About a decade ago, when gas prices last surged above $3 a gallon, Chuck Graff put up a message on the sign at his St. Anthony, Minnesota, gas station: “We Hate Our Gas Prices Too.”
Early this month, he did it again and suddenly he was on the national news.
“It’s kind of our way of showing empathy for customers that we feel your pain, too,” Graff said in an interview this week.
Turns out that most gas station owners feel the same way — with good reason.
“Very few, if any, are making money on gasoline,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “There’s just very little margin. They make their money when people go into the attached store.”
But that’s not what most people think.
“The customers walking in our doors think we’re profiteering or benefiting from higher prices, when it’s really the opposite,” said Lonnie McQuirter, who owns the 36 Lyn Refuel Station in south Minneapolis.
After expenses, Graff said his station makes 3 cents to 12 cents a gallon. That means on a sale of 10 gallons that now costs a customer around $48, his station’s profit ranges from 30 cents to $1.20.
The average price of gas nationwide hit record highs this week, according to AAA. The national average rose to $5 a gallon this week for the first time.
As customers pay more than they ever have at the pump, they feel squeezed and spend less on the sodas, snacks and other items where gas stations make the most money.
“Gas is one of those unique commodities and a unique part of American culture,” McQuirter said. “It affects the consumer more than anything else.”
Lance Klatt, executive director of the Minnesota Service Station & Convenience Store Association, sees some store owners reduce their hours or work shifts themselves as the higher gas prices shrink overall profit while they struggle to find and pay employees higher wages.
“At some point, something’s got to give,” he said. “Some stores, it’s really going to hurt them if they’re not managing the cash flow properly. There could definitely be some stores that shut down and some of these are second, third-generation family-owned businesses.”
Gas stations can even lose money at the pump as prices rise, De Haan said.
“As prices go up, some states have percentage-based sales taxes but Visa and Mastercard also take a percentage, which turns out to be more and more as prices go up,” he said.
On top of what a gas station pays for the fuel, every gallon also includes federal and state taxes. Since most customers pay by credit card, the processing fees also come out of each transaction even on the taxes. Then, there is the price of maintaining a gas station and following regulations.
“For the station operators, the business we’re in is highly leveraged with a low profit margin,” McQuirter said. “We’re really making pennies and investing thousands to make sure things are stable.”
McQuirter explains to inquisitive friends and disgruntled customers that revenue really doesn’t correspond to profit when it comes to gas. Store operators don’t buy gas every day and he tries to purchase his store’s fuel at dips these days to try to avoid losing money.
Who makes the money from the higher cost of gas? The big money is made closer to the well by oil producers and refineries, De Haan said.
According to the U.S. Energy Information Administration, the costs for a gallon of gas break into four categories: 60% crude oil; 17% refining; 11% distribution and marketing, and 12% for taxes.
For station owners, raising prices at the pump is a calculated risk. Nearby competitors may have purchased on a day when prices were lower or may be so profitable with their inside products that they can absorb losses on gas.
“You lose demand if you’re 10 cents higher than them,” Graff said. That also tends to mean lost demand for convenience store products.
He said the reaction to his sign outside his Murphy’s Service Center has been much stronger now than he experienced years ago.
“I fill my truck up and I pay the same thing,” he said. “You kind of want them to be aware that it stinks and we think it stinks, too.”