Underwriting the C-Store Franchise: A Going Concern, Not a Gas Station

A convenience-store franchise is one of the most misread assets that crosses a credit desk. It arrives looking like real estate — a corner, a canopy, a row of dispensers — and it is underwritten, too often, like a quick-service restaurant, with a royalty modeled as a flat percentage of sales. Both readings are wrong. A c-store franchise is a going-concern retail operating business whose value lives in cash flow, not in the dirt, and whose dominant franchise model does not charge a sales royalty at all. Get those two facts wrong at the top of the file and every number below them inherits the error.

This note treats the convenience-store franchise as a category, distinct from the fuel-and-convenience real estate it usually sits on. The distinction matters because the profit, the risk, and the value are not where the building is. They are inside the store, in a merchandise-and-foodservice engine that has now set a 23rd consecutive annual sales record; in a franchise structure that splits gross profit rather than skimming sales; and, where fuel is present, in a tank field beneath the forecourt that can carry more liability than the business is worth. What follows is how a lender should read each of those layers, and where feasibility forecasts in this category most often fail review.

A category the size of a small economy

The US convenience-store universe totaled 151,975 stores as of December 31, 2025, a slight decline of 280 units, or 0.2 percent, even as the number of stores selling fuel rose by 768 to 122,620 — 80.7 percent of all c-stores, and the highest fuel-selling count in eight years (NACS/NIQ TDLinx Convenience Industry Store Count, January 2026). That works out to roughly one convenience store for every 2,257 people. Total industry sales reached $817.5 billion in 2025, of which fuel accounted for $476.3 billion, or 65.0 percent of sales dollars, and inside sales — merchandise plus foodservice — accounted for $341.2 billion (NACS State of the Industry Report of 2025 Data, released April 15, 2026). The prior year's comparable totals, cited in Yesway's 2025 SEC registration, were $837.4 billion overall, $501.9 billion in fuel, and $335.5 billion inside.

The structural fact a lender has to internalize is fragmentation. As of February 2025, 60 percent of the 152,255 c-stores then counted were single-store operators, and 95,672 stores — 63 percent of the total — belonged to companies running ten or fewer units; operators with 500-plus stores held just 22.2 percent of the count (NACS press release via Capstone Partners, 2025; NACS/NIQ TDLinx). The franchise is the mechanism that lets a single-store entrant operate under a national brand and supply chain, which is precisely why c-store franchises appear in SBA lending far out of proportion to their share of the store base.

Geography concentrates the growth. Texas leads the country with 16,504 stores and added the most in 2025, up 88, while New York contracted hardest at 143 fewer stores, followed by Massachusetts at 77 and New Jersey at 61 (NACS/NIQ TDLinx, January 2026). Regional brand strength is equally uneven — Wawa across the Mid-Atlantic and Florida, Sheetz in the Mid-Atlantic, Casey's throughout the Midwest, QuikTrip and RaceTrac across the South, and ampm/ARCO on the West Coast — and it shapes both the competitive set and the exit.

The gross-profit split: why a c-store franchise is not a QSR

7-Eleven is the dominant franchisor in the category, operating, franchising, or licensing more than 13,000 stores across the US and Canada (CSP Daily News, 2026) and ranking first on the NACS Top 100 with 12,414 US stores — 8.2 percent of all US c-stores — as of the 2025 count (NACS Magazine, March 2025). Its model is structurally unlike a restaurant franchise, and the difference is the single most important thing to get right in the pro forma.

In the 7-Eleven model, the franchisor typically owns or leases the land and building, supplies the store equipment, finances the opening inventory, and pays for the property lease, building maintenance, and utilities; the franchisee supplies labor and day-to-day operation (7-Eleven Single Unit page; Crestmont Capital, 2025). Because the franchisor carries the capital-heavy assets, it does not charge a percentage-of-sales royalty. Instead it takes a continuing share of merchandise gross profit — the “7-Eleven Charge.” Per the company's own SEC filings, that share historically ran between 50 and 58 percent and was “approximately 52 percent” under the standard agreement (7-Eleven Form S-3/A, FY2000; Form 10-K, FY2002), moving toward roughly a 50/50 split in most agreements after 2004 (Form 10-K, FY2003). On gasoline, the franchisee historically received the greater of one cent per gallon or 25 percent of gasoline gross profit (7-Eleven SEC filings, FY2000–FY2002).

The practical consequence is that a 7-Eleven operator's take-home is roughly its 50 percent share of merchandise gross profit, less the controllable costs it does bear — labor, supplies, shrink, and any charged-back utilities. An illustrative third-party example makes the scale concrete: a Phoenix store doing $1.8 million in gross sales at a 32 percent margin generates $576,000 of gross profit; the operator's half is $288,000, and after labor, utilities, and miscellaneous costs the owner clears on the order of $168,000 (FundBizPro, 2025; single-source, illustrative). The same source shows a $950,000-sales store yielding roughly $72,000 before the operator's own labor — “a job with capital at risk.” The lesson for underwriting is to demand site-specific gross-profit data rather than brand averages.

On fees and disclosure, treat the public numbers with care. 7-Eleven's own site puts the initial franchise fee — location-dependent and tied to the store's gross profit — in a range from $100,000 to $1,000,000 (7-Eleven Single Unit page, 2025). Third-party aggregators cite widely conflicting total-investment ranges; a common figure is $141,650 to $1,370,850 (Entrepreneur/GlobalFranchiseHub, 2025), but these should be read as directional only, with the current Franchise Disclosure Document's Items 5 and 7 governing. 7-Eleven publishes an Item 19 financial performance representation, but reliable average gross-profit or average-store-sales figures are not reproduced in free public sources and could not be independently verified here; the gross-profit-split percentage is the SEC-documented data point to rely on. A franchisee-advocacy body, the National Coalition of Associations of 7-Eleven Franchisees, has argued the franchisor can take back as much as 59 cents of every gross-profit dollar (NCASEF via BusinessWire, December 2020); as an advocacy source it should be weighed against the SEC-documented 50-to-58 percent range.

The other models: ampm, Circle K, and the fuel dealer

Not every branded c-store follows the 7-Eleven structure, and the model determines how the franchisee's economics — and the lender's collateral — actually work.

ampm, launched with ARCO in 1978 and now under BP, runs more than 900 US locations, concentrated on the West Coast, on a conventional royalty. It charges roughly 4 to 6 percent of gross sales plus a 1 to 2 percent marketing contribution (Vetted Biz, 2025), an initial franchise fee reported at $40,000 to $70,000, and a total investment of roughly $1.85 million to $7.76 million (FranchiseHelp; TopFranchise). Some directories cite an 11 to 14 percent royalty (SharpSheets, 2025), a divergence that probably reflects different fee bundles and should be reconciled against the current FDD. Because the model is petroleum-integrated and typically a ground-up build, it is materially more capital-intensive up front than acquiring an existing 7-Eleven.

Circle K, whose parent Alimentation Couche-Tard is the largest company-operated c-store operator in the US with more than 7,300 US stores (Couche-Tard corporate site, 2026), is overwhelmingly company-operated. Franchised units are a modest minority — older Couche-Tard 40-F filings show hundreds, not thousands — though the company has been adding US franchising capacity, including a Briad Group agreement to roughly double its New York State presence (C-Store Dive, 2024). For underwriting, a Circle K “franchise” is far less standardized than a 7-Eleven and must be read agreement by agreement.

A large share of branded stores are neither of these: they are independent dealer sites operating under fuel-supply agreements with the major-oil brands — Shell, ExxonMobil, Chevron, BP, Valero — frequently intermediated by jobbers and distributors. These relationships fall under the Petroleum Marketing Practices Act, and, critically for lenders, SOP 50 10 8 treats PMPA jobber and fuel-supply agreements as “franchises” for SBA eligibility (Starfield & Smith, June 2025). Supply agreements commonly run multiyear terms — CrossAmerica's book carried a weighted-average remaining term of about 4.9 years at year-end 2021 (CrossAmerica 10-K), and Susser Holdings historically wrote three-year initial terms (Susser Holdings 10-Ks) — and branding rebates may be clawed back on early rebranding, which constrains exit optionality.

Inside the box, foodservice is the engine

Strip fuel out of the picture and the convenience store reveals what it has quietly become: a food business. Inside sales set a 23rd consecutive annual record in 2025 at $341.2 billion, up 1.7 percent, and within that total foodservice has moved from a sideline to the profit center. Foodservice was 28.5 percent of in-store sales but 38.9 percent of inside gross-margin dollars in 2025 — up nearly seventeen points from 11.9 percent of in-store sales in 2005 (NACS SOI, April 2026). Prepared food is 73.9 percent of foodservice sales and carries an average gross margin of 56.6 percent (NACS SOI 2025 Data, cited in the Cumberland Farms/Arko Form F-1, 2026).

The rest of the merchandise set fills in the picture. Packaged beverages are the No. 2 category at 18.7 percent of in-store sales, historically at gross margins above 43 percent. Nicotine — cigarettes plus other tobacco products — still drives about 27.9 percent of in-store merchandise transactions (NACS, 2025) but is in structural decline, and the margin math is unfavorable: cigarettes carry a roughly 13.5 percent gross margin against about 29 percent for other tobacco products (MMCG citing NACS 2024). Beer runs near 11 percent of sales historically, and alternative snacks grew 7.9 percent in 2025, a jump partly attributed to GLP-1-driven protein demand (NACS, April 2026). Blended in-store gross margin, foodservice included, sits near 37 percent on NACS-presentation-derived figures, well above the 30 to 32 percent merchandise-only margins reported by public comparables such as ARKO, whose same-store merchandise margin was about 31.7 percent in 2023 (ARKO 10-K) — a reminder never to compare a blended margin to a merchandise-only one.

The company-operated leaders set the benchmark and, in doing so, mark its limits. More than 65 percent of Wawa's revenue now comes from foodservice, and foodservice is 58 percent of Sheetz revenue (xMap, 2025); Casey's — a top-five US pizza chain by store count — guides to a 41 to 42 percent inside margin for fiscal 2026 (CSP Daily News, 2025). But Wawa, Sheetz, QuikTrip, Casey's, Kwik Trip, Maverik/Kum & Go, and RaceTrac are company-operated, not franchised. Their unit economics are not directly reproducible by a single-store franchisee lacking the same commissary, supply chain, and brand, which is why a pro forma that imports Wawa-style foodservice margins onto a lone franchise site should be discounted.

Fuel is the traffic, not the profit

Fuel's role in the model is to bring cars to the corner, not to make money on the gallon. Convenience stores sell roughly 80 percent of the fuel bought in the US, and for a fuel-selling site the forecourt's strategic value is conversion — turning a fill-up into a higher-margin trip inside. But as a profit source, fuel is high-revenue, low-margin, and volatile: 65.0 percent of sales dollars in 2025 but only 38.8 percent of gross-profit dollars (NACS SOI, April 2026). The average US retail fuel margin was 35.7 cents per gallon in the OPIS Retail Fuel Watch week of January 30, 2025 (NACS, February 2025), and Couche-Tard reported US fuel gross margin just over 47 cents per gallon (Paytronix, 2025) — but net profit after distribution, card fees, and operating costs is only a few cents. Arko's leadership called fuel-margin volatility “the single greatest factor in the volatility of earnings of the business” (C-Store Dive, 2025).

Two forces pull on fuel volume over the underwriting horizon. Fuel sales themselves fell 5.4 percent in 2025, to $476.3 billion, as the average pump price dropped 5.9 percent to $3.11 per gallon even though gallons edged up 0.5 percent (NACS SOI, April 2026). Longer term, improving fuel efficiency and EV adoption point to flat-to-declining fuel transactions, which is why NACS urges operators to grow inside sales and why a forward-looking feasibility model should haircut fuel volume rather than extrapolate it. The EV-transition exposure is the through-line connecting the c-store franchise to the underlying gas-station real estate, and it argues for flexible sites that can add charging.

Consolidation on top, a long tail underneath

The category is institutionalizing at the top even as it stays fragmented at the bottom. 7-Eleven's parent built the largest operator in North America through acquisition: about 1,030 Sunoco stores for roughly $3.3 billion in 2018 — a deal that also created a fifteen-year, roughly two-billion-gallon-a-year Sunoco fuel-supply agreement — and about 3,800 Speedway stores for roughly $21 billion in 2021 (Energy Transfer and CrossAmerica SEC filings; Supermarket News, 2021).

The most-watched deal of the cycle did not close. Alimentation Couche-Tard, the owner of Circle K, pursued Seven & i Holdings in a combination that would have created a roughly 20,000-store global giant, raising its offer to ¥2,600 per share — about $45.8 to $47 billion, up from an initial $38.5 billion in August 2024 — before withdrawing on July 16, 2025, citing “no sincere or constructive engagement from 7&i” and “a calculated campaign of obfuscation and delay” (Couche-Tard release; Reuters, CNBC, CNN, Forbes, July 16–17, 2025). Seven & i shares fell about 9 percent on the news, and the company is pursuing a standalone plan including a North American IPO and buybacks. Elsewhere in the cycle, Casey's acquired about 200 CEFCO stores, FEMSA's OXXO entered via Delek's DK stores, and Sunoco agreed to buy Parkland for $10.1 billion — 0.5 times EV/revenue and 8.4 times EV/EBITDA — in May 2025 (Capstone Partners, 2025).

Underneath the megadeals, the deal flow is small and getting smaller. Convenience-store M&A averaged just over 10 times EV/EBITDA in 2025, down from nearly 12 times in 2024, and the median acquired store count fell to eight — from thirteen in 2024 and fifteen in 2021 — across 27 deals in the year to September 18, 2025 (Capstone Partners via C-Store Dive, November 2025). With roughly 60 percent of stores still single-unit operators, the roll-up runway is long.

Consolidation is running alongside a category shift. Tobacco, long a gross-profit mainstay, is receding: 7-Eleven reported cigarette sales down 26 percent since 2019 — an 80-year low — when CEO Joe DePinto announced the closure of 444 underperforming North American stores, about 3 percent of the chain's 13,000-plus locations, on the October 11, 2024 earnings call (NPR, CSP, CBS, October 2024). Closure exposure of that kind is itself an underwriting variable: 7-Eleven franchise agreements run about fifteen years, and franchisor-driven store rationalization affects the durability of any single site.

Two assets, two valuations

A convenience-store deal can be two entirely different assets wearing the same address, and conflating them is a common valuation error. The operating business is a going concern; the real estate under a net lease is not.

As a going concern, a c-store business trades on cash flow. Platform and chain M&A has averaged just over 10 times EV/EBITDA in 2025 (Capstone Partners via C-Store Dive, November 2025), with private-equity roll-ups such as GPM/ARKO and MAPCO paying roughly 5.0 to 7.0 times EBITDA (yourexitvalue.com, 2025). Single-store and small-operator deals price far lower — commonly about 2.0 to 3.5 times seller's discretionary earnings or 3.5 to 5.5 times EBITDA; Peak Business Valuation cites about 3.67 to 4.38 times EBITDA and 2.21 to 3.30 times SDE, and BizBuySell's 2025 average earnings multiple was 2.82 times, up 22 percent year over year. A store-only rule of thumb runs about 2.5 to 4.0 times store EBITDA, with a full station at roughly 4.0 to 7.0 times (DealStream, 2025).

The net-leased asset is a different instrument, valued on the tenant's or guarantor's credit and the lease term rather than on the operating business. Single-tenant net-lease c-store and gas assets with fuel have averaged about a 5.29 percent cap rate, versus 6.40 percent without fuel (B+E). The Boulder Group's Q1 2026 Net Lease Tenant Profiles put Wawa at 4.90 to 5.20 percent, 7-Eleven at 5.00 to 5.40 percent, and Circle K at 5.35 to 5.65 percent on fifteen-year terms (Boulder Group via Barchart, March 2026). A lender underwriting the real estate should hold the deal to those brand bands and confirm whether the lease is guaranteed by the corporate parent or only by the franchisee.

Where the feasibility forecast fails

Most c-store feasibility forecasts that fail lender or SBA review fail in a handful of predictable places, and nearly all of them trace back to the two errors at the top of this note: treating the store like passive real estate, and treating the franchise like a sales-royalty restaurant.

The most common defects are these. Ramp assumptions that credit a new or acquired store with mature inside sales and mature fuel gallons on day one, rather than a documented ramp curve built from site-specific comps. Franchise-economics mis-modeling that computes a royalty as a percentage of sales for a gross-profit-split brand — the error that most reliably overstates take-home. Margin-mix errors that lean on fuel revenue, 65 percent of sales but under 39 percent of gross profit, instead of inside gross profit, or that import company-operated foodservice margins without the commissary and labor model behind them. And a cluster of site- and market-level risks: intense site dependence, where a weak corner does not recover; local saturation as chains, dollar stores, and QSRs erode inside sales; tobacco decline and age-restricted-product regulation that can move unit economics by 10 to 20 margin points in some states (MMCG, 2025); and franchisor risk spanning term, renewal, transfer rules, and closure exposure.

The P&L those forecasts feed is thin, and getting thinner. Direct store operating expenses — wages, card fees, utilities, maintenance, and shrink — reached just under $166 billion in 2025, growing 4.2 percent, the slowest pace since the pandemic, while card fees hit a record $21.3 billion (NACS SOI 2025 Data). Wages and benefits per store climbed from roughly $80,000 a month in 2021 to about $104,000 in 2025, and total operating expenses are up 23.3 percent since 2021 (NACS Magazine, June 2026). The industry supports 2.75 million jobs at 19.9 employees per store, at an average hourly wage of $15.04 (NACS SOI, April 2026). Most striking, NACS reported that profit per in-store basket turned negative in 2025 — each in-store transaction lost roughly seven cents — with fuel margin carrying store-level profitability (NACS Magazine, June 2026). Precise pretax profit per store and DSOE as a share of gross profit sit behind the paid SOI report and could not be independently confirmed here.

For sizing, the working-capital cycle deserves its own line. Fuel is a large, price-volatile draw on working capital, and card fees are now a record cost, so debt should be sized to a stressed debt-service coverage ratio rather than a stabilized one. A DSCR below roughly 1.25 times on stressed cash flow, or a model that relies on year-one mature volumes, is a resize-or-decline signal.

The tank underneath: the environmental gate

A fuel-and-convenience facility is real estate plus fuel infrastructure plus fixtures. A representative new BP-branded build — eight fueling positions and a 3,024-square-foot store on 5.4 acres — was modeled at about $6.07 million, with hard construction, canopy, and underground tanks the cost-heavy line items; a small non-fuel fit-out is far cheaper, on the order of $50 to $100 per square foot (MMCG Invest, 2025; Toast). But the same tank field that drives the build cost is the most underestimated risk on the file — and, where a c-store sells fuel, the environmental review is a gate that can override otherwise-strong credit, because contamination and remediation liability can exceed the going-concern value of the business.

The scale of the exposure is national. The EPA regulates roughly 534,000 to 542,000 active petroleum underground storage tanks, and leaking tanks threaten groundwater that supplies drinking water for about half of Americans; 583,313 UST releases had been confirmed as of March 2026 (EPA). Diligence is neither optional nor cheap: a Phase I Environmental Site Assessment under ASTM E1527-21 runs about $2,500 to $6,000 per parcel, and a Phase II with soil and groundwater sampling can push total due-diligence costs above $50,000 (Innowave Studio; CT Acquisitions; Mill Creek Environmental, 2025–2026). Leaking-underground-storage-tank trust funds and seller indemnities are common mitigants, but the underwriting posture should be that any fuel site operating more than five years, or showing any recognized environmental condition, warrants a Phase II. The feasibility or appraisal author does not perform the assessment; a qualified environmental professional does.

The program map

Because the c-store franchise is a going concern with real estate and equipment attached, it draws on several financing programs at once, each with its own reading of the asset.

SBA 7(a) and 504 are the most common route, and 7-Eleven in particular is a frequent SBA use. Eligibility turns on an owner-operated going concern — absentee ownership is disfavored by the SBA and prohibited by 7-Eleven — and 504 real estate carries owner-occupancy thresholds of 51 percent for existing buildings and 60 percent for new construction. Under SOP 50 10 8, effective June 1, 2025, the SBA reinstated the Franchise Directory: the brand must be listed for streamlined eligibility, and franchisors listed as of May 2023 had until July 31, 2025 to execute the new SBA Franchisor Certification or be removed (Starfield & Smith; Taft; Baker McKenzie; Congress.gov, 2025). PMPA fuel-supply and jobber agreements count as franchises for this purpose. The same SOP tightened underwriting broadly — collateral now required at $50,000-plus, down from $500,000; a 10 percent equity injection for startups and changes of ownership; a minimum credit score of 165; and tax-transcript verification (Congress.gov; Phillips Lytle, 2025). A change-of-ownership deal requires a business valuation and a going-concern appraisal that allocates value across real estate, equipment, fuel infrastructure, and franchise goodwill.

For rural sites, USDA Business & Industry lending reaches communities of 50,000 or fewer people and can fund real estate, equipment, working capital, acquisition, and job-creating refinancing up to $25 million with National Office approval, though with far fewer active lenders than 7(a) (Celtic Bank; Capital Bank; USDA RD, 2025). Conventional and specialty petroleum lenders finance fuel-supply-linked deals and larger platforms, often with fuel working-capital lines, and single-tenant net-lease and CMBS capital finances the real estate on tenant credit and lease term. Across all of them, the SBA environmental requirement is the binding constraint on fuel sites: a Phase I is standard and a Phase II is very often required given the tanks.

On the appraisal itself, a c-store franchise is valued as going-concern or business-enterprise value — real estate plus FF&E and fuel infrastructure plus business and franchise intangible, developed through the income approach on cash flow or an EBITDA multiple, with the tank field standing as both a real-property component and a liability. A single-tenant net-leased c-store is the different asset described above and must not be valued as if it were the operating business.

Underwriting the category, in stages

Pulling the threads together, a disciplined read of a c-store franchise moves through a fixed sequence of gates. Each has a threshold that changes the call, and the sequence matters: a brand that is not on the SBA Franchise Directory, or a fuel site with unresolved contamination, ends the analysis before the cash-flow model is even worth building.

None of these gates is exotic, and that is the point. A convenience-store franchise rewards the lender who reads it for what it is — a thin-margin, going-concern retail business whose profit has migrated inside the store, whose franchise economics turn on a gross-profit split rather than a royalty, and whose fuel island carries a liability that can dwarf the enterprise. Underwrite those three facts honestly and the category is bankable. Miss them, and the file that looked like real estate becomes a workout.