Saturday, June 09, 2007


Profits at the pump

NPR recently had an item, on their All Things Considered program, about gasoline prices and how gas stations make money. The title, “Gas Stations Profit from More Than Just Gas”, is a bit misleading, because the report actually tells us that the gas stations are often not making their profit from the gas, but relying mostly on other things.

I'd seen an article a couple of years ago that said that, but here's a current analysis of the numbers:

On a recent weekday, van der Valk was selling unleaded regular for $3.45 per gallon. Most of that money goes to the wholesaler. Van der Valk's own share is 12 cents to 14 cents. Of that, he pays about 4 cents in payroll expenses, 4 cents in rent, and another 4 cents in credit card fees. Credit card fees paid by gas stations have increased sharply in recent years, as more drivers use plastic to postpone the pain of high gasoline prices.

Subtracting those expenses, there isn't a lot of profit left outside at the gas pumps. The real money for gasoline retailers is inside, at the refrigerator case.

Cigarettes, the report goes on to tell us, are the biggest-selling items, and bottled water brings in the most profit:

“You tend to make at least 50 to 60 percent on a bottle of water,” van der Valk says. “Water is more profitable than gasoline.”
Which explains, of course, why few gas stations exist any more without convenience stores, car washes, and the like attached to them. (It also explains why companies are eager to bottle water and sell it, but not why suckers consumers are eager to buy it.)

The report also points out that the station owners actually do best when the price of gas falls. When the prices go up, they raise the price just enough to cover it — any more, and customers will go elsewhere, where it's cheaper. But when prices go down, they can lower the price a little less, at least for a day or two, adding an extra penny or two per gallon to their very low profit on the gasoline.

Of course, NPR's report is showing us what's happening at the gas stations. We need to remember that, while the local merchant has to sell bottled water to keep his business afloat, ExxonMobil announced record profits for the first quarter of 2007, and Shell is quite happy as well. One reason for that is the prices the station owners are paying for the name-brand fuel, as opposed to what they have to, um, shell out (sorry) for “unbranded” product:

Unlike the Shell station on Ventura Boulevard, van der Valk's Simi Valley location is a so-called “unbranded” station: Instead of buying exclusively from a Shell wholesaler at a Shell-dictated price, van der Valk can shop around for the cheapest gas available. At the moment, the wholesale cost he is paying for this station is about 15 cents a gallon below the Shell station's. Ironically, the gas is coming from the same refinery.

“Think about that. And my margin over here is 30 cents a gallon. My margin at the Shell is 12 cents a gallon. So it's more than double,” van der Valk says.

More than double. That's the cost of putting the Shell name above his pumps. And consumers flock to the name-brand stations, convinced that they're getting “better gas”; I see that whenever I pass the local gas stations, where the name-brand stations are often selling their product for 5 or 10 cents per gallon higher, and sometimes even more. I'll repeat something that's in the quote above, that “the gas is coming from the same refinery.”

And this is from ExxonMobil's first-quarter report:

ExxonMobil's first quarter net income was $9,280 million, up 10% from the first quarter of 2006. Higher refining, marketing and chemical margins were partly offset by a decrease in crude oil and natural gas realizations.

In the first quarter, ExxonMobil continued to actively invest, bringing additional crude oil, finished products and natural gas to market. Spending on capital and exploration projects totaled $4.3 billion in the first quarter.

The Corporation distributed a total of $8.8 billion to shareholders in the first quarter through dividends of $1.8 billion and share purchases to reduce shares outstanding of $7.0 billion, an increase of 26% versus the first quarter of 2006.

No, they don't have to sell bottled water.


Maggie said...

Argh. The oil companies, the kings of the U.S.

I just went to the local gas station / convenience store to buy some milk and the guy ahead of me in line was still in his car when I got outside. I glanced over to see what he was doing, and he was working a scratch ticket. A couple of days earlier (previous trip for milk), I saw a guy buy three different $5 tickets. What a waste!!

Another local convenience mart is located near the high school. I was in there (buying milk, what else) around the time the high school lets out, and I saw a very young-looking person buying cigarettes. I said to the clerk, "Did you card him?" (Yes, I'm nosy when I get mad.) She looked shocked. "Why, are you his mother?" LOL. Okay, never mind that I didn't appreciate being mistaken for the mother of a person old enough to buy cigarettes. I said, "No, it just bothers me to see young people smoking," and she said, "Yes, I carded him, I always card." But I don't think she did. I've complained at that store before because they had colorful, revolving cigarette displays at child's-eye level.

I haven't figured out what to do about the carding thing. There's hardly any merchandise in that store. I think they're struggling. That's no excuse to sell cigarettes to the high school students, but I wonder if I discovered evidence that they're not carding and tipped off the police, if they would go under completely. (I wouldn't want to cause them to go out of business, but it wouldn't break my heart if it happened on its own. The store used to be a Cumberland Farms (local chain), and when the new owners bought the store, they fired all the employees.)

Barry Leiba said...

«I wouldn't want to cause them to go out of business»

I don't know: if they're selling drugs illegally to minors, I think they should go out of business, and I wouldn't mind having a hand in it.

Maggie said...

I don't like being involved in ruining people's lives. It's possible that it's store policy not to card around 2 pm, but this employee is not the owner. Maybe it's just her.

Hoster said...

I've seen a fee articles recently about how the rising credit card fees that are really hurting gas stations and even small businesses in general. Credit card companies are increasingly making more and more money off theses fees that most people don't even know exist and its not just hurting the small businesses but its hurting us the consumers as well. I do some work with and its surprising how much it costs us all.