Buying a Gas Station Business: The Industry’s Outlook and What’s Driving It
The gas station industry is comprised of retail chains and independent operators, the majority of which include convenience stores, car washes, auto repair shops, or other products and services geared to increase sales and profitability. While over half of U.S. gas station businesses sell branded fuel from one of the 15 major oil companies, the majority of these businesses are run by independent operators.
Is there a strong demand for gas stations businesses?
As the economy continues to grow and consumers drive more and spend more on fuel, demand is expected to grow. Yet, the gas station industry has been fairly volatile for the past few years in the United States. Though Americans still rely on gasoline powered vehicles for transportation, the rise in hybrid and electric vehicles as well the past economic stations may have contributed to a decline in demand.
- Increased volume of sales. Prices at gas pumps are expected to remain the same or lower, meaning average growth in retail prices. However, due to falling prices, it is expected that there will be an increase in the volume of sales since consumers can afford to purchase more gasoline.
- Miles driven by consumers. As the economy continues to improve, more people are expected to return to work and participate in activities outside the home. This means that consumers will be spending more on gas, though that is largely dependent on employment trends.
- Crude oil prices falling and rising. Increased prices of crude oil caused gasoline prices to rise as the economy recovered and demand for gasoline increased globally. Because gas station operators tend to pass the savings onto their customers, there has been stiff competition, sometimes forcing businesses to operate at a loss.
- Energy efficiency tax credits. Federal tax credits for the past five years encouraged consumers to purchase energy-efficient vehicles. More of these vehicles mean less of a demand of retail fuel.
Where is the biggest market for gas stations businesses?
The gasoline industry serves a wide range of demographics with middle-aged consumers being the most frequent visitors. Market concentration is mainly influenced by population density and accessibility.
- Urban and tourist locations. Since there is stiff competition in the industry, most gas stations are located in busy areas or have a presence in an area where there will be a steady stream of traffic. This can include tourist spots that are in urban areas, particularly those that are open year round.
- Site accessibility. Although being centrally located in a high trafficked area is key, consumers are willing to pay higher prices at gas stations that are easy to access and not hard to enter or exit. This can include being situated alongside an interstate or main street. Gas stations that are positioned in places with the heaviest flow of traffic and in easily accessible spots get the most business.
How do gas station businesses generate most of their revenue?
While regular gasoline brings in over half the revenue for gas stations, profit margins are slim and more businesses are relying on convenience store sales to drive profits. According to the National Association of Convenience Stores (NACS), only one third of convenience store gross margin dollars came from motor fuel sales. In other words, profits from gas station business are mainly from other products and services.
- Higher profitability items. Consumer spending is expected to increase, yet profit margins for gasoline remains volatile. In order to be successful, businesses must increase revenue through selling convenience store items - those with higher profit margins such as packaged meals, cigarettes and beverages.
- Refining product selections. The growing trend of fuel efficient vehicles is encouraging many gas station businesses to offer alternative fuel sources in addition to regular gasoline. Furthermore, businesses are stocking up on a higher volume of convenience store items and refining their selections according to customer demand.
What types of services do gas station businesses provide?
- Prepackaged meals. Tourists and commuters are becoming more discerning as to what they put in their body. Convenience stores at gas stations are serving healthier meals as snacks, sometimes made to order.
- Groceries. Many chain and warehouse stores are also providing gas stations alongside their businesses. Even some convenience stores are offering fresh produce (such as fruit) in addition to beverages and nonperishable items.
- Automotive repair services. Companies may also offer minor automotive services such as oil changes and tire alignment. They may also feature other services such as car washes or car detailing services.
- Car washes. Many gas station businesses offer drive through car washes to have an advantage over their competitors and attract more business. Oftentimes, gas station businesses offer free car washes to customers as an incentive to purchase a full tank of gas.
With crude oil prices falling and discretionary consumer spending rising, growth in the gas station industry is expected to continue. Yet, profit margins remain low as fierce competition continues. To combat this and remain profitable, the gas station industry continues to pair gas stations with convenience stores and other and other types of services.
To get a jump on starting your business, browse gas station businesses for sale.
“Gas Stations with Convenience Stores in the US”, IBISWorld Industry Report 44711, IBISWorld, February 2017 www.ibisworld.com
“Gas Stations”, First Research Industry Profile, First Research, 19 March 2018, www.firstresearch.com
“Fueling America: A Snapshot of Key Facts and Figures”, NACS, https://www.convenience.org/Research/FactSheets, Accessed 7 May 2018