New gas station investment costs are an integral part of any business decision — not only from a capital investment perspective, but also in terms of the time and effort it takes to find the right piece of land, negotiate contracts, design and engineer the site, and jump through hoops with local authorities.
In some markets, it can take up to five years to achieve all of these pieces of the investment/build process. You want to be as certain as you possibly can that the gas station investment will be worth it, particularly since capital is always being sought by competing opportunities in your business. Forecasting the service station volumes and convenience retail accurately is paramount. Getting it wrong not only means a poor financial decision for this particular investment, but it also puts future investment opportunities you propose to management in jeopardy, due to a perceived lack of credibility. If you forecast accurately, you will enable retail network planners to focus on the right projects while eliminating less desirable opportunities.
How do you understand the potential strength of a particular new location before spending time and money on a project?
The two options for further examination of a service station include:
New to Industry opportunities — also known as green-field opportunities — are locations where a service station has never existed before. For these opportunities, retail network planners are able to use the Kalibrate Location Planning model to identify ‘best corners’ for service stations by seeking locations that have high traffic, high demographic demand and low competitor activity. The model is able to highlight these locations as ‘hot spots’. By analyzing these ‘hot spots’ in conjunction with your company investment strategy and cost to serve, network planners can make decisions about where to procure land on a proactive basis, ensuring they're targeting the very best locations in terms of volume and shop revenue potential.
New to Business opportunities are service stations that already exist in the market but are owned or leased by another company. There are clearly advantages to acquiring service stations that are already operating, perhaps most notably in circumventing the delays to obtain the necessary planning approvals and licensing.
In many cases, the volume performance of an existing service station provides insurance that your gas station investment cost will be worthwhile. However, this is not always the case. There are opportunities to invest in what may appear to be a poor-performing service station. The station could be in a very good location in terms of demand, but have a poorly maintained, less-than-ideal facility. Or, the site may be poorly operated in terms of customer service. These types of service stations are opportunities for investors, as they may be under-valued. But how do you know whether the service station is a high potential but under-performing site?
Kalibrate’s Location Planning tool calculates the location strength of all existing service stations in a market. By comparing this strength with the actual volume performance using the Quadrant Analysis tool, it is possible to identify all sites in a market that fall into the quadrant of high potential, but under-performance (low volumes). These would be the opportunities to target, but clearly, there would need to be capital/operational intervention required to turn these poor performers around.
Alternatively, using the Quadrant Analysis, it is also possible to target the high-performing sites that also have high potential. These sites are performing as they should be, in most cases, but may have a further upside. They will need less investment in turning their performance around, but will most likely cost more to acquire.
By using Quadrant Analysis, investors can target a mix of high-potential performers, whether their current performance is good or bad, while avoiding the poor potential sites in the market. Some of the sites with poor potential may be deceptive in their current performance. These so-called ‘over-achievers’ are sites which may be pumping higher volumes than expected, purely because they currently have no competition — a situation that can change very quickly. That reality makes these sites poor investment choices.
Bottom line? Using the Quadrant Analysis tool takes the anxiety out of choosing the best locations with the best potential to perform in the future.