Buying a gas station: advice from a broker

BusinessesForSale: How competitive is the gas station sector?

Terry Monroe: Extremely competitive. In fact it is my belief that we probably have too many convenience stores competing for the same portion of the pie. Last toll there were approximately 145,000 convenience store-gas stations in the US.

However, please keep in mind that I think we have too many of the wrong kind of convenience stores. By this I mean there are too many older small units of 2,000 square feet or less.

Years ago, the convenience store business wasn’t a difficult business to get into, and a lot of people would build a small building, put some tanks in the ground and they were in business. But today the market and consumers have changed.

The present-day consumer is more inclined to visit newer, bigger stores and therefore the older stores are slowly starting to close

Now people want more than just a little building selling some gas and candy bars; they want a complete offering of products which include sandwiches, different food offerings and additional services too.

The present-day consumer is more inclined to visit newer, bigger stores and therefore the older stores are slowly starting to close, giving way to the more complete convenience stores.

BFS: What are the advantages and difficulties of running a gas station?

TM: The main advantage of the convenience store/gas station business is, overall, it’s a simple business to operate. You have a building in a high traffic, highly visible location and fill it full of products that consumers want to buy on a daily basis – for example, coffee, soda, gasoline, diesel, candy bars, chips, etc. It’s not a hard concept to understand and operate.

But you need the right products in the store and you have to be able to execute the sale of those products. You need to purchase the correct products at a competitive wholesale price – which is where most owners drop the ball.

Owners are often able to do everything necessary to be successful but do not have the economies of scale to purchase those products at a competitive price, because they are not buying in bulk and therefore get priced out of the market by local competition who can buy their products at a more competitive price.

BFS: How difficult is it to make a good profit in this industry?

TM: As I’ve mentioned, if you can buy your products at a competitive price and you do not have a lot of competition the business can be very profitable.

The profit margins for gasoline, tobacco and alcohol products have tightened over the years. However, other products in the store such as candy bars, chips and food products can carry a high gross profit margin – sometimes as high as 100%. So if a store is in the right place with minimal competition it can be very profitable.

BFS: What are the most common mistakes made by buyers of gas station-convenience stores?

TM: One of the biggest mistakes buyers of convenience stores make when they purchase a store is to make too many changes to the store too quickly. They immediately want to start changing things but generally do not have any idea who their customer is and, if they are not careful, they will deter the stores regular customers.

Instead of making a lot of changes quickly it would behove them to study their customers, survey them as to what they like and don’t like, and conduct research to help give the present customers more of what they want and grow the store accordingly.

When building a new store the same thing applies. Many people will build a store and not seek professional help from a consultant over which products to buy, where to place them and how to build the store.

BFS: Are there any legal pitfalls prospective buyers should beware of?

TM: The most confusing thing for convenience store-gas station owners is the fact that every state in the US has different environmental laws governing the underground tanks and petroleum products that they dispense.

This is a very difficult concept to understand and is an issue that could have long-term consequences if not handled properly. For example, one state will have an insurance fund and the state next to it will not have an insurance fund, and each state handles a petroleum spill differently to the other state.

So, before you get into the business you must employ the services of an environmental engineer and be sure that you understand what the laws are and how they apply to you in the dispensing of petroleum products.

BFS: I understand you’ve been in this trade for many years – how much change have you witnessed?

TM: The overall industry has become more competitive with a lot of smaller stores still operating which probably should go out of business because they are not making enough money to survive much longer.

This is mainly because the customer has changed by wanting and demanding more from a convenience store. They want more of a one-stop shop with more product offerings. People are in a hurry, which is why they call it a convenience store and therefore they want to be able to get everything done at one location and get in and get out.

Broker Nidal Saleh offers his advice in the gas station podcast.