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For gas stations, less can be more
Gas stations profit as pump prices drop
Date published: 11/13/2008
BY BILL FREEHLING In a time of mostly glum economic news, gas prices are giving people at least some reason to smile. They're not the only ones happy about lower gas prices, which have now fallen below $2 a gallon throughout the Fredericksburg area. The gas stations themselves benefit when prices go down, which is somewhat counter-intuitive. Lower prices lead to higher profit margins per gallon, and give customers more money to spend on higher-margin items inside the stores. "Retailers love low gas prices as much as their customers do," said Jeff Lenard, spokesman for the National Association of Convenience Stores. Ben Wafle, president of Fredericksburg-based Quarles Petroleum Inc., points out that "falling prices have been a big relief to Quarles and all similar companies." Quarles delivers gasoline and other petroleum products to retail and commercial customers including gas stations. So the company saves money on deliveries. But Quarles also owns 21 convenience stores with gas stations in Virginia--including locations in Warrenton, Culpeper, King George and Fredericksburg. Wafle said the lower prices at the pump benefit the company. Each time customers pay for gas with a credit card, the station owner has to pay the credit card company about 2 percent of the total transaction. That means the fees they pay on $2 per gallon gas are half what they pay on $4 per gallon gas. Further, as gas prices skyrocketed earlier this year, stations couldn't mark up their prices much because customers were only willing to pay so much before drastically reducing consumption. Now, stations can charge low prices that still include more markups. Lenard said gas stations were losing about 3 cents a gallon on average in this year's second quarter. Now they're making about 20 cents a gallon, although that differs depending on individual market conditions. Falling prices have also brought about an interesting behavioral trend from consumers, Lenard said. It's similar to how many people react to rising and falling stock market prices. In the spring, when gas cost $4 a gallon, Lenard said, gas station owners noticed that drivers would usually fill up their tanks out of fear that prices would keep rising. Now that prices are falling, people are less likely to fill up, as they think prices might get even lower. That leads drivers to visit gas stations more often these days, which gives owners more opportunities to draw them into the store to buy higher-margin items. Wafle said sales are down at the Quarles stores because of the weak economy, but he noted that lower pump prices give consumers more money to spend inside. The stores might also benefit from psychological factors, Lenard said. Lower gas prices make consumers feel happier and more pleased with the station, and in turn they might be more likely to spend money inside. "There's smiles on both sides of the pump," Lenard said. Bill Freehling: 540/374-5405
Date published: 11/13/2008
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