As gas prices fall, station owners' profits rise

Discussion in 'Economy' started by -Cp, Feb 17, 2006.

  1. -Cp

    -Cp Senior Member

    Sep 23, 2004
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    Gas station owners in many parts of the United States are buying fuel at some of the lowest prices they’ve seen in a year, yet many are padding their bottom lines rather than passing along all the savings to motorists, industry figures show.

    Nationwide, the profit margin on a gallon of gasoline has widened since the start of the year and now is 20.7 cents a gallon — almost double the historical average — thanks to the growing spread between wholesale and retail prices.

    Antonio Tobar of Takoma, Md., said he was happy to see that regular unleaded had fallen about a nickel this week to $2.33 a gallon at his local Shell station. But it hadn’t occurred to him that the guy selling the gas was also benefiting.

    “We have to pay what they say,” said Tobar, a 48-year-old handyman who spends anywhere from $40 to $100 a week to fuel his car and pickup truck. Still, he doesn’t begrudge the owner of the station for pocketing a few extra pennies here and there because “he’s not a rich guy.”

    Many gas stations have struggled in recent years, industry trade groups contend. Rising credit-card transaction fees chip away at profits per gallon, and competition has intensified as discounters like Wal-Mart Stores Inc. and Costco Wholesale Corp. increasingly sell cheap gasoline as a way to lure customers into their stores.

    The past few weeks have been pretty good for the industry, though.

    Gasoline futures have fallen 30 cents, or 17 percent since Jan. 30, while average pump prices have declined just 7 cents, or 3 percent, over the same period. Nationwide, the average retail cost of regular unleaded is $2.28 a gallon, according to the Department of Energy.

    This week’s average profit of 20.7 cents a gallon for retailers is up more than 11 cents from a month ago, according to data from the Oil Price Information Service of Wall, N.J. In some states, including New York, New Jersey and Vermont, profit margins are above 30 cents a gallon.

    Over the course of a year, retailers say their average profit is about 10 cents a gallon. While some states have laws preventing gas stations from selling fuel below cost — a measure intended to prevent predatory pricing — there are no state or federal regulations limiting how much retailers can charge.

    “This industry more than any other is regulated by the customers and competition,” said Jeff Lenard, spokesman for the National Association of Convenience Stores in Alexandria, Va.

    Several station owners say it’s ironic that their most prosperous periods are not when pump prices are rising and accusations of gouging are flying.

    “As prices climb, we get kicked in the teeth,” said Sonja Hubbard, chief executive of E-Z Mart Stores Inc., which owns 319 gasoline stations across Arkansas, Louisiana, Oklahoma and Texas. “I wish we could have more stable and lower prices.”

    Retailers said falling prices also are beneficial because they leave motorists with more money to spend on food and beverages, an increasingly important revenue stream.

    Open Pantry Food Marts of Milwaukee, which sells gasoline at 34 locations in southeastern Wisconsin, gets about half its profits from sales of burritos, gourmet coffee and more, according to James Fiene, senior vice president. Five years ago, in-store sales made up less than a third of Open Pantry’s profits.

    Fiene estimated that chain-wide profit margins are currently about 15 cents a gallon, up from the usual 10 cents a gallon.

    Experts said retailers are likely to enjoy above-average profits for another few weeks, but that margins will erode as spring approaches. While gasoline supplies are abundant right now, they are expected to tighten in March, possibly pushing pump prices to $3 a gallon in some regions this summer.

    Refineries typically shut their equipment at the end of winter to perform routine maintenance, a period known as turnaround. But this year’s turnaround will reduce gasoline production more than usual, analysts said, because many refiners deferred maintenance last fall to pump much-needed fuel after hurricanes Katrina and Rita.

    Sadeq Ezzat, who owns the Hyattsville, Md., Shell franchise where Tobar filled up, said his profit might have increased by a penny a gallon. But he predicted it won’t last long because competition is so fierce in his neighborhood that he will have to match any price reductions to keep volume up — and draw customers inside.

    After all, Ezzat makes about 9.5 cents on every gallon of regular gasoline he sells. But he made 86 cents on the tiny can of Red Bull Tobar bought for $2.19.
  2. archangel

    archangel Guest


    my best friends Bob and Matty own the VC Station...they average between .05 and .15 cents per gallon profit...they have to front the initial cost on bulk purchase...most of their profit to run the operation comes from auto repair and other sales of a mini mart...Bob is a master mechanic and charges a fair rate for labor and charges very little profit on parts...they do exceptionally the way the mark up Matty charges on mini mart products never exceeds 33 1/3%...So if you are referring to major Corps that run stations vs Mom & Pop then I have no argument...Like I have been trying to say in here all along the fault falls on Corporate greed....!
  3. BaronVonBigmeat

    BaronVonBigmeat Senior Member

    Sep 20, 2005
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    If corporate greed is to blame, then why are prices falling? Or why was gas available for under a dollar a gallon in some states less than 10 years ago?

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