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Convenience stores are a part of life that many people take for granted. These easily accessible, stop-and-shop businesses seem to be on every major street in every city. However, does that mean they are a good investment?
Commercial real estate investing is a complicated market, between the vastly different supply of commercial properties available for purchase, and the unique investment strategies required to make them succeed. Among these opportunities lie convenience stores, a shockingly tempting investment strategy for many new investors.
So, is it time for you to consider investing in local convenience stores?
Much like other commercial real estate investments, financing these stores takes a strong mortgage and a well-planned investment strategy. So, in order to help you succeed we want to offer you a free strategy call with our team at LendCity. All you need to do is click the link below to book yours today.
Convenience Stores and Grocery Style Real Estate
Convenience stores play a unique role in today’s society. While the majority of the population turns towards big box grocery chains for their everyday grocery needs, convenience stores remain a popular option for people seeking a quick purchase for a variety of products.
These businesses are known for allowing people to purchase quick snacks, access local newspapers, purchase tobacco products, buy lottery tickets or even purchase smaller novelties or electronic products such as phone chargers. Some stores choose to go beyond this and include frozen meal options or fresh grocery items such as produce or deli meat.
Where Are Convenience Stores Profitable?
Much like any other business or real estate investment, convenience stores are profitable provided they are set up in the correct location. In order to determine where you should look to invest in a convenience store, you need to consider two factors – traffic and competition.
Convenience stores do well in high-traffic areas near the population. After all, the entire appeal of these businesses is their close proximity to neighbourhood residents as compared to grocery stores and larger retail shops.
As well, it is important that you do not invest in a convenience store too close to any competition. If there is already a convenience store within a five-block radius, it is usually wise to look elsewhere. Direct competition in this market usually results in poor performance for both parties.
Based on these criteria, some of the best locations to buy a convenience store is in urban areas with limited grocery or shopping options. These neighbourhoods are often called “food deserts” because they lack anywhere for people to buy food. Setting up in these neighbourhoods can help reduce the problem in the neighbourhood while simultaneously attracting business to your investment property.
Owner Operated vs Tenant Operated Storefronts
When it comes to investing into convenience stores, there are two main methods of managing your investment. You can choose to both own and operate the store – taking on the day-to-day requirements for the business yourself – or you can choose to rent a convenience store location to a business owner who can operate the store out of your property.
Each of these options come with their own advantages and disadvantages that make them better suited for different investors.
Owner Operated Convenience Stores
Owner-operated stores are a great option for investors looking to own not only real estate, but a business as well. This style of investing requires you not only to buy the property, but license and prepare the store for operations. This includes hiring staff, arranging inventory, securing licensing for products you intend to sell such as lottery tickets or tobacco, and staying on top of the business’ accounting needs.
Alternatively, you can hire staff to manage all of the day-to-day operations and management and keep and hands-off approach, all while still remaining the business owner as well as the property own.
Tenant Operated Convenience Stores
For investors who are looking to invest in convenience stores but are not interested in owning the business, there is always the option to buy the property and simply rent it to a business owner instead of running the store yourself.
However, this option does mean that you will not be entitled to the same profits you may have otherwise made from the business itself. Instead, you would simply be receiving the monthly rent payments from the store.
Discover How To Buy Commercial Real Estate With This Step By Step Guide
Types of Convenience Stores
When it comes to owning convenience stores, there are three primary options for you to consider. Each of these have their own benefits and responsibilities for you to maintain in order to succeed.
Independent Convenience Stores
Independent convenience stores offer the most freedom out of any convenience store options. As the business owner you are free to stock and price your store’s products as you wish within the confines of the law and your ours and operating procedures are free for you to structure and change as you see fit.
This is great for an investor looking to work from the ground up and experience full control over their investment, but it does come without the ease of operation and simplified setup that can be offered by other types of shops.
Unlike independently owned and managed convenience stores, franchised stores are required to operate under the guidelines of a larger company. This can result in many pre-determined factors such as stocking and inventory guidelines, brand-specific design and branding elements, and business structures.
This can simplify the process of getting started, but it also often requires the investor to regularly pay the company they are franchising under a portion of their profits. These payments can be monthly or annually based on the terms of the franchising agreement.
Popular examples of franchised convenience stores include 7-Eleven, Circle K, and Stop N Go.
Convenience Store + Gas Stations
Finally, there are combination gas stations and convenience stores, these can be like either of the previously listed forms of convenience stores, but also come with the benefit of offering another in-demand product, gasoline. By offering gas on top of your business, you are open to the benefits and restrictions given to gas station owners.
Financing Your Commercial Real Estate Deals
If you are looking to buy convenience stores or another form of commercial real estate, it is important that you find the best financing option available to you. That is why at LendCity we have a dedicated commercial mortgage team to ensure you get the most financing for the best rate on your next commercial deal.
If you are interested in more information or are ready to get started, visit us online at LendCity.ca or give us a call at 519-960-0370. Alternatively, you can book a free strategy call at the link below.