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Should I Buy a Gas Station?

August 8, 2012

Perhaps the most frequently asked question is:  Should I buy a Gas Station?  Keep in mind that historically, we have sold a LOT of Gas Stations.  We know that market extremely well.  But we have also moved away from dealing with them in volume, because of our concern over the future of the market.

First, we do not TELL you what you should or should not buy!  What we are willing to do is to give you some of the positives and negatives about the businesses with which we have dealt, so that you have more information and can make up your own mind about what is best FOR YOU.  (See our blog on determining what kind of business to operate:  https://combrokerbusiness.wordpress.com/2012/01/06/what-kind-of-business-should-i-buy-or-start/)

Whether buying a Gas Station is a correct move depends on a LOT of things: The location; the Brand; the location; the Cash Flow; the location; the Competition – both now and foreseeable Competition in the future; the location; the Supplier; the location; the Price; the location; whether it includes a C-Store or Repair Bays, and if it has Repair Bays, are you a Mechanic?

Did you pick up on any themes in that paragraph?

As Prices rise, the dealers lose, in many markets. The average Pool Margin in our market is about 10 to 12 cents per gallon.  (There are some that get as much as $.25 or so per gallon, but those are normally in highway access areas, with little or no competition.  They are not the norm.)   Most sales are through Credit Cards, and some Gas Companies charge as much as 3% on all sales. At that rate, when Gas is $2.00, if your Pool Margin was 10 Cents, you paid 6 cents of that in Credit Card charges, so your real Gross Profit on a gallon of Gas was 4 Cents. When Gas went to $4.00 per gallon, the margins were still in the 10-cent area, 3% of $4.00 is 12 cents, which means Gas Station Dealers with those circumstances lost 2 cents on the gallon! You could charge a larger Pool Margin, but competition made that difficult to impossible for some Dealers.  In general, you make money on the C-Store anyway; when Gas was $4.00, it was the lifeline.

So, the Pool Margin has to be understood in relation to the Credit Card charges.  Make certain you understand whether the Pool Margin being quoted is before or after those Credit Card charges, because Sellers will sometimes quote it differently.  And know what those Card charges are, in very exact terms.

In terms of Competition, there are three (3) killer-Competitors in our market area, (WaWa, Sheetz and Royal Farms,) which each have extremely large C-Stores that almost verge on being full-fledged Supermarkets.  Some people call them Superstations. They construct huge operations that may have 14 to 20 Gas Pumps associated with them. They make their big money on the C-Store and virtually give the Gas away, in order to lure people into the Store.  (The Safeway and Giant supermarkets, BJs, Costco, Sam’s Club and others are also jumping into the market.)

What this means is that the typical, local Exxon Tiger Marts and similar operations can’t compete with them. Their C-Stores are too small and because of the wholesale prices charged to them, they cannot offer Gas Prices that are low enough to compete. In one county where these huge operators are most popularly located, we have had Dealers with BP, Shell and other, traditionally branded Gas Station dealers call and ask us to sell their stations. After analyzing the locations and the impact on their books after the Superstations came into the area, we were forced to tell them they had nothing to sell! They went to a variety of other Brokers, complaining about what we said, only to be told the same thing. In almost every case, the small station owners ended up just throwing their keys in and walking away.

So, the question is, do you have competition in your area that is similar? And how are the zoning laws in your area, regarding the construction of new stations and the potential for a Superstation to come into your market area?

It would appear that some Oil Companies are doing away with smaller stations, in order to accomplish two (2) objectives.  First, by recruiting only huge Dealers and doing away with the small guys, the Oil Companies can deal with and manage far fewer Dealers.  If the Oil Companies can deal with larger Dealers, who have more managerial experience of their own, they can reduce the Oil Companies’ field supervision personnel, and all the costs they represent.  That means that Exxon and BP can become even more profitable!

(Oil Companies are also, increasingly ridding themselves of their own field supervision operations, and putting that responsibility on the shoulders of local or regional Distributors.  This means you would never speak to an Oil Company representative, but solely with the Distributor.  Depending upon the Distributor, this could be good or bad; but either way, it adds another several cents per gallon at the wholesale level, as the Distributor adds in its own costs and profit margin to the amount the Dealers pay.)

Second, the Dealers that are being recruited are developing on their own, or in cooperation with the Oil Companies, real competition to the Superstations.  The average Station in the markets where the Oil Companies have done this costs three (3) to four (4) times what a traditional, smaller station would.  (We worked on refinancing one such operation, and the average Superstation was valued at between $3 million and $4 million, per location.)  In addition, these Dealers are real money guys, not the typical neighborhood operator you would normally see in smaller stations, and they may own every Gas Station for that brand, in a given city!  This has already happened with some brands in Orlando, Phoenix and other cities, and is spreading.

A third – but unpublicized reason for doing this – is the fact that an Oil Company, working with one Dealer across an entire market such as a city, can jack up prices across that market, with far less muss and fuss.  It would represent a bit of a monopolistic situation, again allowing the Oil Company to increase its profit margin.

In many, if not all areas of the Country, Oil Companies only provide a three-year Dealer Agreement, at a maximum.  At the end of each three-year period, your Agreement comes up for review and, for no particular reason, your Agreement may not be renewed.  If the Oil Company wants to get rid of smaller Dealers, it has the ability and every right to dump you at the end of your Agreement, and you have no way of arguing your case.  The Oil Companies are not nice guys, and they play very rough!!!

They cannot necessarily, or will not necessarily do that if you own the Property.  You have a lot of protections when owning the Real Estate that you do not have if all you own is the Dealership, which is essentially providing you with the right to buy yourself a three-year job!

You need to be very aware of what is going on, in your market.  You need to look at who is opening what, where and with what size.  That is what would tell you whether your market is creating a situation that would eventually make you extinct, as a Dealer.

If we were looking to purchase a Gas Station ourselves, we would be extremely hesitant to buy a Station any more that did not have the Real Estate as part of the deal. One brand in this area in particular has become notorious for jacking up the Rent on stations it owns, making it virtually impossible to earn a livable buck.  Its system SEEMS TO BE to monitor the Gas Sales, Pool Margin and Volume of a given Gas Station, then charge Rent that just about equals the Gross Profit the Dealer earns in Gas Sales, in any given month.  The Dealer then gets nothing out of the Gas Sales, at all.  The C-Store earns any other money the Dealer needs to pay for all other Expenses, as well as his/her own Income.

In another situation, a Gas Station Dealer was renting from an Oil Company, and the Oil Company wanted him to change his Auto Repair Bays over to a C-Store.  After two years of hesitating, he finally spend about $75,000 out of HIS OWN POCKET to reconstruct the bays ON THE OIL COMPANY’S PROPERTY, into a  C-Store…then the Oil Company increased his Rent, because the Station was now an improved property.  The Dealer invested the money in the Oil Company’s property, then charged him more Rent because he – the Dealer had improved the property!!!

Get any deals in writing!

DO NOT review their contracts yourself!  Spend a dollar and have a competent attorney who knows Contracts to do that for you!  (The Oil Companies have more attorneys than there are flies in a cow pasture.)

There are still SOME good deals out there for Gas Stations.  There are SOME areas where the future can be bright.  But in many areas, particularly those with the densest populations, the glory days for the small Gas Station Owner may be over.

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

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14 Comments
  1. craig permalink

    I’m on long Island ny wer can I get a gas station how can I get into the business

    Like

    • Craig, we should talk. I am available tomorrow (November 7) at 410-715-0700. Or contact me via email at combroker@bafgroup.com. Thanks for your message!

      Like

      • Naveed permalink

        Combroker, I need to buy a gas station and need to talk to you for a few minutes if you have some spare time. If you do, that will be great as it is extremely difficult to find the first hand information on the internet as it relates to buying a gas stations. Much appreciated.

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      • I am happy to speak to you, but with tomorrow being New Year’s Eve, would be the earliest we could do that. You can call me at 410-715-0700. Or contact me via email at combroker@bafgroup.com, give me your telephone number and let me know when to give you a call. Thanks for writing.

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  2. Christine Aaron permalink

    I am interested to open my own brand gas station and possible to be the franchise in the future. Please advise how possible I could do it.
    Thank you.
    Christine

    Like

    • Christine, that is a huge undertaking. It is not out of the question, but takes a lot of careful planning. If you are serious, email or call me and we can discuss it. Don Barrick, at 410-715-0700, or email at combroker@bafgroup.com. Thanks.

      Like

  3. Stephen haufsk permalink

    Hi I’m looking at a non branded station with cstore. 200,000 gallons a month and 40,000 a month in the cstore. What do I look or ask for when I meet the owner? Thanks stephen

    Like

    • Stephen, getting a 200,000 gallon per month Gas Station is going to be extremely expensive! Frankly, they are very few and far between, in Maryland. So, if you get one, jump on it!! But validating the information is crucial. Branded stations will have Z-reports, which are “end of the day” reports that are mandated by the Oil Companies. They should be available not only by the day, but by the month or year. Get those and learn how to decipher them. Match them to the Tax Returns. The size of the Station you are seeking will require you to get an SBA loan to make the acquisition, unless you have a rich uncle. The Tax Returns need to be correct and available to you, for you to get the loan you will need to make the purchase.

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  4. Mike permalink

    combroker.. hello, I am looking at purchasing a gas station / C store, in Portland, Oregon. Do you know anyone here in this are that I could talk to in order to learn these in and outs and pitfalls. As well, as how I would go about getting a business loan for this type of business. Thank you.

    Like

    • Mike, I guess it depends on what you are looking for, in the way of learning the ins and outs. Most Brokers are not as talkative as I – they want you to sign on the dotted line, or forget it! I am not saying that is a good thing, it just is the way it is. I will be happy to talk to you about the process, if you wish. As for a loan, your best bet is an SBA loan. There is another post on my blog about that process. Drop me a line at my email address, if you want to speak about this in more detail. That email is combroker@bafgroup.com. Thanks for writing.

      Like

  5. Heather Hewitt permalink

    Do you know the average cost of a gas station/ c store? I live in Pennsylvania, so the average cost in PA I guess. I know it differs depending on the area but I figure there has to be an average cost of some sort.

    Like

    • Heather, there really is not an “average cost” for a given location. Virtually all small businesses, whether they are convenience stores, liquor stores, gas stations or other types of operations, are measured more by positive Cash Flow than they are anything else. But, positive Cash Flow can be a deceiving figure. You really need to take a strong look at the current Owner’s Business Tax Returns, in order to make intelligent decisions about the purchase price. If the property is also to be purchased, that is another story altogether. That is when you get into local pricing.

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  6. Hello, I’m interested in buying a gas station under 75k. Is this possible? Including inventory. I can already think of other revenue streams to increase my profit. Also do you know if Redbox franchise it out to gas station owners? Thank you.

    Like

    • Vick, I am afraid that buying a Gas Station at under $75,000 is not extremely practical. Pricing with Gas Stations is frequently a function of Net Income. The profit from a Gas Station that is priced at under $75,000 would probably be in the area of $50,000 – and probably much, much less. But the price of the business itself is only part of what you need to think about, in terms of the financial commitment. You would probably be looking at a bare minimum of another $50,000 in gasoline inventory, plus another $20,000 or more in the store. There are any number of other deposits For which you would be responsible going into an acquisition of that kind. Some of these deposits can be sizable, particularly the deposit with the landlord. Then you need cash reserves to work from, which is usually equated to At least three months of Operating Expenses. This could be another $40,000-$60,000, depending upon your operation. Gas Stations are not necessarily the best places to start with limited funds. In fact, any operation that requires a large amount of inventory is difficult to enter into, with limited funds.

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