Is a Gas Station and Convenience Store a Good Combination to Buy?
Tuesday, July 13th, 2010 Subscribe To Our Feed
Several decades ago, a gas station was a gas station, and a convenience store was a convenience store. If somebody had told me back then that these two completely different businesses would merge and become commonplace on America’s highways and byways, I would have thought it couldn’t be true.
But when you stop to think about it, it’s a marriage that makes a lot of sense. When people stop for gas, why not offer them a chance to spend even more money on the things that they might also want – coffee, soft drinks, snacks, and other inexpensive items? Perhaps even a pair of sunglasses to reduce the glare from the road?
So, why not go ahead and buy a convenience store at the same time you buy a gas station?
Well, perhaps… But before you choose what you’re going to do, you should answer these two fundamental questions:
• Question #1. If a convenience store is already part of the gas station business, is it profitable? If it’s not currently profitable, can you make it financially worth your while?
• Question #2. If a convenience store isn’t currently part of the business you’re thinking about buying, is it worth your while to add it? Bear in mind that you need not hurry to add one, if none is present. You can add one later, when it makes financial sense.
Estimating Potential Costs and Profits.
Whether or not a convenience store is currently part of the business you’re thinking about buying, here is a checklist of expenses that can assist you with evaluating the additional costs. Compare these costs to profits (or potential profits) and you will be able to make an educated estimate of a convenience store’s profit potential. Never take at face value the Seller’s figures dealing with these expenses. You’ll have to look everywhere you can to produce cost estimates that you can personally verify.
Insurance – If there is already a convenience store, how much does insurance cost? Remember, the coverage that’s already in place might not be enough. Talk to an insurance broker to find out what kind of coverage you really should have along with the total cost involved. You’ll quickly learn that if a convenience store is part of the package, you’re going to require a lot of additional coverage for liability, workers compensation for staff, and more…
Payroll – You’ll have to hire and pay employees to staff your convenience store. You might also have to pay benefits. Ask the Seller of the business about who staffs the store. If he or she is using underpaid relatives to staff it, it can be difficult to arrive at an accurate picture of what your payroll will be once you are the owner.
Utilities – Convenience stores need to be well lit. They also need to be heated in winter and cooled in summer. Those costs can really add up.
Retail Payment Systems – These include accounts to process credit cards, cash registers and more. If up-to-date systems aren’t in place, you will need to upgrade all of them.
Lottery Terminals – Quite a few shoppers purchase lottery tickets when they purchase gasoline. Installing a lottery terminal may seem like a fantastic way to increase your income, but before you begin counting on this additional income, contact your local state lottery authority to find out about the expenses involved with utilizing a terminal.
Signage – To maximize profits, you’ll need high-visibility signage to show customers that a top quality convenience store is part of your business. If signs aren’t already present, you will have to buy them and add them yourself.
Paving, Snow Removal, Landscaping and Other Associated Costs – Customers need to be able to park in convenient locations and walk safely to your store. Those points make it quite a bit more expensive to run a gas station and convenience store combination than it otherwise would be to run a gas station by itself.
Questions to Ask the Seller If a Convenience Store Is Already Part of the Business You’re Buying:
• What is your current inventory and what is it worth? (Remember not to count perishable items such as dairy products or returnable products such as magazines.)
• How much profit have you been generating from convenience store sales?
• Please provide an approximate breakdown of your revenues between gas sales and retail, and a further breakdown of the retail sales.
• Is your convenience store a franchise that is separate from your fuel operations?
• Do you operate the convenience store as well as the gasoline station part of your operation – or is the business split? If the operations are divided, how is that structured?
• Do you have automated inventory tracking and control systems in place?
• What products are you selling in your convenience store, and how much volume/profit is tied to each of them?
• Who are your suppliers for tobacco, beverages, coffee and all of the other retail offerings?
• Do you sell lottery tickets? What are the costs and profits?
• What hours are you open? Which hours of operation are the most – and least, profitable?
So, should a convenience store be part of the deal when you decide to purchase a gas station? Should you think about adding one, if none is already there? To find out, you need to take out a sharp pencil and work with the checklist above. You should ensure you’re buying a station that’s profitable not only at the moment, but for many years to come.
Richard Parker is the President and founder of the prestigious Diomo Corporation - The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream of buying a business.
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