BP Gas stations

[Franchise Pundit]

BP has announced it is franchising a number of its stations; link below.

http://www.thetimesonline.com/articles/2006/06/22/business/business/14d2518ff02238e2862571940075d83e.txt

BTW: For those interested in the topic of government regulation of franchisors, note that both petroleum franchisees and automobile franchisees have special federal legislation that protects them from franchisor abuse--there was an attempt to pass franchise industry-wide legislation in the late 90s, but it failed.

[Franchise Pundit]

BP has announced it is franchising a number of its stations; link below.

http://www.thetimesonline.com/articles/2006/06/22/business/business/14d2518ff02238e2862571940075d83e.txt

BTW: For those interested in the topic of government regulation of franchisors, note that both petroleum franchisees and automobile franchisees have special federal legislation that protects them from franchisor abuse--there was an attempt to pass franchise industry-wide legislation in the late 90s, but it failed.

I have a friend looking at opening some branded gas stations (a friend developer is offering him some prime street corners).  Are gas stations locations franchised, or is it a different licensing model?  Where can he educate himself on the quick mart gas stations, the industry, and basic franchising terms (assuming franchising is the distribution model)?

[Franchise Pundit]

Gas station franchises in the US are governed (in addtion to any applicable state laws) by a specific federal law, which gives franchisees a fair amount of protection against termination.

These type of franchises usually involve a need for significant liquidity (pun intended)-- at least in the hundreds of thousands of dollars and good credit to borrow the balance. In addition, there are potentially significant issues involving environmental factors.

My understanding is that these operations tend to be quite profitable. Also, a significant amount of revenue is not from gasoline sales but rather from C-Store items (food, lottery, etc.) and that there is a lot of underreporting of income. That being said, base your purchase decision on the reported numbers and inventory purchases and not what the seller claims he is making off-the-books.

[Casey]

With all of the available options out there, investing the enormous amount of capital necessary needed into a c-store is a terrible investment.

BPs, specifically, I suspect are a dying breed.  An original BP be on a small lot.  That might minimize the upfront investment, but with it comes the typically small c-store (where you make all your profit), 10-14 pumps (weak, compared to other c-stores), and services stalls (which I suspect are not worth the enormous overhead of materials and labor).

Most revenue in a c-store comes from gas and cigs.  Unfortunately, the margins on both are tiny.  The real margins are on bottled beverages, candy, and prepared foods (fountain drinks, hotdogs, and hot breakfast stuff).  THIS is were the profit is.  However, this is not what people think of when they think BP.
What does this mean?

This means the only way to get people into your 4 million dollar commodity investment is to have the lowest prices.

If this is a business model to you, then you're in deep trouble.

I'm an ex-c-store manager.  There are a few chains that "get it".  7-Eleven is one of the only ones that are franchiseable. 

Buy a Cold Stone Creamery franchise or Potbelly instead.  At least they have something that resembles a niche.

Hint:  If a franchisee doesn't have many multi-unit owners, it's probably not a fantastic opp.  Compared to other franchises, BP has very, very few multi-unit owners. 

[benchod]

Gas stations are great business. Currently, I am in process of purchasing one. What many of the fourm poster have post in regards to the high cost of entering it is very true.

Gas Station are Real Estate business. 95% of gas station sold are with property. As a buyer, you are purchasing a real estate which will appreciate in value in long run and a business. Two things in one.

I must agree with the ex-cstore manager. Prior to purchasing a station, buyer should determine how much of the sales are tabacco and lottery, usually it's 10% of the total cost of good sold.

Everything else the gross profit margin is about 30%.

Example:

Gas Station Purchase Price: 2,5,000,00.00

Down Payment: $500,000 down cash .

C-Store sale: 70,000 excluding lottery and tabacco .

Gas Pump: 100,000 a month.

Yearly C-STore : 840,000.00
Yearly Gas Pump: 1200000 gallons

C-Store Profit Marging: 840,000 x 0.30 = 252,000
Gas Pump Average: 1200000 x 0.10 = 120,000

Gross profit: 372,000

From 372,000 you would subtract your debt payment, employee cost, and general admin cost.

The bottom line would be your net profit.

From grossing 372,000 a year, owner may have a net profit of 80,000 a year.

Cash on Cash ROI : 16%. Not bad if your looking for long term investment and appreciate in real estate value.

Before purchasing a gas station, be careful on the environmental phase and avoid purchasing gas station with single fiber glass tank. You need double , the standard of 2010 U.S. law.

Hope this helped anyone considering to purchase a gas station.

You must remember, you will not become a multi millionaire over night or you would make such money. But you do remember that you are purchasing a REAL ESTATE AND A BUSINESS. REAL ESTATE Will appreciate in long term

Thank you

[AdamC]

Seems like a huge initial outlay for a franchise!

I would like to point out that governmental regulations can get in the way and puch up costs somewhat, so a little care is needed if considering the petroleum route