Starting a Convenience Store

For further information on individual topics identified herein, contact the Canada/Prince Edward Island Business Service Centre. Because this document is only meant as a guide, the CBSCs will not accept responsibility for business decisions made based on the information provided.

BASICS TO GETTING STARTED
Before proceeding, reference should be made to the Prince Edward Island Business Start-up in PEI for information on the steps involved in establishing a new business.

Starting a business can be a rewarding undertaking, but it comes with its challenges. Before starting a business in Canada, it is wise to do your research. You should also make sure you are suited for entrepreneurship, and understand that significant effort may be required. As such, you should thoroughly enjoy the field you are getting into, and you must believe in your product or service as it may consume much of your time, especially during the start-up phase. There are many issues to consider such as regulations, financing, taxation, managing your business, advertising, and much more. For more information, see the Checklists for Going Into Business.

TABLE OF CONTENTS

1. Industry Overview
2. Licenses, Permits and Regulations
3. Managing Your Operation
4. Associations
5. Resources
6. Additional Information

1. INDUSTRY OVERVIEW
Convenience stores offer quick and friendly service, handy locations, a variety of merchandise, and extended hours of operation. This publication focuses on starting an independent convenience store. However, many convenience stores are franchise operations.

Types of Operation

• Convenience Store - a small store that is open every day until late evening or 24 hours a day, and specializes in selling basic food items, such as milk and bread, and a variety of small dry-goods items.
  

• Convenience Store/Gas Station - a convenience store combined with a place for supplying motor vehicles with gasoline, motor oil, water, etc.
  

• Franchise - the privilege, often exclusive, of selling the products of a manufacturer or providing a company's service in a given area.

Checklists for Franchisees
As a potential business owner, you may be considering buying an existing or opening a new franchised store. As a franchisee, you enjoy the benefits of "Goodwill" that the name and reputation of the franchise already possesses. You also have, in many cases, the support of the parent company in issues such as location selection, management training, free advertising and support during the start-up phase of your operation. Also you have the advantage of capitalizing on an already profitable concept. However, as a franchisee, you must pay the franchisor for the benefits provided, and these costs come off the top of your sales revenue and may add up to more than 10%. Also your freedom is somewhat restricted when you own a franchise. You must adhere to the standards set by the franchise.

Store Location - "Little Things" Mean a Lot
Choosing a location for your store may be your single most important decision. Do your research. In particular, consider these factors:

Population - The Grocery Trade Association states that to sustain a convenience store, between 500 and 1 000 people must live within a one-mile radius. If people have to travel more than a mile, they are more likely to go to a supermarket for a major shopping trip. Also check an area's future development plans and projected growth rates.

Competition - Although a convenience store's competition is mostly from other convenience stores, it can also come from supermarkets. Study all competitors to see if the local market can support another operation.

Traffic - Impulse purchases make up a good percentage of convenience store sales, so high volumes of pedestrian and vehicle traffic passing your store is critical. Try to locate near schools, parks, sporting facilities and other businesses to increase traffic.

Layout and Design

• before ordering or installing equipment, design your store's layout;
• keep it simple to keep costs down;
• reserve the most space for products you will sell the most;
• place all products where customers can see and reach them;
• position products with the highest profit margins at eye-level;
• place high-demand products such as bread and milk at the back of the store to increase traffic. This encourages impulse purchases which can make up to 70% of your sales.

Selecting Your Inventory
Your product mix depends on your location and your target market's needs.

For example, a convenience store in a resort area will likely stock a more complete line of goods. Wherever your location, you must be able to estimate product demand. The Convenience Store Journal suggests a typical breakdown:

Keep ongoing, accurate inventory records in order to continually monitor the ratio between your stock and actual sales. This helps to minimize lost sales and money tied up in inventory, as well as determine the demand for different products.

Selecting Your Supplier

• General line wholesalers - Join a cooperative of independent store owners to purchase in groups to gain volume discounts. Approximately 25% of Canadian grocery stores belong to such cooperatives which give advice in merchandising, management and finance.
• Speciality wholesalers - Bakeries, delis and produce suppliers often offer lower prices than general line wholesalers. They may also stock shelves and help you estimate demand.
• Service merchandisers - Non-food items, such as health/beauty aids, housewares and magazines are sold by service merchandisers. They can also deliver, stock shelves, price items and help estimate demand.

For more information, see the document Profit by Your Wholesaler's Services.

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2. LICENSES, PERMITS AND REGULATIONS
One area of rules and regulations that all new businesses must comply with is that of licenses, permits and regulations. When creating a business, the entrepreneur must contact the municipality involved, along with the provincial/territorial and federal governments.

Each municipal government has the authority to issue its own business licenses within its jurisdiction. Since there is no uniformity throughout the country regarding municipal licenses for businesses, you should consult with the appropriate local officials to determine whether your business will be affected by local regulations and licensing requirements. Businesses (including home-based businesses) must also meet the zoning by-laws that control property uses in their municipalities.

General Business Regulations:
General Licenses, Permits & Regulations pertaining to most any business can be found in the Business Start-up in PEI
This document includes information on:

• Building and Development Permits
• Business Number (BN), including GST, Payroll Deductions and Imcome Tax
• Business Name Registration / Incorporation
• Employee Related Regulations
• Environmental Requirements
• Home-Based Businesses
• Provincial Sales Tax (PST)

Convenience Store Related Licenses

• Need a Music License? (Whether performed live or by recorded means, including playing CD's, radio stations, etc.)
• PEI Liquor Control Commission (Liquor License)
• Video Rental License
• Fishing and Hunting License

Convenience Store Related Regulations

• Fire safety regulations
• Canadian Food Inspection Agency
• Health regulations and requirements
• Smoking regulations
• Protection of Personal Information - Your Responsibilities

The Guide to Canada's Personal Information Protection and Electronic Documents Act   (PIPEDA) helps businesses understand their obligations and comply to the Act.  On January 1, 2004, the PIPEDA will cover the collection, use or disclosure of personal information in the course of all commercial activities in Canada, except in provinces which have enacted legislation that is deemed to be substantially similar to the federal law.

For more information, call 1-800-282-1376, see the document Protection of Personal Information - Your Responsibilities , or visit the Privacy Commissioner's Web site at http://privcom.gc.ca/information/guide_e.asp.

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3. MANAGING YOUR OPERATION
Insurance
Insurance needs for businesses vary greatly. It is best to choose an insurance agent or broker familiar with your size of business and, in particular, an agent familiar with your type of operation. If you don't have an insurance agent, it could be a wise decision to ask other business owners in your area to recommend one.

The following list is included to remind you not to overlook the complex areas of business insurance. It is best, however, to discuss your specific requirements with your insurance agent.

Basic insurance:

• fire insurance (extended coverage on buildings and contents);
• liability insurance (depending on type of business);
• burglary protection (theft coverage);
• dishonesty insurance (covers thefts by employees).

Marketing/Advertising
Word-of-mouth advertising and good public relations are often the best ways of promoting a convenience store. Depending on your market and its size, also consider flyers, newspapers (especially for holiday promotions), radio, TV, the Yellow Pages and the Internet. Also bear in mind that a satisfied customer is good advertising.

• You should spend about 1% of gross sales on advertising to your target market.
• Install a brightly-lit sign to attract drive-by traffic.
• Create eye-catching window displays and point-of-purchase displays.
• Deliver or mail flyers to neighbourhood homes and place ads in local newspapers. Stress convenience, accessibility and extended hours.
• Offer additional convenience services such as fast food, postal services or video rentals. Consider installing a gasoline pump.

For more information regarding advertising and marketing, see the following documents:

Signs and Your Business    

Plan Your Advertising Budget

Advertising Do's and Don'ts

Ways to Promote Your Product or Service

Marketing Plan Outline

E-Business Info-Guide

The Online Small Business Workshop - Marketing Basics covers the basics from developing your customer profile to promoting your business.

The federal Competition Act governs misleading advertising and deceptive marketing practices for all businesses in Canada. The Act defines which marketing practices are illegal and the process of complaint investigation.

For more information, consult the  Competition Act - Misleading Advertising and Deceptive Marketing Practices, administered by Industry Canada or visit the Competition Bureau Web site.

Guide to Market Research and Analysis
Successful businesses have extensive knowledge about their customers and their competitors. Acquiring accurate and specific information about your customers and competitors is a critical first step in market investigation and development of a marketing plan.

In developing a market plan, your primary functions are to understand the needs and desires of your customer, select or develop a product or service that will meet customer needs, develop promotional material that will make the customer aware and ensure product or service delivery.

Basic Bookkeeping
A good record keeping system should be simple to use, easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.

Note: All staff working with cash should be trained to recognize counterfeit currency.

The legal requirement concerning financial records specify only that they be a permanent, accurate and complete record of your daily income and expenses. There are many types of record books and bookkeeping systems available. For example:

• double entry bookkeeping;
• commercial bookkeeping systems;
• one-write systems;
• computerized systems;
• single entry bookkeeping.

Selecting Professional Services
The use of professional services is essential to the success of a small business. Professionals can provide knowledge and expertise in the areas where you may have little. They can round out your management team to ensure your business is operating efficiently.

As an entrepreneur, there are four main areas of professional services with which you may consult:

• lawyer (contact a lawyer about legal issues);
• insurance broker;
• accountant;
• banker (for tips and pointers on dealing with your bank, see the document Dealing With Your Banker & Other Lenders).
  

Furnishings and Equipment
There will be certain equipment and furniture you will need in your place of business which will allow you to perform your services. List that equipment and its cost to you. An important factor to consider, when choosing equipment, is the after-sales service and repair, and their affordability.

Used Equipment - Consider buying used equipment as a cost-saving measure. Sources of used equipment could be a convenience store that is closing or dealers in second-hand equipment. The drawback to this approach is that, often, there are no guarantees with the purchase.

Leasing Equipment - Another alternative is to lease equipment to help keep start-up costs down. To obtain financing for capital leasing for new or used equipment for the creation of your business, see the document Capital Leasing Pilot Project.

For more information on parts and materials, overhead, stock control and pricing, see the document  Business Plan for Small Service Firms .

Setting Up a Pay System
Pay administration is a management tool that enables you to control personnel cost, increase employee morale, and reduce work force turnover.

Setting the Right Price
Setting the right price can influence the quantities of various items that consumers will buy, which in turn affects the total revenue and the profit in the store. In the end, the right price for the product is the price that the consumer is willing to pay for it. Hence, correct pricing decisions are a key to successful retail management.

Prices should allow for sufficient gross profit to cover overhead expenses and a reasonable net profit. Choose one of two pricing methods:

• markup (based on cost); or
• margin (based on selling price).

Traditionally, convenience stores have had markups of approximately 33% to 67%, margins of 25% to 40%. Convenience stores simply cannot buy in large volumes like superstores, so do not attempt to offer lower prices. Instead, stress service and convenience.

Cost Control
You must have procedures for controlling inventory and costs. Ask people in your industry for information about procedures for:

• Purchasing - Most of the time, purchasing is done over the telephone, by fax, or online. Therefore, often no contract is signed between the purchaser and the supplier; it is essential that you choose your supplier carefully.
• Receiving - Check all deliveries against the Purchasing and Receiving Form, in three ways: quantity, price and quality (that is, temperature: frozen goods must be frozen); packaging should be intact. Make sure specifications are met. Careful recording will show short shipments, price variations and weight differences.
• Budgeting and Projecting - Establish a cash budget and maintain cash flow projections on a continual basis.
• Storage - Ensure refrigerated and frozen products are quickly placed in a cold storage. Storage temperature for dry goods (between 10-21^oC), frozen goods (-18^oC or less) and refrigerated goods. Rotate your stock to ensure that oldest items are used first before the new stock.

Checklist for Profit Watching
Making a profit is the most important -- some might say the only objective of a business. Profit measures success. It can be defined simply: revenues - expenses = profit. So, to increase profits you must raise revenues, lower expenses, or both. To make improvements you must know what's really going on financially at all times.

You can find additional information on managing your operations, by viewing our index of popular business topics.

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4. ASSOCIATIONS
There are many associations that may be of use to convenience store owners. Although it is not necessary to join a convenience store association, there can be advantages in becoming a member because they

• promote and exchange marketing and promotional ideas among members;
• establish and encourage high standards of quality and professionalism;
• represent and advocate on behalf of members.

Examples of associations include, but are not limited to:

• Association of Convenience Store Managers (ACSM)
• Canadian Health Food Association
• Refreshments Canada (previously the Canadian Soft Drink Association)
• National Association Convenience Stores (NACS) (previously C-Store Central)
• National Convenience Store Distributors Association (NACDA)

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5. RESOURCES
Additional resources which may help convenience store owners include, but are not limited to:

Publications
You may find books, magazines and other relevant print material at the CBSC and/or business service organizations in your community that provide CBSC information. Contact the CBSC in your region for the location nearest you.

Statistics

• Retail Sales - Statistics Canada
• Quarterly Retail Commodity Survey - Statistics Canada

Magazines

• Canadian Grocer  
• Convenience Store Decisions Magazine (CSD)
• Convenience Store News

Related Web Sites

• Canadian Council of Grocery Distributors
• Canadian Federation of Independent Grocers
• Canadian Partnership for Consumer Food Safety Education
• Retail Council of Canada (RCC)
• Food Recalls and Allergy Alerts (CFIA)

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6. ADDITIONAL INFORMATION
When seeking business information, feel free to visit the Web sites for the Business Start-Up Assistant and the Online Small Business Workshop.  You may also want to check with your local library, the major chartered banks, your local Chamber of Commerce, educational institutions and business development organizations -- some of which offer courses, seminars and workshops.

For general business information, you may contact your local CBSC by:

• Telephone: Call our toll-free number at 1-800-668-1010 and speak to a business information officer who will direct you to the best sources of information or refer you to programs and services relevant to your business situation.
  

• E-mail:  You can also send your questions via e-mail from the Web site.
  

• In Person: The Canada/PEI BSC offers an extensive collection of business-related publications, directories, leading-edge business products (e.g., videos, CD-ROMs) and access to external databases. Many of the more popular resources are also available for loan from our lending library.  Business clients can use these materials on their own or with the help of a business information officer. The CBSCs have arrangements with existing business service organizations in communities across Canada to provide CBSC information. Contact the Canada/PEI BSC for the location nearest you.
  

• Talk to Us!  A feature for personal service on the Web. This service allows you to connect immediately by voice to a business information officer who will search the Internet with you for the information you need

DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

Links Policy
Some of the hypertext links lead to non-federal government sites which are not subject to the Official Languages Act and the material is available in one language only.