Circle K
Background and Problem Definition: Circle K’s recent financial struggles the last two years are
causing a huge concern. The company has pushed for a vast expansion but has taken on too much
to handle. Circle K is facing the fact that convenience stores are unfortunately looked at as all the
same. The customer base that shops in convenience stores are blue-collar, white males with a high
school education, age 18-34. Circle K is now forced with the decision to change their products
carried, initiate a price cut, promote aggressively, or close unprofitable stores.
Market and Industry Analysis: Consumers are continuing to purchase their goods at the local gas
stations as they are able to sustain a lower profit margin due to higher gasoline sales. The biggest
competitor for Circle K is 7-Eleven who operate over seven thousand convenience stores. The
products sold in the stores range from foods, nonfoods, toys, baked items, frozen foods, and
numerous others but the company continues to push for products with higher product margins and
increasing prices due to the “convenience” factor. Profit margins are increasing annually but sales
are substantially decreasing from the higher prices and undesired products. The advertising
budget for Circle K was $4 million in 1989 compared to the $12 million spent by the competitor
National Convenience Stores, Inc. Grocery stores are also another competitor that are taking
customer away from Circle K due to the negative reputation originating that convenience stores
foods are not fresh rather frozen and reheated.
Alternative 1: Change Product Mix: The proposed variation in products held in Circle K stores
would come from getting rid of a majority of high margin, undesired products and replacing them
with the products that are most popular. The pro of this action would be that dollar sales would
increase 4-5% as well as an increase in foot traffic. The con of this action would be that our gross
margins of 37.2% would be significantly reduced.
Alternative 2: Price Cut with $100 million promotion: Sales will need to be (1,759,363/(.24-.10))
= $12,566,879 to just breakeven with a price cut of 10%. The pro of a price cut and promotions
will be that Circle K will become more competitive with other convenience stores of the same
type. The con of the price cut and promotion is that customers still might not like the product
selection that was originated behind high margin items that customers typically do not want. The
prices may decrease but if the selection is undesirable, then customers will not buy products from
them. From prior sales price modifications, we can estimate a decrease in the sales price of 10%
will result in an increase of sales volume of 12% or $2,093,728.
will now sell products customers look for in a convenience store instead of a store that is visited
only because of its expediency. The convenience stores that are growing the most are the ones
who offer the products people want at an affordable price and convenient location.