Gas prices got you down? Try selling it.
It's not just consumers feeling the pinch: Station owners say higher gasoline prices are squeezing profits.
Even as some of his customers shell out $50 for a fill-up, Philadelphia Getty station owner Jim Sullivan says he's not getting rich. His regular gasoline sold for $2.11 a gallon last week and of that, he made only 5 cents before covering his expenses.Skip to next paragraph
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"Look at it this way," he says. "If someone comes in and gets five gallons of gas - you're spending $11, $12 - that's a quarter I make."
Mr. Sullivan's lament is one echoed by service station owners across the country - and it may come as a surprise to consumers. As prices rise and gasoline sales hold steady, many stations are taking a hit. The reasons: With less change left after filling up, consumers are holding off on buying higher-profit items like snack foods or making auto repairs; and with many drivers willing to go out of their way to find the best deal, competition is fierce to keep gasoline prices low. Customers also are likelier to pay with a credit card, which further chips away at profits.
Indeed, today everyone from Wal-Mart to Wawa to the major oil companies sells gasoline, sometimes at a loss, to attract other business.
"With gas prices going up, people don't have extra money for that bag of chips, that two-liter bottle of soda," says Rick McBride, who operates a convenience store in Philadelphia next to a Texaco station.
Most gas stations sell anywhere from 80,000 to 200,000 gallons a month, with the average gallon marked up between 5 and 8 cents, says Paul Fiore, executive director of Service Station Dealers of America and Allied Trades, located in Bowie, Md. And some 70 percent of America's 130,000 retail gasoline outlets have convenience stores, which are threatened with sagging sales when gas prices rise, says Dan Gilligan, president of Petroleum Marketers Association of America (PMAA).
In 2003, convenience-store owners reported an 8.8 percent markup on gas per gallon. That's the lowest mark-up since 1985, according to the National Association of Convenience Stores. Add in credit-card fees, typically 3 percent, and the cost of distribution, from 2 to 4 percent, and the margins for gas are razor-thin.
"It's tough for retailers to make ends meet," when gas prices go up, says Mr. Gilligan. "And what's really frustrating is that they're getting a lot of guff from the customers" because they are "the visible face on the front line" of high gas prices.
Sullivan's gas station is fairly traditional: four pumps, busy, greasy, the exhaust-tinged air of its two-bay service area circulated near the front desk by a wall-mounted fan.
"What I could use more of are these," Sullivan says, gesturing toward his two repair stations. Eighty to 90 percent of his profits come from repairs, and he ekes out what he can from car and truck rentals, detailing, and lottery-ticket sales.
Meanwhile, Ed Weglarz's Marathon station in the Detroit suburb of Warren, Mich., has also taken a hit.
Although gas accounts for two-thirds of his sales volume, his other operations are the moneymakers, with his convenience store bringing a gross profit of about 27 percent and his car-repair shop grossing about 55 percent.
He says gasoline sales have held steady, but repairs and store sales are off 12 to 13 percent over last year. With a gallon of regular gas selling at $2.17 this year versus $1.49 last, even safety-related repairs are suffering, he says.
"Customers have only a finite amount of money," Mr. Weglarz says.
They've also been quick to vent their frustrations at service stations. Customers blame $7.50-an-hour cashiers for high prices, Weglarz says, but "the retailer and the customer should be on the same side of this - they are both victims."
Weglarz says the rest of the gasoline production and sales chain is awash in profits. Banks and credit-card firms, OPEC, and the big oil companies, even the states imposing taxes as a percentage of sales, "are standing back laughing," says Weglarz.
According to the US Energy Information Administration, roughly a quarter of the retail price for a gallon of gas goes to paying taxes alone.
Compounding the financial crunch at gas stations are credit-card company fees, say owners. Customers are using cards more often, because the fill-up costs more than they tend to carry in cash or because they have a financial need.
Visa, MasterCard, and American Express charge fees of between 3 to 4 percent of the sale, while the per-gallon markups by the dealer remain the same. The Visa fee runs 6 to 8 cents on a gallon of gasoline that, in many cases, has been marked up only a nickel, owners say.
Bill McKnight of Tampa, Fla., whose Automated Petroleum and Energy Co. owns, leases out, and supplies fuel to 190 gas stations in west central Florida, estimates that 70 percent of customers now use credit cards, versus 30 percent who relied on them five to 10 years ago. Mr. Fiore says that credit card use jumped when gas prices hit $1.50 per gallon.
His dealers, too, "are trying to make up for it inside," on soda and chip sales, he says. He predicts a return to a discount for paying cash.
High prices have also promoted theft of gasoline, says PMAA's Gilligan. "You have to sell another 700 gallons of gas to pay for a $25 drive-off," says Marathon owner Weglarz, explaining why he switched to prepay pumps in 1999.
The steady demand for gasoline despite sky-high prices leaves some experts scratching their heads. And, when it comes to the cost of gas, all the world is an expert. At Jim's Getty, Joe Kulik mans the pumps and hears it all: "Some blame the government. Some blame the oil companies. But our business hasn't dropped off. Face it: Nobody's selling their cars and buying bikes."