As gas prices nationwide continue to climb, it’s easy to assume that gas station owners are reaping the benefits with increased profits. But the truth is, station owners don’t like it any more than you do when prices at the pump go up.
Do higher gas prices mean more profits for gas station owners?
Most of us assume that
higher prices at the pumpmeans more revenue for gas stations. However, the business of selling gas is actually not that profitable.
Even with gas prices at a high, most gas stations don’t turn a huge profit on their core product, and in fact, have a notoriously low-profit margin. When oil prices go up, it doesn’t increase profits for gas station owners, and may even lead to a loss of profit.
The Hustle, the average gas station owner--usually an independent owner or franchisee--makes just 0.05$ to 0.07$ per gallon of profit. The majority of revenue is funneled into overhead to cover the cost of refining and transporting your gas to the pump.
Add to this that gas stations have to struggle against fierce competition to keep their customers happy, since most drivers choose where to fill up based only on gas prices.
Gas price competition creates a conundrum
Selling gas is a competitive business, and most station owners like to keep the prices on their boards as steady as possible. Nowadays, most gas stations are clustered together in high traffic areas, all jockeying for customers.
And with so many stations competing for business, profits are affected whether the price of gas goes up or down. When prices skyrocket, most stations want to keep prices constant rather than lose business to competitors across the street.
When gas prices fall, station owners don’t immediately lower the pump price for fear of starting a price war with their neighboring stations. Since most customers look for the cheapest price first, it benefits station owners to keep prices constant.
Where the profit is really made at gas stations: inside the store
Today, the majority of gas stations have something else to tempt customers to choose them: convenience stores.
The average gas station customer will go inside the store after filling up, and purchase one of the many treats inside. For most gas stations, the convenience store brings in over 70% of the business’s profits.
From candy, bottled drinks and beer, health and beauty products to groceries, cigarettes, and more, gross profit margins on these products can be over 50%, according to The Hustle.
However, the increase in modern card readers at most pumps today are negating the need to go inside the store to pay for gas. Losses due to robberies are also a concern, as convenience stores have some of the highest crime rates of any business in the country.
And station owners have an even bigger concern: the long-term future of gas in the face of the rise of electric vehicles.