Buy a Gas Station or Convenience Store
Is a Franchise or an Independent Gas Station Your Best Buy?
By Richard Parker: President of The Resource Center for Buying a Gas Station/C- Store™ and author of How To Buy A Good Gas Station/C-Store At A Great Price© .
"Gas Station for Sale", the ad reads. What exactly does that mean?
It could mean a lot of things. If you buy a gas station/convenience store, should it be a franchise from a major oil company? Or should you buy an independent station? Or is there something else that’s even better?
Making the wrong one decision can do you a lot of damage in ways that you might not know.
Let’s break it all down:
THE UPSIDE AND DOWNSIDE OF BUYING A FRANCHISE
The major oil companies manage their franchise operations in very different ways - a topic I explore in depth in my new guide, How to Buy a Good Gas Station/Convenience Store at a Great Price. Here’s an overview.
Advantages of owning a franchise:
You become part of a recognized brand. Have you heard of CITGO, Mobil or Shell? Sure!
You are shielded from environmental problems. There might be exceptions to this rule. But if one of your gas tanks starts to leak, or if new state laws require that all stations install a certain kind of equipment, your parent company will be on the hook. And the associated expenses can be immense!
Disadvantages of owning a franchise:
The “big boys” don’t offer you financing when you buy. The major oil companies rarely, if ever, offer financial assistance to the people who buy their franchises. If you’re buying an independent station from a private owner, in contrast, you can almost always get that seller to finance a sizable portion of your purchase.
The oil company will raise your rent at every opportunity (or according to the time interval stipulated in your franchise agreement). And it will be a large raise – often on the order of 5-8 percent. Furthermore, the oil makers can try to hit you with extra fees as a condition of your renewal agreement.
You are locked into buying the oil company’s gasoline. It’s a “take it or leave it” proposition and you have no bargaining leverage at all on price.
You will probably have to pay to insure the oil company’s pumps, canopy, building and other fixtures. That’s not fair, is it? But that is the way it generally works.
If you decide to sell your station some day, the oil company has the right to nix the sale. If the franchisor doesn’t like the buyer you’ve found, they can cancel your deal, without even having to tell you why.
The oil company can decide to open another one of their stations close to yours. This is a biggie! You can wake up one day and find that you are now in competition with another station that is selling your own brand of gasoline.
THE UPSIDE AND DOWNSIDE OF BUYING AN INDEPENDENT STATION/CONVENIENCE STORE
Advantages of owning an independent station/store:
You can negotiate for advantageous prices with independent gasoline distributors. Some of them offer rebates on the order of 3¢/gallon or more if you agree to buy their gas for a year.
You can sell the business to anyone you want. No meddling from a parent gas company!
You call the shots in your marketing and promotion. If you want to install a carwash, sell tires, or put a lottery machine in your convenience store – well, “big brother” at the gas company is not going to say you can’t.
Disadvantages of owning an independent station/store:
Ownership can be complex. Have you bought the land and the building as well as the business entity? Have you bought just the name and a lease on the property? Have you bought a branded independent (a station that sells a major oil company’s brand of gas, but which is not a full-fledged franchise) - or a full-blown franchise? If you are leasing the building and land where your business sits, who is the landlord, and what are the terms of your lease? Are you free to change the brand of gas you sell? As noted, ownership can become pretty complex.
You are on the hook for environmental problems. If a tank leaks, you have to repair it. If you decide to sell the business to another kind of business and you own the land, you might have to spend tons of money to clean up the site beforehand. If state laws mandate that you have to install a new kind of pump or underground tank, you are on the hook! Not a pretty picture, is it? One exception? If you lease the land from someone else, that person or individual might be responsible for environmental problems; when you buy the business, you need to discuss these issues and have your attorney write them into your purchase agreement. And there are certain kinds of insurance that can protect you from these problems too.
And the bottom line is . . .
Should you buy a franchise or an independent? There are advantages and disadvantages to either. To make sure you are making the wisest choice, be sure to read our complete guide, How to Buy a Good Gas Station/Convenience Store at a Great Price.
This article represents a fraction of what you’ll learn in How To Buy A Good Gas Station/C-Store At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a gas station. Read a detailed listing of what you'll learn.