Convenience stores lose out to big boxes, credit cards

By Dan Piller
Knight Ridder News Service

It is the particular torment of hard-pressed convenience store owners these days that the convenience store, as they are known in the business, has become too convenient.

More than half the customers of an average convenience store pay for their gasoline by swiping a credit or ATM card, store owners said, without even having to come inside the store.

"That's a problem, because the inside has always been where we make our money," said Ajani Mehindi, owner of the Circle A store in Fort Worth, Texas.

Mike Fazli, who owns the Come and Go in east Fort Worth, said that "to stay in business, you have to have credit card services, and those fees can run up to $3,500 per month."

"There's not much left over for profit," he said.

Plastic money and automatic swiper machines are just one problem afflicting the convenience store industry, which last month took a hit when FFP Partners of Fort Worth, which owns 280 convenience stores and gas outlets in Texas and nine other states, filed for Chapter 11 bankruptcy protection.

The "Big Box" phenomenon of recent years has seen lower gasoline prices offered at Wal-Mart, Costco and other discount stores, as well as big supermarket operators such as Albertsons and Tom Thumb, usually with preferred-customer cards.

Although the big boxes and supermarkets have fewer locations, the competition, especially for smaller, mom and pop operations, is high-octane. The big boxes often charge 20 percent or more below the nominal competitive price, and they even engage in competition among themselves, said Doug DuBois Jr., director of membership for the Texas Petroleum Marketers and Convenience Store Association.

"There's the old saying, when the elephants fight, everybody else gets stomped," DuBois said.

Although fuel sales probably constitute less than 1 percent of an average Wal-Mart's revenues, it has long been a mainstay of a typical convenience store's revenue and profit base, DuBois and another spokesman for the convenience store industry said.

Higher fuel prices don't help, convenience store operators say. Contrary to popular belief, stores don't make out like bandits when prices rise because the operators are merely passing along the higher wholesale costs they pay to fill store tanks.

Because the competition is so intense — there are 124,500 convenience stores nationally and 12,775 in Texas, the most of any state — store operators who increase the price at the pump do so at competitive peril.

"We're one of the few industries whose major marketing and identification is by the price," DuBois said.

Mohammad "Mo" Chowdhary, manager of Dad's Corner Store on North Beach Street in east Fort Worth, said "it's so hard to make money on gasoline because of the competition. You can't just raise the price whenever you want, because somebody down the street will be selling it for less."

Chowdhary knows of what he speaks. His store is in the shadow of a RaceTrac and an expanded Quik Trip, two big convenience store chains that are changing the model of the convenience store with up to 24 pump bays and interior floor space almost double the size of the traditional 2,000-square-foot store.

With their larger buying power, chains such as RaceTrac and Quik Trip, plus a reinvigorated 7-Eleven, are putting a greater squeeze on the smaller, one- or two-store operators.

Not to mention that major oil companies such as Exxon Mobil, Shell, and ChevronTexaco have virtually abandoned the old full service "filling station" concept in favor of company-owned convenience store with more pumps, a larger grocery store that is often combined with a fast-food outlet such as Subway or Pizza Hut, and a car wash.

"The convenience store is becoming more and more of a full-service outlet, but with the traditional quick service," said Jeff Lenard, communications director for the National Association of Convenience Stores.

The convenience store industry is one of the nation's most fragmented. Lenard concedes that his association has never been able to get an exact count of the number of stores in the nation or in each state.

"We have good approximations, but not exact counts," he said. "I can say that there are more convenience stores in Texas than any other state."

As the convenience store concept flowered in the 1970s and '80s, aided by the advent of customer pumping, it finished off the old mom-and-pop grocery stores as well as the traditional, full-service filling stations.

Lenard said that the number of convenience stores has stayed constant in recent years, but that the trend is toward consolidation.

"You see the one- or two-store owners selling to owners who have a couple dozen or more stores," Lenard said.

Mehindi said that his two-pump, single store is able to eke out a profit because he has benefited from a recently constructed apartment complex close by.

For survivors like Mehindi, however, the reward is a business that must be tended every day from 6 a.m. to 11 p.m.

"My wife and I operate the store, but we trade off, and we never see each other," Mehindi said.