🔑 Key Takeaways
- Gas station owners work hard to earn a living, and their profits come from the convenience store. It is important to recognize their efforts and not assume they are wealthy due to fluctuating gas prices.
- Gas station owners make a thin profit margin on gas sales, as most of the price we pay covers the cost of crude oil production and transportation. Competing in the market means keeping prices low despite overhead expenses.
- Gas station owners are at the whim of the market when it comes to gas prices, but they try to insulate their customers by being slow to pass along costs. The real money-maker for these owners is the convenience store, and the pricing formula for gas is known as 'rockets and feathers.'
- Gas station profits rely heavily on convenience store and restaurant sales, rather than gas. Diversifying their businesses is essential to avoid solely relying on gas sales and combat theft outside at the pumps.
- Gas station owners face increasing pressure from rising fuel prices, price wars, and electric vehicles. Investing in EV chargers is a costly necessity for survival, but those who adapt and prepare for the future will have a better chance of success.
📝 Podcast Summary
The Truth About Gas Station Owners
Gas station owners are not as wealthy as people think. In the U.S., 80% of gas stations are operated by independent owners who pay oil companies to use their branding and gas. Many owners came to the U.S. from other countries and took big risks to become successful. Though gas sales generate revenue for owners, the real profit comes from the convenience store. Gas station owners often work long hours and put in hard work to run their businesses. Therefore, it is not fair to assume that they are swimming in cash. The gas business is a penny business, meaning profits are small and every extra cent counts, especially when gas prices go up.
The Economics of Gas Station Profits
Gas station owners make about 7 cents of profit on every gallon of gas they sell. This profit has to cover various overhead costs like rent, bills, repairs, and taxes. Most of the price we pay at the pump covers the process of pulling crude oil out of the ground. At the current climate, when we buy a four dollar gallon of gas, almost two dollars cover the cost of crude, 70 cents for refining, and 40 cents for moving it from refinery to the pump. Gas station owners face a lot of competition and have to keep their prices low to stay in the market. Lowering gas prices is easy, but the profit margin is low.
Gas Station Owners and Market Fluctuations
Gas station owners have little control over the price of gas, as it is set per day by crude prices and refiners. They buy gas in bulk and their costs are locked in for the next 48 to 72 hours, so they are even more exposed to market fluctuations. Station owners insulate their customers by being slow to pass on the extra cost to the consumer when crude prices go up and also slow to pass along the savings when prices fall. While gasoline draws customers in, the core of the business for gas station owners is inside the convenience store. The tricky pricing formula is called 'rockets and feathers', where the price of oil can go up like a rocket, but the price of gasoline comes down like a feather.
The Profit Strategy of Gas Stations
Gas stations make most of their profits from their convenience stores and restaurants, which can have up to 45% margins on items like candies and coffee. In fact, when oil prices rise, gas station owners make less money because the tight margin on gas gets even tighter. When people buy less gas due to high prices, they also buy less soda and bagged ice inside the store. Gas station owners also have to deal with theft outside at the pumps because the tanks are not locked during deliveries. To combat this problem, gas station owners should diversify their businesses so that they are not solely reliant on gas sales.
Challenges and Opportunities for Gas Station Owners in the Face of Electric Vehicles
Gas station owners are facing challenges due to rising fuel prices, price wars between stations, and the existential threat of electric vehicles. The installation of EV chargers involves high costs, but station owners need to invest to stay relevant. While some are waiting to suss things out, others are already taking action. For now, gas station owners can make some profit as consumers still rely on gas, but they need to adapt to the changing market. It's a tough environment for operators, but those who are proactive and invest in the future will have a better chance of survival.