Small Towns = Smaller Quick-lube Profits


Quick lubes may be moving into small-town America, but assumptions about them offering less profitability are turning out to be true.

That was the conclusion of a survey published recently by National Oil and Lube News. Profit margins were 45 percent higher at urban quick lubes, survey results showed,thanks to higher customer traffic and bigger ticket prices.

NOLN Editor Garrett McKinnon said the magazine was able to conduct the comparison because a significant number of quick lubes have been built in recent years in lightly populated areas. In the past, he noted, the popular opinion within the industry was that the quick-lube concept did not fit rural areas, whether because there were too few potential customers or because they were more likely to change their own oil.

In this respect, the quick lube industry has kind of paralleled the development of the fast food industry, McKinnon said. There was a time when McDonalds wouldnt consider going into towns with populations of less than 25,000. But now they do go into towns that small, and smaller. And in both industries, the biggest reason is that larger cities are now saturated.

The magazine, which is based in Lubbock, Texas, published the results of its survey in its December issue. For the purposes of the report, it defined quick lubes as rural if they reported having populations of less than 7,500 in a three-mile radius. The average rural quick lube had a surrounding population of 4,366 people, compared to 39,644 for urban operations.

As one would expect, operators of urban quick lubes had more traffic in their sights, reporting on average that 23,088 vehicles passed in front of their best store each day. In rural areas, operators reported their best stores saw only half that traffic, 11,862.Urban stores also received more customers – 39.6 vehicles per day compared to 29.7 – and enjoyed higher average ticket prices, $40.59versus $34.03.

These factors added up to greater revenues for lube operations in more populous areas. Sixty-four percent of rural quick lubes reported annual revenues of less than $400,000, while 53 percent of urban sites had revenue of more than that amount. Twenty-eight percent of urban quick lubespulled in more than $600,000, compared to just 12 percent for rural operations.

Rural centers could take solace in the fact that they face lower expenses. The average cost to construct a quick lube in an urban area was $311,062, 32 percent higher than in rural areas. On average, managers of urban centers were paid significantly more than their rural counterparts, although the average hourly wage for lube technicians was 7 cents higher for rural operations. Rural quick lubes also incurred higher costs of goods – $9.63 per oil changeagainst $8.58 for urban sites.

The magazine did not report data on profits except to say that the average margin for urban quick lubes was 12 percent of gross sales, compared to 8.3 percent for rural quick lubes.

Quick lubes in small markets are never going to be as profitable as those in bigger markets, McKinnon said. But they can return respectable profits, and I think that is why you see more of them being built in smaller markets.