Independent Fuel Operators Take Brunt of Gas Price Fluctuations

Small businesses often make little to no profit on fuel margins, especially when swipe fees are added to the mix.

July 12, 2022

Customer Grimaces at Gas Prices

ALEXANDRIA, Va.—Fuel retailers know that when the price of crude oil drops, it’s not immediately reflected at the pump. Many consumers don’t realize fuel station owners set their gas prices based on what they initially paid to fill their underground tanks of gasoline and diesel. It can take days or even weeks to get through that supply, causing grumbles from customers that independent operators have to manage, reports the Wall Street Journal.

Doug Robinson, who owns two gas stations in central Texas, says not only does he have to sell his fuel at whatever price he purchased it at, he risks losing money on every fuel order he places. Earlier this month, Robinson chose to wait to order a refuel for one of his stations, hoping that the prices would fall by the following Monday, but he had more business than expected and ran out of gas.

“You’re just rolling the dice every time,” Robinson told the Journal.

Aiming for Aggressively Low Gas Prices

Of the 116,641 convenience stores selling fuel in the U.S., slightly more than half are independently operated, according to NACS data. The Journal points out that independent operators make small margins on fuel, and the higher profit margins come from inside the store. When crude oil prices rise, small businesses try their best to raise pump prices slowly so customers will still purchase fuel and hopefully enter the store to make a purchase.

“We really want to have and market a really aggressive price on the street,” Lonnie McQuirter, the owner of 36 Lyn Refuel Station, an independent gas station and convenience store in Minneapolis, told the Journal.

A NACS survey found that high gas prices are taking their toll on sales at convenience stores, with 59% of retailers saying their customer traffic has decreased in stores over the past three months. Nearly half of all retailers (49%) also say those customers coming inside the store are buying less compared to three months ago when gas prices were $1.50 a gallon lower.

Swipe Fees and Competition Cut into Profit Margins

In addition to the low fuel margins typically received from fuel purchases, retailers grapple with credit card swipe fees, which were up 25.6% in 2021. The fees cost c-store retailers a total of $13.5 billion.

Dan Lukasavitz, who leases a bp-branded station in Dayton, Ohio, receives a fixed commission of six cents a gallon as part of a contract with a fuel distributor, but because of swipe fees, he loses money on fuel sales.

“Our profit margins are gone right now,” he told the Journal.

Independent operators also face stiff competition from club stores and grocers, such as Costco and Kroger, who can get their fuel at an advantageous price and not worry about fuel margins, Patrick De Haan, head of petroleum analysis at GasBuddy told the Journal.

Kroger told its investors that it improved its margin per gallon from 35 cents to 42 cents in the first quarter compared with the same period last year because 600,000 more households signed up for the company’s Fuel Points loyalty program, reports the Journal.

Supply and Political Pressure

Fuel retailers are also now caught up in a political debate on how to get inflation down. President Biden, who accused oil companies and refiners of profiteering from soaring gas prices, recently tweeted that fuel station owners need to “bring down the price you are charging at the pump to reflect the cost you’re paying for the product.”

The average price of regular gasoline is $4.66 a gallon, according to AAA, which is down 14 cents from a week ago and 35 cents from a month ago. According to Garrett Golding, a senior business economist at the Federal Reserve Bank of Dallas, the demand for gas this summer is still higher than expected, and there is still much instability in Europe amid the war in Ukraine.

“A lot of the supply risks that exist out there have not necessarily gone away,” Golding told the Journal.

NACS wrote a blog post on how to explain to customers why gas prices aren’t dropping quicker when the price of crude oil is.