceptionally difficult to recruit and retain.

I had a number of great ideas I wanted to share with him. However, the day I arrived was exceptionally hot and humid. The coolers with soda, water, beer, and energy drinks were insufficiently stocked with cold beverages.  My first task when I entered the store was to help my friend stock them.  The employee who normally worked that shift had resigned.

His early morning employee abruptly left at the end of his shift, before I arrived, leaving cookies baking in the oven.  My friend learned that when his daughter walked into the store and smelled the cookies.  He also was not preparing enough breakfast sandwiches to meet the demand.

I shopped at Sam’s Club to help him replenish his inventory of chocolate candy, tobacco products, and other supplies.  The Sam’s Club associate at the tobacco cage told me that employees in many convenience stores are very low quality in every place she has worked for Sam’s Club.

Unhealthy merchandise keeps the store afloat.

My friend, a clean-living, healthy individual, sells cigarettes and chewing tobacco, along with candy, chocolates, cookies and junk food of every imaginable type, because these items all have huge profit margins. Without them, he would be out of business.

He needs to sell lottery tickets, but the State does not enable him to make much profit.

Lottery tickets drive traffic, but stores make very little profit margin on them and the accounting and compliance processes are cumbersome. Many lottery ticket purchasers exclusively buy lottery tickets and consume a lot of checkout counter time.  Bigger convenience stores have separate cash registers and clerks for lottery ticket purchasers, but small retail stores do not have this luxury.

Theft is an ever-present problem.

Convenience stores suffer from both shoplifting and employee embezzlement. Bigger stores use sophisticated anti-theft technology, but convenience store sells such low-cost items that anti-theft systems are not a practical solution.

In hiring outside employees, retail store managers and owners have to screen applicants with tobacco or applicants with spouses or significant others with tobacco or drug addictions, because they are more likely to steal to support their habits. I also understand why some employers do not hire heavy smokers, since they take frequent breaks to light up.

Keeping the store clean and uncluttered is critical, but often overlooked.

I never appreciated the importance of cleanliness and safety until I heard about bacterial infections from food and workers compensation claims from slip-and-fall accidents. Store employees often overlook the need to mop up a floor or a clean a wet surface, but these kinds of daily activities require vigilance and focus that minimum wage employees often lack.

Many small, boring opportunities or risks collectively have big impacts.

Beyond the merchandise in a convenience store, there are so many details to which a store owner or manager has to attend:

  • Can the operator save on electricity consumption for food and beverage coolers, freezers and ovens?
  • What merchandise does the manager place at the checkout counter, to stimulate impulse purchases?
  • How prominently are promotional prices displayed?
  • How does the retailer keep track of competitors’ prices?
  • If the store serves breakfast, for how long is breakfast food made available?
  • From what vendors does the retailer purchase items? Sam’s Club is actually a low cost source of many items.  The biggest problem an outside retail consultant and I both saw is that the vendors were controlling the store, not the owner or manager.
  • How does the retailer use coupons and other promotional items?
  • How does the retailer control supplies usage and costs? Napkins, plastic forks, spoons and knives, packets of ketchup and mustard, paper or plastic coffee cups, and salt and pepper packets, coffee filers are opportunities for cost savings or for serious expense leakage.

Even in this time of credit cards and digital currency, strong cash management is critical.

Most convenience store retailers continue to transact a lot of business in cash, although the business migrates more and more each year to credit and debit cards.  Cash management is more critical than ever.  In fact, the cost of credit card fees is surprisingly large in aggregate, but often undermanaged, because it is a small item on each transaction.

Never economize on basic insurance.

My friend was fortunate in having property and casualty insurance, since an air conditioner malfunction caused most of his chocolate candy to spoil and be unsalable.

Retailers who build customer relationships do better than those who treat every encounter as a transaction.

Relationship building leads to repeat business.  Convenience store retailers need to make a stop at their store part of the customers’ daily routines.

Too few retailers do this.   They are more fixated on cost-saving ways of doing transactions than they are of getting repeat or incremental.

The cash register clerk can be a great sales representative and brand ambassador.

My friend operated the cash register himself and built relationships with his customers.  He also often suggested additional purchases, something most clerks are not motivated to do.

Many mornings, I go to coffee shops with jars at which customers can leave tips.  Great service increases tips, but so does getting a customer to increase his or her order.  Yet, so few checkout clerks think to recommend an additional purchase, which would benefit the store and them.

Great retailers use the brainpower of their vendor representatives, as well as the free help anyone is willing to give.

Great convenience store retailers are very smart at getting free help from their distributors, their equipment and supplies vendors, and individuals who have operated their own convenience stores and have implemented best practices.  Their vendors are their partners, not their exploiters.

Higher minimum wages would be a killer.

Convenience stores work on such thin profit margins that having a manageable minimum wage is very critical.  Some employees provide enough value that a higher minimum wage is fair, but creating a higher minimum wage does not cause the employees who work at the lower minimum wage to increase their productivity sufficiently to justify the higher minimum wage.  Cities that pass ordinances mandating $15 an hour minimum wages experience job losses and shorter hours for employees.  Even at $10 per hour, an employee my friend inherited when he took over the store was so uneconomic, that he shortened the employee’s hours, because he was losing money on what the employee did in those hours.

Operating a convenience store is exceptionally complex.

One consequence is that many successful convenience outlets are family-operated businesses, in which children and adolescents learn the business working in the store. Korean green grocers in New York and Muslim or Indian families at the convenience stores inside the Connecticut gasoline service stations use teenage family members at retail checkout counters.

Operating most small businesses requires a level of skill that few of us, especially government policy makers, appreciate.  Academics, lawyers, and policymakers are induced by anecdotal data and special interest groups to pass laws and regulations that strangle small businesses like the convenience store my friend is learning to operate.

To anyone who wants to see entrepreneurship and the things that government inadvertently does to stifle it, I would say:  “Spend a day at a convenience store, and make yourself useful by stocking the beverage cooler.”