The Economics of Everyday Things: “Gas Stations” (UPDATED)

Podcast: The Economics of Everyday Things
Host: Zachary Crockett (Freakonomics Radio Network)
Episode Title: Gas Stations (UPDATED)
Release Date: October 24, 2025

Episode Overview

This episode dives into the economics behind American gas stations, revealing the surprising truth about how little profit comes from selling gasoline itself. Journalist Zachary Crockett explores the complex global supply chain, fierce competition, razor-thin margins at the pump, and the real bread-and-butter business of gas station owners—the sales inside the convenience store. Updated from the popular first episode, it includes recent figures and insights into the impact of electrification and changing consumer habits.

Key Segments & Insights

1. Americans and Their Gasoline (01:12 – 03:02)

• Setting the Stage:
  Americans consume an astounding 376 million gallons of finished motor gas each day—enough for 30 full tanks per registered vehicle every year.
• Price Volatility:
  Gas prices swing due to a tangled web of global markets, seasonal patterns, and geopolitics, fueling public complaints and leading to misplaced blame.

Quote:

"When gas gets expensive, we all look for someone to blame...the easiest target is the person who has to contend with disgruntled customers face-to-face, the gas station owner."
— Zachary Crockett (02:23)

2. Who Actually Owns Gas Stations? (03:02 – 04:42)

• Ownership Reality:
  Despite big oil branding, 80% of U.S. gas stations are run by independent operators—often immigrants—who pay oil companies for branding and fuel supply.
• A Personal Story:
  Jitender P. Sethi, who immigrated from India, bought his first station at age 17 and eventually ran more than 40 stations.

Quote:

“I bought it for $80,000. Wasn’t easy. Probably worked seven days a week, fourteen, fifteen hours a day...”
— Jitender P. Sethi (04:16)

3. The Gas Business is a Pennies Business (04:51 – 06:47)

• Minuscule Margins:
  Sethi calls it the “penny business”—gas station profits amount to only 7 cents per gallon on average.
• Breakdown of a Gallon (for a $3 price):
  • $1.50: crude oil
  • $0.50: refining
  • $0.50: taxes
  • $0.40–0.50: left for the station (to cover all costs, not just profit)
• Overhead Eats Profits:
  Expenses like maintenance, utilities, rent, and liability insurance leave very little true profit.

Quote:

"We don't count dollars, we count pennies per gallon."
— Jitender P. Sethi (04:51)

"By the end of the day, they’re averaging somewhere in the neighborhood of 7 cents a gallon of profit."
— Garrett Golding (Federal Reserve Bank of Dallas) (06:40)

4. Cut-Throat Competition (06:47 – 08:41)

• Price Wars:
  Competition is so fierce that owners often undercut each other to unsustainable levels and occasionally make informal agreements—though not always amicably.
• Inventory Risks:
  Station owners buy fuel in bulk for a few days, locking costs; if the market shifts, they must decide whether to eat losses or lose customers.

Quote:

“I lowered 10 cents, and the guy competing with me lowered 20 cents...He was making no money. I said, okay, I’m not going to play this game.”
— Jitender P. Sethi (07:15)

5. The “Rockets and Feathers” Phenomenon (08:41 – 09:32)

• Price Stickiness:
  Gas prices shoot up quickly (“rockets”) when oil prices rise but come down slowly (“feathers”) after drops, as owners try to smooth out volatility and recover from losses.

Quote:

"In the economics world, the energy nerds, we call this rockets and feathers, where the price of oil can go up like a rocket, but the price of gasoline comes down…like a feather."
— Garrett Golding (09:04)

6. The Real Business: Inside the Convenience Store (13:20 – 14:59)

• Store is King:
  The bulk of a gas station’s profit comes from the store, not the pump.
• Best Sellers & Margins:
  • Cigarettes: ~15% margin
  • Beer: ~25%
  • Candy: ~40–45%
  • Coffee: ~50%
  • Ice bags: massive markup

Quote:

“We are a gas station slash convenience store. We try to be a one-stop shop.”
— Kai Trimble Lee (13:20)

“I would love to sell you ice bags all day long...Probably cost us 49 cents.”
— Jitender P. Sethi (14:51)

7. High Gas Prices Hurt the Whole Business (15:01 – 16:48)

• Ripple Effects:
  When gas prices spike:
  1. Margins get slimmer.
  2. Gas and in-store sales volume drops.
  3. Customers cut back on both gas and treats.
  4. Incidents of overnight fuel theft increase.

Quote:

“Now you’re having to choose, do I want two candy bars or just one?”
— Jitender P. Sethi (15:40)

“They have three, four hundred gallon plastic tanks in their truck...they will take away three, four hundred gallon gas.”
— Jitender P. Sethi (15:58)

8. Future of Gas Stations: The EV Dilemma (16:48 – 18:21)

• The EV Question:
  Electric vehicles currently make up a small fraction of cars but a growing share of new sales.
• EV Charger Investments:
  Installation is expensive ($50k+ per unit), requiring station owners to gamble on the pace of adoption.
• Strategic Opportunity:
  Charging takes time, potentially encouraging more in-store purchases in the future; big chains are building EV infrastructure, but small stations are hesitant.

Quote:

“The billion dollar question here for the service station owners is how aggressive do you get with investment in something that is going to take a few years to really have a broad customer base.”
— Garrett Golding (17:24)

“Right now, it’s not very lucrative to have those chargers. But…many people are putting the infrastructure in underground so when the time comes, they can switch.”
— Jitender P. Sethi (18:07)

9. The Takeaway: Why Run a Gas Station? (18:21 – 18:56)

• A Tough Business:
  Owners face unpredictable costs, competition, and technological shifts, but at least they get one perk—cheaper gas for themselves.

Quote:

“I usually go to my own store, pay my own gas.”
— Jitender P. Sethi (18:45)

“At least I can make 30 cents a gallon.”
— Jitender P. Sethi (18:50)

Memorable Closing Moment

Quote:

“You know what? I don’t have any gas station friends. I’m gonna have to go make some gas station friends.”
— Kai Trimble Lee (19:16)

Summary

• Gas stations are a quintessential but misunderstood American business, with razor-thin fuel margins and real profit coming from snacks and essentials inside the store.
• Owners, frequently independent and immigrants, compete fiercely and manage volatile, sometimes cutthroat markets.
• While electric vehicles are changing the industry’s calculus, the day-to-day business still revolves around coffee, chips, and bagged ice—not what you put in your car, but what you buy after you get there.

For more episodes of The Economics of Everyday Things, browse the Freakonomics Radio Network.