Economics_Of_Bodega

The Quick and Ubiquitous Economics of Bodegas

Do convenience stores really survive on cigarettes and lotto tickets?

Convenience stores: Imagine a world without them. You wouldn’t wanna live in it! Whether you’re cruising in for a six-pack, or you live in the big city and depend on your corner store for, well, just about everything, they’ve usually got you covered. But how do they survive selling nothing but inexpensive merchandise? Also, what’s with all the random stuff on the shelves — detergent, a key-making machine, old DVDs, dollar-store toys — and how’d they get there?

To find out, we got help from Parul Patel, a former financial adviser and now owner of the legendary Gem Spa bodega in Manhattan’s East Village. The home away from home of famous beats, punks, artists and other Village residents for generations (as well as the original home of the egg cream drink), Patel took over the ailing store from her father last year and is working to bring it back to profitability, one egg cream at a time.

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Now, let’s see what’s going on under the counter.

So, do bodegas really make all their money on smokes and lottery tickets?

Yes! Usually around 80 percent of a store’s revenue comes from these two addictive items, according to Patel.

What’s the margin on those?

Patel says cigarettes are usually about 10 to 20 percent, while lottery tickets are about 5 percent. “But it brings people, and that’s why we keep it,” she says.

Unfortunately, when Patel took over Gem Spa, she was informed that the store’s licenses to sell tobacco and lottery tickets were each suspended, so she pivoted to e-cigarettes, which the store hadn’t sold before (and before the spate of related deaths and health scares in 2019). They have a good profit margin, too — about 15 percent, she says. It’s not like she’s selling thousands of dollars worth of Juul, but since she’s relying now on a bunch of little things to survive, Juul helped fill the gap. 

About those little things: Where’s all that random stuff come from?

Bodegas can have a byzantine array of distributors, from the alcohol to the baked goods to the dairy to the candy and snacks, along with everything else. And, of course, bodega owners often go get it themselves at another store if they know it’ll sell in their store, and mark it up accordingly.

What’s the margin, then, on everything else in a bodega — the stuff that doesn’t sell as well as tobacco and lotto?

“Anywhere from 20 to 30 percent,” Patel says. The price of convenience! Any savvy bodega owner will place the highest margin items next to the counter, while the staples like milk and eggs are at the back of the store.

How on earth do they know what to buy and stock?

Patel asks customers all the time about things she’s thinking of stocking. Still, you don’t always know what will sell. “Everything is a gamble,” she says. “That’s business.” And when she introduces things, like healthier snacks, she’ll add them little by little, instead of 10 to 15 new types or flavors at a time. Still, for expensive items like the Krispy Kreme donuts she was thinking of carrying, she asked customers first if they’d want to buy them. “I’m trying to minimize risk,” she says. 

What are the rent and expenses like, especially somewhere like Manhattan?

A lot! Her rent is $16,224 per month. Taxes are $2,600 a month. Utilities are $2,000 a month. “So before I buy any merchandise or pay an employee, we’re already at $21,000,” she says. That’s an ungodly number of egg creams ($5 each) and candy and sodas! 

Fuck me, how are the lights still on?

Patel got savvy and started marketing the history of Gem Spa. It’s all over Instagram now, and she started selling branded T-shirts and hats, which have been wildly successful once they caught fire in the modeling and fashion world, she says. Patel originally ordered a limited edition of 100, pre-booked (because she didn’t have the money at the time). Once those sold, she ordered 30 more and received orders for 60. When she sold out of the next order of 100, she finally just ordered 250 more so she could actually have them on hand. She was looking for any way to survive while she waited to get her tobacco sales license back — and it worked.

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Why do so many bodegas have a lonely deli counter on one wall?

Because those things can bring in serious money (Patel is a vegetarian, though, and won’t have a deli in her store). She says what’s magical about a deli counter is that when a customer comes in for a sandwich, “They’re gonna get the chips and soda. The cookie. And their cigarettes, too. They get it all. I know we’re forgoing business by not doing it, but that’s fine.”

Beyond the staples, what’s the key to survival?

It’s crucial to differentiate yourself. Patel is pushing the egg creams (which doubled in sales after four months, until the seasons changed and it got cold) as well as the colorful history of the place. Other bodegas might boast a famous sandwich, for example.

But it’s also key to keep up with trends. When Patel took over, the store hadn’t changed in years. There was nothing remotely healthy on the shelves. “Nobody was eating candy [anymore]. Nobody was drinking soda. Everybody’s lifestyle is changing,” she says. The neighborhood had gentrified as well. With baby steps, she added Kind Bars and Clif Bars, kombucha, as well as the Lenny and Larry protein cookies that were found in every other bodega except hers up till that point. More juices, as well. 

Still, they didn’t sell as quickly as she’d hoped — people form attachments to convenience stores, and for ages, nobody went into her store expecting to find anything healthy; they’d go to any of the other bodegas that carry that stuff. So she’s aware that it’ll take time to change habits and demographics.

So overall, is it difficult to make it?

Running the business isn’t difficult — just figuring out what your customers are looking for and having the right mix is the key, Patel says.

But in New York City and likely elsewhere, rising rents have put the squeeze on a lot of bodegas: Hundreds have closed in recent years. It’s not any easier when your hands are tied: Patel is still waiting to get her lottery license back. But she’s confident she can restore Gem Spa to its former profitability — whether it’s through T-shirts, local lore or fizzy, milky fountain drinks.