Here’s a nice piece of gasoline trivia. In a year when the Natural Resources Defense Council reports that gasoline retailers make an average of around 4 cents a gallon, a broker trying to sell two Arcata gas stations says that they routinely rake in 35 cents a gallon.
“Due to high margins in this area it generates a huge cash flow,” AW Ackerman Commercial Real Estate Services writes about the Texaco station at 412 J St. in Arcata, which is on sale for just under $1.2 million. It sells around 70,000 gallons every month at 35 cent per gallon markup, the site says (h/t to a Humboldt Herald comment for a link to Ackerman’s site).
Meanwhile, a Shell station at 1401 G St. in Arcata has claimed the exact same profit margin (funny, how that works) on sales of around 80,000 gallons a month. It was being offered for sale at $2.2 million on the Ackerman website on Thursday, but the ad was down on Friday.
Update: Bud Ackerman, the realtor on these listings, says both stations are still for sale, but one of the ads has temporarily expired. The stations are being sold by two different owners, and potential buyers would generally expect to see documentation of the past markups. Although 35 cents a gallon is “pretty good,” Ackerman said, the volumes sold aren’t great — a better volume would be around 100,000 gallons a month.
But a Redding-area realtor who also handles gas stations said a good station should be selling 50,000 to 65,000 gallons a month, at markups that can range from a few cents per gallon to 20 or 30 cents, depending on location. How good is 35 cents a gallon, particularly when selling 70,000-plus gallons a month?
“That’s a very high markup,” said Ron Largent of Sheldon Largent Realty. “He’s making money. That’s excellent. … If he does have a 35 cent markup with that kind of volume, he’s doing very well.”
In the Central Valley, where Largent helps people buy and sell gas stations, markups like that could only be commanded at exceptional locations and likely would come with a tradeoff: selling a noticeably lower volume of gas, because consumers will shop around for lower prices if they can. In other areas though, “there’s almost an unspoken rule” that stations do not undercut each other. When that happens, he says, “The consumers, what can they do? It’s a captive market.”
Now, nobody suggests that a gas station owner is the only one involved in gasoline pricing. The owners mostly have to pay prices set by their distributors, and in parts of California, markups are so low the stations couldn’t survive without their convenience stores. In Humboldt, though, stations have a tradition of copying each other’s lofty prices, and a couple of distributors dominate the market. (See “Gasoline Kings” in the July 7 Journal.) How powerful are those distributors? Good question, and there have been plenty of dark suggestions, but no proof.
If somebody wanted to find out a lot more, and possibly get some lower gas prices to boot, how about a giant Kickstarter campaign to buy an Arcata gas station? It could be a co-op. Mark that gas up just enough to pay expenses. See if anything bad happens, or if the thing just hums along and sells gas at more affordable prices.
This article appears in Top 10 Stories of 2012.
Nice sleuthing!
Steady-state extra-normal profit margins in an industry with a hand-full of separately owned sellers of an essentially homogeneous good suggest market failure due to collusion.
That it is likely tacit rather than overt removes the antitrust regulatory threat, alas.
You can read more about collusion (tacit and otherwise) at: econ.jhu.edu/wp-content/uploads/pdf/papers/wp588_harrington.pdf
I believe you might be comparing Apples to Oranges.
The 35 cents per gallon quoted in the ad is gross profit (and that is higher than the independent gas stations in the area by about 5-7 cents per gallon).
The 4 cents per gallon figure quoted in your first paragraph has to be net profit meaning after wages, rents, utilities, insurance etc.
So, I do not understand how people will come up with over $2 million and not expect a descent rate of return on the investment. If you look at the figures with a net profit of $.05 a station will be making about $3500 a month in net profit, not a reasonable rate of return for such a large investment. It looks like your “investigation” leaves a lot to be desired.
You know, if you did some real sleuthing, you would have noticed that one of those stations has sold within the last couple of years. If they are really “raking” it in, why would the company, who has been doing some major expanding, have sold it off?
Then again, that would take some real reporting, and not just shitting out another hit piece.