< Back to Insights
Category: Net Lease Retail, Research Reports Tags: C-Stores, convenience store, gas station
Share

Gas Stations of the Future

Throughout past decades, consumers have relied on gas stations and convenience stores (c-stores) to replenish both drivers and their vehicles. However, with the rise of inflation, high gas prices, and an increasing number of drivers switching from gas vehicles to electric vehicles (EV), gas station operators are seeking changes to how they cater to the needs of their customers. Many operators are seeking alternative business channels outside of fuel and looking to transform the way gas stations operate.

 

Gauging Gas Prices

Depending on location, fuel supplier, and strength of contract, operators have varying profit margins. Costs for business owners are high when oil prices go up and most major oil companies have begun closing or not renewing leases at underperforming locations and have pivoted to opening more wholesale supply accounts to decrease rent overhead and the associated costs of running retail locations.

 

Gas topped the list of consumer goods that saw the biggest year-over-year price bumps in 2022. 

 

Increases in gas prices are largely due to high inflation, supply chain issues, and geopolitical affairs. According to IBISWorld, gas stations make an average net margin of just 1.4 percent on fuel, which is lower than the 7.7 percent average across all industries and ranks beneath other notoriously low-margin businesses like grocery stores (2.5 percent) and car dealerships (3.2 percent). Station operators make a significant amount of their profits from in-store convenience sales: food and drinks, candy, tobacco products, lottery sales, and in some states where legal, alcoholic beverages.

 

gross profit margins of convenience stores

How Gas Stations Are Impacted

Gas station operators are being hit by inflation just like many other businesses nationwide. Wholesale prices for c-store items have soared over the past several months, and labor prices and product shortages are climbing.

 

Annual Price Changes of CPI Categories

 

There are 148,026 convenience stores in the United States, of which 116,641 of those stores sell fuel.

 

An estimated 80 percent of the fuel purchased in the U.S. occurs at a local convenience store, and 55 percent of these locations are single-store operators. A challenge many operators face is finding the resources to brand their stores separately from the brand of fuel they sell and promote, which often leads to misperceptions that their business is owned and operated by a major oil company. Franchise programs are the most common way for owner-operators to partner with a nationally recognized brand to help drive traffic to their location. Brands such as Circle K, On the Run, and AMPM, have c-store-only programs that operators can join as franchisees so that their fuel and c-store are different brands (i.e. purchasing Shell fuel and having Circle K and Shell on the station’s signage).

 

Is Your Convenience Store Still Convenient?

The demand for convenience is apparent in consumer shopping habits. C-stores are competing with QSRs as more capital is placed into food service industries that cater to convenience. Additionally, as consumers return to their daily commutes for work and outside-the-home activities, traffic at convenience stores grows. C-stores rely on impulse decisions and higher vehicle and pedestrian traffic increases the behavioral changes behind these decisions.

 

To stay ahead of the curve, store operators are implementing new initiatives that incentivize consumers and drive increased revenue. One example is food and beverage subscription programs. 7-Eleven is ramping up its 7NOW online delivery app with the introduction of the 7NOW Gold Pass which waives delivery fees for members. Additional offers and discounted services like prepared food and a more robust on-the-go selection tailored to local clientele are the keys to the future success and evolution of gas stations with convenience stores.

 

67% of shoppers visit a c-store once a week or more, according to EnsembleIQ.

 

Buc-ee’s is another brand proving to be popular for long-haul travelers. These giant roadside retailers combine both convenience stores and gas stations to offer a one-stop shop to fuel up and purchase necessities, along with snacks, drinks, hot foods, and a gift shop that sells everything from kitchen serving platters to hunting knives and pet accessories. When it comes to driving non-electric vehicles and extended driving distances, consumers will always need to stop to refuel or recharge, so c-stores that offer a wide range of items and unique product additions will turn impulse buyers into repeat customers. Since consumers are more likely to stop at a place that looks familiar and offers more than a traditional roadside stop would, building a brand with recognizable colors, logos, or products can also help increase sales and customer loyalty.

 

Adapting to the Future of Transportation

Gas stations can make strategic moves to prepare for future changes in the industry but adapting will not be easy. From the growing vehicle share of EVs to e-commerce prevalence and changing consumer preferences, there are challenges that operators need to consider.

 

Growing EV Presence

Gas stations planning to cater to the new generation of electric vehicles will face some challenges including high equipment and construction costs and potential disruptions during renovation. Although gas stations aren’t going away, it’s important to stay relevant and convenient as policies are implemented in favor of EVs in the long term. In California, thousands of gas stations will be impacted by the 2035 deadline set by Governor Newsom, requiring all new cars and passenger trucks sold in California to be zero-emission vehicles. This news forces operators to consider redevelopment and renovation focused on serving more electric vehicles.

 

7-Eleven is increasing alternative fuel access for its customers by building 500 DC fast charging ports by the end of 2022 at 250 U.S. and Canadian stores.

 

Tapping into electric mobility means more than just attracting and retaining customers for gas stations. Providing EV charging stations can provide additional upselling opportunities, commercial fleet charging deals, and improved public perception. Installing EV charging stations also means that customers will likely be in c-stores longer, and in turn provides the opportunity to grab more share-of-wallet. Additionally, there are incentives and tax credits offered at federal, state, and local levels for gas station owners that implement EV charging stations.

 

One survey from E Source discovered that EV owners were willing to pay up to $3 per hour for charging, and 12 percent were willing to pay $4 per hour – even if it only costs them $0.75 per hour to charge at home.

 

Changing Consumer Preferences

 

With shifting consumer behavior, increasing mobile population, and newer technology, younger generations are searching for a no-hassle quick fix for all their needs. Consumption methods have evolved to offer just about everything online. Fortunately, this major shift in consumer habits is an opportunity for convenience stores, as consumers will now find c-stores more convenient for their immediate needs or mid-week shopping trips (especially if they are charging their cars at these locations).

 

While fuel is what brings most consumers to gas stations, c-store sales represent a large percentage of an operator’s profitability. There are many paths forward for the future of gas stations, that largely center on the idea of a refreshed array of unique and modern services. With millennials on the brink of being the greatest percentage of the U.S. population, c-stores are learning to adapt and cater to their habits over other generations.

 

  • Digital Implementation – contactless app-based fueling and payment options
  • Diversity in Options – gas offerings for conventional cars and charging stations for electric vehicles
  • Mobile Apps – enhanced selection of mobile and smart-car apps for easier experience between customer and site
  • Premium Convenience Store Add-Ons – evolving consumer segments including fast-casual restaurants, grocery items, and online delivery options.

 

Change is inevitable and it’s critical for both net lease investment owners and operators of gas stations with c-stores to constantly evaluate and stay up to date regarding their tenant company’s latest rollouts and strategic moves. Operators need to focus on strategies that can capture new customers, meet the needs of changing consumer preferences, and sharpen their competitive advantage against new threats and competition.

Recent Articles

Recent Media & Thought Leadership