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Market sizing case: how many petrol stations are there in the US?

Anonymous A asked on May 10, 2017 - 3 answers

How would you approach this case?

3 answers

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replied on May 12, 2017
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Hi Anonymous,

As mentioned earlier, there are many different ways one can approach this problem. I typically approach this following way:

1. What is the total demand for gas stations?

2. What is the demand for one gas station?

3. -> Find the total number of gas stations

To start with number 1, while I have no idea about the real numbers, let's assume that population is 400M, and there is 1 car per 4 people. Thus we would have 100M cars.

Now we need to estimate the total demand for a day/week/year, let's go ahead with day. From my personal experience, I visit gas stations once every two weeks. Assuming this is the case for the entire population, 100M cars would visit gas stations every two weeks. This means that about 7M cars visit gas stations every day. -> This is the total demand.

Now we are at number 2, we need to understand the number of cars visit a gas station during one day. To keep it simple, we can assume (again, based on personal experience) that there are always 3 cars occupying the gas station for 5 minutes throughout 18 hours (and the remaining of the time, the gas station is empty). This would give us ~600 cars every day. -> This is the demand for one gas station.

We can find the number of gas stations by diving total demand (7M) by local demand (600), and reach ~12000 as our final answer.

I have quickly checked on google, and the real answer is about x10 higher than my answer. HOWEVER, it really is not important to get a precise answer to impress the interviewer. It is all about sharing your train of thought and laying out your assumptions very explicitly.

I hope this was helpful.

Have a good day,

Deniz Ahmet

Anonymous replied on May 10, 2017

There are infinite ways to size it so the following is by no means an exact answer. My preferred method would be to initially segment by locality, given that the drivers of demand for a petrol station are significantly different between rural areas and population centers.

Stations in rural areas are driven by the average range of a car when they need to refuel, so you could derive a number through the station density and area of America.

Stations in population centers are driven by the demand (i.e. the number of cars) in each city. I would actually segment this down further into Metropolises/Cities/Towns given the large difference in population size between them. Also, you would need to factor in that these stations are nowhere near running at full capacity.

I appreciate any feedback on this approach.

Anonymous B replied on May 16, 2017

I would think how many petrol stations are in a specific region. For example, you know that in the city you live in there are 6 petrol stations. Let's say the city has 30 000 people, so that results to about 5000 people per petrol station. US has about 300million people, so divide 300m/5000 and you get 60 000 petrol stations.

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