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Why is everything so expensive in a Convenience Store?

We often hear comments about allegedly excessive prices charged at convenience stores. The word “Excessive” normally appears when the comparison is made against Supermarkets or Minimarkets.

Regardless of the size of the price gap, this perception is now widespread and is confirmed by most studies of Shoppers, which increasingly limit large purchases to emergency occasions, leaving the store simply to cover small routine purchases. or impulse.

In real life, the dynamics of the Convenience Store and Supermarket business, its function for the buyer and the products-formats purchased are totally different, which makes this comparison unfair and we end up comparing apples to apples.

Now, some questions deserve to be answered:

  • What are the main reasons that justify the high price of convenience?

  • Is there a practical limit to the convenience price?

It is often wrongly thought that high prices mean high profitability. We think that the owners of these stores are profiteers who must be swimming in a pool of money.

In reality, while we cannot rule out a cultural element in the business practice of high pricing, to determine the size of a business's profitability we must carefully review trading margins and operating costs.

After analyzing the operation of a selection of convenience stores in various cities in Brazil, we found some interesting things:

  • On average, the marketing margin is around 40%

  • Those stores that maintained a detailed control of expenses below 21% of turnover managed to be profitable.

  • The average profitability of independent stores is 17% and 10% in the case of Franchises.

In general, the main cost centers of a convenience store are:

  • Staff: salaries, bonuses, and benefits of the entire team. Before looking for other efficiencies, we must first focus our energies on this item, which is almost double the sum of all the other costs of the store.

  • Space rental: cost per m2 in central and easily accessible areas in cities.

  • Electricity: actual consumption of refrigerators, lighting, ovens, air conditioning, etc.

  • Other administrative costs: Cleaning, Accountant, Equipment rental, Administrative system, Maintenance, etc.

So, what are the main reasons that justify a higher price in convenience stores?

  • To begin with, you have to consider that these stores usually work extended hours and are often 24 hours a day. This convenience generates an increase in the costs of Personnel and Electricity since it is necessary to hire 3 shifts, lighting, higher consumption of air conditioning (essential in the summer), etc.

  • Next, it must be taken into account that the number of SKUs sold in a convenience store (<1,500) is much lower than in a Mini-market (>3,000) and with that, the proportion of fixed costs that is allocated to each one is greater.

  • The third variable is related to the cost of the space occupied by the store. Although it is true that Minimarkets are on average 2.5 times larger than Convenience stores, the latter are located in the most expensive points of the city, with very high visibility and access. This is reflected in the rental costs of m2, but also in the value of taxes.

  • In convenience stores, more than 95% of the non-alcoholic beverage category is sold COLD (immediate consumption) and therefore the cost of electricity in refrigeration is higher than in Supermarkets and Minimarkets, where the proportion of beverage sales at climate temperature is higher. In these cases, the consumption of energy to cool the drink is the responsibility of the consumer.

  • Most of the mass consumption companies practice the same price table for Convenience Stores, Minimarkets, and Supermarkets of up to 4 cash registers (in line with Nielsen), which means that the starting point is the same, but with costs of a major operation that are not recognized by the industries.

  • Finally, there is a component of lack of strategy in the definition of marketing margins by product, in line with the strategic role in the portfolio of each store. In this way, not all products should always be more expensive than in Minimarkets to be used as Traffic Generators and, on the other hand, a higher price could be justified for those unique and differentiated products that would serve to generate Profitability.

There is a popular saying that Comfort is Expensive, but there is a natural limit to the prices charged in the Convenience Channel, which is always set by the Buyer, who ultimately has all the decision-making power.

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