‘When you see it above four dollars a gallon, I’m hurting. I’m hurting hard,’ one said.
As gas prices skyrocketed this spring, Chuck Graff heard rumblings from the frustrated customers of his St. Anthony, Minn., gas station and service center. Some told him they were scaling back summer travel plans to their Northwoods cabins. They didn’t understand why prices were rising so fast, and they worried about how much higher they could go.
But the rising gas prices have also been difficult for Graff, the owner of Murphy’s Service Center, a family business started by Graff’s father in 1958. Graff’s wholesale costs for fuel have skyrocketed, too, crimping his cash flow, he said. And with customers spending more on gas, they’re spending less inside Graff’s convenience store, where sales are down about 18 percent.
To let his customers know that he felt their pain, Graff posted a message last month on the sign outside his station: “We hate our gas prices too.”
“It was just kind of a way to show a little empathy,” Graff said of the sign that gained him national attention. “We know it’s hitting you in the pocketbook, and we don’t like it either.”
Last weekend, in the days before the Fourth of July holiday, President Joe Biden posted a tweet that took aim at gas-station owners like Graff, seemingly pointing the finger at them and accusing them of gouging customers and unnecessarily contributing to the near-record gas prices.
“My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now,” Biden tweeted.
My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril.
Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.
— President Biden (@POTUS) July 2, 2022
Biden’s tweet was mocked as economically illiterate, and he was accused of demagoguing an industry that he seemingly knows little about. There are 116,641 convenience stores that sell about 80 percent of the gas in the U.S., and more than half of those stations, or 55 percent, are single-store operators, according to the National Association of Convenience Stores, or NACS. National Review reached out to gas-station owners across the country, and they pushed back on the idea that they’re gouging customers or are otherwise to blame for rising gas prices, which have been creeping up since they bottomed out during the worst of the Covid-19 pandemic.
“That’s kind of ridiculous,” Graff said of Biden’s comments.
Gas prices have been rising largely because of high demand and low supply. Oil companies cut back on production during the pandemic when fewer people were traveling. Geopolitical instability caused by Russia’s war in Ukraine has further limited supply and rattled markets, and OPEC has missed production targets. Hardly the fault of mom-and-pop gas-station owners.
The gas-station owners who spoke to National Review said they’re making no more money on a gallon of gas now than in years past, and sometimes they’re making less. Selling gas is a low-margin business — the gross margin on a gallon of gas in 2021 was 30.9 cents, up slightly from the five-year average of 27.2 cents, according to NACS.
In Minnesota, Graff was selling a gallon of unleaded gas for $4.69 a gallon on Thursday, and there’s a lot packed into that price. The Minnesota state gas tax is 28.5 cents per gallon, and the federal gas tax is 18.4 cents. There are smaller delivery and freight fees, environmental fees, and a federal oil-spill tax built into Graff’s price. Credit-card fees — as much as 12 to 15 cents a gallon — are also typically built into gas prices.
“Most stations can’t afford to absorb those credit-card fees, so it gets passed on to the customer,” Graff said.
The wholesale costs for fuel, which have things such as refining and marketing charges built in, make up the bulk of the price of gas. Graff said he gets a daily email with the latest wholesale rate.
“When these prices were going up so fast, there were days you would check your prices, and one day it would be one price, the next day it could be 25 to 30 cents higher,” said Graff, who typically gets two 8,500-gallon tanker loads per week. “And depending on what you paid for the fuel you have in the ground, that’s kind of going to determine where you have to sit at [with your price] until you use that fuel up.”
There are also expenses that come with running a gas station — pump maintenance and required upgrades, testing and licensing fees — that customers don’t see. “There’s a lot of hidden costs,” Graff said. “There’s a lot of money that goes into just staying compliant.”
Don Pommerville, the owner of Pommerville’s Automotive and Gas in Lompoc, Calif., near Santa Barbara, said Biden’s comments about gas-station owners were “really pissing me off.”
Pommerville said the spike in gas prices is “way worse” than anything else he’s seen in the 33 years he’s owned his business, which includes eight fueling stations, an automotive garage, and a small convenience store. He said the high gas prices are hurting, not helping, his business.
“I always tell my friends, when you see gasoline down at two bucks a gallon, I’m doing very well. When you see it above four dollars a gallon, I’m hurting. I’m hurting hard,” he said. “The margins get tighter. People don’t drive as much, so my volume goes down extremely low.”
And volume is key for Pommerville, whose gas is supplied and owned by a third-party partner. They split the profits, he said.
“You want to price yourself so you make enough money to survive, but yet you’re competitive with the other guys in the area, so that you can keep your volume up,” he said. “If you can get your volume up, you can price lower. Like Sam Walton, price it low and watch it go.”
Pommerville joked that his method for setting gas prices is complex: “I look across the street, see what the competition is, and I usually try to match them.”
Setting prices low is particularly hard in California, where the cost of a gallon of gas averaged $6.15 on Friday, by far the highest in the nation, and well above the $4.72 national average. That’s in part because California has one of the highest state gas taxes, which just increased by 3 cents on July 1, to 53.9 cents per gallon. The rising gas prices have been crushing for many small businesses in the state.
Democrats in California have toyed with the idea of some form of gas-tax break but haven’t implemented one yet. In June, Biden proposed a three-month federal gas-tax holiday, but Democrats in Congress dismissed the idea as not providing meaningful consumer relief.
Pommerville noted that what the state and federal governments combined receive in taxes from a gallon of gas in California “far exceeds” what he makes on that same gallon. “And we’re the bad guy,” he said.
Graff agreed that pointing fingers at gas-station owners is misplaced. “We have a lot less ability to absorb this than, say, the government,” he said. “I know they were talking about dropping the federal tax, and then he wanted governors to drop their state taxes. That hasn’t happened.”
For most gas-station owners, selling gas isn’t the most lucrative part of their business. Stations that sell a lot of gas typically can also drive a lot of business into their attached convenience store — “c-store” in industry language. Chips, cigarettes, soda: that’s where the real money’s at. “Virtually any item inside the store can carry a healthier profit margin than a fill-up at the pump,” according to an NACS report. High gas prices can hurt this part of the business, too.
“When prices go up, we suffer. Because nobody buys in our stores anymore,” said Joseph Birkho, who owns three San Diego-area gas stations, two branded and one independent. He said his business is down about 20 percent overall since gas hit $6 a gallon in California. “Our store sales plummet, completely plummet. You don’t have another ten dollars in your pocket to buy a pack of cigarettes or a chips for your kids on the way home, those types of things. So, when gas prices go up, ultimately our business goes down overall.”
Birkho said he depends on his gas business and convenience stores to stay afloat.
“The c-store alone can’t sustain itself, and the gas alone can’t sustain itself,” said Birkho, who is suspicious of the ballooning profits of the world’s largest oil companies. “You can’t mess with the big boys. They set the price, and we just follow.”
Birkho insists he’s not in a position to slash his gas prices, as Biden suggested. “I don’t have the ability to cut my gas prices without firing employees and bankrupting myself,” he said.
Debbie Morris, the owner of the Silver Streak Market in Lexington, Ky., said she sets her prices based on her bigger competitors down the road. Morris, whose business includes a gas station, neighborhood store, and restaurant, said she believes some of her competitors might be able to drop their gas prices a bit. But she acknowledged that she’s not making any more money per gallon now than when she first bought her business in September 2020.
“Gas isn’t a huge moneymaker,” she said. “People think, ‘I just spent $100 on gas,’ it doesn’t mean that I made $50 or anything. . . . There is a small margin of profit on gas.”
Morris said she’s actually seen an increase in customers as gas prices have risen, but fewer of those customers are filling up their tanks. “I get people saying, ‘Put ten dollars, put 20 dollars in,’” she said. “I just had a guy saying put five dollars in. I was, ‘That’s just a gallon, buddy.’”
Birkho said his employees have had several encounters with customers who are angry at the gas prices, particularly when prices spiked a few months back. He said the high prices and political demagoguery make gas-station owners look bad.
“Everybody thinks we’ve got a wheelbarrow, and we’re wheelbarrowing money home,” Birkho said. “It’s very stressful. The general population is very upset. There’s a huge misconception, and then they take it out on us.”