The World's Unsexiest Business
adding a little sizzle to the convenience store industry
It appears we're on the cusp of a major revolution in the convenience store industry. Maybe not a seismic shift but something closer to what might be considered an army of termites steadily eating away at the foundation of a very old house. Oh but remember this ancient relic of yesteryear has been on the verge of collapse for decades far before the pests grew such a voracious appetite for moldy timber. You see it's a matter of labor economics--once the republic of MINIMUM_WAGE_INCREASE-ISTAN starts realizing that the timed pay escalations have induced the deleterious effects of zero sum (to the earner) earnings, it's only a matter of time before those affected laborers usher in a revolution style massive rebellion.
Simply stated, minimum wage hand waving and eventual increases do little to help minimum wage workers. It kicks the sputtering inflation machine on which then has a very real effect of ultimately depressing purchasing power. Meanwhile on the media front, it keeps the economics illiterate public sated and the political rhetoric machine alive.
My view isn't political (I'm not a republican), it's 'straight up' factual.
Business Cycle Re-Ignition
By the time most owner operators acquired their fifth location or so, they started to realize hmm maybe they ought to start focusing more of their energy on having their money earn money instead of sweating it out day in and day out. Though I'm not referring to Einstein's compound interest assertion directly, I am highlighting the critical mass needed to consider the franchise business model. Not only does it actually inject some high octane into the American Dream by defining a clear pathway to economic mobility, it also just about solves the agency problem which has riddled corporate run convenience store giants since they evolved into organized corporation.
Imaging you're running Ginormous Convenience Gas, Inc. and you've managed to acquire well over a hundred sites. You've got a mixed bag of darlings, duds, freaks, and geeks. If you haven't considered equity participation or at least some sort of passive investment vehicle which allows you to collect a nominal fee from every location every month, I think you might need to re-evaluate your business model. At initial read you might think this nominal fee is merely paper shuffling between site and corporate accounts but think of it more as a reserve that looks and smells like an expense item. The only difference is it actually resides as an off balance sheet item. The only problem is that it's a violation of sound accounting practices so the folks at GAAP will most not likely give you the nod let alone a surreptitious thumbs up.
But for illustration purposes imagine that it was ok for you to have debited this periodic nominal expense amount.
Let's get one thing clear about every cent you earn or debit from your sites: you had to be engaged in the operations and management of toiling away for that very nominal fee. But what if you merely collected that without what I consider the only single point of failure in the CSGS (Convenience Store Gas Station) business model? Surely you'd know I would be talking about a franchise scheme. Collect an upfront fee, reduce buildout costs to a minimum which you shift over to the franchisee, then expect a monthly distribution of 4-6% with an additional 2-3% for marketing.
You know the drill.
But remember as an owner operator of a significant number of sites you simply cannot decide to become a franchisor without a coherent brand, procedures, policies, and at least a go-to manual in place. Then there's the legal bit to sort out with filings. But you've planned for this very moment and are now ready to cook with gas (umm but not the one you're selling!). So how well could this work for you?
Maybe consider working backwards. At minimum, you'll need to pay yourself, a CFO, a COO, a CMO (unless you don't plan on collecting the additional 2% marketing fee), part time legal, a skeleton office staff, some overhead, and an office itself. The aggregate of those expenses to be a cool million dollars a year or $85k monthly. Or how about $850 monthly from every site? That's not even a dent in the credit card fee monthly expense.
Now perhaps you structured it in such a way that's similar to how other franchise business models operate:
150k avg monthly gallons @ 2 cents / gallon ($300k)
$35k avg sales @ 6% monthly franchise / royalty + 2% marketing ($280k)
In aggregate that will passively gross $580k / month or $5.8k per site. That's nearly $5k more per every site you'd be making to break even on overhead. And that doesn't even take into account interest earned from the float of upfront franchise fees collected which
Of course you could be making a lot more actively managing the sites but semi-passively, it's a phenomenal return. On a break-even basis, it would only take 15 sites to operate under this business model.
The Upside: you empower your people potentially elevating their status from de facto managers to equity owners / franchisees.
The Downside: the semi long winded process itself and multiple sales pitches.
Call it maturity in the cycle or simply a redistribution of wealth.