Why Do Some Gas Stations Charge More Than Others? [AUDIO]
Tuesday evening, the average price for a gallon of regular gasoline was $3.31 at a Valero gas station in Manalapan. A few miles away, in the same town, another Valero station was charging $3.37 a gallon. The scenario may not shock you; in fact, you probably see it all the time.
How can stations sell gas cheaper than their competitors, sometimes by a difference of more than a dollar?
Even stations of the same chain have substantial price gaps, varying from location to location.
While the largest price margins most likely reflect the quality of gasoline in the pumps, there are several factors that play into pricing.
"(Gas retailers) want to maximize the profit without sacrificing volume," said Fred Rozell, Director of Retail Pricing at the Oil Price Information Service in Wall Township. "If they can get away with charging a certain price, and it doesn't affect volume, they will do it."
Location can be key in pricing, especially concerning the higher costs per gallon. For example, if a gas station is a driver's last option on Route 9 before entering the Parkway, the station's owner can be confident that jacked-up prices won't affect business much. In addition, a better location doesn't come for free. That last-option station could be paying much more for land than the owner of a station on a residential corner. The more off the top of profits, the higher the price of gas.
"Retailers don't make a lot of money on gas. It's a very small profit margin," Rozell added.
Gas stations expand that margin, according to Rozell, by getting people inside the adjoining convenience store to purchase items like coffee and chips. The offering of consumer goods tends to be the majority of profit for many stations.
Rozell explained, "If it's a traditional gasoline station with just a garage base, they have to operate at a higher profit margin because they're not making money anywhere else. If you're a convenient store chain, able to make money on selling more goods inside a store, you might operate at a lower profit margin."
Competition plays a clear role in pricing as well, particularly in situations where gas stations are right across from one another at an intersection. If one station drops the cost of a gallon, the other will likely follow - until the number of customers is evidently affected. If one Mobil station stands alone along a highway, the owner could have more freedom with pricing than the Mobil owner a mile away, sharing a four-way stop with three other stations.
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