July 6, 2017

Using Fuel Store Relationship to Maximize Total Site Profitability

Total Site Profitability, Fuel Retail, Fuel Pricing, C-store Performance

By Anila Siraj, VP Kalibrate Strategy Group

From discovering product affinities and designing appropriate promotions to optimizing facility health and capitalizing on aesthetics, there are countless ways to drive in-store sales. One that stands out is the link between fuel and store: specifically the relationship between fuel sales and in-store sales to help you understand how much is spent inside for each additional gallon (or litre) sold.

As an industry, we know there's a relationship between fuel sales and in-store sales. But try to understand the magic of that relationship at each of your sites, and the clarity can grow murky. While knowing the relationship exists is a good start, you can't capitalize on the details of that relationship unless you know them well. Once the details of the strength of this relationship are at your fingertips, you can better identify what fuel pricing changes to make in order to increase volume and boost retail convenience sales, maximizing total site profitability.

Why Understand the Link Between Fuel and Store?

Fuel is implicitly recognized as a frequent driver for convenience store traffic. Paying close attention to the unique combination of fuel and convenience store characteristics and the interactions between them, you are able to maximize the overall value of each site in your retail network. Why does that matter? Because retailers are continuously faced with the challenge of driving synergies and maximizing profits between the fuel forecourt and store. With the abiliy to explicitly determine the combined store and fuel business profitability on each site — and therefore on the total retail network — comes the insight needed to address that ongoing challenge.

The critical relationships and trade-offs between in-store sales and fuel sales need to be quantified in an actionable profit-volume improvement framework. With the right framework, you can address key operating questions, such as:

- What is the best fuel price to achieve total site profitability?
- How can I generate increased profit for my retail network without sacrificing fuel volume?
- How can I grow volumes without giving up overall profit?
- Which are the major merchandise categories that will benefit from increased fuel sales?
- Am I accurately identifying which in-store products to promote to take advantage of the increased traffic coming into the store as a result of more fuel sales?

If an analysis is properly configured and performed, the results can help you:

- Segment stores based on available opportunity
- Drive additional store traffic on high correlation sites and increase store profit
- Identify sites where fuel margin-driven tactics can be applied without impacting store performance
- Integrate fuel-store effects into merchandise pricing and promotion decisions
- Optimally balance overall basket spend (fuel and store) for every site

Calculating the Fuel Store Relationship

Kalibrate's analysis of the fuel store relationship is scalable and easy to understand, so you can achieve rapid implementation across your retail network.

The analysis of the unique relationship is statistically quantified and the sites are then segmented into one of four quadrants depending on their fuel sensitivity and the strength of the relationship between fuel and store. Kalibrate and your team work together to evolve the way in which you allocate fuel volume targets and manage fuel pricing tactics, by retail outlet, in order to maintain consistency with your corporate goals for overall site performance. With increased foot traffic inside the store, many retailers also look to Kalibrate for a deeper dive into determining optimal competitive merchandise pricing tactics and measuring the effectiveness of in-store promotions for optimum lift, revenue and profit generation.

Fuel and convenience retailers who have analyzed the relationship between in-store sales and fuel sales have been able to segment their sites based on the strength of that relationship. That unique understanding allows them to develop fuel-plus-store strategies aligned to appropriate site segmentations and to capitalize on the individual site level opportunities — all while remaining true to their overall brand image.

Are you ready to take that step today?

 

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