In this Episode, I discuss the 4th ‘P’ of the marketing mix -Product which in our business is merchandise. There no “one size fits all” in this business. You have to differentiate your store/business from the next store to stand out in the crowd. Product selection is the differentiator that can make you a successful as oppose to a not so good product selection can tank your business to the ground.
There are 4 very important things you need to find out about your store, about your customer base and the demographics of your store first, before you can decide what and how to merchandise your business with the right products.
1. Median income level of your customer base
2. Race and ethnicity of the customer base
3. Age of the population or your customer base
4. Location of your store
I also discuss how to calculate your store’s sales per square feet monthly and how to increase and track that number.
The book I mentioned in this episode is The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change, This best-selling book is by Stephen R Covey. It is a book about personal change and growth. This book goes deep into how we can have a paradigm shift first in order to be able to accept and welcome those seven great habits.
Hello everyone, thank you again for joining me in yet another episode of Gas station business 101 podcast
Today I will be discussing the 4th P of the marketing mix which is Products If you are joining me today for the first time, I strongly recommend you listen to episode number 6 and 7 also as I discussed the other parts of marketing mix in them. In episode 6 I talked about first 2 components which were Place and Process then on episode 7 I talked about People aka Employees and now today in this 3rd part we will discuss products aka merchandising.
First Let’s define what is product, for our business it is the merchandise and fuel that we carry in our stores. As I mention earlier in a typical gas station/c-store we carry around 2000-2500 products which include all the variations of some of the same products. For example, Snicker bar comes in 2 different sizes regular and king size, so that is two different SKU or stock keeping unit, more simply they have a different barcode, so they are essentially two different products.
You may ask what is the big deal about products and merchandising when it comes to a c-store since every store carries the same products right?
Well, Wrong! There no “one size fits all” in this business. You have to differentiate your store/business from the next store to stand out in the crowd. Product selection is the differentiator that can make you a successful as oppose to a not so good product selection can tank your business to the ground.
So now the obvious question you will ask is what is a good products selection vs. a bad products selection and how do you know which one is good as oppose to which one is bad when it comes to picking up the right product line for your business.
This is what we will be discussing today. There are 4 very important things you need to find out about your store, about your customer base and the demographics of your store first, before you can decide what and how to merchandise your business with the right products.
1. Median income level of your customer base in the area (to detect if it is a blue or white collar area)
Knowing the income level of your customer base will give you an idea if you are in a blue or a white collar neighborhood, first where do you find this information? Best place is US census bureau, and you can do a search by zip code. Just follow the link on the show note and you will see the US Census site.
Once you know what is the average income level of your customer base, you can them figure out the following, if your customer base is predominantly blue or white collar or is it a mixed neighborhood.
As I am sure you can understand, the buying behavior is very different between these two groups.
2. Race and ethnicity of the customer base (yes we will have to talk about the very sensitive issue of race here, I know but stay with me, and I will explain why)
Race can play a big role in your merchandising effort for your store too, and again I will explain more in details soon, but first let me point you to where you can find that information for your area. Once again direct your browser to the US Census site and there you can find out this very vital piece of information as well.
3. Age of the population or your customer base
Similarly age of the population plays a big role as far as their buying habits thus your merchandising effort too, and again you can find the median age of the population of your area from the same us census site, now gather up all these information and we will talk about how to put them to good use.
4. Location of your store (is it in the city, inner city or in a rural area)
This 4th element is easy to figure out; you don’t need to visit a website to know this. Just look around you, you I am sure already know if your store is in the city, or inner city or a rural community.
Most big and successful retailers do have similar market research methods that they practice as a part of their product selection strategy.
Now let me start by giving you some examples
One big example is Wal-Mart. To give you a clear picture of how merchandising is done in big retail chain companies, let’s take a look at three Wal-Marts; one in rural MS and one is El Paso TX which is a border town very close to Mexico border. The last one is in China. Do you think every Wal-Mart carries the same product line in every store they operate in the US? The answer is No, a Wal-Mart in China will carry vastly different products than the one say in MS or TX, I think we can agree on that.
Now let’s talk about some of the differences between the store in rural MS vs. the one in El Paso, TX. Once you browse the aisles of the El Paso store you may notice products and foods are more Spanish influenced then say the store in MS., but why do you think they are so different? The answer is demographics. This is where the race, the income level, and age come to play, but, in this case, the race or ethnicity is the number one differentiator here.
There are more Spanish speaking people in El Paso then there are around the store in MS. When you walk down each shopping aisle in both of these stores, you will notice subtle differences but not every product will be different just a few in every isle. For example if you walk the milk and juice isle, you may see rice milk alongside regular milk which you will not see in the MS store. Walk the juice section you will see guava juice or mango juice or tamarind juice next to orange juice in the El Paso store which you will not see in the store in MS.
If you walk the frets vegetable isle in the El Paso store, you may find fresh green coconut bigger section of radish and cilantro compare to the store in MS.
I hope you get my point, so as you can see selecting the right products based on your immediate neighborhood clientele is the key to your success, remember it is the products that you carry in your store which attracts people to your store. If a customer knows you carry a certain type of bread, or tobacco that is not carried by your competitor then yes he or she will come to your store every day and shop with you.
When doing the layout of your store and product selection, you don’t have to go item by item but you have to just tweak a few notches to make it unique and appropriate for that exact neighborhood. It is like having a custom fitting suit vs. a generic store bought suit, the custom fit one fits you better because it is made just for you when the generic one is made for anyone who has similar body structure as you but not exactly like you.
Now to give you more in-depth analysis, I will dive little deeper into the product categories and talk about each of those and what and how they can vary by location.
Typically most c-stores have products or departments for:
Cigarette and tobacco
Beer and wine
Automotive supplies and oil
Once again I will take three gas stations in three vastly different neighborhoods and talk about how their products selection may vary from one to the other. Let’s assume
Store one is an ethnic mixed inner city location
Store two is located in a rural countryside location and
Store 3 is in the fancy part of your city
First take store one for example, in the cig and tobacco category you will carry more varieties of menthol type cigarettes, and then on the tobacco side you will carry more selection of single cigars
In the beer and wine side, you will notice you are carrying more of a certain type of beer and wine that are mostly sold as a single can or bottle then your other store in the rural area.
Similarly your grocery selection will vary widely too, in this store you may have to carry for canned meat that are ready to eat, on the candy selection you will notice more selection of the candies that are less than a $1 each or sometimes bags of candy that are 2 @ $1
Now let’s do the same for store two which is in rural area, in this store your cigarette will be mostly nom menthol full flavored cigarette that are sub generic brands, as for tobacco you will notice you sell mostly generic can tobacco and not much of single cigars, so you have to make room to put more selection of them in this store.
As for beer and wine, you will see you sell mostly bigger package cheaper beer like suitcases or 18 packs and not much of smaller packages like six packs.
Similarly, all other product categories will be little different than the previous one.
Now as for store 3, again your cigarette and tobacco will be different again, here you may see you sell mostly high-value branded cigarettes like Marlboro and such and for tobacco you will notice you sell the branded tobacco and good quality Cigars mostly.
On the beer side, you will notice you sell mostly high end six pack premium or imported beer vs. generic cheaper beers. Same goes for wine, you will notice you sell a lot of $15 or higher valued wine bottles in this store
In grocery, you will sell mostly premium candy and gum and not much of the $1 value candies.
So as you can see there is no cookie cutter set up that fits every store; it is unique for each location and each business. One important thing to remember in this process is when you first merchandise your store based on your research it is not done for good, you have to give it 3 months and then analyze your sales and go back and re-tweak things that need improvement.
Part of this improvement process is talking and getting feedback from your customers. It is a good idea to keep a log handy where e every time a customer ask for something or looks for an item that you don’t carry write it down so you can order it next time and let the customer know that you have that products just for them. This can make a customer feel important and special and trust me or she will be a loyal customer to your store for years to come.
We are not going to talk abbot the biggest product you carry in your store which is gasoline or fuel, yes it is part of what you sell, but since you cannot pick or choose what you can carry when it comes to fuel, we will not discuss it in this episode, but we will touch on this topic when we discuss pricing your products.
Let’s recap what we talked about so far, regardless if you are merchandising a new store you just build or if you are merchandising an existing store you just bought, remember you are not alone in this, there are vendors who will help you in this process, but you have to communicate with each and every one of those vendors and get their feedback and ask them what they sell the most in your neighborhood, this can give you a very good idea about how you need to set your store up.
So first you gather up information from those four items I mentioned regarding demographics
You get the median income of the people around you, find out their race and age and lastly determine if your store is a rural, vs. city vs. inner city location.
Once you have all this information, you should have a rough idea based on our discussion as to what product you should concentrate on the most. Then you talk to your vendors and find out what they sell the most in their product line in your local neighborhood. If a vendor mentions he sells 100 case of something in a store 20 miles from you, don’t pay attention, as that area may be totally different than where you are. So ask them about your own neighborhood and not about the whole city.
As I said you are not alone in this, each of your vendors will guide you through this process and remember it is in their best interest also, if your sales are high in turn they are selling you more products, so it is a win-win situation for both, so their goal is to make you successful .
But before you start ordering your predicts one last thing you need to do, go visit your local competitors specially the ones that seem successful or seem to be busy go see how they merchandise their store make some mental notes and try to see if that jives with what you are going to do, if not you may have to tweak yours a bit more.
Now, remember I said come back in 3 months and reevaluate your merchandising? Yes in 3 months you need to sit down with all your invoices and look through and see what products in each category sold the most and what sold the least.
What you are trying to find out now is the sale per sqft. In order to figure this number out first, you need to know the sqft size of your sales floor and not the whole store. Let’s say your sales floor is 1400sqf, take your monthly sales without the fuel and divide that by the total sales floor sqft, so if you had 70K sales the previous month, and you have 1400 sqft sales floor your sales per sqft is 70000/1400 = $50 so your sales per sqft per month is 50, now do that for every month
Next look through your shelves and merchandising, try to find items that are slow moving meaning items that you order maybe once a month or less. Once you locate the slow moving items remove them and try to bring in similar items that you think would be a good replacement for them. Similarly if you notice you are ordering some items every week and still running out or running low, try to give them more visibility and room by giving them two shelf spaces instead of one this way you are increasing the exposure of some of the high sellers.
Wait three months go back do this same process again and see if your sales per sqft increased or not.
A typical rule of thumb is if your reorder frequency is 6-8 weeks for most merchandise then it is considered a slow seller. Your best bet would be to replace it with another item or just remove that all together. Remember every time you pick out an item like that and replace it with faster moving or selling items your sale/sqft goes up higher and in return your profit goes up, so you make more money.
One important factor to keep in mind while deciding what and how to merchandise your store properly, there are grocery companies that you may want to hire who will supply you from cigarettes, tobacco to even motor oil. But when choosing the right company for you, it is best to meet with at least 3-4 of these companies and ask for their pricing book and then compare prices, and product selections from each of them. There are three types of grocery companies; one is national chains like McLean’s then there are regional companies like HT Hackney, and then there are some local companies based in or around where you are located at. You can do a simple search or ask other vendors, and they will give you a few names and who to contact in these grocery companies.
Most or all of these companies provide you with experienced merchandisers who help you design and merchandise your store, but remember even though they are experienced but they never do the research I outlines in this episode so it is again a good idea to do your search first then have an idea in your mind before getting suggestions from any of these vendors,
Another reason you should have a grocery company to buy your merchandise from is that they keep up with the trends on what sells and what does not so often types they will tell you about many upcoming new products that you can get in your store and be the first in your area to carry that product. So yes there are benefits to having a company such as that. Also another advantage is sometimes you will have products that didn’t sell, and their shelf life expired, if you bought those from any grocery company, they will give you credit for those items and pick them up from your store.
Just remember, merchandising is an ongoing process, you have to make little changes very week and keep up with trends and new and all upcoming products.
One little announcement I want to make, before we get to the email segment, I recently released the 2nd edition of my book on Gas station business I wrote and published back in 2012. The first edition was my first try as I mentioned once I am not a writer but I wrote a book so obviously there were errors and typos, and to my surprise Microsoft Word does not pick up all your mistakes even after you run the grammar and spell checker 10 times.
So once again my sincere apology to everyone who read my book and found errors. In this edition I did add and clarified a few things in most every chapter, also updated some charts and graphs, especially inside the business plan.
I am sure some of you readers out there may still find an error or two; I will go ahead and ask for your forgiveness ahead of time this way you at least would know I tried my best.
Today I will not answer any question from emails. Instead, I want to announce two names of two great individuals that gave me a 5-star review on Amazon on my book.
First a person goes by the name My right eye, wrote ” I really appreciated the conversational approach to the writing of this book. That made it easier for me to read and comprehend. This is a very insightful book about how to operate a successful business from the ground up – even if it isn’t in the gas station industry. There is a lot of great educational information here for the entrepreneurial-minded individual.”
The second review is from Lindsey; she wrote, ” this book was extremely helpful!. I love the author’s clear and concise voice, and all his helpful tips. He offers lots of practical advice that I really benefited from. I especially enjoyed the chapter on financing. Overall, I highly recommend this one!”
Thanks to both of you, you two sure made my day, and I do appreciate it whole heartedly.
Now it is the book time, as you know I recommend a book every week and this week’s book is
The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change, This best-selling book is by Stephen R Covey. It is a book about personal change and growth. This book goes deep into how we can have a paradigm shift first in order to be able to accept and welcome those seven great habits. I know you will thank me later if you get to read this book.
Now that we are at the end of today’s episode, I ask you to go to my blog at Gas Station business 101.com and sign up for my newsletter so I can keep you informed about all upcoming news and changes via email this way you will never miss anything important. Also, lastly if you enjoy listening to my show, I would love to see a review on iTunes from you.
Thanks you so much once again, take care and I will see you in next episode.