By Anila Siraj, EVP of Research and Applied Data Sciences
Which came first, was it the chicken or the egg? Like this riddle, there are many business relationships where it can be difficult to pinpoint which factor is the first influence on the growth of another. In the fuel retail market, is it fuel driving convenience store sales or is it the convenience store offering that is increasing your fuel sales? Or do they both impact each other? How can you take advantage of this relationship to increase total site profitability?
There is a lot of data to support the growth that occurs when a fuel site adds a QSR offering and when convenience sites add fuel. In either case, it is clear that the relationship between the two is not a one-way street. Each offering is important to increasing sales of the other, and hence profit. Furthering your understanding of the relationship between your site offerings will help you strategically focus your efforts on where you can increase your profit most.
Understanding Your Offerings
Historically, retailers have had a strong sense of this relationship, but primarily only as it relates to fuel price. They have long understood that if you alter your fuel prices then you will see an impact in convenience store purchases. But to what degree?
This is a case where a scientific approach is important to curb emotional or experiential hunches. Studies on this relationship have shown that an impact on convenience store sales can occur in some sites — to varying degrees, but not in others. In other words, it is not a universal truth that reducing fuel price will drive in-store sales. Identifying if this is true for your individual sites will require compiling data that reveals changes over time. (See the next section: Experimental Data.)
Another important piece of data in understanding the strength of this relationship is the conversion rate, i.e. the percentage of customers who fuel up and decide to continue into the store. You can begin to understand these often ambiguous relationships through transaction data and survey collection. For instance, transaction data may show if someone purchased both gas and a coffee in the same trip. However, this data doesn't show which offering brought the customer to the next offering. To see such information, you would need to complement transaction data with customer intercept surveys for a greater understanding.
In the new era of convenience/fuel locations there is a heavier marketing focus on creating a destination for convenient and desired options for food and in-store offerings. Best-practice retailers have grown in their markets based on this decision and have expanded past the previous offering of a store by including seating, extra parking spaces and quality food options. Making themselves a destination leads to the question: Are their customers coming to them in need of fuel and entering the store because they know and trust there will be quality offerings inside? Or are they coming for the convenient food and store offerings and continuing to get fuel while they are there?
A more experimental way of discovering the realities of the fuel store relationship involves monitoring the impact of adding one to the other. Such an expansion creates a before and after scenario that shows how adding fuel or convenience stores impact overall sales and profitability. You might, for example, clearly see that adding fuel brought higher in-store sales. Or see that adding fresh food increases fuel sales. Experimental data, when taken into account alongside site-specific performance information, will help you create a framework for success to use when you make changes in the future.
The issue still remains that isolating the variable responsible or most responsible for an increase in sales can remain a challenge. Therefore, it is a best practice to compile a variety of measurements and surveys to paint a clearer picture that allows you to glean deeper insights into the causal relationships that drive success at your site.
The key thing to remember when trying to understand the cause and effect between fuel and convenience offerings is that it is a two-way street and there is no one clear answer. However, the more correlational data you compile, the more you can glean about the impact your offerings have on each other. In the case of fuel and convenience store offerings (which may be seen as separate), monitor and continue to optimize your site's value proposition, and dial in your different offerings so they work together to increase profit, overall.
Learn more about what you need to consider when maximizing the profit potential for one site or your whole network.