By Ian Thompson, Managing Director, Planning
When you focus day in and day out on fuel pricing, it's easy to see pricing as the panacea to every convenience store and fuel ill. After all, when all you have is a hammer, everything looks like a nail. But Total Site Profitability is more than the sum of its parts, and so, pricing — or any other element — cannot stand alone.
Total Site Profitability And The 7 Elements
Kalibrate has discovered, over time, that there are seven distinct elements that contribute to your fuel and retail success. Six of these elements act as volume magnets to bring customers to your site: market, location, facilities, operations, merchandise and brand. The last remaining element, price, might also draw people to your location. But we encourage you to attempt to reach a place where you see price as a decision point, instead of only as a draw, if only because it's one of the least efficient volume levers to pull.
In other words, when you perform brilliantly in those six volume magnet areas, you earn the right to make a decision on pricing. When you don't perform, e.g. if you're operating in a poor location, or your brand has very little established value, you may have fewer options; you may be forced to price inexpensively in order to compete in the market.
The opportunity to operate at the premium level, where your choice is one between some margin and a higher margin, is an earned opportunity. Price position becomes a meaningful decision when all of the other six elements are working together for total site profitability. Therefore, the real meaning of total site profitability is: the result of successful execution on the intrinsic link between the six volume elements and the seventh element, price.
Gaining total site profitability can happen through pricing strategies on items other than fuel, as well. There exist known value items, such as cigarettes or coffee, (based on your brand or your market) that drive serious volume to your location. Often, these items are advertised almost as prominently as fuel, and if they truly offer the volume draw, you have the opportunity to price other items differently in order to maximize gross margin. Understanding exactly what those volume magnets or value items are — and understanding how to price them appropriately, and price other items appropriately relative to them — is how best-in-class fuel retailers can achieve total site profitability.
But none of this is possible without total site visibility, i.e. insight beyond just the forecourt, into all aspects of site health. Without the data to understand your full site, from operations to merchandise, you won't reach total site profitability of the best-in-class sort.
Bottom Line: Focus Across the Board
Many retailers in the past have relied on relentless development of only a single, volume-generating factor. Typically, that single factor was price. But data and experience have proven that focusing only here is the incorrect strategy. Combine that historical failure with the paradigm shift toward convenience offerings as differentiation points in fuel retail, and you can see that as the relationship between forecourt and store grows stronger, competitive advantages come from areas other than price, too. Concentrating on all seven elements (total site visibility) helps you chart a path to total site profitability.