Government's New Role is That of Competitor

The increasing burdens that government places on small businesses, and the constant regulatory and legislative threats they face, have been a recurrent theme in this space. Whether at the federal, state or local level, government continues to come up with new ways to make it harder for businesses to sustain themselves. Business owners are used to having a transactional relationship with government through taxes, regulations and many other avenues. It has often been said that government is our uninvited business partner. However, one role that operators are unfortunately becoming more familiar with is government as a competitor.

Operators have long been dealing with the state when it comes to beer and wine sales and the role retailers play in alcohol "control" states. A few months back, we discussed here the effort by many states to petition the federal government for the right to commercialize rest stops along interstate highways. While the immediate negative financial impact to owners of existing small businesses near interstate interchanges is obvious, what is less well understood is that those owners would now have to compete against a very different type of business model -- one in which customers are funneled directly to competitors who would have to spend almost nothing on marketing -- and, oh yeah, could easily get away with charging higher prices that go right to the bottom line.

Now, we have another example of states competing with convenience store owners on one of their more important product offerings. Cash-starved states are asking Congress to allow them to offer online access to their lotteries. Current law prohibits this, but there is a significant effort underway to repeal the law. It goes without saying that the introduction of online lottery could be catastrophic for many c-store owners. A brief look at the numbers paints a pretty disturbing picture about the revenue loss to the c-store sector if this change were to go forward.

About 6 percent of all convenience store customers come to the store purposely to buy lottery tickets and, on average, make $13 in non-lottery purchases each visit. While there, they tend to buy about 50 percent more items and spend on average about 70 percent more than the average customer who does not purchase lottery tickets. If you extrapolate the numbers, the average convenience store would have to sell $57,000 in additional products just to cover the lost revenue if their lottery customers could purchase online. That doesn't even include an average of $1,500 a month in lost lottery ticket commissions. Catastrophic, no question about it. Essentially, state governments are angling to take away some of your best customers.

It would be silly to assume there isn't some ulterior motive at work here. Besides the state, who would gain? The recent high-profile entrance into the conversation of the multi-national firm who owns the technology that online lotteries overseas rely on gives us a clue. GTECH's recent significant infusion of political dollars to governors of both political parties proves they are committed to the outcome of this debate and are willing to play political hardball to get it done. That's one way to get your message across.

But as the banks can tell you, the c-store industry has proven there's another way as well. If this effort is going to be derailed, it is going to take an all-out grassroots focus similar to what took place during the credit card interchange fights of the past few years. Not only do governors need to understand the unintended economic impacts of this type of policy change, but Congress also has to be educated to understand that current law protects small business owners and jobs.

C-store owners, like any other business leaders, have seen their share of political battles and know how to fend off political adversaries when challenged. When your regulator and your tax man are your competitors as well, that adds a little complexity to the issue.

We all recognize that states are stretched thin and are having to do more with less. They should be applauded for showing a little entrepreneurial spirit and finding creative ways to make ends meet. But like any business decision, the benefits need to outweigh the costs and when it comes to online lottery, the hidden costs and unintended consequences make this a bad policy move. Perhaps if states weren't losing so much money every year paying exorbitant interchange fees to the credit card companies, they might not need to hijack revenues from small business operators.

Joe Kefauver is managing partner of Parquet Public Affairs, a national issue management, communications, government relations and reputation assurance firm that specializes in service-sector industries. Parquet's clients include Fortune 500 corporations, trade associations, regional businesses and non-profit organizations. For more information, go to www.ParquetPA.com.

Editor's note: The opinions expressed in this article are the author's, and do not necessarily reflect the views of Convenience Store News.