If gasoline has such a low profit margin, then why the huge difference in prices?

[Chuck Saunders]

For most convenience stores the profit comes from inside the store, Gas is just to get you to stop. Our local QuikTrip's fought the pay at the pump ordinance for that reason. They also were found to have depressed the price of gasoline by 20 cents a gallon in the area.

We try to connect gas increases to some event or justification when the reality is "because they can"

[Kev Williams]

Have you ever had the chance to glance at a convenience store invoice that a supplier left out in the open? I did one day, profit margins had their own column. Lowest I found was 53%, many numbers were in the 70%'s. So I guess it sucks to own a store where you buy milk and potato chips for $1 and can sell it for $1.70, but the gas out front you're paying $3.40 for sells for $3.60. Might not be MUCH profit, but it's still profit...

Here in the SLC area, around this time of year, every year, for some reason we have some of the highest priced gas in the country. It's like the retailers have a "lets get even" month every August. Investigations have been done many time to figure out why. The retailers aren't required to open their books, so they don't, and their answer to why they charge so much is simply "because we can." Ok fine, but know what the really sucky part is? Salt Lake has several refineries, and they get most of their oil from Wyoming. Practically zero shipping costs involved from start to finish. And the final low blow? Our regular is 85 octane, premium is all of 91, because 'you don't need higher octane at this altitude'. (4500').

So we're basically paying the highest price for the lowest grade gas that's the cheapest to manufacture....

[Rich Engelhardt]

We try to connect gas increases to some event or justification when the reality is "because they can"

I agree - however - it still infuriates me that I'm treated like an idiot that's willing to swallow anything.

[Brian Elfert]

Down the street, there are three stations at the entrance/exit of an interstate. A few weeks ago the news did a story concerning why those stations charge an average of 40 or 50 cents a gallon more than other stations a couple of miles from them. Stations long ago stopped making the mythical 2 or 3 cents a gallon.

In 2002 I had a gasoline powered truck that got about 6 to 7 MPG towing. We stopped in one town in Wyoming at the first exit because we were running low on gas. The stations at that exit were charging about 30 cents a gallon over the going rate which at the time was maybe $1.40 per gallon. The town had a second exit so we went there and gas was normally priced. The stations at the first exit seemed to be aiming to rip off those desperate for gas as they were the first stations for like 50 miles.

[David Weaver]

Have you ever had the chance to glance at a convenience store invoice that a supplier left out in the open? I did one day, profit margins had their own column. Lowest I found was 53%, many numbers were in the 70%'s. So I guess it sucks to own a store where you buy milk and potato chips for $1 and can sell it for $1.70, but the gas out front you're paying $3.40 for sells for $3.60. Might not be MUCH profit, but it's still profit...

Here in the SLC area, around this time of year, every year, for some reason we have some of the highest priced gas in the country. It's like the retailers have a "lets get even" month every August. Investigations have been done many time to figure out why. The retailers aren't required to open their books, so they don't, and their answer to why they charge so much is simply "because we can." Ok fine, but know what the really sucky part is? Salt Lake has several refineries, and they get most of their oil from Wyoming. Practically zero shipping costs involved from start to finish. And the final low blow? Our regular is 85 octane, premium is all of 91, because 'you don't need higher octane at this altitude'. (4500').

So we're basically paying the highest price for the lowest grade gas that's the cheapest to manufacture....

It again goes back to what it costs to own and run those stations. I'm sure they have some sort of franchise fees or costs to make their store look as the brand requires, significant real estate taxes, cost of environmental compliance, etc. If it was easy just to make money hand over fist in stations, more would be opened up. For the convenience items, I would've figured 100%, but I guess that's a bit high. Always figured most of the stations that are smaller just get their concessions at sams or something and put the boxes in their stores - sams does target small businesses of those types and give them their own hours to shop.

Where I grew up, we knew someone who owned one of the main gas stations in town. They had three daughters who all went through a school where my dad taught, and they had a store that was small by current standards, but it did have convenience items (milk, soda, candy bars, etc). The girls worked in the store during the week, which I could never understand (they were by themselves in town late at night). They were not poor, but they were not by any means rich, either. Most of the gripes in this world about what other businesses make come from folks who don't spend their days trying to run a business at all, on the assumption that a significant portion of margins go into someone's pockets in a sailboat, but most of the initial margin in a lot of those businesses just goes to pay day to day expenses, or it would be easier for someone else to just open up another business, cut their final expectation in half and undercut the first person.

As far as the interstates go, it seems like every interstate station around here is 5 to 10 cents higher per gallon, sometimes a little more. But I've also seen what land sells for near an interstate exchange, and it's not $100,000 an acre. Like the rest here, if there's a station a half mile down the road that's 10 or 15 cents cheaper, I make the drive. We *do* pay for convenience sometimes, and the interstate example is just one of them.

I guess it depends on your state, too. In PA, our property taxes are *very high*, and if you get that expensive interstate land, you get to pay twice. Once when you buy it, and then every year in a rent payment to the local government that they call taxes. The values for taxes are high enough here right now on property that amortizing them is equivalent to more than half of the property value. It's as if you never actually even own half of your property, even though you got to pay for all of it.

[David Weaver]

Just as an interesting exercise, I wonder how many different charges we could estimate for a business like a gas station.
* mortgage or rent
* property taxes (if owned)
* pump acquisition and ongoing repair
* tank installation and ongoing maintenance
* freezer and fridge items in the building and repair
* HVAC in the building, plus the coolers
* Electrical (most of the stations here have huge amounts of lighting)
* half of the SS and medicare wages for the employees in the store (since half don't show up in the employees' paychecks)
* unemployment and workers comp
* certifications for food handling for employees (in PA, if you have hot dogs, someone in the store has to be food certified, which costs at least $200 for each person who will be tending the thing)
* credit card merchant accounts and credit card fees
* swipe fees for debit cards
* security system and/or monitoring
* landscaping
* building maintenance
* Pavement of the lot and paving maintenance and snow removal
* franchise fees (are there any for gas stations like there are restaurants)?
* Any local recurring business, licensing or inspection fees
* Accounting, book work, payroll and tax preparation fees

What else is there?

[ray hampton]

Just as an interesting exercise, I wonder how many different charges we could estimate for a business like a gas station.
* mortgage or rent
* property taxes (if owned)
* pump acquisition and ongoing repair
* tank installation and ongoing maintenance
* freezer and fridge items in the building and repair
* HVAC in the building, plus the coolers
* Electrical (most of the stations here have huge amounts of lighting)
* half of the SS and medicare wages for the employees in the store (since half don't show up in the employees' paychecks)
* unemployment and workers comp
* certifications for food handling for employees (in PA, if you have hot dogs, someone in the store has to be food certified, which costs at least $200 for each person who will be tending the thing)
* credit card merchant accounts and credit card fees
* swipe fees for debit cards
* security system and/or monitoring
* landscaping
* building maintenance
* Pavement of the lot and paving maintenance and snow removal
* franchise fees (are there any for gas stations like there are restaurants)?
* Any local recurring business, licensing or inspection fees
* Accounting, book work, payroll and tax preparation fees

What else is there?

the second most important item is WATER

[Dan Hintz]

the second most important item is WATER

The two most important things at a gas station... gas, and electricity. Without the first, you have no product, and without the second, you have no way to get said product into consumer hands... er, vehicles. Everything beyond that is gravy.

[Andrew Pitonyak]

They use different additives for different destinations even if it does come from the same refinery. I was told by a driver (Marathon was written on the side of the trailer) that the Marathon station even had different additives than when he was delivering to off brand locations.

[Dan Hintz]

They use different additives for different destinations even if it does come from the same refinery. I was told by a driver (Marathon was written on the side of the trailer) that the Marathon station even had different additives than when he was delivering to off brand locations.

Additives are put in the tanker before it leaves the yard, but it is customer-assigned. That's not to say customer 'A' is getting short-changed compared to customer 'B', only that customer 'A' might request a specific formulation of additives. If you're not getting a specific additive, it's because your franchise is not requesting it, not because the oil company wishes to create "better" gas for someone else.

[ray hampton]

The two most important things at a gas station... gas, and electricity. Without the first, you have no product, and without the second, you have no way to get said product into consumer hands... er, vehicles. Everything beyond that is gravy.

Dan ask if he forgot anything and I said that he forgot water , his list included gas and electrity

[Jackson Phillips]

Think of it this way:

Wheat is currently ~$5.42/bushel. That's $0.09/lb. The cheapest, whitest bread you can buy (entirely bereft of nutrition) is about $1 per 24oz. loaf, or $0.67/lb. and some of that weight is water. Sure, there's a bit of yeast, salt, and high fructose corn syrup in there, but those things are negligible and are bulk international commodities themselves.

$0.67/0.09= 7.4.

WTI crude is currently $98.42/barrel. That's $2.34/gallon. Retail gasoline is around $3.60/gallon right now.

$3.60/2.34= 1.5

I've worked for two oil exploration companies and Archer Daniels Midland (the biggest wheat miller in the world), and I can tell you with utter confidence the process of getting a gallon of crude oil out of the ground and getting it to the end consumer as a gallon of gasoline is exponentially more technologically challenging, capital intensive, and risky than growing a pound of wheat and getting it to the end consumer as a loaf of bread.

People can't live without food any more than they can gasoline. If the companies involved in the petroleum supply chain making a profit are so bad, then there's a whole lot of boogeymen waiting to be discovered hiding in a capitalist closet somewhere.

[David Weaver]

I've worked for two oil exploration companies and Archer Daniels Midland (the biggest wheat miller in the world), and I can tell you with utter confidence the process of getting a gallon of crude oil out of the ground and getting it to the end consumer as a gallon of gasoline is exponentially more technologically challenging, capital intensive, and risky than growing a pound of wheat and getting it to the end consumer as a loaf of bread.

That is *exactly* what I was referring to when I said I'd complain about it when I thought I could make it and distribute it more cheaply. There's not much low hanging fruit out there, and what comes out doesn't look like the stuff that gets shot on the ground in the beverly hillbillies opening theme. Around here, it looks like water with a little bit of oil in it.

[Rich Engelhardt]

I'm not at all against them making a profit - - what galls me to no end though is all the lies and half truths!

On one hand, they cry about slim profit margins and claim the profit is only a few pennies a gallon.
Then you see the price fluctuations and just shake your head.

BP, on one corner of an intersection will stick up a price of $3.79 a gallon. Sheets on the opposite corner will post a price of $3.39 a gallon. Circle K down the street will post a price of $3.59 a gallon.
An hour later, each one is $3.59 a gallon.
Then, two days later each one is at $3.79 a gallon.

Meanwhile, a couple more miles away, the Get Go station is at $3.22 a gallon!

If - and it's a huge if - it's true there only pennies of profit on a gallon of gas, then how in the world can the prices fluctuate by dimes and not pennies?

[Doug W Swanson]

I worked at an Ashland Refinery a few years ago. I was always dumbfounded that the gas station 1/4 mile from the refinery (and owned by the refinery) was always the most expensive gas around. It was consistently 10-20 cents higher than any other gas station on my 22 mile commute....

The other thing that I find interesting: Here in the Twin Cities, gas goes up very fast but it takes weeks for it to fall. It's not uncommon to see a 20-30 cent price hike but price drops are only a nickel.

And when comparing prices on-line, other cities like Chicago, Phoenix, LA, etc their prices are more stable. The Twin Cities chart looks like the Himalaya's but other cities look like a nice sandy beach....