Americans consume an average of 142 billion gallons of gasoline each year, and spend an average of 5.46% of their annual income on gas. With the national average cost of gasoline recently skyrocketing a whopping 55%—roughly over $1.50 a gallon—you’d think gas station owners must be raking in the dough, right?
Not so fast.
In fact, the past few years have been brutal for gas station owners/operators, and the current statewide average of $5.82 a gallon—a seven-year high for the Golden State—has only made things worse.
Shami Naderi, 66, owns the Valero on South Main Street in sleepy downtown Soquel. He has had to deal with the uncertainties and erratic gas-consumption patterns during Covid-19, and the rising price of gasoline, which surprisingly is not a good thing for gas stations.
“Definitely lower prices are better. People buy more gas, and buy more often. There’s more traffic in the store. When you sell more, you make more,” he says. “Business dropped really hard during Covid. Everyone was staying home. We stopped making money. We had the same expenses, but income was a loss.”
Turns out running a gas station, and being able to turn a profit while doing so, involves a lot of moving parts—and takes a lot of blood, sweat and tears.
Naderi immigrated to the United States with his wife in 1995. The Iranian, who has a Master’s degree in agricultural and forest engineering in his homeland, scrambled to find a way to support his family after arriving in Pasadena. The only job he could find was at a gas station—where he made a paltry $5 an hour.
“When you’re an immigrant from another country, you have to start from scratch. I started working for next to nothing. It was always a dream to own my own station,” says Naderi.
Over the years he saved, scrimped and scraped enough money together to buy his own gas station. But his business was heavily impacted by the pandemic. Naderi had to close his station early—at 7pm instead of 11pm—and as the hours were cut, the margins fell and he lost a ton of money. To save cash, Naderi oversees the daily operation of the station himself. He’s a steady presence at his Valero shop morning, afternoon and night—servicing, ringing up and assisting customers.
“It’s the manner of business they call ‘broken bone,’” he says. “You have to be here all the time.”
According to the NACS 2017 Retail Fuels Report, 59% of American gas stations are one-owner-operated. They own a single store, and in many cases tend to the store themselves; in essence, they are “buying a job.”
Naderi’s gasoline prices are around 40 cents higher than the Doubletime station less than a mile away. He explains that because he’s a branded Valero affiliate, he has to pay more for the fuel he receives on a weekly basis. It rips into his margin, and he has to charge more.
In fact, he doesn’t even set his station’s prices himself. Every day he receives a text or email from a ‘jobber’—a person they buy the gas from—telling him the gas price he must list.
“We have to add a bit of a margin to the price so we can make some money off of each gallon,” he says. “Around 2 cents a gallon.”
For most gas stations, the markup (or margin) on a gallon of gas hovers around 15 cents a gallon. This is the gross profit, before a mountain of expenses. After paying rent, station upkeep, labor, credit card fees and transportation costs, the average retailer is left with about 2 cents of actual income. On 2,000 gallons of fuel pumped each day, that’s only a profit of $50.
So if not gas station owners like Naderi, who exactly is getting rich off of $6 a gallon of gasoline? Through taxes, the federal government takes around 40 cents per gallon right off the top. And the state of California pockets another 81.45 cents. Transportation costs of shipping gas from refineries to service stations (via pipelines or trucks) munches up another 26 cents a gallon. And refiners like Valero, Sunoco and Frontier—who turn crude oil into gas—take around 24 cents a gallon of gas. And then there’s crude oil itself—by far the most expensive part of a gallon of gas. Crude producers like BP and Chevron take in a massive amount of money—over $2.07 per gallon.
The gas game in California is harsh for a lot of folks—especially consumers. Last month, Gov. Gavin Newsom and state lawmakers announced a tax rebate program that would provide up to $1,050 to millions of Californians to help offset rising gas prices and inflation. But the state legislature stopped short of suspending the gas tax, a move several lawmakers—both republicans and democrats—had asked for. In fact, California followed through on an annual gas tax increase, upping its tax on fuel by 3 cents per gallon.
Similar to 123,000 of the nation’s 150,000 gas stations, the Soquel Valero is also a convenience store. Drivers can pump gas, buy coffee and a donut, soda, chips, toilet paper and batteries. The convenience store/gas station combo sells more than 80% of all fuel sold in the United States. Somewhat shockingly, gas comprises 68% of the average station’s sales, but only 27% of its income. In other words, service stations can no longer survive just by pumping gas.
The real money for many gasoline retailers isn’t made at the pump—it’s in the refrigerator case. Cigarettes have always been the most popular items at gas station mini-marts, but bottled water and soda are by far the biggest generators of cash. Station owners can make up to 60% on a bottle of H2O.
“It’s a little bit here and a little bit there,” says Naderi. “This is a convenience store, too. And I operate a U-Haul dealership here, as well, getting paid a small percentage from the company. Every bit helps.”