Retail performance is an area with many facets: from pricing to branding, from facility cleanliness to customer service. Added to the complexity is the fact that each site’s trading area is unique, with its own demographic profile, traffic count, competitor mix, and competitor attributes. In today’s busy retail environment, how can you find the time and focus to commit to the right aspects of retail performance — the ones that will maximize your site and network profits?
Through our modeling of retail fuel and convenience sites in more than 70 countries, we have found that the many factors impacting retail performance can be captured in 7 Elements that are the key areas of focus for ensuring maximum profits. These 7 Elements are measurable using quality-driven data and sophisticated analytics. The 7 Elements that every retailer needs to understand, as they relate to their individual sites and retail network as a whole, are:
Focusing on the 7 Elements is a strategic response to fast-paced retail conditions. Today’s consumers are in a hurry. They want to get in, find what they’re looking for and check out. And they want to do it all quickly. This phenomenon has led to the rapid growth of online retailers and the erosion of traditional retail. Attention to the 7 Elements will help you keep convenience at the forefront of your retail operations.
This page will tell you everything you need to know about optimizing the 7 Elements for Fuel and Convenience Retail Success, including:
Let's begin by diving deeper into each element.
Every fuel retail site exists in the context of a broader competitive landscape. Maintaining your competitive edge requires understanding where you are compared to the competition. It means having a keen awareness of how your key competitors are performing in the market, knowing their goals, and having a well-thought-out plan of your own for responding—all without letting the competition in on your strategy and tactics.
As a retailer, you need to know who your immediate key competitors are and how your site compares. You need to stay in touch with how competitors' expansions or rationalization activities can impact your sales. Their operational efforts, brand, pricing strategies, merchandise promotions, and speed in reacting to market changes can also affect your performance.
Ask yourself: Where are your competitors building? What are they building? How do they operate their sites? What is their pricing strategy?
Benchmarking your site against key competitors can reveal improvement opportunities that you can then act on to ensure your site is as successful as possible in your market.
Location is the fundamental building block for a site's success; if you get it wrong, it's unlikely to do well, even after optimizing the other six elements.
Kalibrate's data has shown that the location of a store has the most influence on its ability to drive volume. A store could have the most modern pumps and car wash, be completely in step with what is happening in the marketplace, offer the right products at the right prices, and stock the freshest food served by the friendliest team. But, if that store is in a less-than-desirable location with poor access and visibility, then it almost certainly will fail.
But the converse isn’t always true. Even a good location can be incredibly unsuccessful if the facilities are poor, merchandise and pricing practices are inappropriate, the staff aren't up to standard, and the store is operated without awareness of competitive influence or customers’ needs. Even still, if you can get your hands on a great piece of dirt, then you have a much better chance of delivering great results.
As Robert E. Bainbridge wrote for Convenience Store News, "(Based on a 21-variable model) stores that were in over-supplied markets with poor customer demographics and hypermarket competition were priced at $700,000, while stores in good locations were priced at $2 million. For a convenience store, it can truly be said: location can be worth a million dollars."
Location is something you can't easily change; therefore, you should employ a systematic approach for choosing the best locations. Having a better location than your competitors is the first step to ensuring your retail site has the abilities to withstand competitive threats and help consumers realize their need for convenience.
If your location is subpar, what can you do short of closing it?
It’s impossible to move a store once it’s built, but recognizing the limitations of poor traffic, access, and demographics should at least play a significant role in determining a store’s strategies and tactics.
Consider your forecourt inertia and how to capitalize on what you have. What does your forecourt look like? How safe are your customers in the parking lot? Do they feel comfortable entering the store? It may be worth refurbishing less-than-ideal locations by focusing on some of the other determining factors in retail performance, such as environment.
And next time, urge your organization to invest in data analytics to determine better site locations before you buy or build. It's worth it in the long run.
Your site's facility is more than its physical attributes. It's made up of a collection of important components: accessibility, interior layout, fueling positions, parking spaces, and much more. All are crucially important to ensuring that the expected volume is achieved at each location.
It is important to provide consumers with a pleasant and efficient shopping experience. A facility must fulfill the needs and demands of consumers — for instance, it should include an adequate number of fueling positions and parking spaces, and the setup should make it easy for consumers to find products in the store. Merchandise should offer a compelling range of choices, and the shopping environment should feel welcoming and clean. Consistency of facilities across your retail network provides consumers with familiarity of layout and comfort in knowing they can quickly find the products they need.
Understanding the interaction of all these parts is also important. For example, Kalibrate’s data shows that there is often a correlation between the number of customer parking spaces and the success of driving customers from the pump into the convenience store. So, putting too many pumps on a location and sacrificing parking spaces could have a detrimental impact on convenience-store sales.
Retailers do not want to make the mistake of building the wrong facility at a specific location, because altering it is not only time consuming, but incredibly expensive.
The right mix for choice, comfort, and convenience
So what are the right facilities? Unfortunately, the answer is, “it depends.” There is no cookie-cutter solution. Each site will require a different mix of well-balanced facilities to draw customers to that location. Some data, such as demographics and traffic, will play into the decision about which facilities are best suited to each individual site.
Best-in-class retailers understand who their competitors are in each market and accurately quantify decisions like how many fueling positions and parking spaces are needed to set them apart. They also precisely identify the best facility for any specific location to capture the available demand, while avoiding over investment and minimizing volume loss due to fueling capacity at peak hours.
Facilities that typically drive the most volume in the United States are those that offer the customer an open forecourt with sufficient pumps and fueling positions; a large convenience store with ample dedicated parking spaces and plenty of the typical convenience-store products like fountain drinks, coffee, and snacks. Additionally, a fresh-food offer is becoming increasingly important. All of this at a fair price.
Operations are the personal and often intangible aspects of management and customer service at a specific site. Kalibrate’s analysis has shown that the impact of enhancing operations can be more profound than simply lowering prices. A change in operations, which can happen relatively quickly, can have a significant, positive impact that can provide sustained benefits in both the medium- and long-term.
Employees are the literal face of your brand. Their attitude and service are what customers remember. As Christoph Preuss details in "Retail Marketing and Sales Performance," four external models have found that the sales clerk is the most important factor for customer and shop visitor loyalty. Satisfied customers are a result of well-trained, satisfied sales staff — a defining aspect of healthy operations.
The most clearly articulated and communicated strategy can be compromised by a single, poor customer experience. On the other hand, a positive retail experience can go a long way in creating a loyal customer. Customers demand fast service, courteous employees, well-stocked shelves, equipment that works, cleanliness, and fresh food. Unless the quality of employees and their service meets your customer's expectations, then you will likely fail.
How can retailers ensure quality operations?
The value of site-specific management and customer service cannot be overstated. Ensuring quality operations starts with smart recruiting and hiring practices. Employ service-oriented people; train them and institute a repeatable training program that emphasizes the importance of great service.
In addition to the customer-first mind set, reinforce the importance of getting the basics right. Operational scorecards, secret-shopper programs, clean restrooms, an unparalleled focus on cleanliness — find the slogan that will drive change and then back it up with genuine financial rewards. Don't make it a “flavor of the month” activity, but embed it within your organization's ethos.
Make great service an intrinsic part of your organization, and demonstrate it in meaningful ways that provide a clear indication to your team that they are crucial to the company’s success. Don't be one of those companies that “says” its people are the most important asset but then demonstrate a behavior contrary to that belief!
The importance of great operations is clear: It can have an immediate short-term impact on your whole company, not just in the KPIs (key performance indicators) that are measured on a day-to-day, week-to-week basis, but also on the morale and sentiment within an organization.
Companies that treat their team in the right way, recognize (often publicly) staff members who are behaving in the right way (however you define that) and improve their customers’ overall experience will be winners in fuel and convenience retail success.
The power of merchandising for driving volume cannot be underestimated. However, merchandising success relies on the correct product mix, adequate inventory, fresh food, and a clean and neat appearance. Driving synergies between the fuel forecourt and store can improve overall profits. Leveraging the products that consumers value most can drive additional demand.
There are four key factors for merchandising success:
Many retailers may feel that fresh food is the panacea to all of the convenience-store industry’s ills, but in reality, only a select number of stores have the space, parking spots, and layout to successfully accommodate a foodservice area that will add value to the overall store offering. Testing before investing is key. Not just which type of food offering will work, but more fundamentally knowing whether your store is able to support profitable foodservice without negatively impacting the rest of the store.
Use a combination of market knowledge, data analytics and reporting, vendor advice, and intuition to weed out the myriad of products that you are certain will not work in your retail chain, then construct a robust test that isolates the impact of introducing a new product. The right merchandise, thoroughly tested and presented in a well-lit, cleverly displayed, and strategically mapped out store can drive significant traffic into your convenience store.
You know that a brand is far more than just an attractive, unforgettable logo. That’s important, but a great brand can influence customer choice and create loyalty. Branding also plays a role in attracting and keeping the right staff. It can even impact the cost of financing your business. It says something about you as an organization, and it can significantly impact your overall retail performance. Understanding the value of your store brand can help you better price SKUs during other brands' in-store promotion periods and maximize the impact of your brand promotions, as well.
How to understand and capitalize on the value of your brand
Think of your business. What image does it conjure up in your mind? Are you able to clearly articulate what makes your business unique? Why would a customer choose your brand over every other competing brand in the market? Do your employees embody that brand value every day, in every shift, with every interaction? Even more importantly, are you able to measure the value of your brand in relation to the rest of the market? Can you establish how much volume you would gain, or potentially lose, if you changed brands?
It is important to emphasize that changing brands is not always the right thing to do. The operational impact and business case need to be carefully considered. Keep in mind, also, that each market has its own unique critical mass and saturation points. Until a brand reaches critical mass, it’s vulnerable to competitive threats. When nearing saturation, retailers need to carefully evaluate adding sites to their network due to the fact that cannibalization is more prevalent at that position. The sweet spot between critical mass and saturation lies where volume share increases outpace outlet share increases as new sites are added to the network.
Fuel retailing has been made more challenging as the brand associated with a convenience store is becoming increasingly blurred. For many years, it was fairly straightforward; the brand essentially belonged to a major oil company. But now the choice that customers face is extremely diverse and the brand could be the fuel that is sold, the sign above the convenience store, or even a partner organization sharing the site’s location.
Each of these decisions on branding needs to complement and represent the very core of what your business is about. Consistency reflects well on your brand and its overall reputation and quality as perceived by consumers.
Price is a unique case for the 7 Elements, as success in the other six elements earns you the right to price more competitively. It can be difficult to measure, especially on the forecourt, where in many countries price changes multiple times each day. It's important to have a constant and solid grasp, not only on your own
In response to low fuel prices, many customers are likely to spend more on gas or other retail purchases. So it's true that low gas prices might boost sales volumes. But what if that's only true at certain times of
Too often, retailers rely on only pricing to maintain or grow volume. Although a critical element for success — and necessary for improving margin — pricing is not an optimal volume driver. If you chase short-term volume gains through pricing, the competition will quickly react to that change, and you may start a price war.
As a retailer, you need to understand each factor that influences change in fuel prices so you can make better pricing decisions based on your pricing power and position. Let's examine these factors from two angles: macroeconomic and microeconomic. Macroeconomic factors will influence the industry overall, whereas microeconomic factors will influence what the consumer pays.
Macro factors influencing fuel price changes
From global weather patterns to geopolitical crises, the factors that influence change are varied and many.
All of the above factors influence price to you — but importantly, what influences price to you may also reach the consumer. Then again, you might make your pricing decisions based on a micro factor instead.
Micro factors influencing fuel price changes
1. Competitor prices
Microeconomic factors tend to involve consumers and competitors. What might convince you that you should change prices at one station or in one network? Probably the price changes of your competitors. Today, those types of changes are highly transparent; consumers can acquire prices and price data and make comparisons and choices accordingly. Because of the growing demand for consumer awareness, retailers have had to become more cognizant of competitor prices.
To really dive into the way competitors can (but perhaps shouldn't) affect your pricing, consider how you perform and how they perform in each of the 7 Elements. Maybe you have the pricing power to price high because your other offerings can act as volume magnets. Or maybe you need to price lower to maintain volume because you haven't established your brand as strongly as your competitor has. There are lots of ways to reach volume goals; find out which are your best bets.
2. Strategic imperatives
As a retailer, goals for revenue, cash, and profit across your station or network will impact fuel price changes. If you know you're behind on cash through the till, you might stimulate growth by influencing prices. At Kalibrate, we refer to these goals as strategic imperatives: How far away are you from where you need to be, and can you successfully adjust prices to get there?
How can you benefit from understanding these factors?
Though many factors influence fuel price changes, a few stand out as the most important considerations for retailers: the ones you can control. Your ultimate goal should be to understand every customer individually; in that way, the fuel industry is no different than any other business. One good step toward understanding your customer is understanding how they respond to price and the other six volume-draw elements. You can use that information to create pricing power. And once you have that, you can make better decisions about how you let your price be influenced by the price change influencers listed above.
Ultimately, capitalizing on low fuel prices to drive overall profit requires a focus on the integration of retail factors. A successful pricing strategy should be supported by an integrated understanding of site location, market competition, good merchandising, adequate facilities, quality operations, and brand power.
That calls for accurate data, visibility into competitor pricing, the ability to execute new pricing quickly to test hypotheses, real-time surveying and, of course, integrated systems. Without these, you won’t be able to understand the impact of low fuel prices on sales volumes. You'll be stuck guessing how your pricing tactics help or hurt your business success.
With the advancement of pricing automation technology has come a deluge of content focused on the merits or downfalls of intraday pricing. Let's dive deeper into this particular tactic and discuss whether or not it may be valuable to your business.
Kalibrate's stance on intraday pricing strategies
First, let's consider how intraday pricing has emerged. Due to a strong push for automation, access to much faster, much greater computing power and more deregulated markets, intraday pricing has been portrayed as the end-all, be-all for fuel price generation. And while it may not be the panacea to every ill, intraday pricing is more than feasible. It's occurring, right now, all around you in the fuel market.
Why? What's the value? Pricing more frequently, especially with the backing of algorithmic intelligence, will keep you more closely aligned with the market. You will always be at the forefront of pricing capabilities when you price intraday. But there are, of course, some risks:
Let's start with the first. It's important to understand that automation doesn't always mean removing the human element. In fact, at Kalibrate, we see the two as inseparably working together to improve your volume. Kalibrate will never support a "machine learning only" approach to pricing, because we believe that a machine alone cannot determine the complexities of fuel pricing in a way that someone who understands the relationship to the store and market can. It's critical to incorporate all of the 7 Elements for Fuel and Convenience Retail Success with historical behavioral data and demand forecasting in order to really understand price in all of its complexity.
The second objection is legitimate. If you are adjusting price based solely on machine learning, stability in the market will be compromised and margins typically decrease in those circumstances. To successfully implement intraday pricing, you need more than what the numbers and machine learning models can provide (which brings us back to that first objection). Beyond machine learning, you need to understand your strategy relative to your competition, how you can effectively implement that strategy and how you can monitor on an ongoing basis. You also need to get to the heart of incorporating data into volume targets, ensure you're leaving out those times when it is not acceptable for an algorithm to make pricing decisions (such as during price restorations, certain events or market conditions), and validate that your experience and knowledge is incorporated in automated pricing strategies.
Obviously, a lot of work goes into a successful intraday pricing strategy. The bottom line is that intraday price generation, including optimization, is real, feasible, and occurring constantly. Price generation will occur as often as new data triggers the process. Only with both immense computing power and immense business knowledge can you achieve the level of optimization, and the margins, you desire.
Of course the value of each of these elements varies from business to business. For example, merchandising is less important for a business with a small retail footprint. A business servicing an area where people travel to and from work on the night shift should have hours that accommodate those workers. If a warehouse store with gas pumps opens a couple miles away, they could draw your customers away. Your awareness of these elements' contributions to your network's success will help you focus on what has the greatest impact for you.
Bear in mind that no one element can predict your performance, but the weakest one will hold you back. Six of these elements act as volume magnets to bring customers to your site: market, location, facility, operations, merchandising, 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, eg 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 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, ie 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. Improving each element for total site profitability depends on a market-by-market and site-by-site analysis.
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 7 Elements (total site visibility) helps you chart a path to total site profitability.
Though widely varied aspects of your business can have widely varied impacts on retail performance — and that may seem overwhelming — there is good news. You don't have to figure all of this out alone, or even with minimal input from your team. There's just no need to rely on your gut-feelings or instinct anymore. Data analytics can help.
For example, how can you understand the impact of and ultimately adjust to your competitors' pricing strategies, expansion activities and more? Data.
How can you determine brand value and the impact of advertising and promotions on your overall retail performance? Data.
By creating a strong hypothesis-and-test structure, data analytics can help you understand which factors are impacting your business, then allowing you to make the move toward optimization. With clean, accurate, up-to-date information in hand, you'll already be ahead of the game.
What data do retailers need to make good decisions?
The key to staying relevant and constantly improving is to have access to critical data, the ability to analyze it quickly, and the mechanism to apply it intelligently. Successful retailers leave little to gut-feel. They eagerly test new products, new tactics and new ideas, implementing those that succeed and dropping those that add no value. Time and money are too valuable to waste on weak products, processes, or technologies.
So which data should be analyzed? From a volume perspective, the most important measure is market efficiency. This measures how effective a retailer's sites are compared to competitors. A retailer with 10% of the sites in a market should, at minimum, be achieving 10% of the volume in that market. Less is an indicator that sites are underperforming.
Let's look at data from some of the top performers around the world. A fuel effectiveness value of 1 means that the retailer is achieving the expected volume from its sites; a value of 2 means the retailer is achieving twice as much market share than could be expected.
Los Angeles, CA
Retailers who know their fuel effectiveness score and measure it regularly are able to assess their progress against the rest of the market, giving them an additional competitive edge.
More retailers are also recognizing that overlaying the traditional volume and margin data with traffic count and demographic data adds significant value in determining reliable volume targets to set. Assembling the right data and organizing it into meaningful actionable insights allows you to make decisions to fine tune your sites for greater performance.
With attention to relevant data, retailers are able to test, analyze, and rigorously implement improvements while eliminating products or processes that are not delivering value — keeping them in the lead.
Data provides the confidence and answers to validate what realistic achievable volumes should be. Starting with overall market share data and then adding site and competitor specific data, retailers can optimize their strategies on a site-by-site basis.
In today's evolving fuel and convenience retail markets, conducting a competitive analysis should be a routine step in evaluating the potential success of your sites as you break into new markets or expand to new locations where you currently have a presence.
When analyzing your competitors, certain categories of data are most important to research and take into consideration. This effort, underpinned by objective science, will help prove the potential for longevity and success of your new locations or market expansion.
Monitoring your competition is important, but you need a frame of reference. Making decisions about your retail network based on your competitors' general volume requires first knowing your own sites very well.
Each of your sites is unique. An individualized approach to determining strategy and tactics for each site, and the factors that contribute to overall volume, is important. You can certainly measure the number of cars that pass your location (and you should), but that measurement alone will not tell the whole story. It's critical to evaluate all factors that influence your volume, from the pumps to the store. Once you have, you can develop a strategy with specific tactics to increase overall profitability — not just for fuel, but for convenience store sales and unique site offerings (a car wash, for example).
For the convenience retailer, sophisticated business intelligence products and services provide the needed insight and measurement. These tools and experts can help identify specific areas for improvement and track overall progress. A focus on the 7 Elements can help you identify where your strengths and weaknesses lie, incorporating the complex challenges into your wellness assessment.
By tracking these metrics over time, you can see the improvement in your retail network and whether you are achieving potential in every possible area. Through knowing which metrics need to be improved, identifying the areas where full potential can be achieved, and consistently tracking progress, you can build consensus within your organization about how to improve overall performance.
Designing a clear strategy and communicating that to your team will make it easier to implement a more proactive approach when dealing with competitor influence. Your team will have a framework to move forward to stay competitive in your current market, or any new markets being considered for expansion. Filtering your decisions through the 7 Elements for success will ensure that every possible area of value is being leveraged to help drive volume and profitability at your sites, instead of your competitors'.
As a convenience retailer, you can quantify your true potential. By employing a sophisticated retail model, you will be able to quantify the potential for each, individual outlet, and for your retail network as a whole. With the implementation of the proper tools, you can determine which actions should be taken to achieve that potential. The human element will still be there. But with a truly sophisticated model adapted to your specific market, even the human element will be enriched.
Gauging the strength of your competitor's volume and value are two key elements of conducting a competitor analysis. As Warren Buffet once told the Financial Crisis Inquiry Commission, "If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business."
Pricing power — or economic value — is what gives a retailer the ability to raise prices with a negligible effect on volume. In order to attain that value, all other cylinders of the business must be firing — constantly. In fuel and convenience retail, those cylinders include the main volume magnets: market, location, facility, operations, merchandising, and brand.
What does your price look like if you are failing in these other areas? Constrained, at best. If you are in a terrible, failing market, have an unfortunate site location with little traffic or too much competition, your brand is undeveloped and/or inconsistent, your facilities need attention and your customer service offering is lacking, you have not earned the right to price as you choose. If even one of the six volume magnet elements is faltering, you may give up that right, and be forced to price too low, sacrificing margin.
However, if the opposite is true — your location is a destination, your traffic is high, your facilities are brilliantly clean and customer-friendly, your brand is highly developed and well-known — then you can price with power. You have achieved economic value beyond price, and are now able to adjust your price without sacrificing volume or sacrificing customers to your competitor. In other words, you are what Buffet calls "a very good business."
As you can see, economic value in pricing power is freedom. When you have all of your retail ducks in a row, you have the value, power, and freedom to price as you choose. Of course, there's a relationship between your ability to price fuel and the current state of market maturity and regulation in your geographic area. But your focus on attaining pricing power via excellence in the volume magnets should remain regardless of whether or not your market has matured to the point of deregulation.
The ability to raise prices without losing business or sacrificing customer satisfaction is the foundation of a successful business. Retaining pricing power means striking a delicate balance and understanding how fuel purchasing decisions are made from a buyer's perspective.
To maintain pricing power, suppliers need to account for their customer's needs and value expectations on many different levels. How do buyers and suppliers determine value and how does that value translate into a price tag? How is the value of different products relatively determined? And what other factors contribute to fuel purchasing decisions besides price alone?
The context of the volume your competitors are selling really lies in the unique value their sites provide to the customer. Understanding how that value differs from what you offer, or from what other competitors in the market offer, is the basis for knowing where your weaknesses and strengths might lie should you expand. How your competitors are attracting customers and what their value proposition focuses on will give insight into where your business can fill the gaps in the market or where you can double down.
Previously, companies encouraged people to pay for their gas inside the store so that the added inside purchases would be made. With the growing focus on adding value from small grocery stores and QSRs, the model of newer convenience stores tends to be focused on creating a separate experience between the fuel outside and the store inside.
Ultimately, if your value proposition in any of the 7 Elements is weaker than competitors in your market, you will lose ground. Areas of differentiation could exist anywhere — from discounted price, to more parking spots that encourage customers to linger a little longer in the store with better merchandising to bolster the results.
When you have access to true market intelligence, you have access to a lot more than just a data set full of information about your closest competition.
Yes, you want to understand your competitor's pricing strategies and how retail offerings might impact your fuel sales when there's a big box store nearby. But scoring against competition isn't the same as ranking your markets and illuminating your best opportunities for expansion or single-site growth. And scoring against competition on price alone certainly won't give you the earned permission to price with a competitive edge.
Shifts in demand are likely one of your greatest challenges as you make decisions about your fuel network. But fuel pricing isn't the only factor driving demand, and if you treat it as such, you'll be missing out on the subtle insights that can help you grow volume in existing sites and choose the right markets to enter in the future.
Having a balanced perspective of your market requires understanding both its potential and its limitations. This will give you well-defined and actionable insights into whether expansion in certain areas will create 'over pumping' or excessive volume cannibalization. Utilizing a GIS map of the surrounding areas will provide a clearer picture into the makeup of a larger urban mass and its satellite cities. Try to segment where your customers are coming from and where other customers frequent. If your customers are commuting from a larger city, consider nearby smaller cities where other potential customers live and commute. Research what fuel brands are currently occupying those markets and if your value proposition would be able to compare with their brand strength and offerings.
Researching opportunities for market expansion might, in some cases, create a situation where emotion takes over. You might see an opportunity for expansion and be absolutely sure you will succeed there. But it's important to use a scientific approach to support your emotion. Having more granular data about your competitors' locations and volume will benefit your research and end speculation about competitor performance. Will your site have the lasting power to be successful over a long period of time? Answering with certainty is something that emotion alone won't allow.
Conducting a competitive analysis before solidifying any decisions to grow or expand your retail network is critical. Before making any investments, you must know if these sites will have the power to generate revenue over a long period of time and continue to stack up against competitors as they, too, change and grow.
Understanding consumer behaviors and the many factors that truly influence demand is a massively important component to your success in a given site or market. With the holistic visibility afforded to you by datasets that capture 7 Elements of fuel pricing success, you'll have the permission to price competitively.
The starting point for dealing with competitors is having a clear, documented, and internally publicized strategy for fuel. Far too often, strategy is defined as, “I will always be a cent below competitor X,” or “I want to make as much money as possible.” Unfortunately, there are few occasions when fuel strategy defined in clear, measurable terms. Without that precise definition, it is almost impossible for your organization to know how to react to the competition and the ever-changing market conditions that are normal in fuel today.
A great strategy should not only be defined at the top level, such as, “We intend to grow our fuel market share 2% this fiscal year.” But it should also highlight how each department will contribute to that success. For example, “Operations will improve scorecard performance by 5 points,” and “Fuel pricing will price within 15 minutes and measure retail execution to maintain brand image.”
Too often the strategy is neither stated nor linked with the execution capabilities of the organization. This makes gaining share more challenging. Corporate, department, and individual remuneration should be based around the common goal of increasing 2% market share, with each department head defining how they will contribute and setting objectives to meet that strategic imperative.
In fuel and convenience retail, there are locations where more volume cannot be won, but you can still compete to the very best of your capabilities. It’s important to recognize that each location is completely unique and that tactics need to be developed for each site to maximize return from fuel, c-store, car wash... the whole location.
It’s also important to understand where you are compared to the competition. In other words, what type of fuel marketer are you? Are you a genuine “A” player who does everything right and can leverage that professionalism to maintain, or even grow volume, maybe even glean a little more margin? Or are you a slightly lesser brand that needs to operate brilliantly, price competitively, or invest in facilities to stay competitive?
There are occasions when retailers misinterpret their brands and switch up their strategy, and this almost always ends badly. An “A” player that decides to move into the slow lane will cause carnage. Price wars will likely ensue. Margins will drop for all retailers. And while the volume may shift around a little, it is probably not enough to justify the reckless maneuver.
To move into the fast lane and become a bona fide “A” player takes investment in locations, facilities, people, processes, and technology; however, once there, the rewards can be massive. The top percentile retailers typically have class-leading revenue per square foot, return on investment and EBITDA (earnings before interest, taxes, depreciation and amortization).
Monitoring the competition is important, but being truly aware of your own strengths and weaknesses is even more imperative. Clearly defining your strategy and communicating how it will be executed will put you in the right position to gain volume where possible.
Once you've conducted a competitive analysis and you understand the value of each element for both your sites and your competitors', you can enter the continuous improvement cycle.
The continuous improvement cycle is about more than just constant development. Continuous improvement is a detailed and exacting process with a momentum entirely dependent on executing with best practices top of mind. Though it can be applicable across many business types and objectives, we'll focus here on its value in forecourt and convenience retail success.
The first step in a successful continuous improvement cycle is to benchmark current status — identify what you're doing right and understand where there may be gaps in your overall performance. There is a difference between benchmarking your past successes and "benchmarking" overall performance. Even with the best BI tool on the market, you won't be able to accurately benchmark without the right data, or without taking a big picture view. Consider where you benchmark against yourself, other retailers and other competing brands — as a whole. If you are looking to improve in a given market, look at how your brand performs in one market vs. another. If your objective is to understand the performance of the sites in a given network, consider benchmarking against other networks. Whatever your objective, start by backing way, way up and looking at the whole, not the details — yet.
Once you've assessed where you are and where there may be gaps in performance, then you can drill down into what is creating those gaps and what needs to be done to bridge them. This is the strategizing part of the process and where you can begin to incorporate the 7 Elements for Fuel and Convenience Retail Success. Use the 7 Elements to guide macro and micro benchmarking and simulate potential improvements. Where do you benchmark against yourself and against your top competitor on merchandising? On facilities? On operations? What changes can you make that will provide the highest return? You may choose to just drill into one element, specifically, in order to keep the continuous improvement cycle focused. However, bear in mind that all of the elements interact and affect one another in varied ways.
Next, forecast what your performance will be when the gaps you've identified are bridged. This starts by creating specific goals for your action plan. Let's say you have identified a clear gap in your site operations that is impacting your overall performance. Do you want to reach a certain level of operational efficiency to bridge that gap? What steps need to be taken and by when? Outline your goals clearly. An excellent BI tool will include predictive modeling to help you forecast, and that forecasting is critical to creating reasonable goals and expectations for ROI. There are often times millions of dollars at stake to make some of the capital improvements you identify as gaps. Continuous improvement simply doesn't function without a reliable forecast and a resulting goal.
You are now ready to implement the changes you believe will help bridge the gaps you've identified, driving to your goal. Then, to "complete" the cycle (which is inherently never complete), continuously monitor and analyze your performance, creating new benchmarks, new goals, and new implementations as you forge ahead.
To review, the continuous improvement cycle for fuel forecourt success involves the following five steps (with some overlap, chronologically):
From top-level executives to site managers, everyone is involved in maintaining brand and organization success. If an executive makes a change and wants to distribute a message, it's important that site managers understand that message and espouse it, as well. Continuous improvement takes investment from every level and role at your organization.
One of the largest challenges of achieving continuous improvement involves plan creation. To ensure a robust and focused plan is created, it is paramount that your data, your strategy, and forecasted performance projections are of the highest quality. Look outside your organization for resources if they don't exist within. Assuming you choose the partnership route, the main challenges of continuous improvement will come to light: finding the investment to make the changes and implementing the changes the way they were communicated. Often, data and analytics won't sway subjectivity. But in order to improve, your teams should avoid subjectivity as much as possible, trusting in the value of your plan.
An additional challenge lies in a sense of defeat. What if you benchmark poorly on something you don't feel you can improve? Location is quite a common sticking point. Though you can't change location itself on a site-by-site basis, you can improve performance (using the other six elements) given the location you possess. For example, based on the traffic to your location, could you improve by creating entrances on two sides of the forecourt to create a better flow and higher volume? You can use the six elements to live up to the potential of your location; therefore, you should not allow static properties of your site to deter you from enacting the continuous improvement cycle.
How do you define success? More profits? A bigger network? More margin? More volume? Something else? Whatever that definition, it is the starting point that aims your strategy into the reality of volatile markets, increasing competition and evolving consumer spending patterns.
Today, technology tools and data science take some of the uncertainty out of decisions, from daily pricing at the pump and in the store to investments in sites. We say “some” of the uncertainty, because nothing is 100% certain in our fast moving industry. Every one of us has to make decisions that leverage all the expertise and intelligence available. We have to build structures that make the most of our collective wisdom. We have to invest in systems that enable us to stay ADAPTABLE, scaling, and improving quickly and efficiently.
Understanding what’s necessary to gain and sustain success doesn’t happen by accident. Kalibrate has been in the fuel and convenience retail industry for decades, and every day shows us some new angle. We wouldn’t have it any other way.
To demonstrate the success of our 7 Elements approach to fuel and convenience retail excellence, here are a few case studies.
One of our clients is a cooperative in the Basque region. When they were still a prospect, we took a look at their pricing process. In all honesty, we saw what was a very effective system for their market and goals. They were getting incoming competitor information and sending out price changes within 15 minutes. Automating that system would bring the turnaround to five minutes, but in their market, that wasn’t going to impact their bottom line. They were justifiably proud of what they were accomplishing with one manager using four spreadsheets managing more than 600 million Euros of fuel.
We noticed that the man was wearing a cast on his foot. He had fallen down the stairs the day before and broken his ankle. He was resilient, but how robust is a pricing system with a single point of failure? The cooperative integrated a Kalibrate system not to improve on what the manager was already doing well, but to add resiliency and scalability to the system.
Kalibrate’s 7E Score gave the retailer a benchmark and starting point for new strategies and tactics. The score revealed that the retailer was a typical quartile 3 (low performance/low potential) operator. Their low scores in each area were combined with a market efficiency rating lower than average. This was cause for concern—and also an opportunity. Kalibrate identified three key areas for immediate focus: market, location, and pricing. Together, Kalibrate and the retailer were able to define near- and medium-term activities to address these capabilities.
First, we mapped the markets where the client was thriving and those where the company was simply surviving. We identified markets favorable for expansion and markets to avoid. This mapping also indicated potential for network rationalization and reinvestment. Before Kalibrate and the client began working together, the client had some sites that were too close together. While this created a sense of brand awareness with consumers in the market, it also brought about demand cannibalization. The client was essentially stealing customers from its own sites.
Second, within the markets where we expected the client to prosper, we pinpointed very precise locations of unfulfilled demand – locations where the client had the greatest opportunity to steal a march on the competition without re-introducing demand cannibalization. There is a fine line between improving brand awareness through market presence and becoming your own strongest competitor. Together, we were able to get this balance right.
Third, we agreed on a pricing strategy and site-level tactics to meet the retailer’s strategic imperatives. We aligned these tactics with the market and client’s overall brand messaging to provide compelling value to existing customers and build brand loyalty with new customers. The client had been working under the misconception that price had to remain low in order to compete with highly competitive new entrants into the marketplace. In reality, the improvements the client had made in the other 6 Elements earned the right to price at an appropriately premium level. The client successfully created enough difference between its own sites and other competing locations that its customers were willing to pay a little extra for fuel.
In one particular case, a client of ours was starting to lose market share. (The retailer’s market-efficiency score brought this to light.) The retailer asked Kalibrate to help determine the best way to turn the volume loss around. One combination that worked well involved a change in operations (longer opening hours) with two facility changes (adding diesel to the site and adding two gasoline pumps).
The results were impressive. These relatively simple alterations yielded a 44% increase in gasoline volume. A very welcome side effect was that convenience-store sales also increased by 13%. The client’s market efficiency increased significantly at this site, and it remains very positive to date.
We also worked with a client whose sites were performing quite well; the company’s market efficiency was above 1. Still, company executives felt that their fuel brand was undermining the rest of their efforts. They had great locations, were recognized as top-notch operators, and their facilities were exceptional. But they were certain that volume was being left on the table.
Kalibrate analyzed their sites and predicted how their volume would be impacted if they changed from a lesser-known, regional brand to a major fuel brand. Our forecast indicated that by making this type of brand change, they would generate an average increase of 35% in gasoline volume.
They made the change, and this increase was realized. Their market efficiency went through the roof, and they finally benefited from their excellence in other areas of the business. They became a destination after years of operating well below that level.
Discover how you can plan for volume and the growth of your retail network.
Kalibrate’s 7 Elements structure fuel and retail performance analysis around elements that, taken as a whole, afford a holistic view into the business.
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