Drivers and commuters across the country are cheering as the price at the pump continues to drop to around $3 per gallon. But at the other end of the spectrum, gas station owners face slowing sales growth and their usual thin margins.
According to financial statements from the past 12 months, privately held gas stations are barely growing revenues and are seeing average profit margins of 1.7 percent. Relative to the average private company, the gas station industry is experiencing much slower sales growth on smaller margins.
“To put this into context, the average privately held company in the United States is seeing a more than 8 percent growth in revenue, year-over-year, with an average net profit margin of nearly 7 percent," says Sageworks analyst Libby Bierman. "Gas stations are drastically underperforming the private company averages on these metrics.”
Because many of these companies also have convenience stores on site, one possible way for business owners to counter-balance this slowdown in the rate of growth might be an increased focus on selling snacks, beverages, and other non-gas items.
The ultimate financial impact of lower gas prices will depend on other factors like cost of sales, which is not necessarily bad news, analysts say. “On the one hand, consumers may be inclined to drive more, and therefore require more gas. That volume bump could aid revenue growth,” says Bierman. “However, even a small bump to revenue may not cause much impact on the bottom line.”
The margins for this industry remain fairly consistent and fixed, according to financial statements filed over the past ten years.
“If you look at the historical data, these companies have had thin margins for the past decade, regardless of the cost to fill up,” Bierman says.
According to statements collected by Sageworks, even when gas prices are at an extreme high or low, gas station owners and operators consistently see net profit margins of less than 2 percent, meaning they bring home less than two cents of profit for each dollar spent at the pump.
“The owners of these gas stations should not be confused with ‘big oil,’" Bierman says. "Rather, this industry is full of small business owners like those we see in other retail operations where volume is important, and even small changes in profitability, whether positive or negative, are significant to the owners.”
Note about timeframe: Each data point is a trailing twelve-month figure, i.e., “October 2014” represents financial statements with an end date between October 6, 2013, and October 6, 2014.