Gas stations benefit little from record prices, look inside their stores for profits
NEW YORK -- Gas prices may be sitting near record levels, but the owner of your local gas station quite likely is struggling.
Profit margins on gasoline sales are razor thin. Indeed, some gas stations are losing money on credit card sales, once the fees are factored in.
How do they stay in business? More and more a gas station's bread and butter is, well, bread and butter -- and the coffee and candy bars it sells in its convenience store. Most of these items generate much higher profits than gas.
"The only people getting rich on oil are the people who are pulling it out of the ground," said Timothy Schulte, manager of Gulf Petroleum's Citgo-Snack Shack Food Market at Burnt Store Road and U.S. 41 in Punta Gorda. Describing the profit from pumping gasoline as "razor thin" didn't cut it for Schulte when debit and credit card companies are paid 3 percent of every penny his store earns from gasoline sales.
"You end up losing a couple of cents a gallon," Schulte said. Three or four years ago, he said, a station could profit from gas sales. "Ever since the gas prices went up, the profit margin has dropped."
Schulte's station is typical of many local gas stations, doubling as a convenience store. The Citgo-Snack Shack also has a hot steam table that offers "everything from alligator to chicken," as well as beef stew and several varieties of pizza-by-the-slice.
Jeff Lenard, spokesman for the National Association of Convenience Stores, estimates that gasoline accounts for 70 percent of a typical station's revenues, but only 30 percent of its profits. Paul Fiore, executive director of the Service Station Dealers of America, a trade association for auto repair shops, said the mix is about the same for service stations.
Local gas station manager Mohammed Haq is feeling the struggle to stay in business.
Haq works at 761 Grocery, which is located on County Road 761 off U.S. 17 in DeSoto County, near Fort Ogden and Lettuce Lake.
While the store has six gas pumps on its site, Haq said gas sales aren't enough.
"We pay $3.38 on the (unleaded) gas that we sell for $3.41," he said. "That means we're making three pennies off of every gallon. At the end of the day, we're looking at $20 to $25 coming from gas sales. That's not enough to keep things going. We're struggling."
That's why the store has an indoor-sales focus, where people can purchase the normal cooler items like ice, sodas, water, beer and wine, as well as car maintenance items and household necessities, like toilet paper and laundry detergent.
The store even has a bakery/deli, where customers can call in menu items for pickup.
"We have everything here," Haq said. "Whatever customers could need we pretty much have. This makes money. I would prefer shutting down the gas and just running the store."
Low profit margins are squeezing companies along the length of the gasoline supply chain, from the biggest refiners to the smallest corner stations. Contrary to popular belief, 95 percent of gas stations in the U.S. are independently owned: Their prices and procedures aren't dictated by a major oil company, even if the station licenses that company's name.
With crude oil, gasoline's raw ingredient, soaring to records near $112 earlier this month, up from about $60 a year ago, gas prices are actually struggling to keep up. Crack spreads, the difference between what refiners pay for crude and get for the gasoline they make, have gone negative on some days in recent weeks. That means that in those cases, refiners were losing money making and selling gasoline. In comparison, at one point last spring, crack spreads reached as high as $37 a barrel.
Oil's rise has been driven by investors snapping up crude futures as a hedge against a falling dollar and inflation. But while gas prices have tried to keep pace, demand for gasoline has fallen, limiting refiners' pricing power.
Top executives of the five biggest U.S. oil companies appearing before a Congressional committee Tuesday deflected any blame for the effect of gas prices on consumers and argued their profits -- $123 billion last year -- were in line with other industries.
That pain travels down the chain to retailers, who base the prices they charge consumers on what they expect they'll have to pay for their next shipment of gas. Many make no more than a few cents a gallon selling gas, a margin that evaporates once credit card fees are tacked on.
Some decide it's not worth the bother. A station in Bushnell, Fla., stopped selling gas entirely a month ago after its owner determined he couldn't make money on it. He's not alone; many refiners have cut back on gasoline production in recent weeks due to low profit margins.
But most stations view gas as a loss leader -- something they're willing to take a loss on, or accept a very small profit for selling -- under the theory that it will bring people into their store or shop.
Unlike other industries, which might run a sale or slash prices when demand for their main product is falling, there isn't much gas stations can do to pump up demand. Most are reluctant to cut prices.
Simon Bahhur has owned the BP station at Easy Street and U.S. 41 in Port Charlotte for more than eight years. He has a 10-year contract to serve BP's gasoline.
"When it was 99 cents a gallon, we were making three or four cents, and when it's $3.49 cents a gallon, we are still making three or four cents," Bahhur said. His station pumps 60,000 gallons of regular in a month. "There's no profit in there."
As the price of gas increased over this past year, the gas sales dropped, and Bahhur said his store has seen a 25 percent drop in its "inside sales."
"I don't think anybody realizes when I tell about the price and the profit," he said. "They don't believe that. But you can't argue with every customer that comes through the door because they're frustrated. They're frustrated."
Staff, wire reports
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