How to Get a Handle on Operating Expenses
CHICAGO — Increasing operational costs are chipping away at convenience store retailers' profitability, but there is a way to get a handle on these costs: be proactive.
Presenting a session on "Reigning In Operating Costs" at the 2025 Convenience Store News Outstanding Independents Summit, retail management consultant John Matthews provided a deep dive into conducting a profit and loss (P&L) statement analysis.
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"This is something that is very near and dear to my heart, and something that is going to give you the opportunity to save some money along the way … and find those hidden pennies that add up to dollars that add up to annual savings that are truly found money," said Matthews, founder and president of Gray Cat Enterprises, a Raleigh, N.C.-based management consulting company that specializes in strategic planning, project management and interim executive management.
Many business owners today only look at their P&L statement at the end of each month, but Matthews declared that a mistake. He advocates for a proactive approach, which means looking at your P&L statement throughout the month and analyzing it line by line.
"I like to get in and look at a profit and loss statement on a line by line basis, not necessarily have an accountant give it to me at the end of the month and tell me, 'Hey John, you either made money or you didn't make money.' I'd rather manage against that profit and loss statement," he explained. "So, if I'm looking at utility expense or I'm looking at telephone expense or I'm looking at certain revenue drivers, I understand how I can better influence those numbers both positively from a revenue standpoint and reducing the expense load.
"I'm a big believer that you can't manage what you don't measure and so, I'm going to try to manage my profit and loss statement throughout the month," he continued. "And you want to be able to unlock those hidden savings in your profit and loss statement because there are things that you can manage differently — you have a lot of variable items."
Managing Both Profit & Loss
Small operators, and really convenience retailers of all sizes, need to understand what things are variable in nature vs. what things are fixed in nature, and how to manage each. For example, cost of goods and labor are variable expenses, while rent is usually a fixed cost. According to Matthews, there are select cases where a retailer can negotiate a fixed cost like rent, but in most cases, it comes down to managing the variable costs.
Areas where small operators can extract savings from their P&L include:
- Utility expense management: Install motion-activated lights; turn off machines when they're not in use; run only one coffee maker at night rather than three or four
- Trash disposal: Right-size the container for each store — trash companies make money based on the size of the container and the frequency of pickup
- Payroll expense: Create schedules based on projected sales; cross-train all employees, which leads to a better workforce, happier employees and reduced turnover
- Repair and maintenance: Put a preventative maintenance schedule in place
On the profit side, small operators have two levers to improve revenue and should use both:
1. Bring new customers into your store — Use local store marketing techniques to reach every customer within a two- to three-mile radius of the business
2. Sell more to customers who are already there — Run combo deals; launch a suggestive sales program; incentivize team members and hold internal contests
"Ultimately, you're trying to keep your employees happy, you're trying to keep them cross trained, you're trying to keep them educated, you're trying to keep them buying into the program and getting excited about success for your store," Matthews said. "I'm a big believer in collaboration."
Planning Ahead
Matthews is also a proponent of planning ahead and setting targets. For many of his clients, he introduces them to what he calls a four wall P&L analysis.
"It's something as simple as what are all my revenues, what are all my expenses. I subtract my expenses from my revenues and that is my operating income," he said. "For those of you that have one location, it's pretty simple. You're just looking at one P&L analysis for that particular store. For others that might have 10 or 15 locations, you're going to want to develop one of these for each of your locations. Every store is going to have a little bit different nuance."
As part of the four wall analysis, Matthews also likes to develop a revenue model and an expense model for certain thresholds of sales, so he can be prepared for various target scenarios.
"So, we may do $300,000 a year in sales, and I want to understand all the expenses associated with performing at that. And then, what happens if we do $600,000 or $1 million dollars? What are all the expenses associated with that?" he stated. "I don't want to leave things to chance. I don't want to have our sales go up $100,000 and then find out that we lost all that revenue because we didn't manage our expenses along the way."
A replay of "Reigning In Operating Costs," as well as other sessions from the 2025 Convenience Store News Outstanding Independents Summit, are available here.
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