As gas prices fall, gas stations' profits actually rise
— -- Feeling sorry for gas stations as prices plummet? Don't.
Although retail gasoline prices have fallen 55% since mid-July, wholesale prices have plunged even more sharply — 68%, according to the Oil Price Information Service. As a result, retailers have enjoyed record profit margins since mid-September.
"Guess what? They're making substantially more money at $1.89 (a gallon) than they were at $4.29," says OPIS chief oil analyst Tom Kloza.
Last week, The Pantry, one of the nation's largest gasoline retailers, posted profit of $23 million in its fiscal fourth quarter ended Sept. 25, four times the profit of the year-ago period. Ben Brownlow, an analyst at Morgan Keegan & Co., expects even better results for the current quarter.
"We're happy, our customers are happy," says Jinger Duryea, president of C.N. Brown, which owns 108 gas stations in Maine and New Hampshire. "It's not costing as much to buy the product and store the product."
Most people think retailers clean up when prices rise and get pinched when they drop. It's just the opposite. When prices soared last spring, demand sank and stations couldn't pass along the entire increase in their wholesale costs.
Gross profit margins — the difference between wholesale and retail prices after taxes and freight — averaged about 9 cents a gallon vs. a typical 14 cents.
And with stratospheric gas prices, retailers' credit card fees, typically 2.5% of sales, were 10 cents a gallon. Toss in overhead, such as rent and labor, and most broke even or lost money on gas, though many offset that with convenience-store profits. The Pantry had a $5.1 million loss in the second quarter.
Now, with oil and wholesale gasoline prices tumbling, retailers can trim their prices more gradually. Per-gallon margins hit a record 60 cents on Oct. 7, averaged 45 cents in October and were 30 cents last Sunday, OPIS' Fred Rozell says. Plus, lower gas prices have cut credit card fees to 4.5 cents a gallon.
Sinking prices also bolster store sales. Some customers don't fill up, believing prices will fall further, and make more trips to the pump. "That's one more time a week the customer comes by to get coffee or a sandwich," says Jeff Lenard, spokesman for the National Association of Convenience Stores.
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