From Tune-Ups to Twinkies : Service station operators are pumping up gasoline sales by converting repair bays into convenience stores.
Soft ice cream cones, canned pear slices, Worcestershire sauce and panty hose have replaced windshield wiper blades and spark plugs at the intersection of El Segundo and Main, and Arco dealer A C Wallace isn’t sorry.
“I’d rather be in a store here than having the headaches of working on an automobile,” said Wallace, who converted his two-bay garage into an am/pm Mini Market seven years ago. “I’ve found it’s so much easier. All you have to do is keep the stock and wait on the customers, and they go out the door. No checking tires. No raising hoods.”
Gasoline stations and convenience stores are becoming synonymous across Southern California and the nation, as major convenience store chains such as 7-Eleven add gasoline pumps and as oil companies such as Arco and Shell install quick-stop markets next to pump islands. In 1984, Chevron had virtually no convenience stores in Southern California; now 11% of its service stations in the region have them. The ratio should stabilize at 25% to 30% in the early 1990s, said William D. Steelman, Chevron’s southwest division sales and marketing manager.
Convenience stores began cropping up more than a decade ago among Southern California’s handful of independently owned and operated service stations. Major oil companies--which own or control an estimated 80% of Southern California’s service stations--have followed the lead enthusiastically in recent years, even pressuring reluctant dealers during lease negotiations to allow repair bays to be sealed up or torn down and replaced with small stores.
For the oil companies, sales of candy bars and cigarettes mean more customers coming into the station and more gasoline sales. “From the same real estate and the same number of employees, and without a substantially large investment, you’re increasing your sales,” said Jim Bailey, a spokesman for Coastal Corp., a Houston-based oil firm with rapidly expanding convenience store operations in the Midwest.
Shell and Chevron dealers pay for a convenience store through an addition to their monthly lease payments. Arco also demands a fixed franchise fee every six years, plus royalties equal to 11% of an am/pm franchisee’s gross non-gasoline sales, and an additional 3% of gross sales to pay for advertising the am/pm name, said Joseph J. Tebo, Arco’s national manager of sales development.
For service station dealers, the switch from changing oil to changing coffee filters can mean a complete overhaul of the work they do and the life style they lead--an overhaul some enjoy but others are reluctant to accept. Station salesrooms have long stocked at least a few trays of candy bars and sometimes a soft-drink machine. But convenience stores are more complicated, ranging up to 3,000 square feet and stocking as many as 8,000 different products.
“A lot of (dealers) are good at fixing cars, and they see (convenience store conversions) as their livelihood being taken away,” said a Southern California service station dealer who asked not to be identified. Nonetheless, he believes that most conversions are a good idea.
More Skill Required
“The reason they got into the service station business in the first place is they loved to work on cars,” said Dan Larson, editor of Service Station Management, a Des Plaines, Ill., trade publication.
It takes more business skill to operate a convenience store than a traditional garage, said Ola W. Greenfield, a Shell dealer in Riverside. “In this type of an operation you’re a merchant, you have to know about merchandising, gross profits. . . . You have to count turns (frequency of sales), figure out what’s moving, what isn’t.”
Most dealers operate their stations on three-year leases from oil companies. Conversions to convenience stores are negotiated during lease renewals, with so-called redevelopment riders inserted allowing the oil company to rebuild the service station with some advance notice or within the first year of the lease.
Some dealers have resisted the conversion of their garages, and their trade associations have protested the trend. “They’ll come and tell the dealer, well if you want to stay here, you’ll have to convert to a convenience store or a (self-service) pumper,” said Steve Shelton, executive director of the Southern California Service Station Assn. Arco and Chevron denied forcing any dealers to convert, but they acknowledged that some dealers are reluctant.
Many dealers, such as A C Wallace (A and C are his legal first and middle names), nonetheless seem happy about conversion, arguing that often higher profits justify longer hours and greater worries about inventory control and crime. Meanwhile, new cars with computerized equipment have forced garages to make increasingly expensive investments in skilled personnel and expensive machinery.
“The screwdriver and a pair of pliers, they don’t pay. You’ve got to have all this machinery,” said Wallace, who fixed cars himself for 10 years before converting.
Stocking and controlling inventory is the biggest challenge for veteran garage operators converting to convenience stores, experts agree. “What gas station operators are used to doing is keeping track of five to 10 items of inventory--motor oil and two or three grades of gasoline. Now they’re faced with keeping track of 2,000 items,” said Gerald Lewis, chairman and chief executive of CDI Designs. The Riverdale, N.Y.-based company has designed convenience stores for more than 50 oil companies, Lewis said.
The three biggest inventory problems lie in handling more suppliers, learning to shop for bargains and preventing theft, said Thomas J. O’Brien, Shell’s national manager for ventures, convenience stores and company-operated stations.
Wallace says he’s met these problems since the conversion of his garage. “No ands or buts about it,” he said. “I’m glad of it. You don’t touch a gas pump, you don’t have to fool around a car.”
