Fuel Center Industry Analysis and Kroger Viability Study 12-15-14 v3

Industry Fuel Center Analysis and Kroger Viability Study
Submitted by: Mary Ellen K Brigham, BS, MS
Fuel Center Industry Analysis and

Kroger Viability Study
As it relates to the City of Brookhaven, GA and the Kroger Company SLUP
Application at Cambridge Park Shopping Center
BRIGHAM CONSULTING FLP

December 15, 2014
Authored by: Mary Ellen K. Brigham; BS in Retail, MS in Retail History; Retail and Shopping Center Specialist
on Faculty of SBA at the University of Connecticut (1987-1998); Current Business Consultant
Contact Info: atlhusk@gmail.com; 404-245-7082
Page 0
What is a Mega Fuel Station aka Hypermarket

Mega Fuel Center Industry Evaluation
Sells approximately 20 million gallons of gas per year per site
Usually found along highways and major interstates
Environmental, Public Health and Local resident Impact
It sells large quantities of fuel in relatively small area or footprint.
Therefore, it affects air quality because of concentration.
Their long lines with engine idling affects air quality.
Pollutants from cars via tailpipes create health risk through air quality damage.
Pollutants from slow moving traffic causes air quality deterioration.
Pollutants from added car volume brought to Fuel Station effects air quality.
Produces pollutants by the creation of hot spots from exhaust emissions through toxic
components in car exhaust.
Create Community Nuisance
Nuisance through the impact of traffic motion, traffic congestion in the immediate area.
Nuisance because of large underground fuel tanks creating a potential safety hazard.
Nuisance because of repair/replace and filling of fuel tanks with large fuel trucks on a regular basis.
Nuisance because of mega light system both low to the ground and high in the air with long
operational times.
Nuisance due to long and extended hours of operation which causes constant and consistent traffic
concerns.
Negative Employment Benefit
Hires 1-3 employees to monitor pumps per shift.
Average industry hourly rate is $8.00 per hour.
It is a low employment entry position.
What is Market Saturation?

Market Saturation occurs when the amount of products provided in a market has been maximized in the current
state of the marketplace. At the point of saturation, further growth can only be achieved through product
improvements (innovation), market share gains (cannibalization), or a rise in overall consumer demand.
What are Market Needs, Growth and Trends?

All marketing should be based on underlying needs. For each market segment included in your strategy,
explain the market needs that lead this group to buy your product or service. Did a need exist before the
business was there? Are there other products or services or stores that offer different ways to satisfy this
same need? Do you have market research related to this market need?
It is always a good idea to try to define your retail offering in terms of target market needs, so you focus not
on what you have to sell, but rather on the buyer needs you satisfy.
Market trends are what factors seem to be changing the market, or changing the business? What
developing trends can make a difference? Market trends could be changes in demographics, changes in
customer needs and changes in technology.
Source: Hurdle: The Book on Business Planning Written by Tim Berry
Page 1
Current Business Trends in the Retail Gas Industry as of 2014

(Sources used: see Cited Section of this document)
Gas Stations - Convenience and Individually Owned

Industry Profit Margin 1.5-3% or less historically
Compared to privately held companies, which average 8.0% growth in revenue and have a net
profit of 7% historically.
It is considered a thin margin business with high-price fluctuation.
Average Markup or GM on gas is 15-16 cents a gallon.
Most consumers use plastic charge or debit cards to purchase gas.
Card processing averages 1-3% of sales depending on card PLUS a 10 cent per transaction fee.
83% of gas stations in US have a convenience store.
This has declined in last 7 years.
Typical profit is about 2 % of overall revenue.
Sales by the Gallon
Sell 300,000 1.5 million gallons per year
Sell 25,000 128,000 gallons of gas per month (divided by 12)
Sell 4000 gallons per day (divided by 30)
Sell 167 gallons per hour over 24 hours (divided by 24)
Sell 333 gallons over a 12-hour period (day quantity divided by 12 hours operational period)
Average number of cars per 12 hours operational period 22/16 cars per hour (average fill 20/15
gallons per car)
Work on per gallon Sales Profit of 3 cents.
Gas-Station Operational Industry Decline
Since 2002, there has been an 8 % decline in business to business existence of gas stations.
Every day, 3-4 gas stations in America close up shop go out of business.
Causes:
Stiffer competition from Mega Fuel Centers/Hypermarket
Decrease in Consumption
Higher gas prices
Higher rents
New Technology
Hybrids, electric vehicles
EPA regulations
Less Driving use of mass transit systems
Lower Sales equal lower profits.
2012 4 % growth
2010 14 % growth
30 % increase in gas-station defaults in the last few years
Page 2
Most US gas stations are owned by tens of thousands of individual operators, many of whom have one or
more locations. They buy gas from a distributor.
Mega-Center/Hypermarket
Face all the same threats as the individually owned gas stations and convenience store stations.
Market Model saves on gas and credit card fees due to economies of scale.
Undercut local gas-station businesses that work off historically low profit margin.
Profit for the industry is made through volume of gas sold.
Sales by the Gallon
Sell 3.6 million 20 million gallons per year
The latter is the industry average.
Sell 308,000 1,666,667 per month (divided by 12)
Sell 10,267 55,555 gallons per day (divided by 30)
Sell 428 - 2,315 gallons per hour (divided by 24)
856 4,630 gallon over 12 hours operational period (day quantity divided by 12)
Average # of cars per 12 hours operational period 43/57 to 232/309 cars per hour (average fill
20/15 gallons per car)
Daily number of cars in a 12 hour period 516/684 to 2784/3708* (*industry average)
Page 3
Todays Fuel Retail Business Climate

Based on 2014 NACS Retail Fuels Report and Current Business Information
United States Analysis
156,065 Total Fueling Sites (down 46,735 since 1994)
Convenience Store
126,658 Convenience Store selling fuel
Sell 80% of fuel in the country
58% (70,000 stores) of them are single store operators (modern-day Mom and Pop)
Nearly of fuel customers do not purchase in store items.
Big Oil Exiting Retail Sales
Less than 0.4 % (430 stores) stations are owned by major oil company.
Lease name to individual station owners
31% of fuel stations carry Oil Company name.
19% of fuel stations carry Refining Company name.
50% of fuel stations carry unbranded fuel.
Mega Fuel Centers/Hypermarkets
Big-Box Grocery and Merchandising Stores
Account for 12.6% of motor fuel purchased.
Industry average sales two to three times the amount of convenience store operations
Top Five Mega Fuel/Hypermarket Centers (2013)
Kroger 1,153 locations
Walmart 1,067 locations
Sams Club 479 locations
Costco 366 locations
Safeway 337 locations
Industry Projection of Fuel Sellers ---- Future Trends
Fewer fuel sellers each year.

Fewer drivers more mass transit
More efficient cars hybrids, electric
Stiffer EPA regulations what meets regulations today may not tomorrow.
Thinner Margins 2012 profit margin percent was the lowest in 14 years.
Land Value vs. Profit trend toward selling the land and closing shop
Gas Demand Decrease 2012 down 0.2%; since 2007 down 6.1%
Electric and Hybrid Cars
53,000 sold in 2012 3 times the total in 2011.
Overall higher fuel cost or price volatility and instability
Page 4
Higher Gas Taxes 2013 average tax (Fed/State/Local) = 48.8 cents per gallon
Current Data
November 2014 Gas Sales gas stations fell 0.8% month to month and 2.1% year to year.
December 2014
Per gallon gas price decline
Industry sees less price sensitivity by the consumer (price not driving sales)
Price has been driving sales for the last 10 years.
Fuel Center Safety Concerns

Published by the National Fire Protection Association
An estimated 5,020 fires and explosions occurred at public service stations per year from 2004-2008. That
means that, on average, one in every 13 service stations experienced a fire. These 5,020 fires caused an
annual average of two civilian deaths, 48 civilian injuries and $20 million in property damage.
Of those 5,020 fires, almost two-thirds (61%) involved vehicles. Structure fires accounted for 12% of total
incidents, but 59% of the direct property damage.
Current Service Center Safety Tips (comprehensive list published by NFPA)
Turn off your vehicles engine when refueling.
Keep gasoline and other fuels out of childrens sight and reach. Gasoline is HIGHLY toxic in
addition to being a fire hazard. NEVER allow a child to pump gas.
Do not smoke, light matches or use lighters while refueling.
Pay attention to what youre doing. Pumping gas is the transfer of HAZARDOUS substance; dont
engage in other activities.
If you must use any electronic device, such as a cell phone, computers, portable radios while
refueling, follow manufacturers instructions.
Use only the refueling latch on the gasoline dispenser nozzle, if there is one. Do not jam the latch
with an object to hold it open.
To avoid spills, do not top off or overfill your vehicle.
After pumping gasoline, leave the nozzle in the tank opening for a few seconds to avoid drips when
you remove it.
If a fire starts, while youre refueling, dont remove the nozzle from the vehicle or try to stop the
flow of gasoline. Leave the area immediately and call for help.
DONT GET IN AND OUT OF YOUR VEHICLE WHILE REFUELING. A STATIC ELECTRIC CHARGE CAN
DEVELOP ON YOUR BODY AS YOU SLIDE ACROSS THE SEAT, AND WHEN YOU REACH FOR THE PUMP,
A SPARK CAN IGNITE THE GASOLINE VAPOR.
If you must get into the vehicle during refueling, discharge any static electricity by touching metal on
the outside of the vehicle, away from the filling point, before removing the nozzle from the vehicle.
Use only approved portable containers for transporting or storing gasoline. Make sure the container
is in a stable position.
Never fill a portable container when it is in or on the vehicle. Always place the container on the
ground first. Fires caused by static charges have occurred when people filled portable containers in
Page 5
the back of pick-up trucks, particularly those with plastic bed liners. Removing the container will also
prevent a dangerous spill of gasoline.
When filling a portable container, keep the nozzle in direct contact with the container. Fill it only
about 95% full to leave room for expansion.
Something as small as static electricity has caused fuel center fires. What would an electric spark caused by
a storm-related malfunction at an adjacent high-powered electric and transmission substation cause at a
Mega Fuel/Hypermarket Center? There is no current industry data because the adjacency is NOT common,
nor recommended. The catastrophic elements of a malfunction are far too great to take a chance with
human life and property. Therefore, in historical records, the question of an adjacent electrical and
transmission substation remains unanswered, and for a good reason.
Page 6
The Council and the Mayors Decision on the Kroger SLUP

What it will mean and how it will impact the City of Brookhaven
Existing Businesses and the REAL Impact of a NEW Mega Fuel Center
The City Council Members and the Mayor have to weigh the approval or denial of the Kroger SLUP request
and Mega Fuel Center creation against the negative impact it will have on existing smaller gas stations in the
immediate and secondary market area (Valero and Texaco .2 miles from the site; Costco, QT, BP and
Marathon less than 5-minute drive from the site).). Industry trend is for Mega Fuel Centers/Hypermarkets to
impact severely the smaller gas stations in their immediate area.
The City Council Members and the Mayor have to consider the effect vacated gas stations will have on the
local area (example Buddies on the corner of Johnson Ferry and Peachtree Blvd vacant for over 10 years;
corner of Roswell Road and Windsor Parkway vacant for 5 years until national retailer CVS took on
property).
The City Council Members and the Mayor have to consider Brownfield Development, the redevelopment
and cost liability issues of sites with hazardous material and future EPA regulations that will have to be met
with vacated gas-station properties (Valero and Texaco potentially).
The City Council Members and the Mayor have to consider the down trending of the Fuel Retail Industry
(downward sales and profit trend for 14 years) and giving up a buildable property to a market guzzler.
The City Council Members and the Mayor have to consider the lack of employment this project offers
residence in Brookhaven. Hiring 1-3 employees per shift is not a good employer. In contrast, opening up a
restaurant on the site potentially would lead to 20-100 employees added to the Brookhaven area.
The City Council Members and the Mayor have to consider the goals of the Mega Fuel/Hypermarket retailer.
In order to achieve industry averages in sales, car traffic and profitability, they must drive their market
strategy toward increased car visits and purchases each and every day during a 12-hour operating period.
Although traffic studies can low ball predictions of additional car traffic impact, the reality is that the
retailers bottom line and project recoup is fundamentally driven by increasing the volume of fuel sold and
increasing car trips to purchase gas daily. Strategies, marketing plans and actionable items will be directed
to increase car trips and fuel sales.
The City Council Members and the Mayor have to consider what other retail they can attract to this very
buildable site. With the emphasis of the Town of Brookhaven toward community, pedestrian walking, parks
and easing traffic congestion; is this project the BEST use of this property in an up-trending new town?
The City Council Members and the Mayor have to consider increased competition from the newer mixed use
builds on this area of Brookhaven. The corners of Johnson Ferry, Ashford Dunwoody and Donaldson and
Page 7
their immediate adjacent roadways all have out-of-date retail plazas in need of face lifts and modernization.
Adding a huge and ugly mega fuel center does not push local retail center owners to upgrade their
properties with new facades and new retail establishments.
The City Council Members and the Mayor have to consider that retail shopping centers are defined by the
type of store (high end, boutique, regular price, discount, big box), and the caliber of restaurants it
presents. If the Mega Fuel Center is placed in the Kroger lot, the Cambridge Park Retail Center will always
remain a discount center, and will never attract boutique-style retail businesses, the current growth
segment in the retail and shopping center industry. Any hope of taking this central part of Brookhaven and
create an upgraded shopping segment for the town will be forever lost.
The City Council Members and the Mayor have to consider the newly approved mixed-use projects in
Chamblee, which will create further direct retail and restaurant competition. These sites are within a 10minute car ride of the Johnson Ferry and Ashford Dunwoody establishments and will offer updated
shopping, new restaurants and modernized environments in their formats.
The City Council Members and the Mayor have to consider the safety of its residents both property owners
and renters. The immediate adjacency to a High-Power Substation and Transmission Wire Hub to thousands
of gallons of highly combustible fuel used by a Mega Fuel Center has the potential of being a disaster. Is the
Town governess willing to risk that potential for a business that is down trending, and at the same time,
cannibalizing smaller competitors?
The City Council Members and the Mayor have to consider the wishes of their citizens in the area. There are
residential living properties encircling the proposed site with property owners leading the substantial and
overwhelming opposition to the project.
The City Council Members and the Mayor have to consider that development is wanted, and improvements
to the retail offerings desired. HOWEVER, the town residents look to their elected officials to make the
INTELLIGENT AND INFORMED CHOICES that will lead the Town of Brookhaven in the planned direction.
Making the Town of Brookhaven the BEST it can be is the desire of all residents, and relegating this center to
being a nuisance to the entire immediate area is not the best choice.
Page 8
Resources Cited
Definitions and General Resource Information
Filling Station
Wikipedia; updated June 14, 2014
http://www.ask.com/wiki/Filling_station?o=2801&qsrc=999&ad=doubleDown&an=apn&ap=ask.comD
efinitions
The Mega Gas Station Setback Coalition
Trends
Concerns
June 2014
http://www.megagassetback.org/
National Associations Related to Gas Stations and Fuel Centers
NACS - How Branded Stations Operate
The Association for Convenience and Fuel Retailing
2013 Retail Fuel Reports
http://www.nacsonline.com/YourBusiness/FuelsReports/GasPrices_2013/Pages/ChallengesRemainBef
oreE15UsageIsWidespread.aspx
NACS The US Petroleum Industry: Statistics, definitions
2013 NACS Retail Fuels Report
http://www.nacsonline.com/YourBusiness/FuelsReports/GasPrices_2013/Pages/Statistics-andDefinitions.aspx
NACS Who Sells Americas Fuel?
2014 NACS Retail Fuels Report
http://www.nacsonline.com/YourBusiness/FuelsReports/GasPrices_2013/Pages/WhoSellsGas.aspx
National Safety Guidelines
Service Station Safety
National Fire Protection Association; April 2011
http://www.nfpa.org/safety-information/for-consumers/vehicles/service-station-safety
Service Station Safety Tips
National Fire Protection Association; April 2011
http://www.nfpa.org/safety-information/for-consumers/vehicles/service-station-safety/servicestation-safety-tips
Page 9
Electrical Equipment in Hazardous Areas

Wikipedia; last modified April 24, 2014
http://www.ask.com/wiki/Electrical_equipment_in_hazardous_areas?o=2801&qsrc=999&ad=doubleD
own&an=apn&ap=ask.com
Business Publications
Like low gas prices? So does the station owner
The Seattle Times
Jonathan Fahey, Associated Press Energy Writer; December 12, 2014
http://seattletimes.com/html/businesstechnology/2025222465_apxgasstationslovelowprices.html?syn
dication=rss
US retail sales likely increased in November, but falling gas prices limiting growth
Fox Business
Associated Press; December 11, 2014
http://www.foxbusiness.com/markets/2014/12/11/us-retail-sales-likely-increased-in-november-butfalling-gas-prices-limiting/
Sales at Gas Stations are Tumbling
Myles Udlan; December 11, 2914
Business Insider
http://www.businessinsider.com/markets-charts-of-the-day-december-11-201412?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterstock+(ClusterStoc
k)
As Gas Prices Fall, Can Station Owners Fuel Sales Growth?
Forbes
Mary Ellen Biery; October 26, 2014
http://www.forbes.com/sites/sageworks/2014/10/26/gasoline-prices-falling-impact-gas-stations/
Pain at the Pump is Hitting Gas Station; April 5, 2012
http://www.wsj.com/articles/SB10001424052702303299604577323661725847318
Why Gas Station Owners May Be Smiling
Forbes
Mary Ellen Beiry; January 21, 2014
http://www.forbes.com/sites/sageworks/2014/01/21/profit-margins-at-gasoline-stations-haveincreased/
Farewell to the Gas Station: The Demise of a Car-Culture Icon
The Daily Beast; May 5, 2013
http://www.thedailybeast.com/articles/2013/05/05/farewell-to-the-gas-station-the-demise-of-a-carculture-icon.html
Page 10
Big Driving out Small: Hypermarts and the Retail Gasoline Industry; 2007
Author: Jedidiah Brewer, Department of Economics, University of Arizona
https://econ.arizona.edu/downloads/working_papers/Econ-WP-07-16.pdf
Fighting for Survival Independent gas stations search for brighter future
Peninsula Clarion
Ed Russo for Associated Press; April 05, 2001
http://peninsulaclarion.com/stories/040501/bus_0405010017.shtml
Page 11

Fuel Center Industry Analysis and Kroger Viability Study 12-15-14 v3

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fuel Center Industry Analysis and Kroger Viability Study 12-15-14 v3

Uploaded by

Copyright:

Available Formats

Industry Fuel Center Analysis and Kroger Viability Study

Submitted by: Mary Ellen K Brigham, BS, MS