Convenience Marketing Can Boost Profits

Hampton Oil Co. & Pester-Schaefer Oil Co.

Super Service Station - March 1972

By Robert Harris

"Convenience marketing is the answer to shrinking dealer profits"

"Convenience items don't belong at a service station."

These opinions, plus a wide spectrum in between, will probably be voiced in any discussion of the concept of selling groceries and other non-automotive products at service stations.

Supporters of convenience marketing, as this phenomenon is known, note that selling non-automotive products at stations is nothing news. Dealers have been selling customers on the convenience and economy of buying all car needs in one place for years. So why not, they ask, expand this "one-stop" philosophy to include non-automotive items as well?

Opponents argue, however, that stations have traditionally sold items relating to auto care or safe driving. To include groceries or hardware is to stretch the one-stop concept too far, they insist.

But in spite of the confusion surrounding this subject, one thing is becoming clear-the idea of convenience marketing at stations is getting plenty of attention at all levels of the industry.

Two Iowa jobbers who have been involved in convenience marketing for several years are Bill Krause, Hampton Oil Co., Hampton, and Jack Pester, Pester-Schaefer Oil Co., Des Moines. Their experiences provide some insight into what is required to succeed in this complicated, confusing field.

At first glance it would appear the two are very similar. Both are young, aggressive and have enjoyed great success in a short time. Both are well known in the national oil marketing circles as innovators. And both believe that convenience marketing is the direction for the future. But their methods of operation differ sharply. Most of Krause's stations are manager-run, while Pester prefers using dealers. Let's take a closer look at their organizations.

Took a Chance: When Bill Krause got into oil marketing in 1959, it was a big gamble. "I started with just one station and a transport company, and my mother told me I was crazy," he recalled. But the gamble had paid off. He now has 35 stations which are operated under six separate companies. And much of the credit for this growth, he affirms, is due to his success in convenience marketing.

After several years as a conventional jobber, Krause entered the convenience field in 1963 with the opening of a Holiday station in Ackley, Iowa, a town of about 1,800 people. This was another gamble.

"The convenience field was relatively new then, and several people thought the Holiday would fail, including on of the partners in the original jobbership (he and his father-in-law were the other two). So we formed a new company, Rite Oil Corp., to set up the Holiday station."

Offering a wide variety of hard and soft goods and a limited supply of groceries, the Holiday was a quick success. The initial investment of $30,000 was returned in two years, and Krause was on his way. He now has 10 Holidays and is always looking for new locations.

Next came full-scale grocery convenience marketing in 1970 when Krause acquired a franchise for Li'l Red Barn stations. In addition to gasoline, they sell almost anything found in a supermarket, with the exception of fresh meats and vegetables. Krause now has three of these outlets.

In addition to these large station-stores, convenience items are offered at 95% of Krause's conventional stations. Only two of his 35 stations have service bays, and both are dealer operated. Neither handle convenience items.

Site Selection: A specialist in small-town marketing, Krause avoids larger metropolitan areas with their stiff competition. "We concentrate on towns of about 8,000 population or less," he related.

"Prospective locations are evaluated in terms of potential profit, not volume. Any customers we get will have to be taken from someone else, so we want to make sure the need for a convenience outlet exists. Then we decide whether to put in a big station-store or just a few basic grocery items."

A multi-brand jobber, Krause sells under the Kerr-McGee and Holiday names. He also has recently opened two stations under the Sav-Mor label, a private brand which he owns.

Most of his conventional stations and all station-stores are run by salaried managers. "We've chosen this method because we have to retain control in order to protect our investments," Krause explained.

Items offered at a conventional station include milk and dairy products, soft drinks, bread and pastries, canned goods and some frozen foods. Cigarettes are the best selling item at all stations, comprising about 22% of an average station's sales.

"Our smaller stations carry a total inventory of about $2,000, with turns over about once a week," Krause noted. Inventories range up to $25,000 at the large station-stores. Most stations have coolers, freezers, and display shelves, and all are air conditioned.

"Unlike many of our competitors, we don't charge a premium

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helped Pester build his company from a 21-station jobbership selling 6 million gallons of gasoline a year in 1965 to a 75-station network, 95% dealer operated, now selling 42 million gallons annually. But an equally important factor in promoting this growth, he says, has been his convenience marketing program.

It's no coincidence that Peter's business began booming in 1965, because that's also when he entered the convenience market. he realized that an independent needs something other than price to attract volume, and saw convenience marketing as almost virgin territory.

Now nearly all of his stations offer at least a limited supply of convenience items, and many handle a wide variety of products. Three station-stores, comparable to Krause's Holidays, carry large inventories of hard and soft goods, but most of his stations concentrate on food items.

What They Sell: "We handle things your wife would call and ask you to pick up on your way home," Pester explained, "including dairy products, bread and pastries, cold cuts, bacon, ice cream and frozen foods."

Milk is the top-dollar producer at all stations. "We have a private label milk brand that is sold only at Derby stations. Since we sell it to our dealers at cost, we don't make anything on it. But the price break lets them be very competitive on milk pricing."

Profit margins on all items average about 18%. Daily sales range from $25 to $250 with $60 about average. "A $350 inventory with at least a weekly turnover is typical," he stated.

Each dealer must line up his own source of supply on all items except gasoline and milk. Products are delivered and stocked by supplying companies, who usually are responsible for maintaining adequate inventories at the station. Losses due to spoilage are minimal since most supply agreements permit the return of spoiled merchandise.

Items are priced at or below regular retail, and "there is always a good variety of things to promote as price specials. We used to recommend milk as a leader, but we don't any more. A dealer has to make sure his prices comply with dairy laws."

Dealers are instructed in relation merchandising as part of Pester's dealer training program, and advice on promotions or other facets of merchandising is always available. "A dealer also can get merchandising help from his suppliers," Pester added. "After all, they want him to sell as much of their products as possible."

Coolers and freezers are installed by the company and are leased to dealers. An average investment in equipment is about $2,100. In addition, each station has to be air conditioned because of the heat produced by the coolers and freezers.

Special Facilities Best: Convenience items sell better at locations designed specifically for them, Pester has found. Thus they aren't building any more bay-type stations. "But we have 10 bay-type stations."

"In certain areas, such as small towns or neighborhoods with no other convenience outlets, full service and convenience marketing can work well together," he remarked.

New stations are build with recessed coolers facing the windows, and "are designed with merchandising in mind." Outdoor coolers have been tried, but he has found them wanting. "It's too hard to merchandise them, and of course here in Iowa the winter weather makes them impractical."

Results of Pester's convenience marketing have been twofold. First, extra profits have been earned by dealers, thus reducing turnover. "With only a 10% loss of dealers annually, however, that was never a great problem for us."

More importantly, increased gallonage can be attributed to the pulling power of the convenience items, he claims. "Our dealers get the convenience profits, but they also sell more gasoline, and that's where we benefit."

Looking ahead, Pester sees continued expansion of the convenience marketing approach. "The successful jobber of the future will have to be a successful retailer, rather than just a fuel hauler," he predicts.

Corner Store: Duane Smith, one of Pester's dealers at a bay-type station, has found that convenience items work well for him. His station is located in a primarily residential Des Moines neighborhood, and most customers are local people.

"We're sort of like the old corner store," he said. "A lot of our sales are to kids who are sent over to get something for their mother." A three-year dealer at the location, he has offered convenience items since he opened the station.

Smith offers a variety of items, including dairy products, bread and pastries, snacks and frozen foods. "They're the kind of things people are likely to run out of between trips to the supermarket," he noted.

Inventory runs about $250, and daily sales average $40. Smith leased the equipment from Pester and busy the products from local suppliers.

"One of the best things about convenience items is that all you have to do is take the money," he remarked. "The shelves and coolers are stocked by the suppliers, so there's very little extra work for me."

Smith also believes that his station operation is benefited by having the convenience items. "Gallonage is better than it would be otherwise," he says, "and I also get some customers for station work that I probably wouldn't have otherwise.

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