Total Number of Gas Station/Restaurant Question

Anonymous A asked on Sep 24, 2018

Hi,

What is your framework for finding the total number of gas station, McDonald, Starbucks questions?

Thanks

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Omar replied on Sep 24, 2018

my approach would be to match supply with demand.

for the gas station case, on the demand side:

-Start with the total population of the area you're looking into

-get the number of households

-then estimate the number of cars per household (on average 1.5 cars for example)

-now you have the total number of cars

-get the consumption in liters of fuel per car on average

-then you can add an extra 20% for the commercial vehicles (buses, trucks, and so on)

- now you have your total demand of fuel per day or week or month or year.

Supply Side:

-start by sizing the gas station

-estimate the number of pumps (5 usually)

-the time the vehicle take to fill in the tank

-the average quantity in liters each cars fills in

-now you can get the total number of liters that can be filled in an hour, for example, if the pumps are operated at full capacity

-assume a certain capacity utilization of the gas station (say 50%)

-now you got your total supply of fuel per gas station per day or week or month

final answer: divide the total daily demand BY the total daily supply per gas station

Guennael replied on Sep 25, 2018
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In a market sizing exercise, there are 2 broad ways of starting: either top down, or bottom up. Top down will be more high level, “baby math” (my former boss, an ex-McK, used to run a $5B business w/ back of the envelope / baby math calculations -> very powerful actually).

The other way is bottom up, which can quickly become very complex due the multiple assumptions and calculations. Then again, you will mostly do multiplications here, whereas top-down would largely be divisions.

My own recommendation onmarket sizing exercises is usually to start w/ the top down, and only do the bottom up if your interviewer makes it clear that’s what’s expected. Doing the bottom up from the get go might take longer than you are supposed to take, and also quickly become very tedious / error prone / precisely wrong vs. roughly right. Put it another way… don’t give me a 2x4 to beat you up with, trust that your interviewer is smart enough to make your life miserable

PS: To address your question more specifically now, and assuming you do indeed have to do a bottom-up exercise. I would typically start from the demand (how many people drive how many miles how a vehicle with what kind of efficiency; how many people eat how many burgers / drink how many overpriced lattes); I would then move on to the supply (how many people / cars can one gas station/restaurant serve), before ultimately dividing one with the other

Hope this helps