The math behind the gas you buy (credit card, sell, make money)

[Willy702]

This is an excellent real-time illustration of how gas prices work and why its insane to start these price collusion "investigations" every time gas prices go up.

My friend who I have done some business with has an uncle who owns a "few" gas stations in my local area. He doesn't want much said about the details because there are serious confidentiality agreements which come with his operating agreement. Anyways my friend was visiting his uncle at one of the stations late last month and in came a Cadillac with an older gentleman. The guy parks at a pump and then walk inside. He looks like he's headed to the counter, but then notices the hot dogs and decides to get one. After he's done with the hot dog, he turns towards the counter, but appears to notice the sign which says "Get a hot dog and any size drink for $2". So he wanders over to the drinks and pours himself a Coke. He then takes out his wallet, buys $80 worth of gas plus the $2 and change for the combo in cash. Walks away and fills up his tank.

So now my friend's uncle says to my friend guess which purchase made more money today? Uncle tells him for that particular day the station was making a touch over 2 cents per gallon. So they made maybe 45 cents on the gas. If you assume the guy paid $1 for the hot dog they made about 45 cents as well. And the Coke makes about 60 cents.

So they made double the profit on the $2 purchase versus the $80 purchase. Then the uncle says now if that guy drove up to the pump and took out his credit card, because of the nearly 2% charge for taking credit they would have lost 3 to 4 cents per gallon on him. So hundreds of customers that day drove up and proceeded to make the gas station lose money by doing business with them.

That's when the uncle said when prices of gas are stable its not a bad business to be in, but prices haven't been stable for over 5 years. When prices are going down, you have to make money for the inevitable losses which occur whenever prices go up. But expect some owners to not be in profit mode and price gas aggressively hurting that strategy. And to really do well, you have to sell a lot of cigarettes in Colorado because unlike many states, convenience stores are very limited in the liquor they can sell. He's met gas station owners in California who will take 10 to 15 cent losses a gallon just because they can sell a fifth of liquor or a 12 pack of beer and make $4.