In rural Wisconsin, CSP graphic designers Bruce Ramsay and Nico Heins found themselves riding on fumes on their way to a retailer photo shoot. With the fuel needle on their rental car past empty, they clenched their teeth until finally catching sight of a travel stop and coasting down the exit ramp.
A year earlier, in New York, a half-dozen cab drivers waited patiently to fuel up at one of the last gas stations in lower Manhattan. The scarcity of an accessible fill-up prompted The New York Times to report on the station’s scheduled demise.
Ralph Bombardiere thinks back to 1977, when as many as 13,000 fueling stations populated New York state. Today, Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops, Albany, N.Y., says the number of service stations has fallen by nearly half to just 7,000.
“In Manhattan, there’s only two or three [stations] left, and I don’t think they’ll survive,” Bombardiere says.
So-called “fuel deserts” have been springing up in urban centers and on rural highways across the country as rising land costs, prohibitive ordinances and changing lifestyles drive out gas stations in favor of high-end condos and walkable communities.
The number of fueling stations (including c-stores with fuel, traditional gas stations with kiosk-style stores or two-bay autocare facilities, hypermarkets, etc.) declined by 25% from 1994 to 2013 nationwide, plummeting from 202,800 to 152,995 sites, according to the now-defunct National Petroleum News Market Facts. Part of the decline may be attributed to the convenience channel: The number of c-stores selling fuel in the past 10 years actually rose 15%, pushing out gas-centric fueling stations, according to the NACS 2015 Retail Fuels Report. According to NACS, consumers buy 94% of their fuel from 127,558 c-stores and 5,236 hypermarkets (or big-box retailers) for a total of 132,794 locations.
CSP investigates the phenomenon and how it's affecting the c-store industry.
Table of Contents
From Fueling Stations to C-Stores
San Francisco: A Study In Life Changes
Defining Desert: Circles, Octagons And Polygons
Oasis Creation: Vision Or Mirage?
Our Disappearing Stations
From Fueling Stations to C-Stores
The days of stand-alone gas stations anchored in gas and cigarette sales “are long gone,” says Rob Razowsky, president and owner of Rmarts LLC, Deerfield, Ill. “As demand shifts for more foodservice, more convenience-store offerings, the stations that can’t qualify for those go away.”
For years, gasoline retailers have been leaving cities “to make way for new development, for the highest, best use,” says Razowsky, owner of five urban and suburban stations and c-stores in the Chicago area. “And that’s not necessarily a gas station.”
Urban retailers can’t even rely on the taxi industry the way it once did, as fleets increasingly turn to hybrid and electric cars.
"They're not gas guzzlers any longer," Razowsky says.
For Razowsky, it comes down to one question: What’s the value of a corner?
Tom Robinson, president of Robinson Oil Corp., Santa Clara, Calif., agrees that operating on such high-value land means higher margins are imperative.
“And what if I can’t [maintain] a margin like that?” Robinson says. The reality is that the older stations left standing are probably still high-volume locations and can charge higher prices. New investment, however, is questionable, Robinson says, because the return needed for land alone would be “substantial.”
A Gas Wasteland
In cities, the inconvenience of not having anywhere to fuel up may be an issue of time traveled. In rural areas, the concern is mileage.
Oregon, the only state besides New Jersey that did not allow self-service fueling, recently relaxed that ban from 6 p.m. to 6 a.m. in some sparsely populated areas without many gas stations.
“We used to close at 10 p.m. and open at 5 a.m., and we would come in about 4 a.m. and get the store ready, and people were often already lined up at the pump waiting for fuel,” says Maria Licea, the manager of Lakeview Shell, the only gas station in Lakeview, Ore. The gas station nearest to Lakeview is 50 miles away in Alturas, Calif.
“Selling gas and snack food just can’t compete as the highest and best use for the dirt.”
“We would be closing and people would say, ‘Please, can you reopen?’ Sometimes it’s heartbreaking. There would be families with kids in the car. So we would reopen the store,” she says. Because of the new law, “They can just swipe their card, get gas and get going.”
Urban or rural, the rise of the fuel desert is occurring amid the backdrop of a multifaceted shift in the makeup of the fuel-retailing industry, one that includes both a new generation of 5,000-square-foot, state-of-the-art stores floating in a sea of pumps, and fuel-free footprints in high-foot-traffic neighborhoods. For some retailers, the great gas dry-up will make them move in or out. It all depends on their vision.
Continued: San Francisco: A Study In Life Changes
San Francisco: A Study In Life Changes
John Sanphillippo is bearing witness to the rapidly diminishing network of gas stations in San Francisco.
As a blogger who writes about architecture and urban issues on his blog Granola Shotgun (www.granolashotgun.com), he has a personal and philosophical perspective on the fuel-desert phenomenon.
The causes of fuel deserts “are perfectly clear,” he says. Changing fuel demand, especially in urban areas, is one explanation.
“I live in San Francisco, and I own a car,” he says. “I love my car and the freedom it gives me. But I put about 2,000 miles a year on it. It’s a frill for drives out to the country or doing bulk shopping.”
Aside from his role as chronicler of the changing urban landscape, Sanphillippo also represents the modern American consumer. “Increasingly, I buy things online and have them delivered,” he says. “That’s the trend in many economically rebounding cities across the country. A certain segment of the population values a vibrant, walkable environment more than car ownership or daily driving.”
Instead of intense urban congestion, many city dwellers, he says, are embracing bicycles, public transit and private commuter services such as Uber, Lyft, Chariot and Leap, which, Sanphillippo says, “are filling the void between traditional public transit and car ownership.”
In his research, he often asks Uber and Lyft drivers where they live and where they buy fuel. Most live in the suburbs and commute into San Francisco to take fares. They get fuel closer to home, outside the city.
No surprise there, he says: “Demand for fuel will migrate to the locations where these non-household vehicles ‘sleep’ at night—typically outside the city center.”
The other impediment—as seen in other major metropolitan markets such as New York, Chicago and Boston—is sky-high property values. “From a purely capitalist perspective, a quarter-acre of land at this price point is wasted on a gas station or suburban-style convenience store with a big parking lot,” Sanphillippo says. “It’s far more valuable as a redevelopment site for a six-, seven- or eight-story mixed-use building. … Selling gas and snack food just can’t compete as the highest and best use for the dirt.”
That’s not to say gas stations aren’t viable or worthy of investment. Gardena, Calif.-based United Pacific is on a mission to acquire underperforming gas stations with smaller-footprint c-stores, with the goal of improving store programs and infusing operational scale and buying power. The result: a strong return on a solid c-store and gasoline business.
On the other hand, companies such as Brookwood Financial Partners LLC, Beverly, Mass., are buying convenience stores both for the concept of improving them or conversion of the real estate for alternative purposes.
The truth is, alternative uses may befall many of these aging stations. They were built in the 1950s, '60s and '70s, and their underground storage tanks do not conform with modern environmental regulations, Sanphillippo says. They need to be removed and the sites need to be remediated.
“The cost of that work typically exceeds the value of the gas station’s ongoing business model,” he says. “Even if the numbers could theoretically add up, which they rarely do in most locations, the complexity of having the work done and complying with byzantine local, state and federal procedures is beyond the ability of most independent owners or operators.”
Sanphillippo grew up in Pennsylvania. As a teenager in the late 1960s and early 1970s, he worked at a Wawa. (He calls it a “great company.”) At the time, gas stations mostly just sold gas; c-stores rarely sold fuel.
“The current ubiquitous gas convenience, fast-food franchise fusion business model makes sense on a larger suburban building site with a high customer volume along a busy commuter arterial,” he says. “But in an urban setting with a more intensive land-use form, the two functions are better if they’re segregated. It’s easy to fit a convenience store into a larger building with abundant foot traffic and no vehicle parking. Attempting to install or maintain a gas station in an urban setting is less advantageous.”
Looking to the future, Sanphillippo believes urban gas stations will continue to exist, but in increasingly smaller numbers.
“The days of the independent gas station is coming to an end,” he says. “At the same
time, newer business models are rapidly emerging. Prominent companies may find value in creating their own internal fuel stations for their proprietary fleets.” These solutions may not even involve petroleum, he says, because natural gas and electricity are increasingly favored in locations with air-quality mandates and “last-mile” delivery routes.
Continued: Defining Desert: Circles, Octagons And Polygons
Defining Desert: Circles, Octagons And Polygons
Fuel deserts exist within many geographic boundaries and among diverse populations across the country, according to Jim Fisher, CEO of IMST Corp., Houston. Essentially, these square-mile areas or masses of people have no fuel available within what he defines as a “relevant” trade area. In cities, he’s inclined to measure such trade areas not in terms of square miles or distance, but in time.
“Urban areas can be small and dense or may have rivers and bridges, obstacles as far as free-flowing traffic patterns,” Fisher says. “In either of those cases, it could take 20 minutes to get fuel. Basically, there’s nothing that’s reasonably close.”
For mapping’s sake, a fuel desert can take circular form (using a radius metric), but it could be an octagon or polygon if using border streets, Fisher says, with the critical factors again being drive times and population density.
While Fisher does not have statistics about the prevalence or location of fuel deserts, housing costs—an indicator of “best use” pressure—have been rising steadily in many urban areas, up 7% across the country, according to realtor.com. While cities such as Atlanta, Boston, Chicago, Denver, Nashville, Tenn., and New York boast the more expensive real-estate costs nationally, 12 of realtor.com’s “hottest” markets (in terms of quick turns and bidding wars) are in California.
For businesses bordering these fuel-barren markets, the news is good, Fisher says, using the term “leakage” to describe the additional profits neighboring stores receive because they sit just outside of the desert. Fuel profits simply leak into neighboring businesses.
For rural markets, fuel deserts could run for miles. “Some small towns can’t support their own facility,” he says. “So people … have to drive an extensive distance to get fuel and have to do it in conjunction with getting other things.
“For them, nothing’s spontaneous.”
The reasons behind a rural fuel desert mimic the factors behind urban food deserts, the term coined for city neighborhoods that lack proper grocery stores or supermarkets with fresh produce, says Randall Gross, economic consultant with Randall Gross/Development Economics, Washington, D.C. With low-income communities, retailers have a difficult time justifying the new investment. As a result, people have to travel farther to get necessities such as food or fuel.
Companies such as Casey’s General Stores, however, appear to be creating a rural business model to make such economics add up. With its new distribution facility in Terre Haute, Ind., Casey’s, which specializes in meeting the needs of communities with no more than 5,000 residents, is securing new sites in Ohio with an eye toward Michigan, where the retailer sees small, underserviced communities and “tremendous opportunity,” Casey’s CFO Bill Walljasper said during its summer earnings call.
The chain now uses two store designs. One is about 4,200 square feet for larger, higher-traffi c markets with a cost of about $3 million; the other is about 3,600 square feet for smaller, low-traffic markets for about $2.5 million. The third design, the chain’s newest, is less than 3,600 square feet, with a cost of $2 million to $2.5 million.
“Those smaller communities are where we’re still continuing to focus, especially as we head into these new states,” said Walljasper.
In urban markets where gentrification is the prime motivation, the economics are flipped, Gross says. Having worked in Europe and South Africa, where “filling station” is a common term, he says transportation routes and other area dynamics dictate the best location for selling fuel.
“Usually, filling stations are the highest-value commercial land because they’re high-exposure
locations on highways and corner spots,” Gross says. “There’s typically good retail around it and an already strong market. It’s valuable to begin with.”
Also, local governments often won’t allow independent businesses to develop in those areas, says Fisher. “God knows how many people want to build retail in Manhattan,” he says. “But there are restrictions. Some restrictions say you can’t put a fuel facility in, period. ... That’s why you see an old two-bay service station with two pumps doing 300,000 gallons a month.”
Areas in Southern California and Boston are similar, Fisher says. “Why is fuel so expensive in Boston?” he says. “The rules are so cumbersome and it costs so much to build, it takes three to four years to do it.”
Robinson of Robinson Oil agrees. “It’s just a slog,” he says. “Now we’re talking about ROI not just on money but on time.”
Continued: Oasis Creation: Vision Or Mirage?
Oasis Creation: Vision Or Mirage?
The challenges of building new sites or rehabbing old facilities in fuel deserts are daunting, but Fisher of IMST believes opportunity awaits retailers with vision. “The amount of demand that exists in core urban areas is extremely high and a vast majority [of that business] is leaking out into other trade areas,” he says. “Once you build an oasis and fulfill the need of the population, you’ve played a major part in stopping those leaks and keeping demand dollars in that trade area.”
Fisher believes some retailers take a myopic view. Today’s new, 5,000-square-foot stores with 10 or 12 pumps aren’t always possible due to land constraints. “Some chains say that if they can’t build 5,000 square feet, they won’t do it,” he says. “But vision means having the ability to adapt what a company might normally do in their current-generation store and downsize it or adjust for its environment.”
In Europe and South Africa, Gross says “mixed-use” developments can often incorporate a filling station in a ground-floor corner. Though not as prevalent in U.S. cities, a blend of commercial and residential doesn’t automatically eliminate a fueling facility. New developments in Chicago, New York and Nashville are starting to see convenience stores incorporated into ground-floor retail, says Gross. Could pumps be next?
The hurdles of urban development often boil down to one element: design. The suburban American format of the high-exposure, high-visibility, high-footprint site with little landscaping is a turnoff in an urban setting, says Gross.
“Come up with a design that integrates better with the surrounding mixed-use neighborhood development,” Gross says.
On the flip side, some communities actually want to see new development but don’t know how to attract the investment. Bombardiere of the New York service station association says councilmen have approached him asking how they can lure new retail investment into their neighborhoods. Unfortunately, he sees little hope, saying, “The land costs so much, you couldn’t afford to offer that big a tax break.”
Certainly incentives are a tool in attracting new business to a community, Gross says, but he often counsels local governments to consider building amenities. “Work on infrastructure, improvement of roads or streets to enhance traffic, which leverages the market for retail,” he says.
“Improved infrastructure attracts housing; you have more people driving, which builds traffic. … The short answer is to create a market for business.”
Continued: Our Disappearing Stations
Disappearing Stations
Gas stations have been on the decline for more than 20 years, according to NACS. However, c-stores have been picking up the slack with a retail model that involves fuel, foodservice and convenience goods. Here are some numbers documenting the rise of c-stores:
25% - Drop in the gas-station population from 1994 to 2013
127,588 - The number of c-stores selling fuel, out of 154,195 total c-stores
15% - How much c-stores selling fuel grew from 2005 to 2015
Sources: NACS, National Petroleum News Market Facts
The Language of Fuel Deserts
When talking about what defines a fuel desert, many important ingredients, metrics and terms arise. Here are a few that retail consultants and urban planners often use:
- Population density: The number of people in a given area at different times of day provides another measure for predicting traffic count.
- Leakage: A term to describe a business that “leaks” into other market areas due to the absence of a provider in any given market.
- Drive times: Often used as a metric to describe the inconvenience of fueling, it helps planners understand the demand for a gas station on any particular corner.
Our Own Worst Enemy?
Is the surge in modern, 5,000-square-foot c-stores part of the fuel-desert problem? Fuel deserts can occur because larger, multipump locations act like fuel sponges, drawing volume from surrounding locations.
This may indeed be true, but Jim Fisher of IMST believes every retailer has an obligation to retain his or her clientele.
“Nobody takes actions that put other facilities in jeopardy if those other facilities don’t create the [right] environment,” Fisher says. “I believe 98% of this threat is self-created. If you are outdated or small, you spruce [your business] up, freshen it up or build new, or you are going to lose your share of business to a player like that.”
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