Gas Stations Rely on C-Stores as Credit-Card Fees Erode Fuel Profits

Escalating credit-card fees are squeezing service stations more than ever before because credit-card charges increase as a percentage of the total gas purchase while service station gross profit margins on fuel are fixed at approximately 14 cents a gallon or less despite the cost of the gas. In St. Paul, Minnesota, gas station manager Leah McKane makes more money on a $3 sandwich than she does on a gallon of gas costing $3.23, reports the StarTribune. 

“For most gas stations, it’s the convenience store that makes the money,” said Sue Nelson, who with her husband operates Fridley Amstar Auto Care. “You need to have an alternative profit center, whether it’s a convenience store with a deli, a car wash or a repair center,” she told the StarTribune.

For McKane, the math is simple:  Her fresh deli sandwiches sell for $3 and generate 90 cents in gross profit, or 30%. A gallon of gas sells for $3.23 and generates 14 cents in gross profit, or 4%. But, because gas is purchased primarily with credit cards, McKane’s BP station must pay transaction fees of approximately 6 cents a gallon, or 1.75%, to Visa or MasterCard. This leaves McKane with a gross margin on gas of 8 cents a gallon and a profit margin of just over 2%.

“You can’t run the place on that,” McKane said.  To compensate, her c-store sells everything from cold sandwiches, doughnuts, and fruit juices, to grocery staples like milk, eggs and flour – products on which the gross profit margins range from 10 to 40%.

Dan Gilligan, President of the Petroleum Marketers Association of America, a Virginia-based trade group, says that the service station profit squeeze afflicts the 95% of service stations that are privately owned rather than owned by major oil companies.  “Most gas retailers would love to have a one-penny net profit on gas (the rough equivalent of a 6-cent gross profit),” Gilligan said. “It’s that tight.”

Other credit cards used by businesses that own fleets of trucks or other vehicles charge even higher transaction fees than Visa and MasterCard.  “They eat up any gas profit that’s left over,” McKane said.