|
It is a classic "buyer's market," and has been for some time. The number of stations on the market continues to be at all-time high levels. How long will that last? There is some evidence to suggest that we're nearing
the bottom of that downward cycle that we've been in for the past 3 - 4 years. Many dealers will survive and prosper. Some will drop out.
I will outline here those significant current trends in the marketplace that impact the value of your gas station business and some suggestions on how to cope with them.
Hypermarkets: They are here, they are growing and they aren't going away. The number of new, ground-up independent gas stations being developed has slowed to a trickle but the hypermarket retailers continue to expand. One of the major oil company top retail managers was quoted as saying that there have been more than 60 hypermarket stations build in western Washington in the past few years. While estimates vary, most respected industry analysts predict that the number of hypermarket units will at least double or triple within the next two to three years. Recent spot market pricing has resulted in higher street prices for Safeway and others. Where they were previously a dime below the non-ARCO majors, they now are seen to be within a few cents. This is most likely a temporary condition and we should assume that they will return to their aggressive pricing strategy. Except for Costco, I think we'll see a trend towards more c-stores rather than kiosks in new hypermarket developments.
How to Cope: A.I.M.----- Analyze, Improve and Manage.
Analyze the Threat: While this applies to anticipating any competitor, it is particularly important with new hypermarkets. Inspect your marketplace to determine the likelihood of one of these new retailers coming into your neighborhood. Keep in mind that it was not uncommon for a Costco station to impact stations more than 5 miles away, depending on traffic patterns. It isn't only the grocery store at the same intersection that poses a potential threat. Who is likely to come and what is their marketing strategy? Where are they likely to build? Are they likely to develop a c-store or just sell gas? Can they be stopped through zoning or community opposition? You should be able to estimate the impact on your business better than anyone. Where are you most vulnerable?
Improve: After you've anticipated what's coming, try to think objectively on how to best compete. One way is to evaluate how others have confronted the same threat. Some solutions have been improved customer service, re-merchandising the store, adding new profit centers such as espresso, ATM, car wash, pay telephones, copiers, etc. or simply cleaning up the store and property and providing better lighting. Some have converted less profitable bays to a c-store. Can you ally yourself with one of the local schools or high profile community groups in a fund-raising effort? Others have added loss leaders to the product mix or scanning to enable them to adjust prices quickly. Some have re-financed to take advantage of these low interest rates and lower their monthly debt service. You should call on your CPA and your oil company rep for advice, but ultimately, you are the one who will likely do the best research and form the best solutions. You may need to hire some experts to evaluate some of these options. The tendency may be to think that the price of your product determines success. It does not. There are dozens of local examples of high margin stores who have maintained or increased market share during the past few years of hypermarket expansion.
Manage: Our industry has fallen victim to doing it the way we've always done it. If you're running virtually the same operation you did 10 years ago, the odds are you're not running it right. Once you decide what improvements you need to make, establish a plan to implement them, or in some cases simply test them.
Dealing with hypermarket competitors is not easy and there is no simple solution. The solution to competing effectively will be different for each dealer. But you can compete. Take A.I.M.---Analyze, Improve and Manage.
Phillips 66/Tosco Plans: It was recently announced to all Tosco dealers that those who occupy Tosco owned property will be given an opportunity to purchase that real estate. The price will be determined by formal appraisals and provided to the dealers by November 1. Dealers who choose to exercise this purchase option will be required to sign 10-year supply contracts with Phillips. This could have a significant impact on the marketplace for the next 6 - 9 months. Many 76 dealers will try to take this opportunity to double-escrow their property---buy the real estate from Tosco and immediately sell the business and real estate. Adding more properties to the already huge supply of inventory will further depress prices. Many buyers currently in the marketplace or in escrow will want to take a wait and see approach to evaluate what kinds of deals may be out there for these 76 properties. I predict many dealers will express interest but few will actually purchase their properties from Phillips/Tosco. In the meantime, it will further complicate an already murky playing field of gas station properties for sale.
How to Cope: First and foremost, if you currently have a property in escrow, you should do whatever you can to accommodate the buyer and close escrow as quickly as possible. If you are contemplating selling, you might want to speed up the timetable to get on the market before the 76 properties hit the market at the end of this year and early 2002.
War: It is difficult to discuss current trends of anything in this country without addressing the tragic September 11 terrorist attack in NYC and any potential impact on us. Integrated into our industry are more of Middle Eastern ancestry than any other industry in our state. These are our colleagues and friends. If the war on terrorism escalates into a broader war in the Middle East, and it affects the supply of crude, it could certainly impact our industry, but I don't think that will happen. If anything, the tolerant attitude of the Seattle area may actually draw some dealers from other, less tolerant states, much like the influx of Koreans following the Los Angeles riots did many years ago.
How to Cope: Be kind. Be patriotic.
P&L Statements: Many gas station dealers have P&L's only for the purpose of providing their CPA with the necessary figures to calculate their tax. More than ever before, buyers and their lenders are scrutinizing station P&L's for the past 2 - 3 years to uncover trends and determine exactly what profit the subject business is making. It is the most important element in a buyer's due diligence.
How to Cope: Do you actually review your own P&L? If you have any interest in selling, you should pay very close attention to your P&L and keep it as up to date as possible. Clean it up if it is confusing in any way. Isolate each profit center to determine the profitability of that profit center. This is particularly true of bay operations and QSR's. If you identify exactly what expenses can be attributed to that profit-center, and do an independent P&L, you may discover that you have a portion of your business that is actually losing money and draining profits from another more profitable segment of your business. Your CPA should be able to assist you in this process.
There are buyers out there for well-priced properties. If you want to sell, you have to compete with the dozens of other properties on the market. If you'd like to review a sampling of the kinds of stations that are on the market and the asking prices, look at the website wesellstations.com and click on "Stations for Sale." Keep in mind that these are the stations that haven't sold and may be higher priced than the sold properties.
About the author.......
|
