Starting a Convenience StoreDecember 18, 2008
Starting a Convenience Store
Last Verified:
2008-11-25
This guide examines
possible steps to take and issues to consider when starting
a convenience store in Canada. Prepared by Canada Business, this
document describes licence, permit and registration requirements that
apply to a convenience store. The extent to which the information will
apply to you will depend on the details of your project.
Because this document is only meant as a guide, Canada Business
service centres will not accept responsibility for business decisions
made based on the information provided.
For more information on individual topics identified herein, contact your local Canada Business service centre.
The
following provinces and/or territories have customized a guide for the
specific needs of their region. This guide may include provincial,
territorial and municipal government information, as well as
non-government information.
Before proceeding, you should consult the Business Start-up
Info-Guide for your region. It offers information on the steps involved
in establishing a new business.
Starting a business can be a rewarding undertaking, but it comes
with its challenges. Before starting a business in Canada, it is wise
to do your research. You should also make sure that you are suited for
entrepreneurship, and that you understand the significant effort
required. As such, you should thoroughly enjoy the field you are
getting into, and you must believe in your product or service as it may
consume much of your time, especially during the start-up phase. There
are many issues to consider such as regulations, financing, taxation,
managing your business, advertising, and much more. Complete the Feasibility Checklist for Starting a Small Business to assess your level of readiness.
The following is additional information to consider.
Convenience stores offer quick and friendly service, handy
locations, a variety of merchandise, and extended hours of operation.
This publication focuses on starting an independent convenience
store; however, many convenience stores are franchise operations.
Types of Operation
- Convenience store - a small store that is open every day until late evening or 24
hours a day, and specializes in selling basic food items, such as milk and
bread, and a variety of small dry-goods items.
- Convenience store/gas station - a convenience store combined with a place for
supplying motor vehicles with gasoline, motor oil, water, etc.
- Franchise - a business that has the
privilege, often exclusive, of selling the products of a manufacturer
or providing a company's service in a given area.
Checklists for Franchisees
As a potential business owner, you may consider buying an existing
franchised store or opening a new one. As a franchisee, you enjoy the
benefits of goodwill that the name and reputation of the franchise
already has. You also have, in many cases, the support of the parent
company in issues such as location selection, management training, free
advertising and support during the start-up phase of your operation.
Also you have the advantage of capitalizing on an already profitable
concept. However, as a franchisee, you must pay the franchisor for the
benefits provided, and these costs come off the top of your sales
revenue and may add up to more than 10%. Also your freedom is somewhat
restricted when you own a franchise. You must stick to the standards
set by the franchise.
Store Location - "Little Things" Mean a Lot
Choosing a location for your store may be your single most important
decision. Do your research. In particular, consider these factors:
- Population - The
Grocery Trade Association states that to sustain a convenience store, between
500 and 1 000 people must live within a one-mile radius. If people have
to travel more than a mile, they are more likely to go to a supermarket for a
major shopping trip. Also check an area's future development plans and
projected growth rates.
- Competition -
Although a convenience store's competition is mostly from other convenience
stores, it can also come from supermarkets. Study all competitors to see if
the local market can support another operation.
- Traffic - Impulse purchases make up a good percentage
of convenience store sales, so high volumes of pedestrian and vehicle
traffic passing your store is critical. Try to locate near schools,
parks, sporting facilities and other businesses to increase traffic.
Layout and Design
- before ordering or installing equipment, design your
store's layout
- keep it simple to keep costs down
- reserve the most space for products you will sell the
most
- place all products where customers can see and reach
them
- place products with the highest profit margins
at eye-level
- place high-demand products such as bread and milk at the back
of the store to increase traffic (this encourages impulse purchases
which can make up to 70% of your sales)
Selecting Your Inventory
Your product mix depends on your location and your target market's needs.
For example, a convenience store in a resort area will likely stock
a more complete line of goods. Wherever your location, you must be able
to estimate product demand. The Convenience Store Journal suggests a typical breakdown:
|
Groceries
|
26%
|
Cookies/snacks
|
7%
|
Ice cream
|
4%
|
Candy
|
3%
|
|
Soft drinks
|
12%
|
Frozen snacks
|
5%
|
Health/Beauty
|
4%
|
Meat
|
2%
|
|
Dairy
|
10%
|
Non-foods
|
5%
|
Produce
|
3%
|
Tobacco
|
2%
|
|
Deli items
|
7%
|
Magazines
|
5%
|
Baked goods
|
3%
|
Other
|
2%
|
Keep ongoing, accurate inventory records to continually monitor the
ratio between your stock and actual sales. This helps to minimize lost
sales and money tied up in inventory, as well as determine the demand
for different products.
Selecting Your Supplier
- General line wholesalers - Join a cooperative of independent store owners to buy in
groups to gain volume discounts. Approximately 25% of Canadian grocery stores
belong to such cooperatives which give advice in merchandising, management and
financing.
- Speciality wholesalers - Bakeries, delis and produce suppliers often offer lower
prices than general line wholesalers. They may also stock shelves and help you
estimate demand.
- Service merchandisers - Non-food items, such
as health/beauty aids, housewares and magazines are sold by service
merchandisers. They can also deliver, stock shelves, price items and
help estimate demand.
For more information, see the document
Profit by Your Wholesaler's Services.
All new and existing businesses must comply with licenses, permits
and regulations. When creating a business, you must contact the
municipality involved, along with the provincial/territorial and
federal governments.
Each municipal government has the authority to issue its own
business licenses within its jurisdiction. Since there is no uniformity
throughout the country regarding municipal licenses for businesses, you
should consult with the appropriate local officials to
determine whether your business will be affected by local regulations
and licensing requirements. Businesses (including home-based
businesses) must also meet the zoning by-laws that control property
uses in their municipalities.
Examples of licenses, permits and regulations that could apply to
you when starting your convenience store may include, but are not
limited to:
Licenses
-
municipal business license
-
video rental license
-
food service establishment license
-
tobacco retailer's license
-
garage license
-
gasoline retailer's license
-
gas plant propane license
-
petroleum storage system license
-
service station license
-
Permits
-
building permit
- vendor permits
- compressed air/boiler permit
- refrigerants permit
Regulations
- zoning by-laws
- packaging and labelling
- tobacco regulations
- fire safety standards or regulations
- health regulations and requirements
- weights and measures of products
- petroleum products
- hazardous waste/air quality
- retail sales tax
- personal information protection
You can get permit, license and regulation information by contacting
your province/territory, local city hall, town or village office or
rural municipal office. Contacts for local, provincial/territorial and
federal governments can be found in the government listings of your
telephone directory or on the Provincial/Territorial
Web site.
The Guide to Canada's Personal Information Protection and Electronic Documents Act
(PIPEDA) helps businesses understand their obligations and comply
with the Act. Since January 1, 2004, the PIPEDA covers the collection,
use or disclosure of personal information in the course of all
commercial activities in Canada, except in provinces which have enacted
legislation that is deemed to be substantially similar to the federal
law.
For more information, call 1-800-282-1376, see the document
Protection of Personal Information - Your Responsibilities, or visit the Privacy Commissioner's Web site
PIPEDA Guide for Businesses and Organizations
.
BizPaL
BizPaL
provides Canadian businesses with one-stop access to permit and license
information from all levels of government. This online service is
offered by Industry Canada in partnership with provincial, territorial,
and municipal governments.
Insurance
Insurance needs for businesses vary greatly. It is best to choose an
insurance agent or broker familiar with your size of business and, in
particular, an agent familiar with your type of operation. If you don't
have an insurance agent, it could be a wise decision to ask other
business owners in your area to recommend one.
The following list should remind you of the complex areas of
business insurance. It is best, however, to discuss your specific
needs with your insurance agent.
Basic insurance
Marketing/Advertising
Word-of-mouth advertising and good public relations are often the best
ways to promote a convenience store. Depending on your market and its
size, also consider flyers, newspapers (especially for holiday
promotions), radio, TV, the business pages of the telephone book and
the Internet; but bear in mind that a satisfied customer is good
advertising.
- Spend about 1% of gross sales on advertising to your
target market.
- Install a brightly-lit sign to attract drive-by
traffic.
- Create eye-catching window displays and
point-of-purchase displays.
- Deliver or mail flyers to neighbourhood homes and
place ads in local newspapers. Stress convenience, accessibility and extended
hours.
- Offer additional convenience services such as fast food, postal services or video rentals. Consider installing a gasoline pump.
For more information regarding advertising and marketing, see the following documents:
The
Online Small Business Workshop
- Marketing Basics covers the basics from developing your customer profile to promoting your business.
The federal Competition Act governs misleading advertising
and deceptive marketing practices for all businesses in Canada. The Act
defines which marketing practices are illegal and the process of
complaint investigation.
For more information, consult the Competition Act -
Competition Act - Misleading Advertising and Deceptive Marketing Practices, administered by Industry Canada or visit the
Competition Bureau
Web site.
Guide to Market Research and Analysis
Successful businesses know a lot about their customers and their
competitors. Getting accurate and specific information about your
customers and competitors is a critical first step in market
investigation and development of a marketing plan.
In developing a market plan, your primary functions are to
understand the wants and needs of your customer, select or develop a
product or service that will meet customer needs, develop promotional
material that will make the customer aware and ensure product or
service delivery.
Basic Bookkeeping
A good record keeping system should be simple to use, easy to
understand, reliable, accurate, consistent and designed to provide
information on a timely basis.
Note: All staff working with cash should be trained to recognize counterfeit currency.
The legal requirement concerning financial records specify only that
they be a permanent, accurate and complete record of your daily income
and expenses. There are many types of record books and bookkeeping
systems available. For example:
- double entry bookkeeping;
- commercial bookkeeping systems;
- one-write systems;
- computerized systems;
- single entry bookkeeping.
Selecting Professional Services
The use of professional services is essential to the success of a small
business. Professionals can provide knowledge and expertise in the
areas where you may have little. They can round out your management
team to ensure your business is operating efficiently.
As an entrepreneur, there are four main areas of professional services with which you may consult:
Furnishings and Equipment
There is some equipment and furniture you will need in your place of
business which will allow you to perform your services. List that
equipment and its cost to you. An important factor to consider, when
choosing equipment, is the after-sales service and repair, and their
affordability.
Used Equipment - Consider buying used equipment as
a cost-saving measure. Sources of used equipment could be a convenience
store that is closing or dealers in second-hand equipment. The drawback
to this approach is that, often, there are no guarantees with the
purchase.
Leasing Equipment - Another alternative is to lease equipment to help keep start-up costs down.
For more information on parts and materials, overhead, stock control and pricing, see the document
Business Plan for Small Service Firms.
Setting Up a Pay System
Pay administration is a management tool that enables you to control
personnel cost, increase employee morale, and reduce work force
turnover.
Setting the Right Price
Setting the right price can influence the quantities of various items
that consumers will buy, which in turn affects the total revenue and
the profit in the store. In the end, the right price for the product is
the price that the consumer is willing to pay for it. Hence, correct
pricing decisions are a key to successful retail management.
Prices should allow for enough gross profit to cover overhead
expenses and a reasonable net profit. Choose one of two pricing methods:
- markup (based on cost); or
- margin (based on selling price).
Traditionally, convenience stores have had markups of approximately
33% to 67%, margins of 25% to 40%. Convenience stores simply cannot buy
in large volumes like superstores, so do not attempt to offer lower
prices. Instead, stress service and convenience.
Cost Control
You must have procedures for controlling inventory and costs. Ask people in your industry for information about procedures for:
- Purchasing - Most of the time, purchasing is done over the telephone, by
fax, or online. Therefore, often no contract is signed between the purchaser
and the supplier; it is essential that you choose your supplier carefully.
- Receiving - Check all deliveries against the Purchasing and Receiving
Form, in three ways: quantity, price and quality (that is, temperature: frozen
goods must be frozen); packaging should be intact. Make sure specifications
are met. Careful recording will show short shipments, price variations and
weight differences.
- Budgeting and Projecting - Establish a cash budget and maintain cash flow projections on
a continual basis.
- Storage - Ensure refrigerated and frozen products are quickly placed in a cold storage. Storage temperature for dry goods (between 10-21oC), frozen goods (-18oC or less) and refrigerated goods. Rotate your stock to ensure that oldest items are used first before the new stock.
Checklist for Profit Watching
Making a profit is the most important - some might say the only
objective of a business. Profit measures success. It can be defined
simply: revenues - expenses = profit. So, to increase profits you must
raise revenues, lower expenses, or both. To make improvements, you must
know what's really going on financially at all times.
You can find additional information on managing your operations, by viewing our fact sheets indexed by
Popular Business Topics
.
There are many associations that may be of use to convenience store
owners. Although it is not necessary to join a convenience store
association, there can be advantages in becoming a member because they:
- promote and exchange marketing and promotional ideas
among members;
- establish and encourage high standards of quality and
professionalism;
- represent and advocate on behalf of members.
Examples of associations include, but are not limited to:
Additional resources which may help convenience store owners include, but are not limited to:
Publications
You may find books, magazines and other relevant print material at any
Canada Business service centre and/or business service organizations in
your community that provide Canada Business information. Contact the
Canada Business service centre in your region for the location nearest
you.
Statistics
Magazines
Related Web Sites
When seeking business information, feel free to visit the Canada Business Web site for the
Business Start-Up Assistant
and the
Online Small Business Workshop
. You may also want to check with your local library, the major
chartered banks, your local Chamber of Commerce, educational
institutions and business development organizations - some of which
offer courses, seminars and workshops.
DISCLAIMER
Information contained in this document is of a
general nature only and is not intended to constitute advice for any
specific fact situation. Users concerned about the reliability of the
information should consult directly with the source, or seek legal
counsel.
Links Policy
Some of the hypertext links lead to non-federal government sites which are not subject to the Official Languages Act and the material is available in one language only.
