The Morning Eclipse

Friday, January 19, 2007

Cash is king is convenience store

In all my reading of business books, one important reminder always pops up: Cash is king.

It seems then that the retail convenience store is a very good business to go in to. Take the proliferating Mini-stops as an example. It just has the right combo and mix to attract frachisers and investors.

1. It is retail CASH.
Unlike the local sari-sari store, convenience stores don't sell on credit. Everything is cash.

2. Minimal overhead
Store owners have practiced the self-service creed to the last dot. They only employ two, maybe three staffs for one big store. Hotdog have to be skewed from their steamers and soda drinks have to be collected from their dispensers. So busy are the personnel manning the cashiers, rarely will one see any idle personnel.

3. Convenience
This is the best part. Convenience stores sell convenience and therefore charge premium prices for the good location.

Questions. Questions do swirl around my mind when I think of this business. Remember, convenience stores are just high-class sari-sari stores and they operate somewhat similarly.

1. Security
There maybe savings from personnel but there's an added cost for the security guard. 7-11, Mercury and Jollibee. These popular and successful companies have regularly employ security agencies to protect their stores from theft and robbery. Is there then real payroll savings from the Philippine convenience store model?

2. Branding
Does one need a brand to operate a profitable convenience store? I have seen very few own-brand convenience stores. Most of them are 7-11's or Mini-stop's. Is its cost structure so high that a premium- a brand premium- has to be present? Is the good location not enough to charge for good prices? If there's no brand, does the convenience store become a sari-sari store?

3. Credit
Won't the business earn more if it extends some credit for its repeat customers? Sari-sari stores have employed this credit policy successfuly and yet I've not seen this with the big players. Maybe it's just the lack of competition.

4. Extending your payables
What's the point of focusing on cash management if you can't stretch your terms with your suppliers. I'm sure as Mini-stop or 7-11 franchisees, you'll have no legroom in negotiating with your supplier- who most likely is also your franchisor.

There are so many answers to these questons. Bottom line is I've not seen the industry crowded enough to address the issues. There is still room to grow while players are but a few. Perhpas one day, I'll see a more sari-sari store inspired convenience store to open around the block. Until then this industry is very easy to enter into and is ripe for competition.

Success is 1% inspiration and 99% perspiration. Never tire.