Gas for $1.10 / gallon

[nissangirl74]

http://www.thecarconnection.com/news/10 ... gallon-gas

In that article, the price wasn't lowered on purpose but it was a profitable mistake. Tons of people showed up in those four hours and you can bet that most of them came into the store and made another purchase as well. While the store did lose money on the price of fuel, they made up a lot of it on the profit they make selling stuff in the store.

I have a theory, tell me what you think.

The QT (QuickTrip) is one of the largest and nicest gas station / convenience store chains in Arizona. They have lots of pumps, their lots and stores are always clean, the service is outstanding, and their stuff in the store is priced well. Say on Fridays between 2 and 5 PM, they decide to run a promotion: $1.00 off every gallon of fuel sold. This would include regular, mid-grade, premium, and diesel. If I have a truck with a 20 gallon tank and I could save $20 on a fill up, I would absolutely do it. I think a lot of other people would do that as well. While the stores would lose some money on the sale of gas, they would sell a LOT more stuff inside their stores which yield greater profits than the fuel does.

Your thoughts?

[Razi]

I'd indeed probably end up buying something from the store if gas was that cheap!

[tigersharkdude]

Ive always had a thought process like that Bex

Sell 1000 gallons for $3.50 or 4000 gallons at $2.50

If said gas station had a legit starbucks inside, they would make BANK!!

[timmy0257]

they should actually make it a cash price. that would require guests to come inside and make their fuel purchase, thus grabbing a soda or pack of gum or whatever while they are in there. i know I would. also, they would not be paying merchant fees for the processing of credit/debit.

[Ajax]

they should actually make it a cash price. that would require guests to come inside and make their fuel purchase, thus grabbing a soda or pack of gum or whatever while they are in there. i know I would. also, they would not be paying merchant fees for the processing of credit/debit.

Truth. We've got a station that offers $0.10-15 off if paid with cash. I'm pretty set in my ways always going to the same stations and paying with credit (I get cash back at the end of the year), so I don't partake; but I would seriously consider changing if it was $1 off with cash.

[timmy0257]

they should actually make it a cash price. that would require guests to come inside and make their fuel purchase, thus grabbing a soda or pack of gum or whatever while they are in there. i know I would. also, they would not be paying merchant fees for the processing of credit/debit.

Truth. We've got a station that offers $0.10-15 off if paid with cash. I'm pretty set in my ways always going to the same stations and paying with credit (I get cash back at the end of the year), so I don't partake; but I would seriously consider changing if it was $1 off with cash.

there is a station in the "not-so-good" part of town in Tallahassee that is always cash only. they do have relatively cheaper gas. about $.10 less than the station down the street. They are also always the first to lower prices when others lag behind.

I drive ALOT so I try to watch the cost of oil/barrel and estimate by watching RBOB (gasoline futures). if I see a sharp decline in oil prices, i will just put $10-15 in at a time then when I see it has dropped, i will just fill up.

IMHO, i think it would be wise for stations to make the offering of "cash price fuel" cheaper. it drives more business inthe door and there is far more markup on the merchanise inside the store anyways. you cant sell Vitamin Water, lotto and cigs to a pay at the pump customer. They are in and out.

[LEMHEAD16]

I EFFING LOVE QT! It's like the Ritz Carlton of gas stations.

Wish they had them up here in Idaho.

[Oatmealman]

The local grocery store already has something set up like that.You buy so much worth of grocerys and you can go to the gas station and save up to 1.50.Its a pretty cool system.For every dollar you spend at the grocery store or gas station you get points.Save up a certain amount of points and you can get a 1.50 off on a regular basis.

[ADDirishboy]

That theory would work wonders, especially at a place like QT. Toss the nozzle in my car, walk inside, grab a xyience and a taquito or two, walk back out and leave. Granted, I do this every time I go to QT, but since QT isn't the closest I usually go to the chevron around the block. But if they offered that much off, I would make the drive, and so would many others.

[nissangirl74]

The local grocery store already has something set up like that.You buy so much worth of grocerys and you can go to the gas station and save up to 1.50.Its a pretty cool system.For every dollar you spend at the grocery store or gas station you get points.Save up a certain amount of points and you can get a 1.50 off on a regular basis.

Fry's does this but you only save 10 cents per gallon, some of their groceries are over-priced, and the points expire. It's good to have though because it is actually a reality and not just a dream. 10 cents is 10 cents and that adds up, especially if you drive a lot.

[hbpignosePA]

the two main grocers in my area do this... one has better rewards but crapper produce. i love to cook so for packaged items i shop at the one and for other items i shop at the other... sure they expire monthly, but you need groceries anyways (i am awesome at spending about a hundred a week on food and making dinner from scratch). the 50+ cents off i use for my daily.... i also take along 5 gallon tanks since its a 30 gallon maximum. ( my tank holds 11) so i buy gas once a month basically

[Kompresshun]

The local grocery store already has something set up like that.You buy so much worth of grocerys and you can go to the gas station and save up to 1.50.Its a pretty cool system.For every dollar you spend at the grocery store or gas station you get points.Save up a certain amount of points and you can get a 1.50 off on a regular basis.

Kroger does that here now, basically you have an option to use all of your points at that fill up, for up to $1.50/gal off I believe. Used to it was $.03/gal off unless you bought $100 worth of groceries, then you would receive $.10/gal off of your purchase. I don't fill up at Kroger regularly, so i'm not too familiar with the system yet though, so I don't know if there is a catch or not but I assume that you just rebuild the points again after that purchase. I know Marathon gas stations also offer some sort of rebate card as well, but they're usually $.10-.20 more than everyone else.

I definitely don't mind the extra savings, if I have the points to use, but usually I just fill up at Sams Club since it's usually cheaper at regular prices.

[AZhitman]

they should actually make it a cash price. that would require guests to come inside and make their fuel purchase

Some attorney would come along with a "discrimination" complaint and screw that up...

[timmy0257]

they should actually make it a cash price. that would require guests to come inside and make their fuel purchase

Some attorney would come along with a "discrimination" complaint and screw that up...

no doubt. what has this world become

[carloslebaron]

It can be done with the "special offer of the week", like to say, buy up to $10 in groceries and the gas price will be $2.00 per gallon, buy $10to $20 in groceries and the gas price will be $1.75 per gallon, and so forth.

The more groceries people buy at the store, the cheaper the gas price. If the prices of the groceries are very competitive in accord with the price of the rest of stores, perhaps the gas station might have good business, and lots of customers.

[Encryptshun]

they should actually make it a cash price. that would require guests to come inside and make their fuel purchase

Some attorney would come along with a "discrimination" complaint and screw that up...

On the surface this all sounds like a brilliant idea, but customers would have to buy a sh*tload of groceries in order for the store to make up the $30.00 per fillup they'd be losing on the fuel.

But if someone tries it and doesn't want to go the "cash only route", another option would be to just remove the pay-at-the-pump option. If the point is to get them to buy groceries, customers will be happier (and may buy more) if they can use plastic.

[Jesda]

Demand for gas is inelastic, so fuel station operators don't feel compelled to provide incentives to sell gasoline.


And QT has awesome cucumber wraps!

[AZhitman]

On the surface this all sounds like a brilliant idea, but customers would have to buy a sh*tload of groceries in order for the store to make up the $30.00 per fillup they'd be losing on the fuel.

I wouldn't be so sure... What if they sold ten times as much fuel in a given period of time?

I'm no economist, but there's gotta be a "break-even" point, after which profits increase.

Realistically, if one did it, all competing stations would have to do it - and they're not gonna play that game.

[Encryptshun]

Hmm. I don't think I'm following, Greg. If they sell a product at a loss, the more they sell the more they lose. There would be no break-even point, as the distributor who is selling them the gas has a monopoly on the region or chain and really no incentive to give the station a break on the bulk fuel just based on the increase in sales. Stations rarely if ever can bid out their own bulk fuel distribution company.

[Jesda]

The idea is to turn an even greater profit on store items, which are heavily marked up at convenience stores. There's risk involved, and since gas sells itself, the motivation to take the risk isn't there. Its an idea that might work on a busy corner. Many gas stations already sell fuel at a loss of a few cents per gallon with the intention of making up the loss with car washes, milk, lottery tickets, and cigarettes.

[szh]

If a gas station owner loses, let's say $1 per gallon, and someone puts 10 gallons in a typical car fill-up, there is no realistic way that he is going to get that much profit out of incidental purchases made by the car owner.

As a rough estimate, given typical 33% margins on other products, for a $1 gasoline profit loss, with a 10 gallon fill-up, each car owner would have to spend $30 to allow the gas station owner to just break even! With more gas filled, the numbers would be worse.

Plus, given that the number of car owners who actually buy anything is likely to be less than 100%, and the margin on other items in the store are not that high (else people would not buy them), it is highly unlikely that the loss is gas profit could be made up with other product profit.

Thus, practical reality says it's not gonna happen. The owner may sell gas at cost (or a few pennies less like Jesda says), but more than that is not likely.

Z

[AZhitman]

Guess that makes sense, I wasn't aware that the margin on fuel was that slim...

[szh]

Guess that makes sense, I wasn't aware that the margin on fuel was that slim...

Like another post mentioned, the price of gas for the consumer is actually quite clearly relative to the cost for the gas station owner.

The gas station owners make surprisingly little actual money per gallon of fuel sold - taking cost of goods sold, expenses, etc., into account. The real profit ends up in the gasoline corporations.

Z

[AZ89two4Tsx]

If a gas station owner loses, let's say $1 per gallon, and someone puts 10 gallons in a typical car fill-up, there is no realistic way that he is going to get that much profit out of incidental purchases made by the car owner.

As a rough estimate, given typical 33% margins on other products, for a $1 gasoline profit loss, with a 10 gallon fill-up, each car owner would have to spend $30 to allow the gas station owner to just break even! With more gas filled, the numbers would be worse.

Plus, given that the number of car owners who actually buy anything is likely to be less than 100%, and the margin on other items in the store are not that high (else people would not buy them), it is highly unlikely that the loss is gas profit could be made up with other product profit.

Thus, practical reality says it's not gonna happen. The owner may sell gas at cost (or a few pennies less like Jesda says), but more than that is not likely.

Z

^ Winner winner chicken dinner. Simple economics and math at its best.

And btw, they already have gas stations that charge less when you pay with cash. They're called ARCO. Actually, they don't charge less, they charge a $.45 fee if you pay with a card. Even though their gas is usually about a nickel cheaper, they're profiting regardless. Cash is slowly becoming a thing of the past unfortunately.

In my opinion, I think something similar to what they do with grocery stores around here would work. As Becky said, around here you can receive a discount per gallon if you spend such and such amount on groceries each week. It should be, IF you buy something inside the gas station, for say a dollar or more, you get some sort of discount on your gas purchase. That would, in theory, attract more customers, generating more sales and creating more profits for the gas station. Even though the customer thinks they're getting a good deal, it really is just the gas station that's profiting that much more in the end. While I don't think a full dollar off per gallon is realistic, I could see some of the larger stations like QT and AMPM begin to offer small discounts like 10-15 cents off per gallon with a purchase.

[szh]

On the surface this all sounds like a brilliant idea, but customers would have to buy a sh*tload of groceries in order for the store to make up the $30.00 per fillup they'd be losing on the fuel.

Agreed! I missed this post from you when I responded.

Z

[Jesda]

Guess that makes sense, I wasn't aware that the margin on fuel was that slim...

I'm an expert on these things.

[nissangirl74]

If a gas station owner loses, let's say $1 per gallon, and someone puts 10 gallons in a typical car fill-up, there is no realistic way that he is going to get that much profit out of incidental purchases made by the car owner.

As a rough estimate, given typical 33% margins on other products, for a $1 gasoline profit loss, with a 10 gallon fill-up, each car owner would have to spend $30 to allow the gas station owner to just break even! With more gas filled, the numbers would be worse.

Plus, given that the number of car owners who actually buy anything is likely to be less than 100%, and the margin on other items in the store are not that high (else people would not buy them), it is highly unlikely that the loss is gas profit could be made up with other product profit.

Thus, practical reality says it's not gonna happen. The owner may sell gas at cost (or a few pennies less like Jesda says), but more than that is not likely.

Z

I still think it is possible to make a profit at this but you would have to have the exact cost of gas to find out for sure.

FWIW, I used to manage a convenience store and I can tell you that there is very little in one of those stores that only has a 33% profit margin. The coffee is at least 200% profit and the fountain drinks are more than that. Ice, syrup, and water are all cheap. Your biggest expense is the CO2 and that they get at bulk price. The prepared food is cheap too. Your highest expense there is the packaging. The reason I suggested Friday afternoons is that's when a lot of people get paid. After work they'd stop by the store and fill up their gas tank, buy a carton of cigarettes, a 12 pack of beer, and a couple of lottery tickets. That was their routine. They budgeted that amount of money each week for those things. If they had made some extra money that week, they would spend more. Most people will spend money if they have it. Lots of people would justify spending that money they saved at the pump in the store. It might not be the right thing to do but it happens. A lot.

My very rudimentary theory is that if you can bring 100 more people per hour into your store for three hours once a week and the ONLY thing you are losing money on is fuel, it might not be such a great loss. The biggest benefit is if you can entice those 100 people to become regulars at your store and shop there the other 165 hours of the week. Then your overall profit margin escalates. They could probably count off the loss on their taxes as an advertising expense as well.

[Dattebayo]

I still think it is possible to make a profit at this but you would have to have the exact cost of gas to find out for sure.

Nope. Most individual gas stations make maybe 5-10 cents or so per gallon profit. Most of their money actually comes from cigarette, soda and food sales.

[szh]

I still think it is possible to make a profit at this but you would have to have the exact cost of gas to find out for sure.

Nope. Most individual gas stations make maybe 5-10 cents or so per gallon profit.

Yup!

You'd have to sell a lot of other items - even at higher margins, Becky - to make up for deliberately designed gas profit losses intended to get people into the store.

Z

[Jesda]

While the execution might not work, this is the kind of thinking that made Sam Walton the richest man in America. Instead of making the same profit margin on every single item, he used teasers piled up in wide aisles to give the impression of lower prices, and ran ads in circulars advertising them.

In the early days of Wal-Mart [when each store had lots of individual flexibility], a manager at one store bought more detergent than anyone would ever need and stacked it all along the ENTIRE back wall of the store, up to the ceiling. They ran ads advertising Tide for 50% off and got people to swarm into the stores. They broke even on the detergent because they got a large [huge] volume discount, and most importantly it built WM's image as being a price leader. Profits were consistently made on smaller items like pantyhose and Moon Pies.

The Moon Pie makes Wal-Mart a boatload of money.

So, while discounting gas as a retail teaser might not work, especially when people just swipe their cards and leave without entering the C-store, the gas station could offer other bonuses. Maybe do 5% off your fuel total for coming inside and paying cash? Maybe then people would pick up a candy bar or beer while waiting in line. *shrug*

Its worth playing around and experimenting.