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Complexity and compliance in the modern day convenience store
Scott Peterson, VP of U.S. tax policy at Avalara, explains why the technological innovation taking place across the convenience store industry has drastically increased the burden of product management, compliance, and shipping on businesses placing their stake in the omnichannel landscape.
February 27, 2020 by Scott Peterson — VP of U.S. Tax Policy, Avalara
In our modern, digital society, the prevalence of e-commerce has cemented convenience as king among consumers. So, it would make sense if convenience stores, which are known for their convenience, were thriving into today's economy, but that is not how things have happened. In fact, in-store sales among convenience stores only increased by 1.7% in 2018, pointing to declines in both new customers and automobile usage.
The increased emphasis on convenience has pushed convenience stores around the world to revamp everything from food service to retail to products on the forecourt in an effort to not only remain relevant in an increasingly competitive landscape but also change the overall experience of going to a convenience store. Even some of the largest, most recognized convenience store brands, like Wawa, are moving away from decades of strategy that focused on cheap gas and made-to-order sandwiches to emphasizing clean energy, healthy food options, and new ways to make purchases in an effort to keep pace with what customers are looking for.
A core component of the new strategies being implemented by convenience stores focuses on the channels through which customers are reached and able to make purchases. From traditional point-of-sale systems and in-store digital kiosks to mobile orders and e-commerce websites, convenience stores are taking a major step into the world of omnichannel sales. By introducing frictionless payment systems that reduce the time needed to make purchases in-stores and enabling customers to order ahead through mobile apps, convenience stores have positioned themselves as a convenient, go-to source for everyday needs like prepared meals, grocery items, and more.
However, the technological innovation taking place across the convenience store industry has drastically increased the burden of product management, compliance, and shipping on businesses placing their stake in the omnichannel landscape. To be effective in reaching customers and keeping pace with changing consumer preferences, convenience store leaders must keep the following factors in mind as they embrace new channels and capabilities.
Maintaining inventory across channels
Most, if not all, convenience stores are currently operating with some form of existing business technology, likely in the form of POS software. As convenience stores adopt new channels, they will have to integrate the new systems into their existing infrastructure to not only support new channels but ensure that they can efficiently manage product and customer data across systems.
For example, if customers have the ability to buy cases of water in-store at registers and kiosks, through a mobile app, and through an e-commerce website, the systems powering each endpoint must be in sync to ensure that products are not oversold or have discrepancies in pricing. Convenience stores operating an omnichannel business will need to maintain an accurate inventory of all products and related product codes across systems to ensure accurate product management and reduce interruptions to the customer experience.
Creating shipping and fulfillment channels
Because businesses are embracing more channels to reach and sell to customers, the need for robust shipping and fulfillment services has become a necessity for nearly all sellers, including convenience stores. Amazon and others have changed the way consumers think about shopping and delivery by offering quick and free shipping on millions of items. In response, we've seen businesses off all shapes and sizes start to offer delivery on everything from groceries to furniture to vehicles.
A quick glance at the competitive landscape makes it clear that offering delivery services will continue to become a key focus area for convenience stores. However, it's important that convenience stores take the necessary steps to establish a delivery system that best fits the needs of prospective customers without compromising the customer experience — a key consideration that stores must address head-on. In fact, a survey of consumers found that 84% of consumers say that they won't return to a brand after just one poor delivery experience.
To best serve customers and ensure efficiency, convenience stores should consider what types of products are best suited for delivery services. Will you offer prepared meals and shelf items? Once a store has an idea of what products will be available for delivery, they must also consider the fulfillment system that is needed to support the demand and whether they should outsource to delivery companies or build out an internal infrastructure.
Calculating compliance across systems
Managing compliance is a task that many convenience stores already struggle with, which has made them a primary target for tax audits. Because the products sold in convenience stores, like food products, tobacco, fuel, and lottery tickets, have taxing definitions that can vary widely by state or locality, it can be difficult for stores to charge the right tax on many products. So, when additional channels are added into a store's selling strategy, convenience stores immediately exacerbate the complexity associated with their compliance obligations.
As a result of the complexity that comes with an omnichannel approach, it will become imperative that stores have the systems in place that can accurately calculate the tax for products based on the channel through which they are being sold. While a store may be able to easily calculate the right amount of sales tax for products that are purchased in-store, the taxing definitions can become blurry as stores begin offering services like delivery.
The introduction of economic nexus laws following the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. requires remote sellers, including convenience stores, to pay sales tax based on where the purchase is being made. In some cases, for stores offering delivery, they could trigger economic nexus requirements if they are delivering across state lines or in different localities.
It's also important that stores have the technology in place to accurately calculate and charge sales tax for products at every customer touchpoint, including those that exist within the store itself. Data from register sales, kiosks, and mobile orders will all be transmitted in a variety of ways, so stores must ensure that they are automatically updating tax rates and charging the right amount through every channel or else put themselves at risk during an audit.
At some point in history, the convenience store was created to satisfy the demand for convenience by consumers and, if approached correctly, convenience stores are poised to capitalize on the renewed emphasis for convenient services.
As the industry embraces omnichannel selling, the strategy for maintaining product management, shipping, and compliance will become a focal point of the overall business plan. Fortunately, there are technology providers today that can enable convenience stores of any size to manage these services and easily manage the data across systems to ensure an efficient operation and frictionless customer experience — no matter how an individual chooses to shop with your store.
Scott Peterson, VP of U.S. tax policy at Avalara.
