Owning gas-stations

[siddharth18]

 

Anyone here own/used to own gas stations? I'm trying to learn more about this business. What type of ROI/ROE/ROA can one expect from such a business?

 

 

I know that profit comes from the convenience store, not from gas, but that's about it.

 

 

Here is a sample listing I saw:

 

 

Price = $165,000 + $55,000 (inventory) =$ 220,000.

 

 

Gross Profit = $288,000 (from the "Business Description).

 

 

EBITDA = $125,000 (they define it as "cash flow).

 

 

http://www.bizbuysell.com/Business-Opportunity/Gas-Convenience-Northwest-Orlando/764819/

 

 

Thoughts?

[gfp]

Where I live (New Orleans), the economics are pretty good if you are able to sell alcohol and finance the purchase of the stations at a low rate.  I have a lawyer friend that has 3 stations that sell quite a bit of Beer.  I don't know the figures unfortunately.  I know that if an employee accidentally sells alcohol to an underage kid/control board agent and you lose your license to sell alcohol, you're pretty screwed until you get it back.  Cigarettes are similarly important.

 

You might take a look at CST brands (CST), the recent Valero spin.  Barrons did an article on them recently I believe.

[Valuebo]

I know that Buffett owned one in his early twenties if I'm not mistaken.. Didn't turn out ok.

[PatOfThePig]

The 125 000 probably doesnt include the salary of the owner and probably doesnt include the pay of the employees.  It's a cutthroat business and unless you want to work very very hard you cannot compete the big chain because you dont have scale.  And you have the cost associate with the tank and the decontamination of the land eventually.

[PatOfThePig]

The best company in this field is Alimentation Couche-Tard, ATD.b on TSX.  In US they own Circle K.

[Drokos]

I agree with Pat, I think it is fine as an owner-operated business, you can work almost all the time and make $100k+. However, if you're trying to be passive owner and hire a manager/employees, you'll probably be be looking at small margins.

 

And that's before we start factoring in the headwinds...declining tobacco volumes, increased MPG efficiency leads to less frequent stops at the gas station, TSLA, etc....

 

I'm sure it can still be a great investment if you get it at a bargian price, but I'd prefer to own a business with better long-term prospects.

[twacowfca]

I have a friend who has a chain of about two dozen stations built up over four decades from a smaller chain he got from his father in law.  He has everything going for him: good locations including two truck stops at intersections of interstate highways, scale, including affiliations with major oil companies, locations in growth areas, etc. With all that going for him, he only makes a little over his cost of capital.  In the early years his returns were lower.

 

I know two other people who got started with stations/stores who had very high returns in their early years with their first station because it was in a great location, protected from competition, and they are good operators.

 

On the other hand, my high school football coach bought a station in a poor location for almost nothing and still overpaid.  :)

[PatOfThePig]

...who has a chain of about two dozen stations ...  He has everything going for him: good locations including two truck stops at intersections of interstate highways, scale,

 

Scale in this business come with hundred if not thousand stores.  Not with two dozen.

[twacowfca]

...who has a chain of about two dozen stations ...  He has everything going for him: good locations including two truck stops at intersections of interstate highways, scale,

 

Scale in this business come with hundred if not thousand stores.  Not with two dozen.

 

You may be right, but there are disadvantages to scale as well.  My friend's stations are clean, wholesome and well managed.  I can't say that about large gas station chains that are beyond the span of control of an owner/operator.

 

On the other hand, I have another good friend, also second generation whose fast food chain has about 2,000+ units with sales per unit that are double the much discussed SNS chain. The big edge that he has is that his units are also clean, wholesome and extremely well managed by operators that make most of their income through sharing the profits of their units.  :)

[PatOfThePig]

You may be right, but there are disadvantages to scale as well.  My friend's stations are clean, wholesome and well managed.  I can't say that about large chains that are beyond the span of control of an owner/operator.

 

In Canada, the store owned by Couche-Tard are all very clean and well managed.  Maybe not all big chain can do that but the one that can and get scale are doing very good.  Look at what have done the share of Couche-tard since 20 years...

[eggbriar]

Have a look at CASY, Caseys General Stores.  I haven't looked at them in awhile, but they used to operate a lot of smaller stations and have done quite well.

[matjone]

I don't have any numbers, but I do have an anecdote which might interest you...One of my friends manages a gas station in a small town.  The owner bought it a few years ago after the truck stop at the next exit closed, so his gas station was the only one on the interstate for about 30 miles in either direction (this is a rural area).  For a long time this station had been run down.  It also had a restaurant attached which several people had tried to run over the years without much success.  After buying it the owner remodeled the convenience store  and replaced the restaurant with a  Subway.  There is only one other restaurant in the town, and the Subway is the cheapest and fastest place for working people in the town to get something to eat.  Also, since my friend started working there he got elected to city council and introduced a measure to legalize alcohol sales in the town, which passed (people used to have to drive about 25 minutes round trip to the next town to buy alcohol).  All of these improvements combined to produce a large increase in traffic.

 

I don't know how the owner has done with this store, but I would imagine he has done alright.  I think that if you studied this area and looked at a lot of ideas, you might eventually find one like this that has potential that others aren't seeing, and you might be able to get it cheap.

[DTEJD1997]

If you are only talking about selling gas, your margins are most likely going to be thin, and you will have a hard time earning a good return on capital.

 

HOWEVER, there are some gas stations that likely earn above average returns on capital.

 

Here in Texas, we have a chain called "Buckeys"  Their mascot is a beaver.  The location off of I-45 on the way to Dallas might have 80 gas pumps.  They have a huge deli.  They have immaculate bathrooms.  They sell all sorts of "custom" snack foods, such as beef jerky, pickles, and ice cream toppings.  Their food is usually delicious.  Prices are high too.  There have been a few times when I did not stop, as the every pump was full and it was a complete zoo.  I imagine they sell a few million dollars a year through their deli, and also sell several million in snacks...They have more than one location.  These guys must be making a mint.

 

In Houston we have Stripes.  It is kind of like a super gas station with a tacqueria attached to it.  Their specialty are breakfast tacos, which are actually fairly good.  They have a fixin's bar with pico de gallo, and about a dozen differnet hot sauces.  They sell lunch, and then they sell snacks (chicken nuggets, fried stuff) after that.  Lots of people come in and get a $4 breakfast, which is pretty good.

 

In the Carolinas, they have a chain whose name escapes me at the moment.  They have very,very  clean stores and bathrooms.  They have about 40 different sodas & juices on tap.  They have more snacks than you can shake a stick at.  They have hot dogs, grilled items, and lots of prepared foods.  While not gourmet by ANY stretch of the imagination, they are actually edible.  Oh yeah, they've got ice cream & slushies, TONS OF THEM.  Gas is cheap, very cheap.  I imagine the strategy is to sell gas at a small loss or perhaps break even.  You have to have a lot of self control to not buy some snacks when you go in there.

 

I think Buckeys makes the highest return.  They have maybe 7-8 locations that are strategically placed.  Their gas prices, while not high, are not low.  They are probably making money off gas too.  What kind of gross margin will they make on a $30 gas sale, two sodas, and $12 in snacks?  Or a $20 gas sale, 1 soda, and a $6 8 inch sub (not subway)?  Then do this 2,000 or more times a day...every day.

 

In my opinion, if you've got some "draw", clean bathrooms, good food, crazy selection of snacks...you can make some good money!

[HJ]

I think it really depends on the specific locations, competitive dynamics, etc. 

 

My mother in law lives in NJ.  Ever since Costco in that town installed a gas station, and soon after, Sam's Club down the block followed suit, the couple of gas stations that I used to go to have shut down.  The other thing is the continued decline of cigarette sales, which seemed to be a significant pct of those businesses.  So it seem to really depend on the specific circumstances of those places.

 

 

[onyx1]

Take a look at MUSA, Murphy Oil's August 2013 spinoff of their retail locations.  A pure play with real estate owned, 1179 locations, and a strategy of placing all stores right next to Walmarts.  They get traffic from the superstores, and have an agreement to sell at lower prices under Walmarts discount program.