Convenience Stores for Sale: What You Should Know Before Buying
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Convenience stores are a big business in the US and collectively generated over $814 billion in sales in 2023 alone. They're also relatively recession-resistant, as they sell essential goods, like gasoline and toiletries, and the business model is rather straightforward. For the right investor, convenience stores can make a compelling commercial real estate investment.
Here, we'll cover the basics that commercial real estate investors should know before buying a convenience store for sale. We'll discuss convenience store profitability, profit margins for convenience store items, and how to buy a convenience store for sale.
Let's get started.
Is Owning a Convenience Store Profitable?
Yes, owning a convenience store can be highly profitable. According to data from Statista, the average convenience store in the US made about $1.7 million in sales in 2021. When accounting for costs, average net profits for a medium-sized convenience store sit at about $100,000 a year.
What's the Profit Margin on Gas Station Convenience Stores?
Generally speaking, data shows that average profit margins for convenience stores hover between 5% and 10%. Chain convenience stores with multiple locations might have higher margins. Of course, profit margins can vary heavily depending on the state/city, convenience store location, and season.
Where Do Convenience Stores Make the Most Money?
It might surprise you, but most gas stations/convenience stores don't make that much money from selling gasoline. The typical markup per gallon of gas is about $0.15, which needs to cover both costs and profits. In fact, some gas stations actually lose money from gas sales.
Rather, convenience stores make the majority of their sales revenue from in-store purchases, like food, drinks, car accessories, beauty products, and more. The real benefit of selling gas in the first place is that it draws in drivers who then buy other products while waiting for their tanks to fill.
What Sells Best in a Convenience Store?
Profit margins for specific convenience store items vary significantly depending on the type of product. According to data from Statista, average profit margins for specific convenience store items are:
- Non-Alcoholic Beverages: 43.96%;
- Beer: 22.8%;
- Candy: 50.69%;
- Health & beauty products: 53.18%;
- Cigarettes: 14.99%; and
- Other tobacco products: 29.98%.
Beauty products, candy, and non-alcoholic drinks have the highest profit margins, while cigarettes and beer are among the lowest. The most popular items in terms of total sales numbers are cigarettes, which can account for up to 30% of a store's sales.
How Much Money Can a Small Convenience Store Make?
Numbers will vary heavily depending on the size of the store, the store's location, product offerings, and the number of employees, but a small convenience store owner can make on average $60,000 to $100,000 in annual income.
Despite the straightforward business model, convenience stores have a lot of management and upkeep costs between displays, inventory management, staff, customer service, and loss prevention. The average convenience store spends about $1.71 per square foot annually on repairs, which comes out to over $100,000 per year in repairs and upkeep for the typical store.
What to Look For When Buying a Convenience Store for Sale
Convenience stores are ultimately retail stores, so general considerations for buying retail property apply to convenience stores.
#1 – Location
Just like when buying other types of commercial property, location is extremely important when looking for a convenience store or grocery store for sale.
The ideal location for a convenience store is at the corner of a busy intersection with ample window display space. The location also determines the store sales price. All other things being equal, urban locations will cost more.
#2 – Competition
Smaller, independent convenience stores for sale often face competition from larger retail chains, like Walgreens, Target, and Dollar General. Running an independent operation will be much more difficult if you buy a convenience store for sale near a large corporate retailer unless you distinguish yourself.
#3 – Additional Services
Stand-alone convenience stores are probably the cheapest to buy, but many gas stations have convenience store attachments and additional amenities, like car washes.
Buying a convenience store/gas station property will cost more but provide more opportunities for customer traffic and sales.
#4 – Crime Rates
Convenience stores are unfortunately a common target for shoplifting and robbery. Concrete numbers are difficult to track, but experts estimate about 6.6% of all robberies in 2019 occurred in convenience stores.
As such, a prime consideration when buying a convenience store or grocery store for sale is crime rates. Neighborhoods with lower crime rates will be safer for employees and store revenue.
As is the case with most types of special-purpose real estate, we highly recommend working with a commercial real estate broker. C-store brokers specialize in convenience retail real estate and can help you find properties with good financials and negotiate any sales or lease contracts
Leasing a Convenience Store
Leasing a convenience store can be a viable option if you're having difficulties finding commercial real estate financing. The main benefit of leasing is that the business owner can save money on buying commercial property, and they're more mobile if they need to vacate the premises. However, convenience store owners will have less flexibility and control over the space in a lease.
The main consideration for buying vs. renting retail space is how much control over the space you need. If you plan to expand your convenience business soon, buying a location may be the best option. Alternatively, leasing might be the best way to go if you expect revenues to be low.
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