Clean restrooms. 100+ gas pumps. A beaver logo. Buc-ee's has entered the chat.
Though the travel center/convenience store chain - coined the "Disneyland of gas stations" - has been around since 1982, growth has accelerated in recent years, and Buc-ee's mania is here to stay.
But what makes Buc-ee's so special? And can it sustain this success? In this segment of Business Breakdowns, Namaan Mian and Jenny Rae Le Roux examine the chain's business model for hints at what is next for Buc-ee's.
Can Buc-ee's become the next 7-Eleven or Flying J? You tell us!
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- Buc-ee's careers
Transcription: Buc-ee's Business Breakdown
Hey, y'all, I'm Jenny Rae Le Roux. I'm here with my colleague, Namaan, and we are pretty stoked to bring you a business breakdown today on Buc-ee's. Buc-ee's is a private company.
We have absolutely no real data on Buc-ee's, but I could imagine that we would get a case on a company like Buc-ee's in an actual case interview. I also think it's a really interesting business to study because there are some things that you might find a little unexpected about how they're probably managing and what they're thinking through. Namaan, you're sitting in Texas today.
Tell us about an experience that you had with Buc-ee's to kick off the episode and then we'll dive in to some of the data.
Buc-ee's is a wonderland. It's a Texas institution. You roll up to a Buc-ee's and there's literally 100 gas pumps waiting to welcome you.
You never have to wait to pump your car with gas, but the real magic happens inside. You walk inside and there's Buc-ee's branded merch, there's premium snacks, there's clean bathrooms, there's just fun trinkets for you to walk away with. It's kind of like Costco.
Like you can't go in there and not walk out without spending more money than you wanted to. And so there's like a chipmunk mascot, right? Like walking around.
Like it's more fun than your average rest stop or gas station, which is where I think a lot of the cultural magic comes from. So I'm excited to dive into this Texas institution today.
Well, what we're gonna do in the episode today is just walk through a couple of key things. First of all, we'll talk about the high level data on Buc-ee's. Again, totally estimated, but I think it'll be really interesting for you to see.
Second, we're gonna talk through the business model of Buc-ee's. We always take a perspective on whether a company is a fixed cost or a variable cost business. So before we get there, if you want to make a guess, you can see if it lines up to what our idea is.
Then we're gonna talk about key metrics. Both Namaan and I have picked a couple of key metrics that if we were leading Buc-ee's right now, or maybe if we were in a PE firm, which I'm sure there are a number of them having conversations with Buc-ee's all the time, what would we be thinking about managing to? And then finally, a couple of hot takes.
So I'm gonna kick off by just talking about some of the high-level data. My first Buc-ee's experience was this spring when my kids decided that a trip to England for spring break was total nonsense. They wanted to go to Texas to see the solar eclipse.
And so we planned what was probably a more expensive week in Texas during the solar eclipse to go down there. And of course, the night before, we stopped at Buc-ee's to fill up the rental car and also to make sure that we were loaded up on eclipse snacks. And Buc-ee's did not disappoint.
My kids still talk about the place in Texas that had the $1 ICs, which was a fraction of what we spent at Buc-ee's because there were snacks, there were hot snacks at different counters, different kinds of hot snacks. The store footprint was the size of like larger than a Trader Joe's, right, inside. So, amazing merchandising.
Some automotive, but definitely like all kinds of different food, hot food items and, you know, merch, right? People are walking out with stuffed animals and shirts and everything else. But that actually was my first experience on the ground with Buc-ee's.
The reason I wanted to do this episode today is that about a year ago, I read an email from The Hustle. And people used to ask me, where do you get your business information from? Well, obviously, the pod is one of the goals is that you get it from here.
But it used to be for me that I would read these business profiles in airline magazines. And I feel like The Hustle does this kind of similar deep dive storytelling on businesses. And they talked about how a man had built a million dollar business, reselling Buc-ee's items.
So somebody walked into the store, bought the items at retail, they marked them up 20 to 30 percent, sold them on an e-com site, and then shipped them out to consumers that weren't anywhere near Buc-ee's. And I was just like, I have got to see what could be an after-sale market at a premium price for these kinds of items. So that was kind of a fun one.
The second experience that I had was pretty recently, in a class that I was teaching, somebody talked about Buc-ee's being a business that they admired. And they talked about how when they enter new markets, they put up a billboard that says the closest Buc-ee's is X number of miles away from the Hustle article. It said that people on average would drive 17 miles out of their way to stop at a Buc-ee's.
And then coming back to this, it was, they're playing on this incredible brand loyalty that they have. So I kind of went in, my first question was how many stores does Buc-ee's have? How close are they to US saturation?
Are they a Texas phenomenon or are they beyond that? They only have 50 total stores. So for a brand to be nationally known with 50 total stores is pretty extravagant.
The revenue per store estimated is 50 to 100 million dollars. That is mind-blowing, mind-blowing and extraordinary. In addition, they have on average, their annual unique store visitors are over 100 million store visitors.
And that brings their top line revenue to an estimated 2.5 to 5 billion dollars. Y'all, that is just for the tiny magnitude of this company, that is pretty wild. We have no way to actually estimate it, but based on proxies, that means around 200 million dollars in operating income.
And so with that, that's kind of just some of the baseline of how Buc-ee's is, what they are, some of the kind of core issues. Namaan, over to you for what the heck this business model is.
Jenny Rae, when people think of truck stops, rest stops, gas stations, convenience stores, Buc-ee's is kind of a mix of all of those things and more. And when you think of businesses like that, I think a lot of people's mind goes first to, well, that must be a primarily fixed cost business because of just the infrastructure that exists to support the business. But when I take a look at Buc-ee's, I see a primarily variable cost business.
And all that means is for every single item that you sell, there is an input cost that you must account for. So the food that you sell, the merchandise that you sell, even every gallon of gas that you sell, there's an input cost that goes into that unit of transaction. And so when we take a look at Buc-ee's, we see a primarily variable cost business.
Yes, it has also a fairly large fixed cost footprint, but that's not the metric that I would be managing to inside of the business if I was running or advising this company. So I'd be taking a look at variable cost first, fixed cost second. With that being said, let me talk through three of the metrics I'd be paying attention to specifically if I was on the board of Buc-ee's.
Metric number one, I'd be taking a look at revenue per visit and how that ties into revenue per square foot. So revenue per square foot is a primary metric of success inside of the retail business. And when you look at Buc-ee's, it really is a retail business.
Two thirds of Buc-ee's revenue comes from what they call inside sales. That means money that's spent in the store, not money that's spent at the gas pump. And so when two thirds of your revenue comes from inside sales, you want to maximize revenue per visit, which is when Jenny Rae and her family come to Buc-ee's, how much can I get them to spend in one visit?
Yes, we want her to buy the ice tea, but we also want her to buy the hot food. We want her to buy the stuffed animal. We want to maximize the transaction amount per visitor inside of each interaction that we have with them.
And one of the reasons we want to do that is because we have such a larger store footprint than our competitors that we have to make sure that the return on that investment and the payback period on that investment are reasonable. And so the more that I can get Jenny Rae to spend in one visit, not only does that make that transaction more valuable to me, but it also increases my revenue per square foot, which is justification then for these large build outs that I'm undertaking as a company.
Just to give you some context, Jenny Rae, one of the newest Buc-ee stores here in central Texas, is over 60,000 square feet and has 120 gas pumps.
And so, like, if you are going to run an operation like that, and if you are going to have inventory to fill 60,000 square feet, then you have to ensure that you are maximizing your revenue per visit. So that's metric number one for me. Metric number two for me is net promoter score.
And that really, for me, ties into visits per customer per year. When I think of a company like this, right, I think, okay, this is really a company that's selling a commodity, right? When you are selling gas or petrol, when you are selling convenience store items, these are commodities.
Gas is gas whether you go to Buc-ee's or Chevron, right? You can find a KitKat in a million different places. But what separates Buc-ee's is its insane customer loyalty due to the experience that they provide.
I've already mentioned the bathrooms are clean. The ice is cheap, right? The staff is nice, right?
There's an aura to being, to use a Gen Z term, there's an aura to being in Buc-ee's that you don't get from a lot of other places. And when you are in the commodity business and you can only lower prices so much, the customer experience is your real only differentiator. And that's the reason that people drive 17 miles out of their way to go to a Buc-ee's as opposed to anywhere else.
So I would definitely be paying attention to that Net Promoter Score and how that ties in to visits per customer per year.
Namaan, that's such a consulting nerd metric. That was a Bain thing. Just have to say it.
But I love it. I think it's a great one. What's your third?
My third is road traffic, population density, and the real estate metrics of my most successful locations. So Jenny Rae, you mentioned we only have 50 stores, right? To me, the way to grow this business and to really blow it up is to expand and build new locations.
And right now, I'd say about 90% plus of Buc-ee's locations are in Texas. There is a lot of regional and national expansion that is just there and right for the taking for this company. And so I'd be taking a look at some of those benchmarks.
Okay, what's the road traffic going by my most successful locations? What's the population density in that area? What was the cost of the real estate there?
Et cetera, et cetera. And where else in the country can I find those conditions? Right, if I want to continue to grow rapidly, geographical expansion would be the way that I would do it.
And I would want to look at some of those metrics as I manage my growth expectations moving forward and as I strategically expand. So those are the three metrics I'd be looking at, Jenny Rae. How about you?
I love it. Namaan, I'm going to go for three. Number one is just the contribution margin per customer.
You talked about the ticket value per customer, and I really agree with you, right? If somebody was coming in for gas, and you can get them to come in for an IC and they walk out with $40 worth of something, then that's great. But I'm also specifically looking at what I want them to walk out of the store with.
I want them to walk out of the store with the highest margin items. Buc-ee's is famous for its private label options. I was surprised at how few, there were a higher mix of private label, but I still felt like when I was in store, there could have been more.
I felt like it could have been basically an entirely Buc-ee's experience, and you'll see that at places like Trader Joe's, that basically have an almost 100 percent private label experience. I would really focus on that contribution margin per customer, leveraging some of that specific number. That's a factor of both how much you get them to spend, but also what items they're selecting as well.
The second one I think would be really valuable is, if it were me and this was my cash and I was Buc-ee's, I would focus entirely on store expansion. Looking at the numbers of what you're able to do, 50 million in revenue, four million in profit approximately on a per store basis, without a significant amount of that needing to be reinvested inside that business, pretty high turns on my inventory. So I'm probably able to get really favorable supplier, negotiated rates.
I think like I just look at how many Buc-ee's can I open and how quickly. When the student brought this to me in a class, the next one that they were opening was in New Jersey. That seemed odd to me.
Like it doesn't fit the profile of the kind of store openings that you're talking about. I would imagine that you would move throughout the southeast and the southwest a lot more quickly, that you would move throughout the midwest, and that you would focus on major thoroughfares, having one Buc-ee's per area, but really focusing on the population density per store, and also some of those traffic metrics. But I really think population density per store because, as you mentioned, you're trying not to just get passing traffic, but rather this kind of foot traffic that is consistent coming back.
“he third item that I identified was SKUs per store, just to go in a little bit of a different direction from what you talked about. I think that Buc-ee's has the opportunity to expand into even a more whole service store. I was trying to remember, I need you to go into a Buc-ee's to confirm this.
I don't think I got a shopping cart when I walked in the store. There is something implied when you're handed a shopping cart or when somebody gives you, I'm not talking about the mega ones, but just like a mini double-tier shopping cart that you just feel like, I should probably fill it up when I'm in the store. I felt like the merchandising process definitely was a little bit of an exploration, but really studying customer behavior, product positioning, I would imagine that they have some of that thought out.
But sometimes success can mask strategy. You can just be like, look, we're great at selling stuff and you don't think about what you're going to sell and how much of it you're going to sell and how many more items you should be carrying, and really looking at the inventory turns per each one of those skews as well as the number of the skews in the store. If you were Buc-ee, Namaan, let's wrap up with some hot takes.
What would you say?
I love it. My hot take, in the next 10 years, Buc-ee's replaces Pilot and Flying J as the preeminent truck stop slash convenience store in America. I think they figured something out with the brand, they figured something out with the customer experience, with the culture, that are just really difficult differentiators for the competition to replicate.
And so, I'm with you. When I saw that Buc-ee's was going nest to New Jersey, I was like, whoa, that seems like a cultural mismatch. But I thought back to when I used to live in Philadelphia and drive the New Jersey Turnpike all the time.
I was like, okay, yes, the population density is there, the road traffic is there, and there's nothing like that in the Northeast Corridor. And I think they're going to be able to take share really quickly from some of the maybe more mom and pop competitors that are on the turnpike right now. And so I think in the next 10 years, Buc-ee's becomes a household name across the US.
How about you?
Namaan, I feel like that's not even a hot take. That's like a warm take. That's a lukewarm take.
Because I mean, it only makes sense to go to New Jersey if you want to open 50 stores in the Northeast or 200 stores in the Northeast. You know, my hot take is that Buc-ee's will be one of the number one employers coming out of MBA programs. Right now, it's Amazon and it's Google and it's other places like this.
But these private label store opportunities, I heard it said once that Trader Joe's would be one of the hottest IPOs ever to hit the market. I don't disagree. I think that Trader Joe's with the brand labeling, the private labeling has really figured something out.
You just take a look at the, like a Buc-ee's general manager makes 150 to 225K a year, and they're running a $50 million business. I mean, that's extraordinary opportunity for a student and students in the pipeline. They're going to need really, really impressive talent to manage their organization.
I think that the volume of what they could do based on the way that they're already demonstrating value for those people could become really, really awesome. Right now, I don't think they're hiring at all from schools and MBA programs. I don't think that they have much of a program.
Maybe in Texas, they have a little bit of one. But I would imagine like you go to NYU or you go to Michigan, and Buc-ee becomes one of the places that you really want to work. I'll double down on my hot take here.
I bet they do case interviews. Because my first ever practice case interview was on a convenience store. It was from a company that was thinking it was a legacy gas company.
They were thinking about how to improve their convenience store foot traffic. It was like a dinky. It was a little chevron that was trying to get you to buy more than a pack of cigarettes when you were in the store.
They just were looking for a candy bar. They weren't thinking about a Buc-ee's level type of thing. But case interviews were a part of this ecosystem from the time that I encountered them 20 years ago.
I bet Buc-ee's does case interviews and I bet that they get great talent in the process.
I love that, Jenny Rae. You want a spicier take before we wrap up?
Yeah, come on, get spicy, Namaan. I didn't come here for the bland. You're from Texas.
Give me some hot sauce.
For me, I think this is spicy if you are in the ownership group at Buc-ee's, which is I think that they stay privately held. I think they don't sell out the private equity. Yeah, they don't sell the private equity.
I can't imagine that they are not getting a call a day from a major bid.
At least. I'd probably say five calls a day. But I think they hold out at least for the next decade.
So no private equity takeover, no IPO. I think they don't necessarily need outside capital to continue to grow. When you look at our projections in terms of what their free cash flow would be, when you look at what their operating income is per store, they are generating the capital that they need already to reinvest in expansion.
There is no need to dilute your ownership stake unnecessarily. So I think Buc-ee stays private, at least for the next decade.
I think that is a hot take because you could take on leverage and grow faster. If our goal is store expansion, certainly advisors would say, look, take it and do it. But I think you command a different premium if you have a network that's larger. Besides, it's not all about money, right?
It's not.
Thanks, Namaan. Great combo. If you haven't visited Buc-ee's or if you have, if you have a perspective on it, if you've never thought about it as a business, but just as a consumer experience, we hope that you learned something from the episode today.
As always, if you disagree, we love hearing your thoughts, leave us comments, send us messages. And if you have a business that you'd love for us to profile in a future business breakdown, please, please send us a message. Thanks again for listening.