Gas Industry Review

In order to procure salient data for this investigation, databases from EBSCOHost and Proquest were searched to find relevant scholarly articles on both the gas station/convenience store industry and the specific companies that compete in this industry. The most notable information found includes a series of reports produced by Datamonitor, which provide a broad analysis of specific companies working in this particular industry. In an effort to find more comprehensive industry information, a search of the Internet for data on the gas station/convenience store industry was conducted. Data from national organizations operating in this industry-i.e. National Association of Convenience Stores-was compiled as a means to provide a broad overview of the industry.

Findings

The Gas Station/Convenience Store Industry-An Overview

Critically reviewing what has been written about the gas station/convenience store industry, it becomes evident that this industry sells a majority of the motor fuel that is purchased by consumers in the United States. According to the National Association of Convenience Stores (NACS) (2005) "Convenience stores sell the majority of gasoline purchased in the country-an estimated three quarters of all fuel sold in the United States in 2004. Of the 138,205 convenience stores in the United States, 110,895 sell motor fuels (80 percent); 93 percent of new convenience stores have fueling operations" (Industry resources). This organization goes on to note that in 2004, convenience stores old more than $262 billion in fuel. This represents a four-fold increase over 1994. What this effectively suggests is that that the gas station/convenience store industry is one that has had an increasing customer base in recent years.

Despite the fact that the gas station/convenience store industry is one that is currently growing, the NACS goes on to note that while sales of motor fuel account for 66.5 percent of the revenues collected by organizations in this industry, low profit margins create a situation in which only 27.5 percent of motor fuel sales contribute to the gross profit of the organization. Given that 93.5 percent of all sales that take place in these organizations come from fuel sales, it is not surprising to find that the profit margins on products sold in the convenience stores must be kept relatively high. Although the NACS does not provide specific statistics on the overall profit margins that are maintained on products sold in convenience stores, one only needs to consider that the prices charged by these organizations for everyday items can be three to four times as much as the prices charged in grocery stores. Because organizations in the gas station/convenience store industry rely on profits from the sale of these items to boost revenues and gross profits, this trend is not surprising.

In addition to providing general information about the gas station/convenience store industry the National Association of Convenience Stores also provides general information on averages from stores in this industry. This information includes the following:

The average convenience store posted $2.37 million in motor fuels sales in 2004.

The average store sold 107,852 gallons per month, but more than one-third of stores (34.4 percent) sold more than 125,000 gallons per month.

New convenience stores in urban areas (populations 50,000 or greater) require an investment of $397,029 for motor fuel equipment and $57,706 for motor fuel inventory. For rural stores, the figures are $274,582 and $39,100.

Here again it must be noted that while the total amount of sales is quite impressive overall, less than 30 percent of the sales for the organization go toward the gross profits for the organization.

Finally the National Association of Convenience Stores also provides a review of some of the weaknesses of the gas station/convenience store industry. In addition to noting the low profit margins that can be obtained from fuel sales, the NACS also notes that even though the cost of motor fuel continues to rise, the profit margins that can be gleaned from sales have continued to decline. In 2004, most gas stations made an average of 12.7 cents per gallon of gasoline However, when costs such as credit card processing fees and taxes were figured in the average profit was between 1 and 2 cents per gallon of gasoline sold. Further, recent spikes in gasoline prices have prompted more "drive offs" in which customers fuel their vehicles and drive off before paying for their purchase. These drive offs have increased in recent months costing the industry $237 million in 2003 and further reducing overall profit margins.

Considering the most important features that "heavy" gas shoppers report as essential to the selection of a gas station, National Association of Convenience Stores reports that low prices are the most important feature desired by customers. In addition, the availability of frequent purchaser cards and promotions as a way to save on gasoline is also viewed as critical for the consumer selection. Finally, convenient location is important to consumers when selecting a gas station. Thus, prices offered by the store and the location of the store will improve revenues for the organization.

Companies Competing in the Industry

7-Eleven

Research on the 7-Eleven organization shows that the company is the largest convenience store chain in the world. With more than $10.1 billion in revenues in 2002, 7-Eleven was able to increase sales in its franchise by more than 3.4 percent over 2001. Overall, 7-Eleven stores range in size from 2,400 to 3,000 square feet. Further, most stores carry 2,300 to 2,800 different items. In both the US and Canada, 7-Eleven stores provide daily service to more than 7 million customers. 7-Eleven stores are open 24 hours a day, 7 days a week (7-Eleven, 2003).

Among the strengths of the 7-Eleven organization are included: the largest convenience store chain in the world, a strong brand presence and tight supply chain management that helps the organization to further reduce operating costs. Despite these strengths, the organization is prone to competition and volatility in gas prices. In addition, the power of suppliers can make it difficult for the organization to negotiate favorable terms in some instances. At the present time, 7-Eleven is rapidly expanding into existing markets and has added a health food component to attract more customers. Additionally, the organization has started a frequent user program known as Vcom. The most pervasive threats that exist in the organization include: tougher restrictions on tobacco sales, foreign exchange rate fluctuations, and decreases in merchandise sales (7-Eleven, 2003).

QuikTrip Corporation

QuikTrip Corporation is a regional gas station/convenience store chain that operates in Georgia, Illinois, Iowa, Kansas, Missouri, Nebraska, Oklahoma, Texas and Arizona. Stores operated by the organization range in size from 4,500 to 5,000 square feet. The company sells its own brand of gasoline as well as a wide range of company beverages, tobacco, candy and sandwiches. Sales for the QuikTrip Corporation were down by 8.2 percent from previous years. In 2003, the organization posted total revenues of $2,800 million down from a high of $3,050 million in 2002. The organization's headquarters are located in Tulsa, Oklahoma (QuikTrip, 2004).

Although QuikTrip is not the largest gasoline station/convenience store retailer in the United States, the organization has shown promising growth in recent years. The diversity and quality of the company's stores have made it a favorite among repeat customers. Further, the opportunity to expand current operations into northeastern states makes, QuikTrip one of the fastest growing gas stations/convenience stores in the United States. QuikTrip has a strong reputation for building community partnerships for neighborhood development. As such, QuikTrip contributes to the development of neighborhood improvement projects in every community in which it operates. Because QuikTrip markets and sells its own brand of gasoline and products, in markets were brand recognition has not become prominent, the organization faces considerable challenges for boosting revenues. In addition, significant competition in the industry continues to limit the ability of this organization to successfully compete in certain markets (QuikTrip, 2004).

Love's Travel Stops & Country Stores

Love's Travel Stops & Country Stores are located in 159 convenient interstate highway locations all across the United States. The travel stops not only offer fuel, but also convenience store items and branded fast-food-i.e. McDonalds, Burger King, etc. Love's has had incredible financial success in recent years. In 2002, the organization posted revenues of $1,300 million, an increase of 19.7 percent over the previous year. The organization is headquartered in Oklahoma City, Oklahoma and employs approximately 3,600 people (Love's Travel Stops & Country Stores, 2004).

The most notable strengths of the organization include: strong business growth and strong partnerships with branded fast-food restaurants. Location is also important as the organization had made strategic choices about its decisions to build stores. All of the organization's stores are located on interstate highways with convenient access for travelers. Although the organization has been quite successful in recent years, a high concentration of stores in Oklahoma and increasing competition in this industry make Love's Travel Stops & Country Stores somewhat vulnerable to changes in the market. However, as the organization increases is permeation into the market a higher demand for gasoline and branded fast-food may serve as the impetus for the future growth of the organization.

Summary of Competitors

While it is quite evident that there are a number of regional and local organizations involved in the gas station/convenience store industry, with the exception of 7-Eleven, there are few dominant operators in the industry. In addition, research on these organizations shows that there are pervasive threats due to competition in the industry. Spiwak (2004) argues that threats due to competition have only been exacerbated in recent years as more companies-such as grocery stores and warehouse clubs are getting into the industry. As such, competition will remain a consistent issue for development in this industry.

Recommendations

As the number of competitors in the industry increases, it seems reasonable to argue that regional organizations-such as QuikTrip and Love's Travel Stops & Country Stores-should consider mergers to increase the overall size of the organization. By increasing size, the organization should be able to negotiate better supply chain conditions and fuel prices, much like 7-Eleven. If steps are not taken by these organizations to mitigate the overall level of competition that exists in this industry, it is possible that some of these organizations could begin losing ground. Clearly, there is still considerable room for growth and consolidation in this industry. When compared with other industries that have matured-i.e. communications or automobile manufacturing-it is evident that the gas station/convenience store industry is still in its infancy when it comes to development. The key in this case is to develop a large organization that has the sheer buying power needed to ensure the profitability of the organization.

Business Impact

In the short-term most large organizations operating in this industry will be successful in their efforts to increase revenues. However, as competition increases and profits margins decrease, organizations will have to consider mergers in order to remain viable. Without some degree of consolidation the gas station/convenience store industry will not mature.

Conclusions

Considerable growth is still potential in the gas station/convenience store industry. For investors looking to increase profits, mergers between regional chains could prove to be a salient means for increasing revenues and strengthening supply chains. Some degree of consolidation will be needed for the industry to mature.

References

7-Eleven, Inc. SWOT Analysis. (2003, November). Datamonitor, 1-13.

Industry resources. (2005). National Association of Convenience Stores. Accessed March 23, 2006 at: http://www.nacsonline.com/NR/exeres/0000615ekahlbkkqgboantrc/GenUseWithOneCallOut_Resource.asp?NRMODE=Published&NRORIGINALURL=%2fNACS%2fResource%2fPRToolkit%2fFactSheets%2fprtk_fact_motorfuels%2ehtm&NRNODEGUID=%7b2162F93D-6C47-4A58-80AD-E5778D14D846%7d&NRQUERYTERMINATOR=1&cookie%5Ftest=1.

Love's Travel Stops SWOT Analysis. (2004, August). Datamonitor, 1-7.

QuikTrip Corporation SWOT Analysis. (2004, September). Datamonitor, 1-8.

Spiwak, S. (2004). Convenience stores: Under siege. Chain Store Age, 80(8), 25A-27.