Strategies for Owning and Operating a Successful Gas Station Business
Owning a gas station business can be a great opportunity. Regardless of the volatility of oil prices, gasoline remains in high demand, especially branded gasoline offered at a convenient location. Yet, the success of a gas station business can be influenced by a number of factors, such as brand of gasoline, location, competition, or whether or not it includes a convenience store, car wash or other added perk.
What is required to operate and own a gas station business?
A gas station business doesn’t rely on much labor but it does need a constant influx of suppliers and products. More than half of all gas station businesses that have convenience stores or other additions rely on having a branded contract with a major refiner to help push sales.
- Branded contracts. Many retail owners prefer to sell fuel from a branded oil company. This is because many car owners determine where to pump gas based on the brand of fuel. These contracts tend to be long term and require retailers to sell a certain amount of fuel each month.
- Credit and debit card payments. Within the past decade, more U.S. customers choose to make payments using either credit or debit cards instead of cash. As this trend keeps accelerating at the gas pump, business owners are now keeping up, paying for payment processing services.
- Licenses and certifications are required. Businesses must meet state requirements in order to gain proper certification and licensing. Selling other automotive products such as antifreeze and motor oil requires that business owners apply for permits. Plus, convenience stores need to have an occupancy permit and any certifications required to handle food.
- Staffing requires only a few part-time workers. Since most customers tend to pay via credit or debit, most gas station businesses do not require staff members to be at the pump. Stores will need some staff to handle purchases in the convenience store.
Are gas station businesses very profitable?
The gas station industry as a whole is expected to remain steady, yet with more locations being built, higher profit margins may be challenging. To generate profit, gas station businesses must weather volatility of gas prices by providing other products and services, as well as preventing fraudulent credit and debit card purchases.
- Profits vary depending on volatility of gas prices. Because of the competitive nature of the market and volatile whole fuel prices, businesses usually see a wide range of profit margins at different times of the year. Profits typically decrease as gas prices goes up and vice versa. However, profit margins tend to even out, even during times of loss.
- More than two thirds of profits come from other products. As competition keeps getting higher, most gas station businesses are no longer standalone stores. More than two thirds of businesses have convenience stores, with their products seeing a much higher profit margin.
- Payment and billing practices can affect profit margins. Although a large number of customers rely on credit and debit card machines, transaction fees can eat into profits. Many owners are also opting to upgrade machines to prevent fraud, decreasing their liability on fraudulent transactions.
- Branded gasoline helps to build trust. Most businesses choose to sign on a contract with a large brand in order to gain customers. Many of these contracts are slated for the long term, meaning once a business partners with a popular brand, they could see steady profits.
- Competition can be high. Many gas station businesses will be at convenient and high traffic locations. Many will offer self-service and operate 24/7 (including its convenience stores) to lure customers.
Is the gas station industry very competitive?
The gas station industry is fairly steady with many standalone businesses offering branded fuel and products. Since high-volume traffic is crucial to success, there may be many competing gas stations close to one another.
What are the keys to a successful gas station business?
A successful gas station business requires a sound understanding of what drives customer behavior and how to balance quality with good profit margins. It also requires good management, convenient payment options and popular convenience store items.
- Maintaining a variety of high quality products. Businesses must provide popular products with a high turnover rate to attract customers. This can include cigarettes, premade food and toiletries. Having a contractual relationship with convenience store brands (such as beverage companies) can also help to sell products.
- Establish locations in key areas. The closer a business is to high traffic location, the more likelycustomers are to use their services. Convenient access within close distance to popular areas such as highways, busy streets and tourist attractions is also a key factor.
- Allow customers to pay with plastic. Customers prefer convenient payment options, so allowing customers to pay via credit or debit will result in more repeat visits. Businesses should also consider upgrading their machines to accept EMV transactions to prevent fraud and liability for fraudulent transactions.
- Take advantage of branded contracts. Aligning with a brand of fuel can help business owners establish a solid reputation with customers. Operators can also take advantage of best practices for attracting customers and potentially receive financial support.
Owning a gas station business can be a challenge, especially since the market can be volatile and the competition fierce. Furthermore, profits on fuel largely depend on distribution costs, sales strategies (high volume low profit) and taxes. However, there are many opportunities for sharp business owners to thrive. Coupled with the right products and services, buying a gas station business can be a huge success.
“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