Why Petrol Stations Really Sell Coffee, Not Fuel

The $4 Million Business That Makes Almost Nothing on Fuel

Most people think petrol stations make their money from petrol.

They don't.

Fuel gets you onto the forecourt. The real profits come from coffee, convenience, food, car washes and the everyday purchases you barely think about. It's one of Australia's biggest retail industries, and one of its most misunderstood.

Peter and Rod unpack the business behind the bowser, revealing why a service station generating more than $4 million in annual revenue can still struggle to produce meaningful profit. They explore how the industry evolved from small suburban servos into convenience retail powerhouses, why location is a bigger competitive advantage than fuel prices, and how operators are preparing for a future shaped by electric vehicles, changing consumer habits and razor-thin margins.

You'll also discover why underground fuel tanks can become million-dollar liabilities, why the best operators obsess over coffee instead of petrol, and how the numbers stack up if you're thinking about buying a service station.

Key Takeaways

• Fuel brings customers in, convenience retail generates the profit.
• A high-revenue business isn't always a high-profit business.
• The biggest risks are often hidden underground, not on the forecourt.

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Because we don’t want you to get into a pickle.

Transcript

SPEAKER_01 0:10

Petrol stations or cash machine or capital intensive trap from Pickle, the team that removes caveats from directors' homes, proudly sponsored by Eventum Optimum. And our host, Pickle Pete, for those of you that don't know me. And joining me today is Rod, the director of Eventum Optimum. Hello, Pickle Pete. How are you? I'm very well, sir. I'm very well. What is the biggest lie about petrol station? So for the audience, we're gonna play a bit of a game today. You buy petrol station. What is your biggest source of profit? If you're wrong, if you all get people into your side, the money gets money elsewhere. Coffee, energy drinks, tobacco, convenience. And here's the crazy part a petrol station can generate more than four million and that's four with an end, four million in annual revenue, and still struggle to make serious money because selling fuel isn't the business, it's attracting traffic. And today we're gonna ask one question Is owning a petrol station in Australia a great cash flow business, or is it one of the biggest capital traps hiding in plain sight? The conundrum. Welcome to good bad business from A Pickle, the team that removes caveats from directors' homes. Every week we break down a different business using our MOAT framework, which stands for margin, operation, advantage, and TAM, which is Total Addressable Market. And then we answer two questions. Can this business generate a million dollars in the first year of revenue? And is it a good business, a bad business, or are you going to get yourself into a pickle? Joining me is Rod from Eventum Optimum and our podcast sponsor. Rod, once again, welcome.

SPEAKER_00 2:23

Thank you, Peter. That's an interesting one because I reckon you'd ask the layman how petrol stations make their money, and I would say nine times out of ten, the response you'd receive is fuel. But the best operators, you know, they know that they're running a convenience business sitting on some premium real estate on a corner block and a pass-through traffic. It's quite interesting in this one here. It's definitely got multi-layers of income.

SPEAKER_01 2:46

And it's funny you say that because there seems to be a common trend in this podcast when it comes to a business model not necessarily being the actual business model. The business model behind it is real estate. And so we all talk about these amazing new technologies that are being developed. But at the end of the day, sometimes it's just good old fashioned old school businesses that sit on really good real estate and compounds over a long period of time. People still have to leave their bedrooms at some point in time, Peter. So you've got to go to the servo, mate. You've got to go to the servo, you've got to fill up at some stage. So, Rod, let's zoom out. Back in the 70s, Australia had around 20,000 service stations. Today there's only 6,400. Wow. Yeah. Wow. Concentration. It seems that way. It seems to be a concentration risk straight off the bat, and we haven't even started the podcast yet. So, how do we lose two-thirds of them? And it seems simple. The the small suburban survey disappeared. The destination is convenience, and it seems like it's been replaced from the good old supermarkets. It's the old Bunnings effect, right? The vertical integration, yeah. The hardware store's gone, you know, like it's the old Bunnings effect. And it seems like the same thing has happened here with the supermarkets because the moment that the supermarkets entered the fuel industry, being Coles and Woolies, the fuel discount dockets really changed the consumer behavior. And then came in OTR, which is on the run, a big national franchise ore. I'll take that back, they're not a franchise all, they own the sites. But then they started implementing really good coffee, food, fresh sandwiches, parcel lockers, which is a big one these days. Because how are you going to pick up your Amazon order, Rodney? You pick it up from a parcel locker. And it's convenience. Today, the Great Petrol Station isn't just competing on fuel, it's competing with a good old local cafe because the coffee is not too bad at the good old servo these days.

SPEAKER_00 4:53

McDonald's coffee and server station coffee have uh have certainly improved a lot over the years, haven't they, Peter? It's not so become socially acceptable. Well, uh, you know, we've recently explored.

SPEAKER_01 5:08

That was a good episode. Here we go. The other match is going to be in the servos. Here we go. That'll be the next podcast.

SPEAKER_00 5:14

Next podcast. I think that's the evolution, Peter. It's what's happened. I mean, the forecourt has now become effectively the front door. The convenience store becomes a profit center. So, as you say, it's a means to an end. It's getting traffic through to the venue to sell the higher margin product.

SPEAKER_01 5:31

Let's strip it back. So, what are you actually buying? You're buying fuel pumps, underground tanks, which is an expensive exercise. Yeah, but that's where the dramatic music needs to start right now on this podcast: the old fuel pumps. Underground tanks, convenience stores, uh, coffee, food, car wash, property, as mentioned, staff, compliance, environmental risk, and a quick sidebar: you're also buying one thing that nobody actually sees, and for dramatic effects, the underground liability. Because replacing underground fuel tanks, it costs anywhere between tens of thousands of dollars to a couple of mil, depending on the site and the remediation that's actually required. And that's before you sell a single litre of fuel, mate.

SPEAKER_00 6:22

Look, that's exactly right. People think they're buying a retail business when they're actually buying infrastructure. And I've first hand had a lot of experience with clients over recent years of total service stations, the franchise type arrangement. And again, we talk about the passive investment versus you can manage these, of course, but they come to us and they're in a pickle or in a bit of a strife. So if it was such an easy business, uh we wouldn't be talking to these parties, will we, Peter? So there's obviously some operational issues which we'll come to later on to deal with.

SPEAKER_01 6:51

Yeah, absolutely. And I think the most successful operators within this industry, like the OTRs of the world, they're real estate companies, they understand infrastructure. Yes. And so staff and things like that is just secondary because they understand the infrastructure, they've got the site working at an optimum level, they've got the capital to be able to replace a lot of the underground liabilities and things like that. And thereafter, obviously, it's just sort of profit that compounds over a medium to long-term period. So contingent liability on your balance sheet, Peter. It wouldn't be nice, would it? You'd be always looking behind you. That's how you need to start, though. When you're owning this type of business, that's how you need to start. Yeah, you need to have that contingency basically on your balance sheet from day dot. And if you go into this blonde, it's a problem. Yes. Before we continue, a quick word from today's sponsor, Eventumoptium. Business is tough enough and you don't need to deal with debt on your own. Eventum optium is the Latin phrase for the best result. And that's exactly what their team is focused on delivering. The best result for business owners. Whether it's asset protection, creditor pressure, business turnaround, restructuring, or pre-insolvency advisory, their team works with directors to create practical solutions before the problem becomes a crisis. Because the best time to solve a business problem is before it becomes a pickle. To learn more, visit Eventum Optium. Review intelligence. So let's hear from the customers. We've had the opportunity to look at a lot of the reviews, as we always do in this podcast. So let's have a look at some of them. Great coffee, friendly staff, good prices. And now let's consider some of the negative reviews. The app doesn't work, and that's one thing that we talk about a lot in this podcast. It's 2026 and apps don't work. I mean, it's just unacceptable. The reward points, the coffee, the free coffee. How are people running coffee shops or even service stations where you're going in with a little card and you've got the little hole puncher and you're punching it? Where's your friggin' app? Like, why are we punching holes in loyalty cards? I know you're old school, Rodney, and you like little hole punches and your wallet's full of all these loyalty cards, but it's 2026. Why is your approach? That's right. Yeah, your ass looks twice the size of what it actually is. Uh dirty bathrooms is another one. The car wash is useless. I mean, come on, guys, like this where you're making a lot of your money, which is your car washes. They charge the wrong price, very rude. And so, are we noticing something? Nobody complains about the petrol. They complain about the experience.

SPEAKER_00 9:33

Which is exactly the point here, which is quite interesting. Fuel is a commodity. That actual customer experience is the differentiator. Let's face it, fuel is fuel. Fuel is a means to an end. It's a customer experience, which is a real differentiator, isn't it, Peter? I mean it is a rare occasion. We've had a few dirty fuel cases over recent years, but that's like the underground tank. That's the outlier. Typically, it's the customer service and the customer experience that differentiates. And uh, I know about you, but if I go to a place and it's got a dirty bathroom or a rubbish all over the tables, it it turns me off. Just the little things, the way that they treat the place, cleanliness, product. I mean, it really isn't when you went through those products, Peter. My God, it just uh the offerings that a service station offers these days, it's quite incredible. When you break it down, we're talking about the moat.

SPEAKER_01 10:19

What is the business's moat? And as you mentioned, and rightly so the commodities fill, you can get fuel anywhere. Yeah. But if one service station is more presentable than the other service station, there's no real loyalty with your local servo anymore.

SPEAKER_00 10:32

No. Those days are gone.

SPEAKER_01 10:41

It works damn good with those loyalty cards right now, with the Woolworths apps and all the rest of it, and how they've been able to integrate that whole business onto their loyalty program. That creates that ecosystem, that creates that sticky customer. So if you can get five, six cents off your fuel, you're going to do it. I know I did it the other day. Actually, while I as mentioned to you um before we jumped on the podcast, we drove the Newcastle to see family this weekend. And my wife Mariana says to me, Oh, toll has given us a reward for painting the toll all the time. So they've given us a docket for fuel where we actually got six cents off. Straight off. I mean a big V8 like you do, that's worth a lot of money. Well, yeah, that's that's that's also true. I need to have uh spare tanks on the back of the unit just to be able to get to Newcastle these days, especially the cost of fuel.

SPEAKER_00 11:25

Now, Peter, is that a good opportunity to segue into margin?

SPEAKER_01 11:28

It's right.

SPEAKER_00 11:28

Some of the numbers over you, mate. All right, mate. So look with the numbers, Peter, look, the fuel margins are incredibly thin. The ACC estimates retailers often retain only two to four cents per litre after costs. You think about that, we all complain about the excise and cost of fuel, but the actual operators themselves, the distributors, are actually only between two to four cents at the retail end. That's almost nothing. A typical site might sell two to four million litres every year. So the quantity is phenomenal. It sounds incredible. But the fuel alone rarely creates the wealth. The real margins come from the coffee, as you mentioned before, Peter, the food, the snacks, the tobacco. Although it's these days it's all illegal tobacco buy, isn't it? But anyway. Car wash. Just another episode, mate.

SPEAKER_01 12:17

Another episode, yes, it is really. We'll do a podcast on illegal tobacco. Talk about the margins there, the huge Actually, we don't need to do a podcast on that. We already know the margins.

SPEAKER_00 12:27

We already know the margins there. 100%. Yeah, look, and that's probably that's where it really gets exciting in this business, is that's where the gross margins jump up to around the 30 to 45 percent mark. So when you walk in there and they offer you, would you like a pack of chips or you like something else? That's why the margin is very much in the product they sell outside the fuel. So that's the exciting part about the margins here, mate.

SPEAKER_01 12:48

Yeah, and that's why we say the pump brings the customer, the pie warmers, the good old pie warmers, that's what pays the bills. Oh, the old hot boxes. The old hot boxes. Remember the sausages back in the day that would just sit there on the rollers, and there was the most disgusting thing when you're young and you've been out and they tasted okay, but anything did at that time, right? Either that or a cabaco. They suck up the alcohol, they definitely did. So, mate, what do you score the margin?

SPEAKER_00 13:15

What's your theory? Well, the interest it's an interesting one because there's one half of the business is the very, very low margin, being the petrol itself, of course. Then the other part of the business being the high margin. So, on that basis, I'm probably gonna go a little bit sort of middle of the road here. I'm gonna throw a seven in, Peter. I think it's a bit hard to answer this one because there's sort of two parts to that.

SPEAKER_01 13:36

I thought it's a tile of two stories, isn't it, with this type of business with the margins? You've got a low margin component that draws in the customers, and you've got a high margin component, which is the convenience. So at the end of the day, it is a high margin business. So I'm gonna agree with you, mate. So we agreed to make a note of this. We better agree. Nina Park, first time we've actually both agreed.

SPEAKER_00 14:00

Aligned on our votes for a while. There you go. There you go.

SPEAKER_01 14:03

It's only taken four or five podcasts for for you and I to start agreeing.

SPEAKER_00 14:07

Let's see how we go with operation then. Yeah, yeah, let's see. What are you thinking there, my friend?

SPEAKER_01 14:11

Well, I mean, this isn't easy. You've got 24 hour staffing, you've got fuel deliveries, food safety, coffee, payroll, all the stuff that you know we talk about all the time. Tobacco compliance, and that's a hard one. The sales have definitely declined with tobacco compliance, which is what we alluded to before with the illegal tobacco component, price boards, environmental monitoring, you know, all this greenwashing that happened back in 21, 22, but still seems to continue nowadays. The tank testing, the lottery, you know, cleaning, security. It's one of the most operational, intensive businesses we've ever reviewed. And for me, and also for yourself, one of the key elements that we always talk about is simplicity is the key. And simplicity is genius. But it's very, very hard to achieve simplicity because we tend to overcomplicate things. And the businesses that scale are the ones that have a very, very simplistic business model. And I'm not seeing it so far with the good old servo.

SPEAKER_00 15:17

No, no. I guess that probably the question we always ask: can it run under management? So can it run by itself essentially without the owner-operator being there? And the answer is yes, but can it run itself? The answer is absolutely not. Those client services and products and cross-sell that we mentioned is so, so important in this business. So look, operational to me is very challenging. We talked about before concentration, the costs of sites, the barriers to entry now are quite high. As you mentioned, the compliance and all the ongoing from gambling to tobacco to fuel. I think it's really high the operation here, and I'm gonna go four, Peter. I think this is a tough operational business as well.

SPEAKER_01 15:55

It is, it's extremely complicated to run. So I'm gonna be a little bit more harsh on that. It's a one for me. It's just too complicated. It is a very operationally, it's a very complicated business to run. Yes. However, one company that does it really well, I must admit, is the 7-Elevens of the world. Yep. You typically walk into a 7-Eleven and there's one person behind the counter. Everything else, it's all self-serve. From your coffee to your pie warmers, they've really been able to simplify that business, obviously, over the years. And I think that should really be the gold star with these types of businesses because if you go to a BP, you've got different divisions of the business. You've got, can't remember the name of their coffee component, but it would come to me in a moment. But you're queuing up for a barista-made coffee, meanwhile, your car's still on the pump, and there's people behind it, and you can see the cars compounding. Whereas you walk into 7-Eleven, you hit the button, get your coffee, pay for it, you're in the car, and there's one staff behind the counter. So operationally, I think for those of you that are listening to this podcast, really just sort of compare the two on how they're being operated. You know, I just wanted to touch on that just quickly, mate.

SPEAKER_00 17:08

Yeah, very interesting. It's uh I actually uh one of my clients we did some due diligence for looking at purchasing a 7-Eleven here in in Robina on the Gold Coast. It was interesting because the margin was terrible, but they were taking all the responsibility for the operation of the site. So the owner was sort of uh essentially managing selling the management rights out to this operator, and uh the margins were so tight that I feel that you know the efficiencies were almost forced upon the operator, which is interesting to see. But uh also you're right that there is consistency or standard across 7 Elevens, so it's not just the operator, they've obviously got some higher standards and requirements. There was a training course that had to be done before you could purchase, so there were some you know some standards to do. So interesting how 7 Eleven has become one of the I guess standard bearers for service uh in this game.

SPEAKER_01 17:54

Because you could take the pumps out of a 7-Eleven and you've got a whole heap of parking now for convenience, and it'd actually probably make more money if you took the pumps out. If we compare it back to the margins, there's no margins in the fuel. So take the fuel out and just have a convenience because I know there's a couple in and around Sydney. There's one in Crenulla just before you get to the beach, and it's a big 7-Eleven that has its own real estate, has its own park, has no pumps.

SPEAKER_00 18:18

Well, it's it's rare to see these days, isn't it? Yeah. Without the pumps. I mean, I don't know about you, but we might get to be younger. Every time you get petrol, you'd have to buy a Slurpee or something else at the same time.

SPEAKER_01 18:27

7 Eleven that's near the beach, people queuing up out the door, especially on a hot day for a slushy. Yeah. So yeah, I don't know. It's one of those models are very interesting, you know. But if you put a couple electric charging stations, then that's going to be an interesting transition for operations. So you remove the pumps, and at some stage, you're gonna have to replace them with electric charging stations, yeah.

SPEAKER_00 18:46

Well, I think that's probably the one point we haven't touched on just yet, but that's probably the biggest challenge to this whole thing.

SPEAKER_01 18:51

We've we've gone off on a tangent as per usual, but like on as as we're sort of going through it, I'm thinking, well, at what stage? Because I know a lot of the amp holes now they have those amp chargers, and so you're already seeing that transition happening with a lot of servos. Because if you're gonna sit there for 20 to 30 minutes charging your car, then what is the convenience? So, does the old servo effectively become a food court at some stage? Because you're gonna be there for a long period of time charging up your car, and so that's an interesting thing.

SPEAKER_00 19:21

You've got a captive audience for a longer period of time. I think the half an hour has to be higher, doesn't it? I mean, instead of having uh the pie from the pie warmer, you might be having uh yeah, a bacon egg sit-down meal. Or uh, you know, it's uh you're 100% right. I think the time that the person's in there, like you go the car wash these days and put your car gets washed and you go and have a breakfast and a coffee while you're waiting. If the coffee's shit, you're not getting your car washed because why would you sit there for half an hour and get my car washed? The coffee's terrible. Yeah. I think EV is interesting because it also takes away from a lot of people who might have private charges, but I think a lot of people won't, might be able to afford to as it becomes more mainstream, and I think it presents a very unique and quite uh interesting uh opportunity for the big infrastructure companies with very, very strong balance sheets that are able to do it.

SPEAKER_01 20:06

So the mum and dad operators are going to disappear pretty quickly if they haven't already done so. Exactly. So, what is the advantage? I mean, that's a good segue into the advantage. I think we've already destroyed the advantage and we haven't even gotten into this particular topic. But what is the mo? It's and as we've mentioned, it's not the fuel. Anyone can sell fuel. The fuel is the location, the traffic, the brand, the coffee, the loyalty, and the convenience.

SPEAKER_00 20:28

Yeah, yeah, 100%. Look, you're not buying a servo, Peter. You're buying the traffic the fuel brings into the location. So corner sites are incredibly difficult to replace. The good sites have already been taken. There's a real competitive advantage for the existing operators now and the big parties. As we said before, look, you know, if you've got to do a charger, they or uh a fuel tank we talked about cleaning or replacing, they've got the balance sheet strength to be able to do so. Whereas us mum and dads, you know, it's probably a bit too rich.

SPEAKER_01 20:57

And but the liability under the surface, as mentioned, there's a big liability there. But now, if you've got to replace that and then add charging stations, that's also an even larger infrastructure cost. Absolutely. Because now you've got the chargers. Yeah. So what do they run on? They don't run on air. Now you're increasing the infrastructure of the server station to be able to support the power units. Yeah, so that's even a bigger cost.

SPEAKER_00 21:26

Huge. Well, I did a job uh a few years ago, Peter, with a Porsche dealer, amongst other cars, and they were required as part of their distribution to put a fast charger in, and the fast charger was a million dollars, whereas they could they could put it in that it took like hold me to half an hour, say. Whereas the slow chargers they were about a hundred thousand dollars, that took like half a day. Now that's obviously not practical. And when you buy a Porsche, you don't be sitting around a Porsche car yard for half a day waiting for your car to get charged. So they had no choice but to find the capital to invest in the fast charger. And we haven't talked about But car dealers are run on probably same similar margins to petrol stations. So a large infrastructure cost like that will certainly uh take a number of years to recoup. So it's interesting here. You know, there's gonna be another upfront cost when it comes to servos as well.

SPEAKER_01 22:14

So I'm not liking the score of for advantage, Rodney.

SPEAKER_00 22:17

What do you score it? Well, I'm gonna go a three, Peter. I'm probably not as harsh as you with the boats, but I'll I'll go at three, I think, here. I think it's uh a tough one, mate. I really do. It's a very, very high barrier to entry here, and I think the big bigger and mum and dad corner shops and servos and that are probably gonna be a thing of the past, unfortunately.

SPEAKER_01 22:36

Yeah, I just as we mentioned, it's the companies with the big balance sheets that are able to create an experience. They actually have an advantage because it's very, very difficult to replicate experience. It's a bit like the matcha episode that we did was all about the experience. Anyone can sell matcha, right? And it's the same thing with a convenience store, it's the ones that understand retail concepts, layouts, positioning of the products, but it's also selling a commodity as well. I mean, it's not their product, so there's a minimal margin in respect to how many chips and pies and all of the other products in which you sell, it's not their product, it's not an Audi store where they own it.

SPEAKER_00 23:14

But will there be home-brand chips coming in, St. Peter in a person?

SPEAKER_01 23:18

Yeah, well, no, but that's what really that's what they need to do. Yeah, exactly. Because if it's Audi that got into the fuel sector and they're the world's biggest, if not probably within the top five real estate holdings in the world. And so if they started getting into server stations, they would have high margins because the products that they would have within their service station they own. Yeah, 100% agree. Watch out, there's a competitor there we haven't even talked about. Why is it that every time we do these podcasts, you and I come up with a good idea, we start scratching ahead going, well, you know what, that's not a bad idea. We should go with this. So, audience, there's also nuggets within this podcast that you could take and still and run with. That's what it's all about. This is how we add value into this podcast. For me, it's a two, there's only a handful of operators that have the balance sheets to create the experience. If I was to purchase a service station, I'm definitely not going to compete with the ATRs and the BPs and the AM poles of the world. They're too big.

SPEAKER_00 24:16

Yep.

SPEAKER_01 24:17

Even for you, Peter. Even for my little balance sheet. So leading into the TAM, Rod, tell us about the TAM, mate.

SPEAKER_00 24:27

Yeah, this is an interesting one because the fuel retailing generates uh approximately $58.7 billion annually, Peter, across Australia. $58.7 billion. It's a monolith. But fuel demand will slowly decline. We've talked about the EV. Um, we've obviously seen what's happened with Ukraine and Iran and the effect on petrol prices. But saying that, on the flip side of that, convenience spending keeps growing. I mean, all our kids do Eberrites, and you know, we are a convenience society these days. So yeah, on the flip side, you mentioned before about the example in Crenola where there isn't the petrol, there people go just for the products. Will people go to fuel stations 7 Elevens not to buy petrol but to buy convenience products? And the answer is yes, they will. The winners won't sell more fuel, they'll sell better coffee. So the point of difference, a better coffee, a better quality coffee. I like my two dollar coffee at 7-Eleven. Children's being very careful you double is not so much. But I mean, it is for people, there are coffee snobs, better quality food, especially the healthy and lifestyle choices. People often don't want the you know, if they can get some decent better quality food there. The lockers you mentioned before to pick up the Amazons, but I've never booked Mm-Son Peter, but I can imagine that would be uh your daughter has it, your son has both. My cards being used to pick up.

SPEAKER_01 25:44

But it's not specifically, that's right.

SPEAKER_00 25:46

They've used your credit card to jump on Amazon. I understand. The EV charging, which I think is a really interesting one here, and we talked about it a moment ago. I mean, this to me is yeah, it can be seen as a negative, but it can also be seen as a big positive. And I think the big positive is the time spent at store. You know, I had a mate of mine come up to Linux Heads from Sydney and I laughed because it took him about an hour to get into the actual charger, and then they was an hour or so to sit on the charger. We sat back, we had coffee, we had this and that, and they saw it as a instead of going to a restaurant in the road, they ate at the service station and they just sort of see that as part and parcel of what they do. So I think done properly, I think EV changes.

SPEAKER_01 26:24

It's a captive audience, yeah, 100%. The EVs are definitely going to capture a large slice of those convenience dollars because again, there's always a trend with every episode that we do. What is the vertical integration? Yep. We say in every podcast, if you've got the EV, there's your captive audience, your margins, I would assume, is going to be higher than fuel. I don't know, we haven't ran the numbers. I would say so. You would assume so. We're making an educated assumption here, audience, so don't hold it against us. But if you're charging your electricity, if we're wrong, Peter said. Yeah, yeah, that's right. But yeah, if you've got that captive audience and you're charging your car and you're there for a long period of time, then you're able to capitalize on better coffee, better food, and so therefore your margins are actually going up. One thing that we haven't touched on is the good old Uber Eats. There's a lot of loyalty within the actual app, especially with the 7-Elevens of the world. And so you get your milk, your eggs, and things like that delivered straight to your door. It's coming from the 7-Eleven. So they're actually now competing with your Woolworths and your smaller format stores, like your Metros, for example, and your Kohl's locals and things like that. Those types of convenience stores are actually competing with the smaller format grocery stores. Because as a consumer, you just jump on your bread, milk, tick-tick, you don't care where it comes from, you just want to deliver to your door.

SPEAKER_00 27:49

And it's a one-stop shop. It's a one-stop shop, that's right. So more reasons to stop. I mean, it's interesting, Peter, because I I looked uh one of our accounting clients we helped a couple of years ago, and he had three McDonald's stalls. And I asked him which was his better store before even looking at the financials. And it was one of his any one in that one of the poorer suburbs. And I said, Well, that doesn't make sense to me. They've got less to spend. But hang in the car park and they would spend, yes, the spending type, but also the duration that they were there.

SPEAKER_01 28:15

I think high disposable income with all the fancy people that are living in the expensive areas, all their money goes towards their mortgage and the Porsches and the G-Wagons.

SPEAKER_00 28:24

It was quite interesting to that to hear that. I wouldn't have thought that initially, but it made sense after hearing. But I think from a total addressable market here, I think there is some scope to broaden. I mean, there it is. Probably have to temper that by the fact that fuel will decline over time and the conversion from fuel to EV, it will take time. It won't be instantaneously. But I'm probably a bit tempered with my number here. I'm gonna go slightly positive because I do think that the EV is a very unique opportunity. So I'm gonna go a six on Tam Penn.

SPEAKER_01 28:55

Yeah, look, it's a big TAM, like you can't deny it. Convenience, it's a massive, it's a massive industry, and there's only a couple of players that have obviously taken advantage of that TAM being in the convenience sector, which is why the Japanese uh master franchise or the franchise or bought the 7 Eleven in Australia, which is the franchise all in Australia. Again, correct me if I'm wrong, was the is the Withers family, and they got a couple of billion dollars in selling their rights to the 7-Eleven. They've had that for the last 40 years, and they sold it back to the Japanese conglomerate. So our 7-Eleven in Australia is actually now owned by the parent company. So there's a reason why these big transactions are happening because there's a massive TAM.

SPEAKER_00 29:38

And you wouldn't imagine a Japanese company would be jumping on a low TAM, would you?

SPEAKER_01 29:42

That's exactly right. That's exactly right. So I'm gonna agree with you again, Rodney. What? Or they're gonna give it a six. Jeez, this is a very unique week, this one. It is. I've already had my 7-Eleven coffee, so I'm in a good mood. So what do we score the moat? So for me, for margin, it was two sevens?

SPEAKER_00 30:02

Yes, two sevens, that's 14. Yep, the operation a four and a one, five. Five. The advantage was a three and a two. Another five. Yep, and tan was six and a six, twelve. So I think that's a a total of thirty-six out of eighty from my calculation. Well, it didn't pass. Which is a bit surprising, yeah, to be honest. I think it's all around the barriers to entry and the difficulty. I think the key being here that it's a big player's market, and for uh us mum and dads to or small investors to try and get in, it's very prohibitive and very risky. And I think that's probably the main reason. What do you think?

SPEAKER_01 30:40

Yeah, I it's one of those things because it failed on the operation. It did, and it also failed on advantage because there just wasn't enough advantage for an entrepreneur to be able to get in to buy a service station. So those days happened a long time ago where you could get in and acquire service stations, and a lot of families have made a lot of money over the last 30, 40 years where they've acquiring sites and they've been able to on-sell those sites to the conglomerates, such as the Withers family with 7-Eleven. So those days are over. It's only owned by a couple of years. Mum and Dad sites don't really exist anymore, do they? They've all been purchased. Yeah, and which is why we scored it low, respectfully, because of that reason alone. It's the conglomerates that own the TAM, so therefore, it only makes sense that the advantage and also the operations are very low, and hence why we scored it low. Yeah. We've already answered the question, but can it make a million dollars in the first year?

SPEAKER_00 31:41

Well, uh, petrol generates and petrol station generates a million dollars. We've always said it's about four million dollars in sales a year, so absolutely most sites through fuel land convenience sale. Probably the better question, given the high numbers, Peter, is can it generate one million dollars in profit? Correct. Because significantly much harder because fuel margins are tiny, and that's still a large amount of the actual turnover and revenue that comes in. Labor's expensive, not getting any cheaper. The compliance never stops. I would have to say no. I would find it very hard for a smaller player, particularly but any player, to those margins cross with the two to four percent petrol margins. I don't think so. I think it's a stable business, but not a high margin and million-dollar profitable business.

SPEAKER_01 32:25

And which is why you can see the conglomerates purchasing a lot of sites, because the only way that they can make a profit is the economies of scale.

SPEAKER_00 32:33

Yeah. Systems, as you said, 7-Eleven got the systems, you know, they're very efficient. Um 100% agree with you, Peter. Yeah, yeah.

SPEAKER_01 32:41

So revenue-wise, yeah, look, it's easier, but profit, as you mentioned, it's gonna be very, very hard, and that's really the distinction. So over to the risk and the red flags, it's one of those things. I mean, there's five things that really worry me here, and we've touched on it several times, but it's really the underground tanks, it's the environmental issues that can wipe out years of profit. And number two, it's the price wars with everything that's happening in the Strata Humores. Not that it affects us here directly in Australia, but it does affect global oil prices. So those price wars are a big one, and the margins tend to disappear. Number three, it's that EV transition, fuel volumes will slowly fall. And number four, it's the poor convenience offer. It's without food and coffee, you're just relying on the fuel, and that's just a bad idea. And number five, it's one thing that we always touch on in this podcast, is labor. It's 24-hour staffing. That ain't cheap. A service station can't run on itself. There's a couple of service stations here locally where it's basically one big vending machine. You go in, you punch your credit card in there, you get the fuel, but there's no other opportunities to be able to get chips and drinks and things like that. And they're just relying on fuel. So I was looking at it this morning coming up to work, and I'm thinking that makes absolutely no sense at all. At least have a whole heap of vending machines next to the pumps to be able to make a bit of extra bucks. This they're missing out on a high margin, which is a whole premise where you make your money on this investment. So it sounds good in theory where you take out the labor and you have the credit card functionality to be able to put in the fuel, but there's no margins in the fuel. Why would you do that? Put the staff back on and it's all convenience.

SPEAKER_00 34:17

All right. Well, so probably as a final verdict, then, Peter, to me, I would say it sounds like nonsensical, but this is not a fuel business. It's a convenience and a retail business sitting on premium real estate with the fuel being the attraction to bring people to the market. That's exactly right.

SPEAKER_01 34:34

The winners don't obsess over petrol, they obsess it over coffee, the food, the customer experience, the traffic, and obviously the operational excellence. And if you're buying a petrol station because you think fuel makes money, you're in the wrong business. Go buy 7-Eleven, go get a great retail location near a train station and just pump the slushes out like there's no tomorrow. Because you need to buy a location, it's retail. Retail, the good old retail is detail. Remember that expression? Retail is detail. Retail is detail, you know, and it's convenience, and you need to think like an operator. So, what is the good bad business verdict? A good business, yeah. Look, if you've got the prime location, strong convenience, excellent coffee and food, high traffic and a discipline operator. It is a bad business if it's a weak retail offering, you've got high rent, low traffic, and poor systems. So, what is the appical risk? Obviously, we've touched on it a couple of times already. It's the environmental contamination, it's the underground tank replacement, it's the fuel price walls, and obviously it's not passive ownership. So, is it a good business? Is it a bad business? Well, look, it's a good business for the operators who understands convenience and retail and are able to scale and have got the strong balance sheet. It's definitely you're going to get yourself into a pickle for investors who think they're buying a fuel business. So let's bring it to the close, Rodney. The fuel brings them in and the shop makes the money. And if there is a business that you would like us to break down, please send it in because we don't want you to get into a pickle. And if you have enjoyed today's episode, please send it to a friend. It helps more people make better business decisions. Rodney, that's a wrap. Thank you so much, Peter.

SPEAKER_00 36:21

Have a lovely day.

SPEAKER_01 36:22

See you on the next one.