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Profits from gas sales stay thin; Station operators feel pump pinch, too

With gas prices averaging $4.10 per gallon in Western New York, consumers at the pump are feeling the pain. But what they might not realize is that gas station owners share that pain more than anyone.

"People are under the impression that when gas prices are high, we make a lot of money," said Ahmed Abuhamra, owner of the Valero gas station on South Elmwood Avenue in Buffalo. "There aren't any gas station owners making money when the prices go up."

In fact, profit margins for store owners on gasoline are thin.

Many merchants make just 2 cents to 6 cents in profit per gallon, and that margin changes very little whether the price of a gallon is as low as $2 or as high as $5.

Some of the profit is eaten up by credit card swipe fees, the fees merchants must pay in order to accept credit and debit card payments.

At $4 per gallon, about 7 cents goes to the credit card companies, according to a report from the National Association of Convenience Stores.

That's more than the gas station makes to sell the gas.

And because part of how fees are calculated depends on the price of the transaction, higher gas prices mean higher fees.

Another large chunk of that price goes toward taxes.

Merchants in New York State pay a flat tax rate per of 67.4 cents per gallon. Of that, 18.4 cents goes toward federal taxes, the other 49 cents is split among state and local levies, according to Gregg Laskoski, a senior petroleum analyst for GasBuddy.com.

That makes gasoline more of an attraction than a profit center for convenience stores.

The more profitable items are the chips, candy and sodas sold in a gas station's convenience store.

Yet when consumers spend more outside at the pump, they have less to spend on items inside the store, where the markups are much higher.

That can be disastrous for a store's bottom line.

"Gasoline is a necessity. Consumers are caught in an impossible situation," said Arun Jain, an international retail expert from the University at Buffalo School of Management. "They need mobility and most likely have inefficient vehicles." Their only way of coping, aside from looking for low gas prices and driving conservatively, is to cut back on other budget items, Jain said.

At Sunrise Food Market on William Street in Buffalo, convenience store offerings go beyond the usual groceries, beer and cigarettes. The store sells a large array of hair products, clothing, hats and other items.

"People used to come in with $20 and say, 'Give me $10 on the pump,' and then they would spend $10 inside," said Saleh Saeed, a manager at Sunrise Food Market. "Now they spend $2 inside and put $18 in gas."

Gasoline is far from a gas station's bread and butter, said Laskoski of GasBuddy.com.

"Some places like Costco and Sam's Club will even use gas as a loss leader because their intent is to get the customer in the door where they will spend money on those items that have higher profit margins," Laskoski said.

Indeed, Tops Markets has found great success with its strategy of adding gas pumps to its grocery stores.

Inside sales are higher at Tops stores with gas stations than ones without them, Tops CEO Frank Curci has said, and a store's sales increase after a new gas station is added.

What's truly valuable is not the revenue from the gas, but the foot traffic that results from the gas program and translates into in-store sales.

"It's not so much the price at the pump, because we offer big discounts. We like the traffic-building aspect of having gas sales," Curci said in a prior interview. "It's a nice, steady draw to our stores."

If anything, gas station owners wish the price of gas would come tumbling down -- the lower the better.

"People would buy more gas, we would sell more volume and people would have more money to spend inside," Abuhamra said.

email: schristmann@buffnews.com