Background and Challenge
A major convenience and gasoline retailer sought to develop a five-year strategic plan to improve its competitive positioning and margins. Company executives engaged L.E.K. Consulting to develop this growth strategy.
A key challenge involved mitigating the risk of future gross profit declines due to systemic declines in tobacco consumption and the long-term risk of decline in motor fuel marketing. L.E.K. and the client thus sought to improve gross profit outside of tobacco and fuel, looking for ways to drive incremental store traffic and differentiate the client’s offering in an increasingly competitive market.
Approach and Recommendations
While the client had a compelling strategic position in its core market with clear brand recognition and market share leadership in fuel sales, it had not materially invested in its stores in over a decade and was substantially over-reliant on tobacco and packaged beverages in-store.
L.E.K. worked with the client to develop a strategy to dramatically enhance and grow the business:
- Develop a new store concept that will drive much greater traffic and stronger gross margins, built around a compelling coffee program, freshly prepared food and select hot food offerings
- Renovate the store portfolio to shed poor locations and invest in attractive locations, as well as enhance store density in select markets
- Invest in technology and rebuild the organization to manage and grow the business
After testing and validating the approach, L.E.K. assisted with planning and prioritizing the new concept deployment and portfolio renovation.
The new store concept drives 50% greater in-store transactions once at steady-state, and gross margins are 100-200 basis points higher. The retailer has deployed ~$300 million of incremental capital to renovate the store portfolio and has been successful in driving strong double-digit returns on incremental capital.