An increasingly crowded market
Originally written by Jon Neale, this article has been updated and extended by Adam Bannister.
Although the weekly shop at the supermarket has become a tradition for many Britons, the convenience store still plays an essential role in the majority of people’s daily routines.
The convenience store sector has become more challenging in recent years due to supermarkets muscling in on the market. Between 2000 and April 2006, the number of convenience stores in the UK owned by Sainsbury’s, Asda, Tesco and Morrisons rose from 54 to 1,306, though that still left more than 31,000 stores not owned by the big supermarket players.
Buying a franchise can help you compete. The likes of Londis, Costcutter and Budgens have the financial muscle to leverage entrepreneurs into the best spots, the bulk buying power to give them an edge on prices, and the market knowledge and experience to know what sells and what doesn’t.
Some stores are closer to newsagents in character, while others are licensed to sell alcohol, open later and cater for the evening trade. Some incorporate delicatessens and sell fresh bread.
The choice of stock is influenced by the demographics of the area and whether it’s in the suburbs or the city centre. City centre convenience stores tend to offer a greater range of budget sandwiches and other food for people on the move; suburban ones will focus more on bread, milk, cheese, bacon, eggs and other foods people prepare at home. Older white residents will tend to prefer traditional English foods; younger people and other ethnic groups will want more diversity.
Family firms
Whichever type of store you choose, this is a difficult sector for the independent operator. The hours required will be demanding, as you’ll have to start early and finish late, and work weekends as well as weekdays.
“It’s quite tough,” warns John Gower of business transfer agents SBS Commercial, which sells businesses around the UK. “You do get knocks. You may have people stealing and you have to organise staffing. You have to be quite resilient, flexible and be able to cope with long hours.”
Convenience stores are often run as family firms, particularly within the Asian community, and stores often go up for sale because the children move on to other careers.
The alternative is a staffed operation, although this may be too expensive for a smaller store. Even if you can afford the wages, the administration and recruitment can increase your own workload in the short term.
With Tesco Expresses and Sainsbury’s Locals – the supermarket giants’ convenience store formats – proliferating, the paternal umbrella of the franchisor is very appealing to many would-be operators.
But, as always, there are conditions attached to the support you receive. “You have to refit, you have to add a logo outside, you’ve got to commit to purchase branded goods,” says Gower. “But,” he adds, “you do get bulk discounts”.
Unfortunately, the money being bandied around by the supermarket groups ratchets up the prices of large, well-situated convenience stores. According to Gower, stores turning over more than £10k per week are “snapped up”, while those passing more than £20k through their tills are “like gold dust”.
It’s unsurprising that demand is so high when you consider that a profit of between 18% and 22% can be achieved — equivalent to around £200k on a large store turning over £20k per week.
However, wages and costs for fixtures and fittings all have to be deducted from this figure. This is one reason why Gower believes stores turning over less than £5k are a much more challenging proposition.
Steady income
Stock also has to be taken into account. The frequency with which it has to be ‘turned’ will depend on how much fresh food you have on display, but the value of goods in a shop will typically amount to between one and a half and two times the weekly turnover. This will have to be added to the cost of buying the business itself.
Gower claims that leasehold ventures fetch from around £25k to £200k, although this will be higher in the south-east. Freeholds are few and far between and vary enormously in price, as in some areas the asset value of a prime piece of property is more important than the business.
This might all sound off-putting, but remember that convenience stores can be very lucrative and offer a steadier income than many other types of business.
The sector is changing rapidly, and it’s an interesting time for new entrants to engage their entrepreneurial spirit and work out how they can maximise their floor space, lure in passing traffic, stock appropriately and restock frequently enough, and build a relationship with local residents that keeps them coming back.
This last point is significant, because running a convenience store suits someone who is capable of being amiable and helpful even towards the end of a long shift. It’s your friendly, personalised service which will make customers choose your store over its local rivals — so long as you stock what they need.
If you run a franchise, such as Budgens or Londis, then you can still build up a rapport with customers that Tesco Express can’t replicate, but you still have the marketing, administrative and recruiting power of a large brand behind you.
While it’s certainly not a part-time business, a convenience store — if you’re organised and dedicated enough — can be a very profitable choice of business.
