Frequently asked oil industry / co-branding partner questions we receive along with answers provided by our seasoned, savvy industry veterans.
(Please note: Links to other pages on the web may expire w/o notice)
Question: CHECKLIST for BUYING a GAS STATION. Where can a checklist be found to guide me through some of the critical items requiring inspection when buying a gas station for the first time? ANS: These may be found in the Major Oil Company training programs; by conferring with experienced owner/operators; in consultation with funding sources specializing in petro-related financing; talking to the folks at the dealer association in your vicinity; or by asking most of the consultants at this web site. A simple such checklist may be viewed here by clicking now on CKLST ~ BUYING a GAS STATION . A more comprehensive checklist may be seen at DUE DILIGENCE for Buying an Existing Gas Station .
Question: CHECKLIST for FINDING a GOOD SITE. I'm new to this business. Where can I find a checklist to use when reviewing potential new-to-industry gas station sites? ANS: All of the above resources for answers to the previous question may be of value. To see one such list, go to: CKLST ~ VIABLE GAS STATION SITE .
Question: HYPERMARTS & BIG BOX RETAILERS vs. THE LITTLE GUYS. As HYPERMARTS & BIG BOX retailers continue expanding, promoting and growing their fuel sales, conventional gas station and c-store operators worry about being driven out of business. Just what are these small businesses to do? ANS: As with any business serving the public, the owner's choices include leading, following or getting out of the business. Since the more specific details (background, current situation and recommended right actions) of this answer are a bit extensive, you need to click on the following link to access them. So, click now on HYPERMARTS vs. LITTLE GUYS. Also see the 09.21.03 L.A.Times article here entitled Getting Pumped Up .
Question:I liked the piece on "Scenario Planning" back on Jack Muellerleile's web page.Can you give some examples of value added strategies(VAST) chosen as the result of using this method of strategic planning? ANS: Sure, just click now on examples.
Question:Just exactly what is a SUPERSTATION? ANS: This terminology came into use in the mid -1990s but the concept began germinating in the early 1990s. At first, it referred to bigger, better, more profitable service stations than had been common in the past. Initially, it usually meant those units that had extra profit centers beyond the fueling, service bays and / or a c-store. As the concept continued to evolve, it came to mean high volume units offering at least fueling, c-store and some type of car wash. Later, it began to mean units offering numerous services conveniently arranged on a single lot. To us, a SUPERSTATION is any Multi-Phase Marketing System that produces bigger than average fuel sales volume and bigger than average cash flow. Jack Muellerleile has always defined a SUPERSTATION as "any unit that sells at least 600,000 gals.of fuels monthly and generates at least $600,000 cash flow (EBITDA) annually, regardless of the number or type of profit centers being placed in service at the property".This terminology usually describes the designs at the leading edge of change in an evolving conceptual sense. In different parts of the country, it may mean different things. Whenever you see or hear about a design that includes four or more profit centers, you are likely to be recognizing a design intended to generate SUPERSTATION - type results. As far as we know, the first such unit was conceived and developed by a youngster fresh out of college (Devin Sloane) who teamed up with a savvy, seasoned veteran of the car wash wars in the intensely competitive Los Angeles Basin marketplace and created the Meridian Store Concept that received extensive nationwide publicity in all the trade publications for 5 years or so beginning in 1993 (see NPN article covering Devin Sloane's superstation concept). Thereafter, others began to pattern their new developments utilizing this as a model. Owners of these units are very tight - lipped about the volumes and cash flows enjoyed since they are often huge when compared to the average station. These folks normally won't consider selling them even at ten times EBITDA which, in one case, is known to amount to $10,000,000. Occassionally, this type of unit is described in newspaper and trade journal articles. Some examples include the Oct.' 02 coverage in CSP Magazine given to Shiner's One Stop in Orlando, FL and to the AmeriStore in Oakbrook Terrace, IL entitled, "Crown Jewel".
Question:Will you please explain the Cross-Merchandising techniques employed at SUPERSTATIONS and other locations offering multiple profit centers? ANS: "Cross-marketing" your profit centers is explained by Trina Davis in her article published in the July 2005 edition of Professional Carwashing & Detailing magazine entitled Creative Integration for Lube & Wash .
Question: Co-Branding is talked about a lot. What does this mean to you? ANS: Historically, a single brand name decorated the identity signage at every gas station, car wash, truck stop, etc. Due to escalating land values and the desire to position themselves on primary corners, the fast feeder industry sought to create alliances with the oil companies in which each brand name was given prominance at the property housing a gas station and a quick service restaurant (QSR). Later, the QSRs began to realize the synergism they were creating for the oil company and convinced them to give their buildings greater prominance in future design layouts. Still later, the QSRs launched their own development programs for co - branded units, but now they chose to be the dominant player by acquiring the land themselves and inviting an oil company to join them strictly as a fuels supplier, not as a principal in the control of the land and improvements. Currently, both the QSRs and the oil companies are seeking to develop properties on a co - branded basis, but the aggressiveness of some of the bigger QSR chains leads us to believe they are rapidly becoming the dominanant force in this segment of the business. See published reports, including articles describing the activities of McDonald's and Jack In The Box (article#1 & article #2). Also one addressing this co - branding trenddirectly. And yet another about success enjoyed by Bojangles Chicken. Plus one announcing gas station & c-store giants forming a co-branding partnership...click on Chevron / 7-Eleven. Touch screen CUSTOMERORDERING KIOSKS are being tested a/o 06.21.04 by McDonald's (technology sought for MPDs at SUPERSTATIONS over the past 5 years). Go to Faster Food & to InfoAmerica for details.
Question:The C-Store industry sure is in turmoil. What's your take on this? ANS: It has been evolving with numerous new players getting into the act. Thousands of stores were in business to sell store merchandise but treated gasoline revenue as "extra income". On the flip side, thousands of gas stations viewed fuel sales as the bread and butter revenue stream and looked upon the c-store merchandise as "extra income". Both groups overlooked an essential premise of good business strategy: Verify the existence of a marketplace for your concept / add no weak sisters. Problem today: Over leverage & Over expansion. Solution today: Cull out the losers; retain & upgrade the winners; eat your losses but stop the bleeding. Solution tomorrow: Utilize the principles on which the SUPERSTATION concept was founded. To see what Hoover's Online reported on this problem, please go to our "Useful Links" page, click on its link, then locate the 04.07.03 article entitled "Restructuring The Slurpee Makers..."
Question: I am acquiring a former gas station corner through a 1031 Exchange and need someone to confirm its redevelopment and use as a gas station w/ c-store is still viable. At what cost will you do this for me? ANS: Jack Muellerleile does this for clients and others at 4VQP are similarly capable. Jack will charge you $1,000 for a local ride along "windsheild review" of the site (he drives and comments while you take notes); $5,000 for a more thorough analysis including a printed report; and increased charges if you require more work.This can also be done via the Internet providing you are able to furnish him needed localized information about the property and geographical trade area.
Question: We're mad as hell at our major oil company and intend to assert our rights in court. Where can we find a knowledgeable attorney to represent us in this litigation? ANS: Rethink this situation. A major oil company can outspend you, outlast you, make life just plain miserable for you in the process and generally beat you in court. Then, you get to reimburse the oil company its cost of defending itself which can amount to millions of dollars...and that can ruin you financially. You are better advised to try patching up your relationship and begin working together to accomplish mutually satisfactory goals. If this is impossible, get out of this business and into one you can enjoy, hassle-free. For a case in point, click here on Plaintiffs Pay Stiff Price in Chevron Case .
Question:Is an operator better off controlling the property on which the business is perched or leasing it from somebody else who is in control of same? ANS: There are valid reasons for operators of fueling facilities to personally control the real estate underneath their unit(s) either by fee ownership or long term (i.e. 30+ yrs.) ground lease or ground & improvements lease. Personal control of your destiny; enjoyment of increased equity ownership due to increasing land values; immediate implementation of upgrades to ensure competitiveness; "customer" vs. "tenant" status from the fuels supplier's perspective usually resulting in more even handed treatment; increased options upon sale of the business (i.e. sell the biz & NNN lease the land / improvements to the buyer thus creating an ongoing income stream) are a few worth mentioning. Now, during this nationwide industry consolidation period, operators who do not control the land & improvements are seriously vulnerable to the whims of their supplier. Examples: See AuTOFAX articles Shell Games # 1 - 03.13.03 & Shell Games # 2 - 03.20.03; plus the CSPNet.com 05.13.03 article "Shell Halfway To Goal" (of reducing its 22,000 stations by one-third by end of this year) quoting a Shell spokesman on its progress. Go to 3,500 Shell units go "Poof" in just 4 mos.
Question: Lots of people have dumped their major brand identity in favor of creating a private brand. What should be considered when contemplating this? ANS: This is a major decision. Many factors must be taken into account...too many to be addressed generally here. Of course, one should seek advice from others who have already done this in the trade areas where your unit is located...especially anyone who has operated as a private brander for a least one (1) full calendar year. Obvious concerns include: source, reliability & steadiness of supply; wholesale cost of fuel; credit card processing; private brand identity chosen (name / colors / graphics); and expected customer reaction to same. A good article appeared in CSPNews on 05.20.04 addressing a multi-unit operator's handling of this situation. It may be seen at this link: What Kind of Fuel Am I ?
Frequently Asked Questions (FAQs) are easily answered by Very Qualified People (VQP).
Question:Just what is the crazy situation with gas
prices in Los Angeles ? ANS: A whole series of Southern California pump price-related questions are answered by "The Gas Guy" in this newspaper article. Just click now on High So.Calif. Pump Prices . And here's another article (to which "The Gas Guy" contributed) which opened a lot of eyes. Go to "Gas Price Dropping, But May Be $3 Next Spring" by Larry M. Edwards 11.19.04 in the online publication, SanDiego.Com.
Question: How about the rising gas prices nationwide? ANS: Here's one take on it written by 4VQP's Jack Muellerleile in response to a 03.18.05 CSP Daily News article entitled For the Record Books . For Big Oil's opinion, see article linked 09.29.05 from ExxonMobil's web site entitled, Gasoline Pricing . For seven questions to break through the clutter of misinformation, see the 05.30.06 CSPNews article by 4VQP's Gerald Lewis entitled Industry View: Gas Prices FAQ .
Question:Gasoline Excise Taxes - How much of the price per gallon I pay at the pump winds up in the pockets of the state and federal governments? ANS: It varies by state. See American Petroleum Institute (API) updated quarterly chart issued 04.01.05.
Question: Are there any independent studies portraying the future of U.S. petroleum refining and marketing? ANS: An excellent resource for this was just published by the RAND CORPORATION (high level "think tank" organization). The U.S. refining industry's future is reported by their researchers who led structured discussions with 72 representatives from 40 organizations including 18 operating companies (refiners) and 10 firms that provide refineries their process technologies, equipment and services. The 2002 Summary of their findings may be viewed by clicking on U.S.Refining Industry's Future . The entire study is available at the RAND CORP web site . As for the future of U.S. petroleum marketing , to our knowledge not yet studied by the RAND CORP, our belief is that it will include far fewer retail facilities (locations) selling much greater volumes of fuels (1,000,000 gallons monthly will become commonplace); rapid evolution of the "one-stop-shopping" concept (co-branding) including placement of an ever-increasing number of carefully selected profit centers as each new one is tested and found viable; continued expansion of the present dominance of independent ownership of these retail facilities (refiners don't want to run multiple non-related yet compatible profit centers like QSRs, full service 100' tunnel car washes, etc., especially since they have already fine-tuned their more upstream operations and are all set to continue enjoying high profit margins from the well head to the loading rack); and high cash flows for savvy owner-operators choosing to invest in these carefully-located, wisely-designed and well-managed SUPERSTATIONS.
Question:How many gallons of end products are created during the refining of a 42 gal. barrel of crude oil? ANS: Short answer - 44. For a more complete answer plus related information, see the 08.03.05 L. A. Times story, "From Oil Well To Gas Tank" .
Question: Big Oil posted record profits for the first and second quarters of 2003. Are refiners cheating the system? ANS: No, not in our opinion. And not in the opinion of most knowledgeable industry watchers. Sure, Big Oil has enjoyed high refinery margins and have reported to their shareholders that the resulting increased profits were mainly due to "higher West Coast margins". Visit the oil company web sites to verify this or see spreadsheet comparisons prepared by AuTOCA by clicking here on Big Oil Profits . Some ask, "Are refiners 'artificially' raising prices?" We think not. In a recent "Talk Back feature", CSPDaily News readers were asked to share their opinions about this topic. To see what some of its readers had to say including 4VQP's Jack Muellerleile (access link & scroll down to "Underlying Truism"), click now on Talk Back: Cheating the System?
Question: What distinguishes a successful franchise or licensing concept that can look forward to decades of prosperous growth from those destined for mediocrity or bankruptcy? ANS: Two things. The most basic is that success requires an attractive return on investment at the unit level. No amount of money or financial genius at the corporate level can overcome the dead weight of stores that don’t return the investment required to open them. Compare, for example, Boston Market’s $ 4 Billion of investor’s money lost despite financial brilliance at Corporate with McDonald’s long term success. The McDonald’s stores work, Boston Market’s didn’t. The key equation ( one used by so few people it might as well be a “secret’) to use in analyzing any business or comparing two opportunities is: Return on Investment = (annual sales / $ investment) x % profit per dollar of sales >>This equation lays bare the basic key to success or failure. The second key to long run success is a system that encourages, supports and rewards the bestfranchisees for helping others to get into business.There are a number of different ways to accomplish this, including: 1) Subway’s Development Agent program; 2) a system that encourages mentoring the best employees and helping them to get into business (Les Schwab Tires); or 3) a program where great franchisees are helped to purchase independents, convert them and resell to new franchises or take on operating partners in those units (partners could be the franchisee’s current employees). Structuring such a system can greatly facilitate successful exponential growth and healthy profits simultaneously.
Question: What do you believe are the greatest threats to the retail petroleum business in the years to come? ANS: Four (4) serious threats come to mind immediately, including: 1. Competition - Far too many owner / operators permit fuel suppliers to do all their thinking for them, then cry foul when negative things occur. These folks need to take personal responsibility for their business decisions and seek out independent 3rd party advisors (who have no hidden agendas) to help them identify and choose well researched, proven strategies and/or untested nuances for implementation. They must keep themselves in step with the "Out in Front Bunch" in their industry. 2. Government Regulations - There is no shortage of petroleum resources. The "world has enough oil and gas to see us through the next century" according to knowledgeable sources including ConocoPhillips Chairman Archie Dunham ( see Politics To Blame link). Government will unwittingly continue to erect all manner of obstacles ( see Calif. Chamber of Commerce opposes gas-consumption mandate 08.25.04"Job Killer" Gas Tax? ). The smart owner / operator will anticipate these, figure out how to make many of them work to his benefit and stay actively aligned with the lobbying arm of his trade association. Also, it won't hurt to maintain a sense of humor as was set forth 04.08.05 at this link The New Ark . 3. Escalating Land Values - As population density increases, demand for dirt rises and the price land parcels bring on the open market marches upward. Unless revenues increase accordingly, it makes no economic sense to keep an obsolete land use in place. If someone else owns the dirt under your business, rent expense will grow in accordance with the increased land value. Eventually, you can't afford to stay in business at that location. Wise owner / operators take this into consideration when formulating and annually adjusting their 5 year business plan. 4. Lack of Strategic Planning - Many owner / operators have no 5 year gameplan at all. No management information system(s) to gather realtime current data on which to base decision-making. No Internet capability. No email system. No daily communication linkups with others in their areas of influence. No awareness of future events that are likely to devastate their business. No reserve funds in place to enable them to immediately take advantage of unexpected windfall opportunities. No expert advisors. No clue that they are a failed business statistic waiting to happen. They look at their checkbook balance every day to see how they are doing...and that's about it as far as strategic planning goes. It is our certain belief that many thousands of these will be gone from this industry 5 years from today.
Question: “Where did I go wrong? What did I miss?”are questions most commonly asked of Tim Hamilton, a highly respected industry veteran (and AuTO-CA’s Franchise Issues Consultant), by dealers and jobbers who, after investing heavily in gasoline retail under a branded oil company franchise, are currently facing declining volumes and margins. In a preface to his AuTO-CA Fall 2003 editorial, Tim shared his frustrations at not being able to address these questions citing pure facts alone. Also, Tim asked that we help in answering these questions after reading his personal opinions based upon decades of industry observation as set forth in his article which you may see by clicking here on How Did We Get To This Point? Tim said he would appreciate hearing from us on the points he made with which we agree but, more importantly, on those where we don’t agree. He may be contacted at Auto@olywa.net . ANS: With all due respect to the opinions expressed by Tim Hamilton and the many dealers and jobbers who find themselves poorly prepared for today’s fuels retailing environment, it must be said that the vast majority of downstream operators chose not to seek out and/or heed the advice and counsel readily available to them from industry experts beyond the influence of Big Oil (attorneys / CPAs / consultants / trade associations / Big Oil escapees or annuitants / etc.) especially if that advice varied even slightly with what they were being told by their fuels supplier. They chose instead to assume that the grips of the past would remain on the present forever…or they placed their total faith (and future fuels-related income streams) in the opinions of “carefully-cultivated” Big Oil employee contacts who may have long since climbed the corporate ladder to levels well beyond their easy reach. One of 4VQP’s consultants (Jack Muellerleile) also has decades of industry experience including 23 as an employee on Big Oil’s payroll and 17 as a self-employed, independent consultant, investor and real estate broker. Jack’s take on the current situation is plastered all over this 4VQP web site. Basically, Jack’s position has remained about the same since “The worm turned” and long lines appeared at gas pumps throughout the nation during to the first Arab Oil Embargo in the early 1970s. That’s when visions of future “pots of gold” excited dealers and Big Oil personnel alike. While most dealers just sat around hoping for another round of shortages, Big Oil set about the business of insulating itself from their negative impact while methodically reducing the number of nozzles in the marketplace thereby insuring internal efficiency enhancements and the recycling of capital for decades to come. It should not come as a surprise to anyone that Big Oil’s highest obligation is to maximize the return on investment for the owners of their companies…their shareholders. Whenever a “correct” business decision by Big Oil necessarily brings hardship to others downstream while achieving the aforementioned prime directive, it’s generally still viewed as the correct decision. Therefore, so be it. The responsibility of all “others” is to look out for themselves in the best manner they can. It is always the right time to strategically plan your next moves. It is never the right time to sit idly by waiting for things to happen to you. SCENARIO PLANNING (the ability to see possible futures in uncertain times) is a proven method used by Big Oil itself to identify the best strategic plan in any situation including that which the above callers to Tim Hamilton describe. Examples of scenario planning by Jack Muellerleile are available at this web site. Just click here on Get Some Advice Outside Big Oil .
Question:What is the biggest threat that currently exists in the fast lube industry? ANS: The biggest threat to fast lubes is a competitor that has been around for a very long time but has just recently figured out its mistake. New and used car dealers are by far the biggest nemesis the independent fast lube will ever will see. Dealers used to see oil changes as a money losing service. They actively sent oil changes to fast lubes so they didn’t have to deal with the hassle of changing oil. If they didn’t say this directly to customers, they certainly said it indirectly by forcing people to make appointments and drop their cars off for service. The reason these dealers are and will continue to be such a problem is that they are well funded and they are in the game for the long haul. Some car dealers have been actively pursuing the oil change business for several years, but the majority has just within the past year gotten the message that they are losing an amazing amount of not only service work, but new car sales as well. The more often they get customers on their lots whether for major mechanical work on their cars or just an oil change or tire rotation, the more cars they will sell.
Question: Has the fast lube industry matured yet? ANS: To a large degree, yes. But this is mostly in the urban / suburban areas. As the exodus from the cities continues, many opportunities appear in what were formerly considered towns too small to support a fast lube. There are still opportunities to be discovered around the country. Major opportunities exist for car wash owners who want to produce more income from their current location by adding a fast lube. Adding a fast lube to a current car wash location is considerably less expensive, less risky and faster than building on a new, unproven site.
Question: Fast Lube site selection. What should I look for?
ANS: While each situation is unique, there are a few items that are nearly always true. Just keep in mind that exceptions exist for every rule.
1. Lot size +/- 22,500 SF ( i.e. 150' x 150' ).
2. Undivided road / 40mph max. ( slower is better ).
3. 50% to 60% white collar traditionally preferred. This is changing because blue collar buying habits are moving in a "Do It For Me" ( DIFM ) direction.
4. Daily traffic of 20,000+ cars.
5. Being on the "going home" side of the street is a plus.
6. Near destination type retail establishments.
7. On the same site with a full tunnel car wash proves extremely helpful.
Question: Fast Lube - How much does it cost to build one?
ANS: The construction cost of the building will range between $150,000 and $200,000 per bay depending upon your part of the country. Some have been built for less. One or two are known to have cost more. Keep in mind that you need to add to this the cost of land; equipment; computers; inventory; etc.
Question: Fuel Distributors - How do I recognize a good one?
ANS: The same way you go about recognizing any attractive business deal. Does it meet / exceed personal and business your objectives? Can you comfortably afford the capital requirements? Does it have staying power so you can build value? Is the exit strategy feasible? Will you enjoy spending a lot of time doing this? Distributors have lots of freedom in how they choose to construct the business model they use. An example of a distributor successfully using a non-traditional business model based on shared success (like Big Oil used to behave) was recently reported by NPN Market Pulse. To check out the 4-part article, go to: Part I - 03.24.05 Mutual Benefits Part II - 03.31.05 The Business Model HOT TIP!!! Check out VALERO...it's On The Move .
Question: Retail Gas Prices ~ For Bob van der Valk, "The Gas Guy" - "I have always been curious why gasoline price/gal can be so different even at two stations that are literally across the street from each other. Any expert commentary? Great site by the way. Thanks! Troy" (and many others). ANS: See the "Gas Guy" white paper on ZONE PRICING (The Case for Eliminating Zone Pricing in California). For more, go to "The Gas Guy" web page .
Question: Petroleum Uses ~ For Jack Muellerleile, web site designer - "Friends and acquintences have told me that crude oil is depended upon for many more consumer products than just gasoline and oil. Is that right?" ANS: Back when I was an employee of Mobil Oil, very few people really understood the oil business. That's because all of it most people ever saw was the oil company brand displayed at gas stations. And there were lots of gas stations around. Today there are far fewer gas stations (but more total sales volume than ever) and folks in general still know very little about all the consumer products that rely upon petroleum for their very existence. Heck, I myself did not realize the vastness of the array of products until I caught up with some fine research done by an L. A. Times Staff Writer whose name is Elizabeth Douglas. Her work was excellent. Her articles addressing this subject are linked below so you can easily email any of them to your friends. 1. Your Money & The Oil Habit 2. The Bathroom 3. The Kitchen 4. Other Rooms 5. The Garage 6. Oil is EVERYWHERE 7. All of the above articles in one 8 page exhibit
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