Earn More MoneyMarch 23, 2020April 20, 2020

The Earnings Potential Of A Convenience Store

Everyone who lives or has even visited the city has seen a convenience store. They’re the pinnacle of convenience, hence the name. These stores are not few and far between. In major cities like Toronto and New York, you’ll be able to find them on every intersection. Therefore, they’re a staple of the city living and I honestly love them. Just thinking back to the days where I would stop by a convenience store on the way home to grab a bunch of snacks. However, I’ve grown older. Being older allows everyone to think critically and question things that they wouldn’t have when they were younger. Therefore, this brings up the question, how much money can a convenience store earn?

Before we get into this question we must look at a few things. Much like our other articles, we need to look at how they’re acquired and the necessary costs. Therefore, we will be taking a deep dive into what it takes to operate a convenience store. Furthermore, whether it may be worth it or not.

How Is A Convenience Store Acquired?

Many of you are looking to start a convenience store. However, like any business, the first step is to plan. Knowing what you’re going into it critical when starting any business. Being prepared is the foundation of any successful business. However, no matter how prepared you are, you’ll still run into problems but you will definitely avoid numerous headaches.

First, what kind of market are you looking to penetrate. It’s true that the main attraction of a convenience store is that they’re easily accessible, have tons of snacks and are open late. However, there are convenience stores that serve as mini grocery stores. Of course, the latter will have a much higher maintenance cost and overhead. However, your potential earns can be vastly different from one that just sells snacks.

The location is key. Finding a good location right on the intersection of a bustling city well make your profit margins skyrocket. Why? There are more people. The sheer volume of people going in and out of your business will be cause for higher maintenance. However, the more money you spend on inventory means the more you’re earning.

The location you get may be dependent on the type of market you’re targeting. If you’re trying to acquire a spot on the corner of a busy intersection, your convenience store will most likely be a bit smaller. This means you won’t have things like produce or even bread. However, you may have a deli for those who’re looking to get something to eat.

Prices at convenience stores are higher than your local grocery store or Walmart. This is something I’d like to call a convenience fee. A fee or marking up a product that you can get elsewhere but are paying more for due to the convenience. You’ll notice this in every convenience store. Chocolate bars will be $2.29. However, in a grocery store or Dollorama they’re under $1.

This is a tactic that convenience stores implement in-order to drive up their profit margins. However, you must be strategic with the pricing. Too low and it may not be worth selling the item. Too high and it may drive people away. Furthermore, you have to create prices that are competitive to the convenience stores around you.

In order to have a business up and running, you will need to make your business a legal entity. This means registering it as a business, filing for taxes, creating a business bank account and having a credit card so track business expenses for tax reasons.

Deciding whether you’ll be leasing or purchasing a building will be a huge decision. On one hand, leasing can be cheaper, faster, reduce liability and maintenance costs. However, purchasing a building allows your investment to appreciate and build equity.

When doing this, you must acquire something called a Certification of Occupancy.

If you’re leasing the building, you don’t have to worry too much because it is usually up to the landlord to acquire the CO. However, if you purchase the building yourself, it is your responsibility to get the CO. For information on building permits, click here.

Lastly, the different types of licensing you’ll need. There are 4 that I would like to outline. liquor, tobacco, lottery and music licenses. Of course, depending on where you are, you may need more licenses. Furthermore, the conditions on which you get these licenses may be different. However, those 4 that are outlined are the ones that every convenience store owner must-have.

The Cost To Own A Convenience Store

Like any business, there is usually an initial investment. However, this investment can vary greatly. First, purchasing all the licenses. Depending on where you are, the licenses can cost quite a bit of money. However, the biggest chunk of cash you’ll have to shell out is when/if you purchase the building.

Depending on the size, location, and health of the building, you could be paying anywhere for $30,000 – $1,000,000. Of course, the higher the investment, this means you’re most likely purchasing the building in a high traffic area where the property will also increase value. Next is the initial cost of inventory.

Purchasing from suppliers can be costly. The amount that you purchase will also be heavily dependent on your traffic, area, types of foods that are expected to be bought and the size of the store.

Next is the upkeep of the business. This means what it costs to keep the store running. If you’re leasing, your monthly costs (excluding inventory will be in your agreement. However, inventory can cost a lot. As you can assume, you’ll be purchasing inventory extremely often.

Above is a chart by the government of Canada, indicating the profits, revenues, and expenses of convenience in the year 2017. In terms of expenses, the bottom 25 percentile has the most expenses with the least amount of revenue. After the total net profit/loss, they’re actually losing money. However, in terms of inventory, the differences between the bottom and top earners are that the upper percentile pay less.

The costs range between $8,600 – $7,100. Some of the associated costs are generally the same, such as wages. However, the overall difference is quite substantial and it is worth looking into how the top percentile keeps their costs lower.

How Much Money Do They Make?

The amount of money that convenience stores earn is based on the factors stated before. Location, average spending, type of convenience store and product markups. Of course, there are other ways to earn money in convenience stores. I’ve seen some convenience stores sell things like shirts and hats. However, most of your money is going to be dependent on your location and amount of traffic.

Anytime you see that a convenience store can earn an upwards of $5,000,000, you’re probably wondering how. Well, what better than one convenience store in a high traffic area? Two. Having a convenience store business can skyrocket your earnings. The benefit of having a chain store is that you can integrate into different markets. For example, you start XYZ Convenience Stores as a chain business. You can have a smaller shop on the corner of a busy street. Then, you can open up a convenience store in a more rural area that may have produce and other goods.

Another way that this can be advantageous in that you’re making your business recognizable. For example, in Canada, we have a convenience/grocery store called Rabba that also sells produce 24/7. If I were to go to any other city and saw a Rabba, I’d most likely go there before any other convenience store. Why? That specific brand is reliable and consistent. The brand is recognizable and you know what you’re going to get when you walk in.

Another example of this is In-N- Out Burger. That fast-food restaurant has had the same menu for 15 years. However, the reason people go to them isn’t only because of the taste (even though it’s a big part), it’s because of the consistency. Nothing changes and they provide high-quality service/food. This is the goal of any business. Being recognizable and dependent. Although fast-food restaurants are different from convenience stores, they can still benefit from having a good reputation.

To conclude convenience stores can earn a ton of money, definitely over a million dollars. However, they need to be well located, cost-efficient, have competitive markups, well-branded, have multiple placements in major cities and rural areas.

Shameed Chris Khan

Shameed is just a man on a mission to help those around him gain financial success. Obsessed with writing about all things finance, this GTA native is constantly learning and sharing his experiences with others.