By Joe Petrowski
Retailing 101 still stands on the four Ps: Product, Price, Promotion and Position. Traditional convenience retailers are certainly not as threatened by the internet as other box retailers given the nature of their sales and services, but they are not completely immune to technology. In fact, they can take advantage of innovative loyalty and technology programs to maximize traffic and sales through loyalty programs and social media platforms.
The reality is that most convenience retailers will still depend on car count, traffic and population density as the primary drivers to sales (assuming they get product and price right). But for many convenience retailers, car counts can be as low as 2,000 cars per day (when 10,000 is optimal), and the United States remains a country with low density outside the coasts and southern Florida. And as urbanization increases and car miles driven flatten or decline, the challenge is to become a habitual destination to grow retail sales. Densities in a 10 mile radius in most locations in the United States range from of 95,000 to 47,000 to 4,000.
An effective loyalty program has the following attributes:
1) Captures customer information (contact information, buying habits, needs and desires)
2) Allows for payment that bypasses the onerous credit card fees
3) Encourages incremental purchases or purchases by time of day
4) Gives the customer something (discounts on fuel are the most impactful)
5) Enlists the customer’s desire for social responsibility (environment, local charity, etc.)
6) Develops repeat customers who seek out the brand
7) Is simple to administer on both ends and uses mobile apps versus new plastic
8) Allows for vendor subsidization of products (Frito Lay, Coca Cola. P&G, etc.)
9) Allows for contests and rewards (Green Monster tickets, college football Games, etc.)
10) Encourages discounted combination purchases
A retailer can outsource platform development to one of many excellent developers—like Syrinx, Session M, Qstream, Millennial Media, Mobiquity, Hub Spot, Paytronix and Everbridge—and then manage in-house with company staff. Generally, a robust platform will cost $500,000 in development and $100,000 per year in maintenance. [Editor’s Note: A variety of less customized and less expensive options are also available for smaller operations.]
Convenience retailers and fuel merchants currently have 25 million members, which is a small subset of 3.3 billion loyalty members nationwide.
But the advantage of convenience and fuel retailers is their members are more active than other categories. Loyalty programs have often been described as eighth grade dances—lots of attendance but too many standing in the corners not dancing. In fact, the usage rate is often between 33% and 40%, and a convenience retailer’s advantage is that their customer will make a daily purchase, or one every nine days if they are fuel-only focused. Compare this to far less activity seen by other loyalty providers such as airlines and department stores. So convenience/fuel retailers will garner active participation once the program is established.
Increasingly, loyalty is going socially responsible. Green Print takes a half cent per gallon and uses it to buy carbon offsets for fuel purchases, which is a powerful loyalty driver. Many chains will offer a few cents off a fill-up with some of the proceeds going to a favored local charity, such as high school sports programs and medical or targeted philanthropic organizations. Others are offering as much as 10 cents per gallon off of any pump purchase in excess of 10 gallons with that credit applied to an inside purchase. This draws in large volume fuel buyers and driving someone inside the store is on average worth $3 per visit, and costs $1 with this incentive. In addition, the customer gets to experience food, beverage or other offerings (assuming they are appealing).
While the specter of the internet or social media marketing frightens many traditional brick and mortar retailers, it should be embraced and leveraged to a convenience fuel retailer’s advantage.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October of 2008, he was named CEO of the now combined Gulf Oil and Cumberland Farms, whose annual revenues exceed $11 billion and that now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now Managing Director of Mercantor Partners, a private equity firm investing in convenience and energy distribution, and a member of the Gulf Board.