# Margins in Petrol Stations



## itage (21 Mar 2005)

Hi
currently working in IT but am thinking of buying a petrol station. I've seen the books and they look ok. Also watched the garage for several days at various times to judge the customer. I also know what the petrol station is saying the margin is. Does anyone know what the normal margin is ?
and of a 1million turnover would some expect as profit ?

I just want a rough figure to check against the books
My accountant thinks everything looks good but no harm in double checking
thanks


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## efm1 (21 Mar 2005)

It's a big jump to go from IT to Retailing !

As far as I know margins are very low to non existent on petrol and diesel retailing.  I know of at least two Sth Dublin Sales and Repair garages that dropped their pumps because the margin wasn't enough to cover costs.

A little bit of googling found this piece from ESSO in the UK [broken link removed] so if Esso are saying that the margins are between 4% and 7% for the distributer then for the retailer they could be as low as 1% to 1.5%.

The little I know about the business is that the margin comes from any non-fuel sales - ie the forecourt shop.  If a shop is included in this garage it is here that any money is being made.  Now, convenience retailing margins aren't great either; I think from memory the margins on Spar or Mace shops is between 5% and 7% so it would be similar in a garage forecourt shop.

In my humble opinion you are looking on average at a 5% margin, with possibly going to 10% if good - that gives you profit of €50,000 to €100,000 on turnover of €1 million - but this is before loan repayments (assuming you borrow to fund the purchase).

The question I would ask is why is this garage being sold if it making money ?  If you did take it over what can you do differently to increase throughput / customers?  What higher value goods and / or services can you add to increase your margins (a lot of garage forecourts put in hot food counters and mini off licences to try and increase margins)?

Apologies if this is something you know already and best of luck whatever the outcome

efm


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## taffy (21 Mar 2005)

*petrol margins*

I once met socially the owner of a fairly busy filling station in the south east and asked him this question, in simple terms he told me the margin was about 1.5cents per 4 litres, he also added that there was a better margin on a mars and a coke than on a fill of unleaded!


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## rainyday (22 Mar 2005)

*Re: petrol margins*

I would be very slow to invest in a business unless I had in-depth knowledge of the retail trade. If the garage owner told you he was planning on investing in a software business, would you think he was crazy?


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## CGorman2004 (23 Mar 2005)

*Re: petrol margins*

A few observations, in my humble opinion:

1)Did you read the property section of the various national newspapers over the last week, particularly March 16th's Irish Independent. Esso are currently in the process of selling 15 stations throughout the country. I would wonder if its a good idea to enter the petrol market when one of the biggest players in Ireland is getting out of it?

2)I know the son of a local station owner (also owner of a car dealership), he has said before to me that they make next to noting on petrol sales - its all in the deli, convience foods, and of course the dealership... unfortunately the a Gala food store has opened up next to it recently... 

3)Tesco have entered the market recently and we've all heard of the massive effect they have on the market with several garages closing in Kerry and Dublin. They have planning applications for several more currently in the system, if they build a few more throughout the country there will surely be furture downward pressure on petrol margins.

Anyways good luck in whatever you do.


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## sluice44 (24 Mar 2005)

*Re: petrol margins*

I'd also ask whether you've any experience of dealing with the 'great unwashed', aka the public.  How would you deal with non-payers, robberies, drunks, shop-lifters, northsiders/southsiders (pick your stereotype).  

Have you any supervisory experience - most of your staff will probably be on minimum wage - MacDonalds pay better.  To be realistic, they've no real incentive to turn up _on time_ and be honest.....


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## CGorman2004 (24 Mar 2005)

*Re: petrol margins*

Theres an interesting article about petrol stations in the Irish Independent property section today (23/3/05), apparently the number of stations in the country has dropped by quite a high percentage in the last ten years. 

Also, I read somewhere today that Tesco have reapplied in a couple of  areas for planning permission (where they got a no before).


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## sluice44 (24 Mar 2005)

*Re: petrol margins*

Hi Cgorman.
In other posts, you've declared yourself to be a determined entrepreneur.  What would you advise in this situation?  Would you get involved?


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## CGorman2004 (24 Mar 2005)

*Re: petrol margins*

I've thought about buying into the petrol station business in the future. But i've since decided against that. Some of my concerns (excluding those mentioned before by myself and others) whould include:

a) _Consolidation within the industry & increased market share of a few major players._ The number of stations in the country has declined from 4,700 in 1970 to a present level of 2,500. Tesco's price war has damaged margins considerably (as I mentioned earlier). I would expect Statoil, Tesco and perhaps Texaco (Maxoil and esso are gradually closing/selling off company owned stations, Top never really established much of a foothold in the market) to dominate the industry over the next few years. Now you could argue that they don't own many of their stations (except tesco), meerly act as brands - but they are the suppliers and fewer suppliers will inevitably lead to tougher margins. 

b) _Clustering in businesses/multiple services._ Today many of the stations in urban centers are not just fuel stations, they transgress several industries - obviously the conivence food sector, fast food sector and general car services (car wash) - but often they encompass others; hotels, retail warehouses and the newest additional service -  the supermarket. One of the most successful stations in the midlands (there is a general acceptance that this station has a huge trade) is the KilMartin N6 Service Station. It is surrounded by 1) a hotel, 2) a McDonalds, 3) a retail park comprising 3/4 units major units and of course 4) the convience store. It relies on these businesses to provide the traffic to keep the business profitable. This is also quite a common system in other towns and cities - I suppose you could call it clustering; several complementary businesses are clustering around one another to drive traffic, e.g. McDonalds gets people to stop, they decide to fill the tank whilst stopped, and conversly Statoil customers decide whilst filling up to get a drive-thru meal. Do you think you could secure a petrol station in such a good location surrounded by such businesses? - more importantly can you afford to?, these stations obviously are much more expensive but small stations with noting but petrol and briquettes will struggle to compete with these super stations.

c) _Risk - oil prices._ In the end of the day, the oil business is exceedingly risky. Oil prices spike suddenly, your supplier passes the cost on to you, tesco down the road keep prices down as a promotion to attract customers - what do you do? sell at a loss or raise prices and loss custom? This scenario will become more common in the future - oil prices will continue to fluctuate violently until theres no more oil left. What do you do when oil reachs $100 a barrel? Customers may bear very high prices for a year - but any longer and they will look eventually for an alternative - they may even consider Irelands wonderfull public transport network as an alternative!

Anyones these are just a few points to consider - don't let me put you off.


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