Gas Stations
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Industry Overview
The gas station industry includes about 23,000 stores with combined annual revenue of an estimated $100 billion. While no major companies dominate, large oil companies own some stations. The industry is fragmented: the top 50 companies hold 30 percent of industry sales.
The industry generally excludes establishments that are combination gas station/convenience stores, and includes some truck stops.
Competitive Landscape
The volume of consumer and commercial driving drives demand. The profitability of individual companies depends on the ability to secure high-traffic locations, generate high-volume sales, and buy gas at the lowest possible cost. Large companies have advantages in purchasing and finance. Small companies can compete effectively by having superior locations. Average annual revenue per worker is $300,000.
As more retailers added gas to their merchandising mix, the competitive set for gas stations expanded to include convenience stores, mass merchandisers, warehouse clubs, and grocery stores.
Products, Operations & Technology
Major products sold include unleaded regular gas (35 percent of industry sales) and diesel fuel (30 percent). Gas stations also sell unleaded mid-grade and unleaded premium gas. Truck stops tend to sell more diesel fuel, since most commercial vehicles run on diesel. Companies may offer repair services or car washes. Some truck stops offer food, phones, showers, and lounges.
Gas stations include regional chains, independent retailers, and corporate-owned stations. Stations selling branded gas have fixed-term, contractual relationships with suppliers (typically large oil companies or distributors). While open dealers own their stations, lessee dealers lease stations from suppliers and receive a percentage of profits. Commissioned agent dealers are paid based on gallons sold. Major oil companies own and operate some stations.
Common locations include high-traffic intersections, major highways, interstates, and resort markets. Sites near highway entrance and exit ramps are popular due to ease of access. Because high-volume traffic is critical, competing gas stations may be located adjacent to one another at the same intersection. Almost all are self-service and allow customers to pump their own gas. Many stations operate 24 hours a day, 7 days a week.
Gas stations typically have one or more islands with multiple pumps that deliver gas from underground storage tanks (USTs). Most modern pumps have digital displays and accept credit or debit card payments (pay-at-the-pump). Vapor recovery systems linking pump nozzles and tanks prevent gas fumes from escaping into the air. Fiberglass or fortified steel USTs minimize gas leakage and ground contamination. Leakage of older steel USTs has caused major environmental problems, which can result in significant liability for some stations. The high cost of upgrading equipment to comply with environmental regulations has forced some small station owners out of business.
Truck stops serve much larger vehicles than traditional gas stations and require significantly more space. A typical stop has 80 or more large parking spaces, which help drivers better maneuver trucks. Stops may have weigh stations to help truckers minimize overweight violations. Many stops dedicate certain fuel lanes for trucks-only and most stops allow truckers to park overnight.
Suppliers include major oil companies, refineries, and distributors (also known as "jobbers"). Branded stations typically have multiyear purchasing contracts with suppliers. The price dealers pay for gas can vary: they may pay dealer tank wagon (DTW) prices, which are set by suppliers, or a fixed markup over the "rack," or market, price. Unbranded stations may buy from multiple suppliers and solicit bids to secure the best price. Generally, stations receive discounts for volume purchases. Purchased gas travels from distribution centers or terminals to individual stations via tanker trucks.
Branded gas may contain proprietary additives, such as detergents or combustion modifiers. Some stations offer private brands. Because high summer temperatures can react with volatile chemicals in gas to create ozone, gas sold in the summer is a different blend (and typically more expensive) compared to gas sold in the winter. A relatively small, but growing, number of stations offers alternative fuels, such as E85 (ethanol blend) and biodiesel fuels. Government environmental regulations have resulted in low sulfur formulations for diesel fuel, also known as ultra-low sulfur fuels (ULSF).
The majority of gas stations use cashless, pay-at-the-pump technology integrated with point-of-sale (POS) systems to monitor transactions. Some branded dealers offer contact-free payment through radio frequency identification (RFID) tags. A small number of stations are testing biometric identification, which allows customers to pay by fingerprint. Cardlock systems, which control unattended gas pumps, allow commercial customers to monitor and control fueling transactions. Computer information systems also help stations control pump operations, track inventory levels, and detect UST leaks. Integrated database programs administer customer loyalty programs.
