Small Business Report July 2011
I hope you find this Small Business Report to be a reliable resource for the future of your business. Each component provides valuable information regarding your industry that may influence business decisions now or in the future. Also keep in mind, the marketplace is always changing. Further analysis and updated report information may be necessary as your business goals develop. I look forward to providing you with further consultation on your industry to help your business grow and prosper.
Kal Gullapalli 260.460.7290 (m) | 267.238.3822 (o) kal@smallbizeo.com
Small Bizeo
www.smallbizeo.com @smallbizeo
Gas Stations with Convenience Stores “Despite the environmental hurdles, gas stations are steady income generators. With the right location and the right operator, they are businesses that can reap great success.�
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Overview Everyday, 360 million gallons of gas are sold to the public at about 200,000 filling stations. To understand the system, you must first understand crude oil. Crude is converted into gasoline through a refining process. Refiners include Exxon, Shell, Chevron and Valero. Fed by pipelines, barges or rail traffic, gas is then transported from the refiners to the product terminals which are also called gasoline tank farms. Major oil companies share the use of these terminals and it is here where oil companies add their own special proprietary additives. From here, transporters move the gas from the terminal to underground storage tanks at retail gas station locations. Everyday, 360 million gallons of gas are sold to the public at about 200,000 filling stations. To understand the system, you must first understand crude oil. Crude is converted into gasoline through a refining process. Refiners include Exxon, Shell, Chevron and Valero. Fed by pipelines, barges or rail traffic, gas is then transported from the refiners to the product terminals which are also called gasoline tank farms. Major oil companies share the use of these terminals and it is here where oil companies add their own special proprietary additives. From here, transporters move the gas from the terminal to underground storage tanks at retail gas station locations.
Key Statistics (Source: IBIS) Industry Revenue:
$325.8bn
# of businesses:
47,200
Annual Growth (06-11):
-0.3%
Expected growth (11-16):
+2.1%
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Macroeconomic Drivers 1. Price of crude oil – As crude oil goes up or down, retailers are affected. Owners are
unable to pass on the price to consumers quickly. Slow movements are preferred. 2. Consumer spending – As the consumer spends less, impulse buys decrease at
convenience stores – higher margin products 3. Total miles driven – As driving increases or decreases, gas stations see immediate
impact. 4. Unemployment – As unemployment increases or decreases, the number of drivers
also increases or decreases Tax Credits – Government tax credits may increase the demand for more efficient cars, reducing the need for gasoline
Pros 1. Relatively stable industry; people must buy gas 2. Several income generators (convenience store, car wash, quick lube, auto repair) 3. Good cash generators (gas is becoming less profitable but convenience still holds high
margins) 4. Large pool of stations to choose from and a large pool of buyers upon exit 5. Barriers to entry – environmental regulations and high capital costs (can be $2.0M to
build out) make new entrants second guess the investment in a new operation 6. Bank financing is available for land and business (if records are clean)
Cons 1. Relatively stable industry; people must buy gas 2. Several income generators (convenience store, car wash, quick lube, auto repair) 3. Good cash generators (gas is becoming less profitable but convenience still holds high
margins) 4. Large pool of stations to choose from and a large pool of buyers upon exit 5. Barriers to entry – environmental regulations and high capital costs (can be $2.0M to5
build out) make new entrants second guess the investment in a new operation
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Current Themes 1. Price of crude oil – As crude oil goes up or down, retailers are affected. Owners are
unable to pass on the price to consumers quickly. Slow movements are preferred. 2. Consumer spending – As the consumer spends less, impulse buys decrease at
convenience stores – higher margin products 3.
Total miles driven – As driving increases or decreases, gas stations see immediate impact.
4. Unemployment – As unemployment increases or decreases, the number of drivers
also increases or decreases 5. Tax Credits – Government tax credits may increase the demand for more efficient
cars, reducing the need for gasoline
Major Players 1. Royal Dutch/Shell Group 2. Conoco Phillips 3. Marathon Oil 4. Exxon Mobil
Key Success Factors 1. Price of crude oil – As crude oil goes up or down, retailers are affected. Owners are
unable to pass on the price to consumers quickly. Slow movements are preferred. 2. Consumer spending – As the consumer spends less, impulse buys decrease at
convenience stores – higher margin products 3.
Total miles driven – As driving increases or decreases, gas stations see immediate impact. 6
Small Bizeo 4. Unemployment – As unemployment increases or decreases, the number of drivers
also increases or decreases 5. Tax Credits – Government tax credits may increase the demand for more efficient
cars, reducing the need for gasoline
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Valuation Valuation is more art than science but factors to include are: 1. Royal Dutch/Shell Group 2. Conoco Phillips 3. Marathon Oil 4. Exxon Mobil
With property, gas stations are bought and sold for 7-8x cash flow Without property, gas stations are bought and sold for 4-5x cash flow
Example Station is generating $100,000 in store sales and pumping 75,000 gallons per month (average margin is $.10). Additional income includes $2,000 per month from lotto, $5,000 from tobacco. 3,000 SF store on approximately 1 acre of property. Rent is $5,000 a month. Station was built in 2003. Our Analysis: General Gas Station Assumptions: 1. Royal Dutch/Shell Group 2. Conoco Phillips 3. Marathon Oil 4. Exxon Mobil
Monthly Revenue Source Amount Convenience Store – $100,000 @ 27% Margin………………………….……$27,000 Gasoline Sales – $75,000 @ $0.01 Margin……………………….…….…..…..$7,500 Lotto Sales Commission– (Total commissions given here)……….……..$2,000 Tobacco Sales Commission – (Total commissions given here)……...….$5,000 Total Monthly Revenue………………………………………………….………...…….$41,500 8
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Key Diligence Questions 1. Relatively stable industry; people must buy gas 2. Several income generators (convenience store, car wash, quick lube, auto repair) 3. Good cash generators (gas is becoming less profitable but convenience still holds high
margins) 4. Large pool of stations to choose from and a large pool of buyers upon exit 5. Barriers to entry – environmental regulations and high capital costs (can be $2.0M to
build out) make new entrants second guess the investment in a new operation 6. Bank financing is available for land and business (if records are clean) 7. Relatively stable industry; people must buy gas 8. Several income generators (convenience store, car wash, quick lube, auto repair) 9. Good cash generators (gas is becoming less profitable but convenience still holds high
margins) 10. Large pool of stations to choose from and a large pool of buyers upon exit 11. Barriers to entry – environmental regulations and high capital costs (can be $2.0M to
build out) make new entrants second guess the investment in a new operation 12. Bank financing is available for land and business (if records are clean) 13. Relatively stable industry; people must buy gas 14. Several income generators (convenience store, car wash, quick lube, auto repair) 15. Good cash generators (gas is becoming less profitable but convenience still holds high
margins) 16. Large pool of stations to choose from and a large pool of buyers upon exit 17. Barriers to entry – environmental regulations and high capital costs (can be $2.0M to
build out) make new entrants second guess the investment in a new operation 18. Bank financing is available for land and business (if records are clean)
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Conclusion Despite the environmental hurdles, gas stations are steady income generators. With the right location and the right operator, they are businesses that can reap great success. You can easily get burned by buying a bad gas station so it’s important to ask the right questions and focus on some key aspects: 1. Relatively stable industry; people must buy gas 2. Several income generators (convenience store, car wash, quick lube, auto repair) 3. Good cash generators (gas is becoming less profitable but convenience still holds high
margins) 4. Large pool of stations to choose from and a large pool of buyers upon exit 5. Barriers to entry – environmental regulations and high capital costs (can be $2.0M to
build out) make new entrants second guess the investment in a new operation 6. Bank financing is available for land and business (if records are clean) 7. Relatively stable industry; people must buy gas 8. Several income generators (convenience store, car wash, quick lube, auto repair) 9. Good cash generators (gas is becoming less profitable but convenience still holds high
margins) 10. Large pool of stations to choose from and a large pool of buyers upon exit 11. Barriers to entry – environmental regulations and high capital costs (can be $2.0M to
build out) make new entrants second guess the investment in a new operation 12. Bank financing is available for land and business (if records are clean)
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SmallBizeo Dictionary Gas Station: a place to dispense gas Jobber: a distributor of gas Shell: a major oil company
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