Profits Strong for Gas Stations in 2011

Though 2009 saw a drop in revenue for gas stations that had convenience stores, new data indicates that 2011 will be a robust year for store sales. The …

Though 2009 saw a drop in revenue for gas stations that had convenience stores, new data indicates that 2011 will be a robust year for store sales. The hike in gas prices is a factor and it is believed that inventory control has also helped. Read more about this in the full article by Blue MauMau.

Gas station dealerships with convenience stores saw a drop in revenue in 2009, but sales look likely to roar back in 2011, according to a collector of store financial data. The challenge with the volatility in gas and convenience store sales is to keep profit margins high.

Senior financial analyst Mike Lubansky of Sageworks explains that there is no surprise in 2009’s dip in gas station sales and its increase in 2010 and 2011. "Gas prices at the pump went from a high of nearly four dollars a gallon in 2008 to a low of two dollars and change in 2009," says Lubansky.

Convenience store sales have closely followed pump prices. Based on an ongoing survey of over 3,000 financial statements, Lubansky observes that convenience store sales have followed the broader trend of commodity prices, of which oil and gas are a part.

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Petroleum marketer Benny Hodges sells fuel and owns the pumps and other facilities of ten gas station dealerships in central New Mexico under the ConocoPhillips brand. He has owned convenience stores in the past with his properties. He explains, "If gasoline volume is reduced, so is the amount of store traffic." Hodges also observes, "If gasoline volume is up, store traffic will mirror it."

Profit margins up, despite high card swipe fees
Despite volatility in gas and convenience store sales, dealers have found ways to boost their net profits. Net profit margins were higher in 2010 and 2009 than in 2008. That translates into a higher profit per employee and better payroll costs compared to sales. Lubansky declares, "These dealers have found different ways to increase productivity and profit margins. The net profit margins of gas stations with convenience stores for 2010 were nearly 2.37 percent, which is higher than 2007 and 2008, when they were close to 1 percent."

Hodges agrees that gas station dealerships and convenience stores have learned in this recession to control costs. "We are coming out of this leaner. We exercise better inventory control," he says. Hodges adds that with his own fleet of trucks that distribute fuel to stations, "We now try to double haul rather than one-way haul the gas, which would have us come back empty the other way."

One of the biggest operating costs to dealerships and convenience store operators is credit and debit card fees, often a set cost per gallon. "We operate on cents per gallon. The average markup on gasoline from when the store purchases it to when they sell is probably twelve cents a gallon. On a gallon of gas at $4 per gallon at a two percent interchange fee, that is eight cents in costs [per gallon] right there." Hodges observes, "That’s a significant amount of profit walking out the door."

Last year petroleum marketers and convenience store franchisees marched on Capitol Hill in support of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Amendment would reduce debit card swipe fees. The Act, with the Durbin Amendment, was signed into law by President Obama on July 21, 2010. The Fed has since proposed a cap of 7-12 cents per transaction, down from an average of 44 cents. In other words, if 10 gallons of gas in your tank costs the gas station franchisee 80 cents in interchange fees for a transaction using your credit card, the cost would be just 7 – 12 cents if you use your debit card (also called a check card) instead and enter your PIN rather than sign. The bank’s actual cost in doing debit card transactions is very low since it’s an automated electronic transaction that does the transfer between your bank and the merchant’s bank electronically and instantly. Banks and the power elites connected to them are most unhappy about this drastic change to a major profit source and are engaged in a major offensive against it, saying  consumers will be hurt if it goes into effect. Senator Dick Durbin (D-IL) is standing his ground. The new debit card fees are scheduled to take effect this coming July 21. But, observes Hodges, "Right now it is up in the air."

Lubansky expects both gas and convenience store sales figures to rise during the remainder of 2011. "Given that commodity prices have risen for crude and gas, you would expect that top-line growth will expand at similar levels to last year or even more so," he says.

This article was republished with permission from Blue MauMau.

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