On a corner near my house there is a gas station on one corner, a gas station on another corner, and a lot on a third corner that is being developed into…a gas station.
There are intersections a mile or so west and south from this intersection with 2 gas stations each, and you wouldn’t have to drive far to the north or east to find one either.
I’m sure the company developing the property has decided it’s a good idea - my question is, how can this be so with so much competition so nearby - literally two others across the street?
I would think that it would make more sense to put in something else - almost anything else - say, for example, a Starbucks, which there always seems to be plenty of demand for, and for which existing stores are outside a bit larger radius from this location.
Sometimes they figure that they can undercut the competition and thereby make money while at the same time being in an already recognizable location.
My two closest gas stations were completely by themselves and their prices weren’t exactly the most competitive. Soon enough for both another gas station took-up shop across the street and undercut their prices by about 10 cents a gallon taking all their customers. And yet they still exist despite the expensive gas and I never see anybody using them.
People tend to go to the same area for similar services. So, you will find a McDonalds, a Burger King, and a Wendy’s in close proximity in many high traffic areas.
Furthermore, I do not cut across traffic for gas stations/convenience stores/coffee take out, which are frequently found in the same facility. If I need coffee, I will fill up at one n the morning, but use the other when I am picking up cream on the way home at night.
The properties on that corner may among the few in the area that have the proper zoning and are available for development.
The corner may have high traffic volumes on both axes.
The corner only now being developed may be on the “going-home side” of one of the arterials or the other, but wasn’t previously available for some reason.
Finally, the new station may be in a slightly different market segment than one of the other two. It may be a high-volume “gas bar” with a well-trafficked regional convenience store that actually is the profit center and the real reason for the development. Or it may be a brand that’s looking to expand its reach in your market.
(In college, I worked summers for the main company that performed location studies for gas stations, but I wasn’t privy to the formula at the center of our computer model.)
Nobody builds gas stations around here, they just build mini-marts with gas pumps. The margin for the gas is very low, it’s just a draw for sales at the mini-mart. I suppose in this case someone thinks another mini-mart with gas pumps on another corner can get 1/3 of the business for that intersection, which would be enough to make the investment worthwhile. I think these properties are valuable and will increase in value over time so the business doesn’t have to be a booming success to make the investment worthwhile.
This was explained in game theory ( the pedestrian version by Michael Gladwell). Consider a rectangular beach with two snow cone stands in each half of the beach. Over time, one snow cone stand realizes that she can get more customers if she inches closer to the other side (so does the other seller). With the result they both end up in the middle of the beach - and nobody has incentive to move away from the middle.
It’s not unusual in big cities to find similar businesses clustered together for the same reason.
Mattress stores around here. They multiply like cockroaches.
Mattress Firm owns most of the major mattress stores that you can probably name off the top of your head. One theory is that they locate their different brand stores close to each other. Consumers shopping for the best price will go to several nearby stores (not knowing they are owned by the same company) and see that the prices are all the same and conclude that they have shopped around enough and the price seems fair.
In my town we’ve got 3 gas stations at one intersection (taking up 3 of the 4 corners). At rush hour, and really, almost any time of day, you pick the station that allows you right-in and right-out based on your direction of travel. It would be a huge hassle and a waste of time to try to make a left into a station on that corner, or to sit at the light and cross over the main road to get to the opposite side. The stations all have the same price on gas.
This corner is zoned “business - highway” BTW. It specifically only allows gas stations, restaurants and hotels.
We’ve even got a second Dunkin’ Donuts going in, less than a mile from the existing, relatively new one. Somebody’s study must have shown that enough people on the west side want Dunkin’, but not enough to cross the road and sit through a couple of traffic lights in front of the strip mall, AND pass up Starbucks, to get their fix on the east side.
We have a proliferation of mattress shops, tire shops and sub shops, too. And two auto parts stores next to each other as well. Interesting to see that it’s the same elsewhere!
This. DesertRoomie was an assistant mgr at a chain convenience store avec pumps a while ago and typically their markup was a nickel over the delivered cost. One of her duties though, was while coming to work in the morning, to drive past the four stations that were within a half-mile (one was on the opposite corner) and note their prices. About an hour after transmitting this to HQ they’d get a reply back with what the day’s price would be. Sometimes this was less than the delivered cost, never mind other expenses like wages, electricity, etc. They made their money on cigarettes, beer, and jerky.
Once the pipeline from Texas broke and the gasoline had to be trucked in from Tucson, about 120 miles. The prices shot up to $4.50 a gallon or even higher and naturally, everybody screamed, but her station’s delivered price was over $5 so they were losing on every sale. After everything was fixed the price dropped to merely indecent, then slowly drifted back to where it was as the losses were recouped.
From what I’ve seen, Mattress Firm rebrands local and regional chains as Mattress Firm stores. So the former Sleepy’s locations in Connecticut are now Mattress Firm. And stores from a California chain called Sleep Train are now Mattress Firm locations.
My favorite was an ntersection on a prior commute where there were Shell stations across the street from each other. Occasionally their advertised prices differed by a cent or 2. There was a higher priced Mobil on one of the other 2 corners…
As foir converting the site, I wonder about having to dig up the storage tank and clean up the area. Might be too expensive to put a Starbucks in.
There ia a lot near us which used to have stores, including a dry cleaners. It is owned by a developer and houses will be build on it - but the site has to be cleaned up first, which is delaying things by a lot. It must be expensive for the houses they build will go for well over a million bucks.
The gas station I go to is just behind one on the main road, which is right at a freeway exit. My station is over 20 cents cheaper then the name brands, but the stations on the main road are still busy. All of them have convenience stores of course. Can’t imagine why anyone would pay more, and it is not a freeway exit that probably gets a lot of through traffic needing gas.
I read a different Explanation on General math, not game theory, with fast Food:
IIRC, if there’s Fastfood A on the first Corner, and nothing else, they will make 100% of possible sales.
If Company B opens a shop on the second Corner of that same intersection, and since they are similar, they will likely end up 50% of sales.
Now, if both are chains, Company A might Profit from opening up another store at the 3rd Corner, because then Chain A will make 60% total, and B only 40%. (If the chain does franchises, this is negative for the owner of the first A store, because he will go down from 50% to 30%).
Let’s not forget the component that people tend to be brand conscious with gas stations. Some have a specific branded credit card (giving discounts on gas, usually). Others simply believe that they get better quality gas (I love our local Quick Trip convenience stores, but the gas they sell yields about 2 mpg less than the local Exxon/Mobil stations). Still others prefer the brand of the convenience store (I love 7/11 for their much better taquitos; don’t care what the gas brand is because I’m not buying that there).
As has been pointed out upthread, the zoning for the intersection may limit the choices, so that a gas station, any gas station, is the preferred alternative. And the convenience store company probably got the same result from their location-finding model that the other two companies did; if it was a good place for one, it’s a good place for all. Finally, if the area is growing in any way, then the increased sales opportunities will be taken into account in deciding where to locate (my area is booming; roughly 7500 housing starts just on the South Carolina side of the line approved at present; we are getting a ton of development, including, inter alia, gas stations).
Oh, and storage units. Those seem to be the recent fad du jour…
The new station might not be taking much business away from the other stations. Think about when you need gas. Since gas is gas, you’ll get it at whichever station is most convenient along your normal drive. Unless you’re almost out, there’s no need to cross the road to get gas. Just drive along and eventually you’ll find a station on the right side of the road that you can easily pull in and out of.
So in reality, the new station is probably taking customers away from stations further up the road. Customers who would have typically driven farther along the road to get gas can now stop at this new station.
But I’m sure there has to be studies of how revenue changes as each station is added to a corner. It would be interesting to see how it actually changes.
The best location for a store is the best location. Period. This has been studied by huge chain store corporations for decades. If the northwest corner of Busy Road and Useful Avenue is the best location, then the next best locations are the southwest, southeast, and northeast corners (not necessary in that order). If you move in a half mile down the block your traffic will be far less and you will go out of business.
It is not true that putting in a second gas station across the street will cut the first one’s grosses in half. The total gross for the two stations will be *more *than the original because more people will look to that corner as the place to get gas. There is a limiting factor, which is why you seldom see four corners all with gas these days, but there are times and places when that works for everyone.
You could see the same pattern in malls back when they dominated shopping. At first they tended to place types of stores at a distance from one another, thinking that this would increase sales. Over time they learned that grouping them performed much better. People liked the convenience of going to a half dozen shoe stores all on the same wing; if they didn’t find what they wanted in one store they went on until they bought something instead of giving up because they didn’t want to walk around the mall. This isn’t directly comparable to gas stations, true, but it’s very similar to seeing four fast food stores at corners. Once people think of X as the place to buy Y then all stores get a boost.
Around here, the first thing that happens when a gas station closes is the tank gets ripped out of the ground. This was done to a former Arco station in my neighborhood some fifteen years ago and the building has stood vacant ever since so it’s not like there was a non-gas selling client clamoring to lease the land.