Retailers Make Very Little Selling Gas
Generally, the markup (or “margin”) on a gallon of gas is about 15 cents per gallon (gross profit before expenses). Factoring in expenses, which include rent, utilities, freight, labor and credit card fees, a retailer is left with about 2 cents per gallon in profit. Stores sell an average of 4,000 gallons per day, so retailers typically make about $100 per day selling gas (net profit available to pay other costs not previously referenced such as maintenance and insurance). Margins can vary wildly throughout the year. When wholesale prices climb, retailers typically hold back price increases, knowing that price-sensitive customers will go somewhere else to buy their fuel – and other items inside the store. This often leads to a situation where retailers will lose money on every gallon they sell. When wholesale prices fall, retailers seek to extend margins to compensate for lost margins when prices were rising.
Today, retailers cannot run their business on gas sales alone. While 68 percent of a typical store’s sales dollars in 2008 came from selling gas, less than 27 percent of their profit dollars came from fuel.
Quite simply, they have two tough choices, either keep gas margins at traditional levels and know they will lose customers if they are priced higher than the competition, or eat margins to keep gas customers (and in-store customers). If there are no gas customers, there are no in-store customers.
