Business Resources &
Reports, Inc
P O Box 8678
Mandeville LA 70470-8678
Tph (985) 264-9040
Fax (603) 962-5828
E-mail brrinc@bellsouth.net
home page
other articles
other management articles
Why So Many C-store Failures?
an opinion
Each month since the SwiftyServe debacle, there has been an article in Convenience Store News about another large chain filing for bankruptcy or shuttering their stores. What is going on?
In good times, a business can afford more mistakes. In a downturn, the mistakes become significant.
Consider a store with annual sales in a static, unchanging market. I have exaggerated the figures in the example to make it easier to see the effect of an expanding market.
Sales |
$1,000,000 |
COGS |
$800,000 |
Expenses |
$210,000 |
|
__________ |
Net Loss |
-$10,000 |
This store obviously will not last very long. However, consider that this store has had a 10% increase in sales. Then we have something like this:
Sales |
$1,100,000 |
COGS |
$860,000 |
Expenses |
$220,000 |
|
__________ |
Net Profit |
$20,000 |
The management errors of too much shrinkage, too much inventory, too much in gross wages, and unchecked expenses is covered up by the constantly increasing sales. More players enter the field. More C-store chains enter the market. While the general market is still expanding, it does not seem so to the C-stores individually. The market is sliced into smaller parts for each of the stores. When the expansion for each store slows down or stops, sales, COGS, and expenses settle down into a pattern like the first one above.
I believe that this is what is happening to the chains that are going bankrupt.
And what about the Canadians, Russians, and Japanese entering the American C-store market?
In the October 12, 2003 issue of Convenience Store News, there are articles about Russian LukOil starting with its first of a chain of stores in the New England states and the Japanese FamilyMart on the West Coast. What they are doing is very simple. They are gambling that their management style is so fine-tuned that they will succeed in the vacuum created by the exit of other chains. We'll see.