Gas Stations Profit from More Than Just Gas Falling gas prices are actually good news to some independent gas station owners, who tend to make more as their wholesale costs drop. But the real money for such retailers lies not in the pump, but inside refrigerator cases.
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Gas Stations Profit from More Than Just Gas

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Gas Stations Profit from More Than Just Gas

Gas Stations Profit from More Than Just Gas

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REBECCA ROBERTS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Rebecca Roberts.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

Gasoline prices are falling from near-record highs. The Energy Department says the average price of gas fell by about a nickel a gallon on the last week as refineries ramped up production. And this may come as a surprise, but gas station owners often make more money when prices are falling. They tend to hold on to an extra penny or two per gallon as their wholesale costs drop.

As part of our occasional series on how a self-employed people make money, NPR's Scott Horsley spent some time with a station owner in Southern California.

SCOTT HORSLEY: The Los Angeles Basin is the biggest gasoline market in the world. And Andre van der Valk's little corner of it is among the most sought-after. That will be the corner of Ventura Boulevard and Lindley Avenue in the San Fernando Valley where van der Valk runs a Shell Station. There's an ARCO gas station just across the street, and a Chevron dealer right next door.

Mr. VAN DER VALK: It's highly unusual to see three stations on a corner, but it tells you the strength of Ventura Boulevard.

HORSLEY: Van der Valk sitting in his cramped office at the back of the Shell Mini Mart behind the ice machine and a door marked: this is not an exit.

Mr. VAN DER VALK: Typically, my day starts at about 5:30 in the morning and I get home usually 5:30. Saturdays and Sundays, probably four or five hours per day. I have not had a sustained vacation where I just take off for a week; we can have two weeks probably since 1989.

HORSLEY: That's when van der Valk took over this gas station after more than 20 years with the 76 Oil Company. Back then, gas was selling for an average of 85 cents a gallon. Today, his price is $3.45 a gallon of which van der Valk's own share is between 12 and 14 cents.

(Soundbite of printer)

Horsley: A printer, next to the cash register, logs every transaction from the gas pumps outside. From his post behind the register, Alex Martinez(ph) can keep track of all eight pumps at once.

Mr. ALEX MARTINEZ (Cashier): Like, I know if it's cash or credit. How much they're pumping, everything.

HORSLEY: Customers at this station buy about 80 percent of their gasoline using credit cards. That's higher than the national average of about 65 percent, but credit purchases are on the rise everywhere. Most because they are convenient and because they let drivers postpone the pain of high gasoline prices. As a result, credit card fees are now one van der Valk's biggest expenses. Of the 12 to 14 cents he collects on every gallon, about four cents goes to credit card companies. Another four cents goes to his landlord and four cents goes to his employees who make about 14 dollars an hour.

Mr. VAN DER VALK: With the gasoline and everything, that's about what one of these sites generates. So the guys that are making money are the guys that are looking at other things that you could sell out of the service station. And that's the constant strife.

(Soundbite of doorbell ringing)

HORSLEY: The real money in the gas station business isn't outside at the pumps, it's inside at the refrigerator case.

Mr. VAN DER VALK: Forty years ago, there was one Coke machine and one Pepsi machine out there, and you had a choice of maybe two or three brands. Now, boom, you've got a whole cooler.

HORSLEY: You've got Aquafina, Arrowhead, Perrier. I don't know, something down here, looks like, Voss, Evian, Dasani. You got three kinds of gasoline and nine kinds of water.

Mr. VAN DER VALK: Oh, yeah.

(Soundbite of laughter)

Mr. VAN DER VALK: No. I think it's even more than that, because you know what, you all have the different sizes, too. It's amazing how many women carry the big bottles.

HORSLEY: Cigarettes are the biggest sellers in the gas station mini mart, but bottled water is the biggest moneymaker.

Mr. VAN DER VALK: You tend to make at least 50 percent, 60 percent off on a bottle of water.

HORSLEY: So water is more profitable than gasoline?

(Soundbite of laughter)

Mr. VAN DER VALK: Water is more profitable than gasoline. Exactly.

HORSLEY: And gas station owners are always on the lookout for additional things to sell. Whether it's lottery tickets or Subway sandwiches. Van der Valk takes me to another gas station he owns, in neighboring Simi Valley. It's about 30 minutes away in his three-quarter-ton Chevy pickup.

Mr. VAN DER VALK: I'm getting 12 and a half miles to a gallon that I use every bit of it - the only luxury it's got except radio.

HORSLEY: Despite running a multi-million dollar company, van der Valk has a low-key lifestyle. He's lived in the same middle class neighborhood for 35 years. Two of his three grown children work in the family business.

On the road, van der Valk is constantly scanning the competition. After a moment, he grabs his cell phone and calls his son back at the Shell station.

Mr. VAN DER VALK: Hey kiddo. Hey, let's go down. $3.39, $3.49, $3.59. Yeah. No, no, no. Go down now. All right? Thanks. Bye.

HORSLEY: Van der Valk's wholesale cost had dropped two cents a gallon the night before. The second decrease in a week. And he'd left retail prices alone, hoping to pad his margin a bit.

After seeing what competitors are charging though, van der Valk gives in and drops his price by six cents. He is fortunate that his modern-looking stations were actually built years ago when both land and construction were cheaper. He points to one brand new gas station, he figures cost around $5 million to build.

Mr. VAN DER VALK: That canopy alone is supposed to be imported of town. And if you go inside it, it's gorgeous, but we're still selling gasoline. In the back of my mind, I could say still think that the consumer says, who pays the best.

HORSLEY: Van der Valk pulls up to his own gas station, but unlike his Ventura Boulevard location, there is no Shell sign here. This is a so-called unbranded station. So instead of buying exclusively from a Shell wholesaler, at a Shell-dictated price, van der Valk can shop around for the cheapest gas available.

At the moment, his wholesale cost at this station is about 15 cents a gallon below the shell stations. Ironically, the gas is coming from the very same refinery.

Mr. VAN DER VALK: Think about that, you know. And my margin over here now is 30 cents a gallon. My margin at the Shell is 12 cents a gallon. So it's more than double.

HORSLEY: In general, unbranded stations enjoy lower wholesale cost than branded dealers. Although when gas supplies are extremely tight, their prices can be higher. Van der Valk hedges his bets by owning both kinds of stations.

The other big moneymaker here in Simi Valley is a self-served carwash. Something van der Valk doesn't have room for back on Ventura Boulevard. The car wash brings in about $12,000 a month, he says, and since soap and utilities are the only expenses, it's practically all profit.

(Soundbite of carwash machine)

Unidentified Man: You have purchased the opening wash with Rainex. Please enter the car wash when it is ready.

HORSLEY: Customer Tony Acres pulls into the bay and the water nozzles go to work on his white Chevy blazer. Acres just paid $4.99 for the car wash and $1.35 for the monster energy drink he bought inside. That might seem like an afterthought to someone who has just shelled out more than 30 bucks for a tank of gasoline. But in the nickel and dime retail end of the business, the drinks and the car wash are where dealers really clean up.

Scott Horsley, NPR News.

(Soundbite of music)

SIEGEL: And for a breakdown of where the money that you pay for a gallon of gasoline goes, check our Web site, npr.org.

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