High Gas Prices Aren’t Profitable For Gas Stations
Published on: 03/29/2022
In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo explain how gas stations make a profit, and it’s not with higher gas prices.
Welcome to another edition of Chart Talk. I am Tony Ogorek. I’m here with our Portfolio Manager Jeff Viksjo. And today, Jeff, we’ve got a really interesting topic, you know, which is gasoline prices and the fact that they aren’t necessarily good for gas stations. Counterintuitive. We’ve got a few charts here, let’s take a look at the first one. This takes a look at who owns gas stations in the United States, and Jeff, what do you see with this pie chart?
Yes, so Tony, gas prices are up significantly. We’re all paying more for gas, unless you’re an EV owner, of course (TONY: of which I am, by the way). Which you are. So, where does all this money go that we’re paying for gas? This just shows you that most gas stations are owned by individual operators. They just own the one store. This isn’t some major corporation. It’s typically just a small one-time operator. They own more than half of the gas stations in America.
Yea, and obviously they aren’t driving prices. So, let’s take a look at the gas prices with our next chart. And here you can see that the price of gasoline has a lot of different components in it. You know, crude oil is only about 50% of the price of it, believe it or not. And why don’t you go through the rest of them and really take a look at what the profit percentage is.
Yeah, and this is showing you for when gas is about $3.18/gallon, which would be a good price around these parts. But of that $3.18, like you said, more than half is crude oil, refining is about 55-cents, taxes is 55-cents, just transporting in the gasoline to the gas station is 25-cents. You know, the gas station’s markup is about 20-cents, Tony. And when gas prices are so high, I would guess consumers are more price sensitive than ever. Which means they’re constantly looking for where can I get the cheapest gas, and so that markup most likely goes down when gas prices go up.
Right, so the interesting thing, Jeff, is that gasoline then, ends up being a loss-leader for other things that they can make money on. So, let’s take a look at our final chart here. And this takes a look at the convenience stores. This is really where they make their money. What can you see by looking at this?
Yea, like we said, gasoline profit margins are basically nothing. They’re not making anything, but they are trying to profit when you at least come to the gas station and go into the store. Health and beauty, candy, general merchandise, even bottle drinks, they’re making 50% of what you buy in terms of profits. Obviously, even some of the lower ones, beer and cigarettes are low, 20-15%, but at least they’re higher than gas.
Yea, so bottom line is if they can get you to get some gas, idea is they’re selling convenience. They can get you in the store, that’s really where they are making their money.
So, thank you Jeff and thank you for joining us for this edition of Chart Talk.