Regardless of how the economy is and how expensive the price of gas is, there are always plenty of gas stations for sale and there are always plenty of buyers. Unless the site is a bad site, there are always a LOT more buyers than there are gas stations for sale.
So how do you decide what type of gas station to buy? If you were to categorize, you could break them down into gas station/service stations (ones with traditional service bays and minimal space to sell convenience store items), pumpers (high fuel volume stations in kiosks or smaller buildings where none to minimal amount of convenience store items are sold) and traditional convenience stores with fuel.
First, let’s make it clear that you can make a LOT in any of these situations with the right location, right employees and right timing. Gas stations and convenience stores are diminishing in numbers yearly though due to the emergence of high volume, larger convenience stores and traditional gas stations being torn down or razed and other types of properties being rebuilt.
If you are a mechanic and you are looking to buy a station, a logical choice would be the service station. This is becoming a dying breed though because many mechanics are going to work in franchise repair facilities (Meineke, Goodyear, Monro, AAMCO, etc) or purchasing these franchises, especially due to the volatility of fuel prices. Unless you are a mechanic and can run these type businesses you should probably pass on this. Many individuals are purchasing service stations and building out the service bays to full sized convenience stores. Another thing to remember about service stations; because these type properties tend to be older, you typically will have deferred maintenance on such a facility much quicker. Also, the underground storage tanks tend to be older steel tanks and will most likely need replacing sooner than later.
Pumpers, depending on your source, are high volume fuel stations (more thought of at least 150,000 gallons per month) are also becoming less popular as fuel gallonage is decreasing across the country and inside sales remain stable or increasing in some areas. Competition from hypermarts (Sams, Costco, Albertsons, etc) have also impacted profit margins. Regardless of the price of gas, people will still purchase their cigarettes and packaged beverages. If you are purchasing a pumper and are depending on high volume and a certain margin, you probably will feel this more than others. Not only is fuel gallonage decreasing nationwide, fuel profit margins are also decreasing nationwide. From a lending point of view, these properties are less attractive to lenders because there is little on the site other than land, a canopy, dispensers and a small kiosk building. Unless you have the space to put up some sort of modular convenience store, you might want to pass on this option.
The most attractive property types from a profitability point of view and a lending point of view are convenience stores with fuel. Convenience stores with multiple profit centers should be desired, i.e. co-branded franchises such as Subway, Dunkin Donuts, etc. as they provide additional revenue sources in case of decreasing revenues from decreased fuel gallonage. If the convenience store is too small, 1000 square foot or smaller, it might not carry enough items to generate high traffic. If the convenience store is too large, the amount of products that need to be sold might be prohibitive in order to cash flow and service debt. Convenience stores in the 1,500 – 3,500 square foot range should be desired, although this is no absolute in any case.
Last year for the first time in the history of the industry, fuel throughput (the amount of fuel gallonage pumped) decreased in most of the major brands. This is significant.
Regardless of the type of business you are looking to purchase, make sure you inspect the financials and make sure they do not have artificially increasing numbers in order to facilitate the sale. Don’t buy someone else’s nightmare.
Harold Jaynes is with PetroMAC, one of the premier sources for financing gas stations, convenience stores and truck stops nationwide.