Home About Archives RSS Feed

The Retired Investor: Local Gas Stations Suffer From High Fuel Prices

By Bill SchmickiBerkshires Staff
Given the price jump in gasoline, you would think owners of the corner gas station are raking in the money. Unfortunately, the opposite is occurring, especially now that pump prices have been declining for more than a month.
 
"The national average price of a gallon of gasoline has dropped below $4.50 per gallon after touching $5 as recently as mid-June," according to Berkshire Money Management's Allen Harris. He goes on to say that despite the 10 percent decline, gas is still up 9.3 percent over the last three months. That brings the year's gain thus far to 36.8 percent 
 
In an environment of higher gasoline prices, consumers are hurting. Drivers naturally tend to blame the most visible object of their distress, which is their local gas station. At the same time, gas station owners are also the target of President Joe Biden, who is accusing them of profiting from higher gas prices. Four California cities are so angry with gas stations that they have banned the opening of new gas stations.
 
The truth is that most gas stations tend to drag their feet in raising prices. They know that most consumers have no loyalty when it comes to filling up. The lowest advertised price usually wins the day and higher prices mean lost customers. A look at the typical owner's business model explains what is going on behind this energy crisis.
 
The way it works most often is that when a gas station refills its tanks, it purchases many weeks' (if not months, in the case of diesel) worth of fuel at a single high price. And let's say they did so in mid-June when gasoline was over $5 a gallon. If prices begin to fall (as they have this month), the gas station is forced to sell the product at below its' own cost.
 
Most gas stations barely turn a profit on their core product at the best of times, and when oil spikes, they may even take a loss on it. Gas stations, according to IBISWorld, an industry market research firm, make an average net margin of 1.4 percent on their fuel. A lot of operators set their profit margins as a fixed rate, which only amounts to a few cents at best. Remember too, that when gas prices climb, so do the fees the owner must pay out to credit card companies, since their fees are set on a percentage basis. Rising gas prices after credit card fees can easily erase the stations' profit margins altogether.
 
The facts are that station owners make most of their profits on sales of food, drinks, and alcohol (where sales are legal). In this scenario, think of gas as a loss leader. The National Association of Convenience Stores believe that 44 percent of gas station customers go inside the store. One in three customers ends up purchasing something. Gross margins on certain items such as candy, health and beauty items can be as much as 50 percent. The trend toward selling more prepared foods, which have higher margins than the usual fare of chips, Lotto tickets, coffee, etc., helps as well.
 
Many readers believe that big oil companies own most gas stations, so why feel sorry for them? All those Shell, ExxonMobil, and Chevron signs we pass on the freeway are proof positive, right? Wrong. Most major oil companies have long-since backed out of the retail business because selling gas isn't profitable. The reality is that 80 percent of the gas bought in the U.S. is purchased from a franchised convenience store that is individually owned, no matter what brand of oil they may sell.
 
It may surprise you to know that the number of gas stations has been in a decline for decades. Higher oil prices are one of the chief causes of their demise. The spike in energy prices in 2008, for example, forced hundreds of gas stations out of business. Further competition in the form of big box stores that can purchase fuel in bulk at lower prices has also eaten into the mom-and-pop stores' market share.
 
Finally, the rising number of electric vehicles in use now and their growing popularity into the future will also reduce the number of stations. Despite the EV threat, few stations have made the costly decision to install EV charging units, which can cost more than $100,000 each.
 
So, the next time you fill up, while clenching your teeth as the dollars mount up, just remember that it is not always the gas station owner who is gouging you. In truth, the object of your anger is misplaced. Look half a world away, where war rages, and cartel quotas dictate the price we pay for oil.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
 

 

     

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Crosby/Conte Statement of Interest Gets OK From Council
WCMA: 'Cracking the Code on Numerology'
BCC Wins Grant for New Automatic External Defibrillator
Clark Art Screens 'Adaptation'
Drury High School to Host End-of-Year Showcase
Clarksburg Gets 3 Years of Free Cash Certified
Pittsfield CPA Committee Funds Half of FY24 Requests
MCLA Men's Lacrosse Falls in League Opener
Letter: Vote for Someone Other Than Trump
Berkshire Art Center's Dance Party Returns
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (183)
Archives:
March 2024 (5)
March 2023 (2)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Recession Japan Energy Pullback Stocks Retirement Fiscal Cliff Metals Markets Europe Bailout Euro Congress Taxes Interest Rates Banking Europe Stock Market Deficit Selloff Employment Federal Reserve Oil Commodities Jobs Economy Greece Crisis Banks Stimulus Election Debt Currency Debt Ceiling Rally
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising
@theMarket: Melt-up in Markets Fueled by Momentum