Costco Vs Walmart / Lowes / Target. Contributory Value Of Gas Station?

[Funky Obsolescence]

Hi. I'd like to quantify the contributory value of a gas station at a Costco. They don't have a convenience store, just pumps. Of course I understand you must look at the cash flow / gas sales etc. The big question here?

In general, when doing a Sales Comparison Approach, is it safe to assume that a Costco with gas station has more value than a big box store without gas station? I'm not talking about location, age or anything. I just want to see if I can make the argument that you can't compare the two without adjusting the Walmart, Target or Lowes sale upwards because the DO NOT have a gas station and that the gas station makes the Costco MORE valuable.

Thanks!

 

[timd354]

Hi. I'd like to quantify the contributory value of a gas station at a Costco. They don't have a convenience store, just pumps. Of course I understand you must look at the cash flow / gas sales etc. The big question here?

In general, when doing a Sales Comparison Approach, is it safe to assume that a Costco with gas station has more value than a big box store without gas station? I'm not talking about location, age or anything. I just want to see if I can make the argument that you can't compare the two without adjusting the Walmart, Target or Lowes sale upwards because the DO NOT have a gas station and that the gas station makes the Costco MORE valuable.

Thanks!

When I lived in Maryland, the local Costco got in trouble with the state government and was forced to increase gas prices because they were allegedly selling gasoline at a loss, which the state contended would put neighboring gas stations out of business making the gasoline business less competitive in the long run. Costco uses gasoline sales as a "loss leader" in order to entice people to buy memberships. Most Big Box stores are not membership driven and thus would have no reason to sell gasoline at a loss in order to entice people to buy memberships.

Just something to keep in mind and to consider when you are analyzing this issue.

 

[Gobears81]

All else equal, sure it is, provided that the gas station produces positive income, buyers recognize the uses as compatible, and the improvements have value. I just saw a grocery store with a c-store sell, not entirely arm's length, but they allocated the two separately on the transfer declaration and the c-store certainly had a positive price. But I don't really have experience with Costco stores.

 

[timd354]

All else equal, sure it is, provided that the gas station produces positive income, buyers recognize the uses as compatible, and the improvements have value. I just saw a grocery store with a c-store sell, not entirely arm's length, but they allocated the two separately on the transfer declaration and the c-store certainly had a positive price. But I don't really have experience with Costco stores.

Grocery stores are another business that use gas stations as loss leaders in order to entice business for the store, not to make money on gas. The grocery store closest to my home in PA has a gas station, and depending on how much you spend per month in the grocery store (which is tracked by a bonus card you need to use to get the best prices on groceries), you can buy gasoline at a discount of up to $1.50 per gallon at either the on site gas station or local participating Shell gasoline stations. https://giantfood.com/gas-program/
https://giantfood.com/gas-program/
Due to these types of programs, it seems like valuing these types of gas stations attached to big box stores/grocery stores, etc. is probably very tricky.

 

[Michael S]

All things being equal, a Costco, Walmart, Sam's Club, etc. should be willing to pay more to lease a property (these are all typically ground leases) that can support a gas station vs. one that can't. I'm not sure you're going to find much support in the sales comparison approach as the only buyers are going to be institutional investors purchasing long-term ground leases to credit tenants based on the income. If one of these stores went dark I think it would probably bring up some H&BU questions as they typically don't close down stores that are performing well and well located. If they close one down it might be a sign that the market demand for that type of property has declined. This would be more likely for Walmart since they have a lot more rural locations while Costco and Sam's Club usually locate in larger markets.

 

[DREA Dean]

Grocery stores are another business that use gas stations as loss leaders in order to entice business for the store, not to make money on gas. The grocery store closest to my home in PA has a gas station, and depending on how much you spend per month in the grocery store (which is tracked by a bonus card you need to use to get the best prices on groceries), you can buy gasoline at a discount of up to $1.50 per gallon at either the on site gas station or local participating Shell gasoline stations. https://giantfood.com/gas-program/
Due to these types of programs, it seems like valuing these types of gas stations attached to big box stores/grocery stores, etc. is probably very tricky.

I agree that it will likely be difficult to extract any meaningful valuation data. There are not many gasoline-only retailers anymore. C-stores make most of their money from inside sales, and use fuel to generate traffic. Grocers use fuel sales perks to attract customers and incentivize them to spend more. Warehouse stores use fuel sales to attract new members and increase traffic. It's simply part of the business model, and seems to me to be hard to separate out.

From what I've observed, most Costco and Sam's Clubs have parking lots that are plenty big to host a few fuel pumps, unless they are in a high-density location, so I don't see this as a distinguishing factor anyway. I think you're safe in not getting too bogged down in this particular minutia.