Industry Report: Why Gas Station Margins Are Razor Thin
As many Americans squeeze in their final summer road trips and vacations over the next month, complaints about the “price at the pump” will most certainly be heard. However, it’s important to realize that on average, very little of the money spent at the pump is going into the pockets of the gas station owner.
According to private company financial statements from 2013, the average privately-held gas station made only two cents of profit on each dollar of sales, making it part of one of the least profitable retail industries in the country.
Gas station owners may get grief from customers when gas prices rise, but they often see relatively few of the proceeds from a gallon of gas, says Sageworks analyst Regan Camp.
Distribution and marketing--costs that include any profits earned by a gas station, transportation of the fuel to the station, advertising and “swipe” fees for payment cards--account for only 8 percent of the cost of a gallon, or COGS, based on data from the U.S. EIA.
“If you consider the fact that gas stations’ margins are so thin to begin with, any fluctuation in COGS--even if it’s not significant--can have a pretty dramatic impact on stations’ ultimate margins,” Camp says. “If they had big margins, a small fluctuation in costs may not impact them so much.”
Despite the “big oil” narrative, the majority of gas stations, according to National Association for Convenience and Fuel Retailing, are actually “single-store operators” and “small businesses.” With razor thin margins, these businesses have very little room for error.
Profit margins are (comparatively) strong
￼Surprisingly, this meager 2 percent profit margin was actually the strongest average margin that private gas stations had seen in the past ten years. ￼
Despite the profitability improvement in 2013, private gas stations still have lower net profit margins on average than most ￼retailers. And the average net profit margin for privately held companies across all industries was nearly 7 percent in 2013, ￼according to data from Sageworks.
￼Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate ￼salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture ￼of the companies’ operational performance.