Why Do Petrol Stations Fail?

Petrol stations are one of the most reliable investments a business owner can make. They provide a great opportunity when run properly that typically yields high returns.

This doesn’t mean, however, that petrol stations are immune to failure. Like any business, the risk of failure is always present. What it comes down to is how the owners prepare for these risks. Planning ahead and securing a solid business plan will determine whether their company can stay afloat or fail.

Here are some of the most common reasons why petrol stations fail and the preemptive measures owners should take to avoid such pitfalls.

Reason Number One: Location

One of the biggest reasons why petrol stations tend to fail is their location. It’s no coincidence that we can easily find petrol stations near highway exits; the need for fuel and constant flow of cars brings in a steady line of customers.

If a petrol station isn’t situated near a busy highway exit, the second most popular choice is a residential or industrial area. A prospective owner should research the surrounding area. Are there any schools or offices nearby that could bring in repeat customers? What’s the population of the city or town and surrounding area? Are there any limitations on opening a petrol station in that area? How many vehicles pass by the location on a typical day. There are some great resources to gather this information. Reach out to us if you need help.

Additionally, it’s crucial to study the competition in the area. While many service stations can function perfectly fine with a competitor nearby, the neighborhood might not have the customer flow to support multiple stations. Make sure you evaluate what the risk is of opening a station near a competitor. Or if you have an existing site, what are the risks if a competitor opens a new petrol station near you.

Reason Number Two: Lack of Services

Most consumers looking at petrol station businesses wrongly assume that fuel sales have a significant percentage of revenue. In reality, however, any service station owner can tell you that fuel sales actually provide very low margins. Most of the profits come from the supplementary products and services that are provided.

If you’re developing a business plan for your petrol station, here are some additional services you should consider adding to help boost sales.

Convenience Store: Convenience store products yield great sales margins and carry products that are beneficial for everyone. Australians are getting busier and busier, needing to purchase essential products quickly and easily. Make sure your shop is full of all the products your customers are looking for. If you are not sure what products to stock, ask your customers for feedback.

Mechanical Workshop: With hundreds of vehicles entering your site daily, a mechanical workshop could be a good addition to your site. You can either directly manage the workshop or lease out the area to an external party.

Car Wash: Opening a car wash is best done in an area with little competition. Car washes are highly profitable and work very well in conjunction with petrol stations. We have been helping many ServoPro members with this recently so get in touch if you are interested in installing a car wash at your site.

Reason Number Three: Lack of Brand Identity

Your brand is a tricky thing to assess. Do you partner with a major brand or do you go fully independent? Either way, customers need to be able to identify with your brand.

Here are some important questions to ask regarding your petrol stations brand before making the commitment.

  • Are there significant franchise fees?
  • What do the previous and current contract agreements look like?
  • Is the petrol station associated with a known franchise or is it an independent license?
  • Is the current agreement transferable? Will there be any fees once you take over the petrol station?
  • How much support will you have for pump maintenance as an independent owner? Is this a deal-breaker?
  • Does the comfort of signing onto a branding and supply agreement outweigh any extra fees, restrictions, or conditions?

Reason Number Four: Lack of Business Strategy

This might be one of the most overlooked reasons why a service station might fail, but it’s one of the most important to consider.

Strong business strategies include everything mentioned above and more. Having a strong business strategy means understanding the customers that you deal with on a daily basis, optimising the location you’re doing business in, and the best products and services you could provide to meet those needs.

Having a solid business strategy is all about organisation. It’s about having the right tools to help you evaluate and assess your performance, and forecast future trends. It’s about reviewing which products are selling and which ones are collecting dust on the shelves. It’s about having the right technology to assist you in tracking, reviewing, and understanding your business from top to bottom.

If you need help building a strategy to ensure your petrol station doesn’t fail get in touch with us.