What is the most important SKU in your store? (Hint: It's not what you think)

Walk into any convenience store and ask the owner, “What is the most important product in your store?” You will probably get a different answer from every operator.

In the winter, it might be windshield washer fluid. When the temperature drops to -20°C, you certainly do not want to be the store that has none in stock.

In July, the answer might be cold packaged beverages. When customers are hot and thirsty, having a full cooler can make a significant difference to sales.

Another operator might say lotteries, tobacco or fuel because those categories bring customers through the door.

So, who is right?

They all are—and they are all missing the bigger point.

The four ‘Ps’ of merchandising

The most important SKU in your store is the one your customer wants to buy right now.

That is why successful convenience-store operators don't manage their stores by focusing on one “most important” product. They manage the entire store by making sure they have the right product, in the right place, at the right price, at the right time. Successful operators understand the importance of the 4Ps of merchandising: Place, product, price and promotion.

Let's look at the 4P’s of merchandising from an operator's perspective.

1. Place: Where is the product?

You have limited space in a convenience store. Every shelf, cooler door, counter and display has value.

The question isn't simply, “where can I put this?” The better question is,“where will the customer see it and be most likely to buy it?” 

Consider a simple example: packaged beverages.

If it's 30°C outside and your cold beverage cooler is tucked into the back corner of the store with only a few products in it, you could be missing out on sales.

On the other hand, if your cold drinks are highly visible, well-stocked and easy to grab as customers enter the store, you're making the purchase decision much easier.

The same principle applies to seasonal merchandise.

Consider the season

• Winter: Windshield washer fluid, ice scrapers, winter windshield products and hot beverages
• Spring: Car care, lottery activity around major draws and seasonal snacks
• Summer: Cold beverages, ice cream, frozen treats, barbecue-related items and outdoor products
• Fall: Coffee, hot beverages, snacks and back-to-school products

Operator tip: Walk through your store once a month and ask yourself, “Does this store look like the current season?”

If it doesn't, the merchandising probably needs to change.

A common mistake is leaving the planogram unchanged for too long.

Your customers' needs change throughout the year. Your merchandising should change with them.

2. Product: Are you carrying what your customers want?

One of the biggest mistakes an operator can make is assuming that more SKUs automatically translates to more sales.

It doesn't.

Every SKU takes up valuable space and ties up inventory dollars. If a product doesn't sell, that space could probably be working harder for you.

This is why SKU rationalization is so important.

At least twice a year, review your assortment and identify your slowest-moving products.

For example, suppose you have 50 SKUs in a particular category. If 10 of them account for very few sales, ask yourself: Why are we giving these products valuable shelf space?

Maybe they serve a very specific customer. That's fine, but if they don't sell and there is no strategic reason to carry them, consider replacing them with something that has a better chance of generating sales.

Look for opportunities to test new products

If a new beverage, snack or confectionery item is generating strong consumer interest, give it a chance. But don't simply add new products without removing old ones, think of your shelf as real estate.

Every SKU needs to earn its space. A common mistake is keeping products because “someone might buy them.” If something hasn't sold for months, “someone might buy it someday” isn't a merchandising strategy.

3. Price: Are you priced competitively—and profitably?

Pricing is one of the areas where convenience operators can get themselves into trouble.

You don't want to be the most expensive store in town, but you also don't want to be the cheapest.

Convenience stores have higher operating costs than other retail channels. Customers are paying for accessibility, location, speed and convenience. Your job is to make sure the customer sees the price reasonable for the convenience you provide.

Know your competitors

Operators should regularly compare the prices of key products at nearby convenience stores, gas stations and other competitors.You don't need to check every SKU. Focus on the products customers are most likely to know the price of.

For example:

• Popular chocolate bars
• Soft drinks
• Energy drinks
• Bottled water
• Coffee
• Chips
• Milk
• Popular snack items

These products can influence a customer's overall perception of whether your store is “expensive.”

Use margin targets

Establish margin expectations for your key categories so that pricing isn't being determined randomly every time a new invoice arrives.

Line pricing can also simplify the operation. For example, rather than having five different prices for similar regular-sized chocolate bars, you may decide that all products in that segment will be priced at the same level.

This makes pricing easier for customers to understand and easier for employees to manage. A common mistake is pricing based only on cost.

Your selling price should reflect more than what you paid the supplier. You need to consider your target margin, competitive pricing, customer expectations and the value of convenience.

4. Promotion: Do not put everything on sale

Promotions are supposed to create excitement and drive incremental sales.

But many operators make the mistake of putting too many products on promotion at the same time. If everything is on sale, nothing feels special.

Instead, select a few SKUs within a category and promote them for a defined period—typically four to eight weeks.

For example, rather than discounting every beverage in the cooler, you might feature two or three specific brands or sizes. This gives the customer a reason to buy those products now. It also gives you a much better opportunity to measure whether the promotion worked.

Talk to your suppliers

Your sales representatives can be an important source of promotional opportunities.

Ask:

• What promotions are coming up?
• Which products have manufacturer support?
• Are there volume incentives?
• Are there display opportunities?
• Can you get a better deal by purchasing a specific quantity?
• Are there seasonal programs you should participate in?

Don't wait for the supplier to tell you what is available; Ask them first.

A common mistake is confusing a discount with a promotion. If you reduce the price of an entire category for months, customers may simply come to expect that price.

A good promotion has a purpose, a timeframe and a way to measure whether it worked.

An operator's biggest mistake: Managing the store by habit

Perhaps the biggest merchandising mistake isn't related to one of the four Ps (place, product, price or promotion.) It's habit:

“I've always put it there.”

“We've always carried that brand.”

“That's what the previous owner did.”

“We've always priced it this way.”

These statements are dangerous in retail. Your store changes every day: Customer preferences change, competitors change, suppliers change, prices change, new products appear and old products disappear.

Your store must change too.

The best operators regularly walk the store as if they were a customer. Try not to look at it as the owner.  Look at it as someone walking in with $20 in their pocket who wants to buy something quickly.

Ask yourself:

• What do I notice first?
• Can I easily find what I want?
• Is the cooler full?
• Are the shelves full?
• Are the prices clear?
• Does anything look old or dusty?
• Are there products that clearly aren't selling?
• Are seasonal products getting enough visibility?
• Are there empty spaces where a better-selling product could go?

You may be surprised by what you discover.

A simple monthly merchandising walk-through exercise

Here's a simple exercise any operator can do.

Once a month, walk the store with a clipboard—or simply use your phone. Pick five categories and review them.

For each category, ask:

1. Place: Is it in the best location?

2. Product: Are we carrying the right assortment?

3. Price: Are we competitively and profitably priced?

4. Promotion: Is there an opportunity to promote something?

Then look at the results.

You don't need to change everything at once. Find three things you can improve and fix them.

Do that every month and, over a year, you will have made 36 meaningful improvements to your store.

What is your most important SKU?

The answer will change.

Today it might be a cold energy drink. Tomorrow it might be a coffee. Next week it could be windshield washer fluid.  That's the nature of convenience retail.

The best operators do not try to identify one “most important” SKU: They make sure that every SKU is earning its place in the store.

Manage your place, product, price and promotion consistently, adjust to the season, listen to your customers and do not be afraid to change what isn't working.

Because in convenience retail, the best store is not necessarily the one with the most products. It's the one with the right products, in the right place, at the right price, at the right time.