Gas Stations (UPDATED)

Summary

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

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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.

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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)

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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)

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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)

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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)

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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)

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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)

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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)

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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)

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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)

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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)

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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.

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

Transcript

[Zachary Crockett]

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[Jitender P. Sethi]

Not scripted.

[Zachary Crockett]

Hey Zach here. Just a quick note. Gas Stations was our very first episode of the Economics of Everyday Things. All the way back In January of 2023, when we first published this, gas prices were coming off of a historic high of around $5 a gallon. Today, the national average is back down to a little over $3 a gallon. We've made a few updates to this story to bring it up to date. Alright, on we go. We Americans just love our gasoline. We use 376 million gallons of finished motor gas every day. That's around 30 full tanks for every registered vehicle each year. In many ways, gas is the workhorse that drives our economy. It gets us to the office, grocery stores and shopping centers. As much as we love gasoline, we also love to complain about how much it costs. The price of gas tends to go up and down in cycles. That's the result of a pretty complicated web of global market forces, seasonal patterns and geopolitics. When gas gets expensive, we all look for someone to blame. Politicians, oil executives, foreign governments. But the easiest target is the person who has to contend with disgruntled customers face to face. The gas station owner. When you stand at the pump and watch the bill tick up 10, 20, $50. You may think that gas station owners are making out like bandits, but is that really the case?

[Kai Trimble Lee]

No. Can I yell that any louder? It's definitely not what people think.

[Zachary Crockett]

For the Freakonomics Radio Network, this is the Economics of Everyday things. I'm Zachary Crockett today. Gas stations. There are more than 150,000 gas stations in the U.S. a lot of them have signs displaying the logo of one of the big oil companies. But that doesn't always mean that the company owns the gas station. Eight out of 10 gas stations in the US are actually run by independent operators. They pay oil companies for the right to use their branding and gas. Many of them came here from other countries. Like Jitender P. Sethi.

[Jitender P. Sethi]

I was born and raised in New Delhi, India. I came here 17 year old in 1976, and two days after arrival I was working at a Sonic drive in food joint in Jackson, Mississippi.

[Zachary Crockett]

Sethi eventually made his way out to San Jose, California, where a friend from India offered to sell him a gas station with a convenience store. He didn't know much about the business, but he took a risk on it.

[Jitender P. Sethi]

October 10, 1980. I bought the store and I never looked back. I named it Penny Saver, a convenience store with two fuel pumps. I bought it for $80,000. Wasn't easy. Probably worked seven days a week, 14, 15 hours a day sometime, and it was not the best location. But I got the taste of the blood and never stopped.

[Zachary Crockett]

Since then, Sethi has owned more than 40 gas stations. He's made good money, but the gas itself is something of a footnote.

[Jitender P. Sethi]

You know, gas business is penny business. We don't count dollars, we count pennies per gallon.

[Zachary Crockett]

How is that possible? Well, the stations are at the very end of a long, complex and expensive supply chain.

[Garrett Golding]

We get the majority of our oil from our own domestic production, primarily in the Gulf Coast, Texas, New Mexico, North Dakota, Montana as well.

[Zachary Crockett]

That's Garrett Golding. He's the assistant vice president at the Federal Reserve bank of Dallas, where he spends a lot of time thinking about oil and gas.

[Garrett Golding]

The oil company sells to the refiner. The refiner's gonna sell it to a distributor, distributor's gonna sell it to the retail pump station or chain of stations.

[Zachary Crockett]

Golding says that most of what we're paying at the pump covers that very first step of the process, pulling that raw black stuff out of the ground in Texas or North Dakota.

[Garrett Golding]

Generally, between 40 and 50% of your cost of gasoline is that cost of crude oil.

[Zachary Crockett]

These percentages change quite a bit based on geopolitics, international trade and a bunch of other factors. But let's say you buy a $3 gallon of gas. About $1.50 of that is the cost of crude. You're paying around 50 cents or so for refining and another 50 cents in federal, state, and local taxes. When all is said and done, the gas station owner only has around 40 or 50 cents left over. And that has to cover fuel truck delivery charges, marketing, and a lot of other overhead costs.

[Jitender P. Sethi]

You got maintenance, you got electric bill, you have repairs, you got the rent you gotta pay, and you got all kind of liability, fire protection, slip and falls.

[Garrett Golding]

So by the end of the day, they're averaging somewhere in the neighborhood of 7 cents a gallon of profit.

[Zachary Crockett]

On average, a gas station sells roughly 4,000 gallons of gas every day. At 7 cents per gallon, that's a daily profit of around $300. So why don't gas station owners charge more for gas? For starters, they have a lot of competition. Stations are often clustered together and, well, the guy across the street doesn't always play nice.

[Jitender P. Sethi]

I lowered 10 cents, and the guy competing with me lowered 20 cents. So I lowered 10 more cent. He goes under 20 cents and he was making no money. I said, okay, I'm not gonna play this game. So went up 20 cents, he went up 10 cents. It happens all the time.

[Zachary Crockett]

Do the station owners ever just walk across the street and say, like, hey, man, let's just keep it at 415 a gallon today.

[Jitender P. Sethi]

You know, they're not supposed to, but many do and some don't. Some hate each other, and they compete like anything.

[Zachary Crockett]

Station owners usually buy a few days worth of gas at a time, which they store in underground tanks. Once they load up, their costs are locked in for the next 48 to 72 hours. But the price of wholesale gas changes every 24 hours. If your competitor buys in at a lower cost, he might be able to undercut you. So you have a choice to make. You can lower your prices and maybe lose money on every gallon of gas you sell or keep a little profit margin and watch your customers go across the street. Ultimately, gas station owners are even more exposed to market fluctuations than their customers are.

[Jitender P. Sethi]

You really don't have any leverage to negotiate. The price is set per day. The crude price and the refiner, they all set their prices.

[Zachary Crockett]

Station owners tend to insulate their customers from the ups and downs of the oil market. What that means is when crude prices go up, station owners are slow to pass on the extra cost to us at the pump. And when prices fall, they don't pass along the savings right away either. A station owner like Sethi might keep his prices high for a while to make up for the bad times.

[Garrett Golding]

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, down like a feather. This is a frustrating thing for consumers to witness, but one way that I try to explain this is generally consumers are not getting the full price run up as it is running up, and they're paying for it on the way back down.

[Zachary Crockett]

So if gas isn't a big money maker, how do gas stations stay in business? That's coming up. The Economics of Everyday Things is sponsored by SurveyMonkey. Look, we get it. You can hardly go anywhere or do anything these days without hearing about AI this or AI that. And if you're like most people when it comes to AI, you're impressed but have a few concerns. But what if AI was used not as a tool to replace people, but as a way to help understand people better? AI from SurveyMonkey is designed to do just that. From crafting the perfect survey, which is harder than you might think to analysis that digs deep, finds patterns and surfaces trends quickly. SurveyMonkey's powerful suite of AI capabilities makes it faster and easier than ever before to get insights from real people helping you make confident decisions for your business. Try it [e-mail] Economics.

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[Kai Trimble Lee]

We are a gas station slash convenience store. We also have a takeout restaurant inside, so we try to be a one stop shop.

[Zachary Crockett]

That's Kai Trimble Lee. She owns a BP gas station in Milwaukee, Wisconsin. Since we spoke to her, she's started leasing it out to another operator. She told us the bulk of the station's income came from selling food. What kind of food?

[Kai Trimble Lee]

Oh, you know, the bad stuff. But that's good stuff. Pork chop sandwiches to beef polishes to wings to catfish to shrimp po boys. The corned beef sandwiches. We got some magic going on.

[Zachary Crockett]

Tripoli operated her station more like a bodega than a gas station.

[Kai Trimble Lee]

We sell a little bit of everything. Milk, eggs, bread, fruit. You go to the gas station, you get some gas and you go get a water. That's the business model. You're definitely going to see more profit in the convenience store and restaurant than I would do the gasoline.

[Zachary Crockett]

At JP Setti stations, the margins are three to four times greater inside than out at the pump.

[Jitender P. Sethi]

We always ran at about 33% gross profit inside the store. Your cigarettes are maybe 15%. Your beer runs 25%. Candies 40, 45% coffee 50%.

[Zachary Crockett]

What are the highest grossing items for you?

[Jitender P. Sethi]

I would love to sell you ice bags all day long. Typical ice bag would sell you for $1.49. Probably cost us 49 cents.

[Zachary Crockett]

That's pretty good.

[Jitender P. Sethi]

It's pretty darn good.

[Zachary Crockett]

But when gas gets more expensive, that business model gets screwed up.

[Garrett Golding]

Many of these station owners, anytime we have a big price spike, they make less money as prices go up than they do when prices go down or when they are low.

[Zachary Crockett]

Here's what happens when oil prices go up. Number one, that tight margin on gas gets squeezed even further. Number two, people buy less gas, meaning station Owners are doing less volume. And number three, when people buy less gas, they're also buying less soda or bagged ice inside the store.

[Jitender P. Sethi]

Now you're having to choose, do I want two candy bars or just one candy bar? Do I want an 18 pack of beer or six pack of beer?

[Zachary Crockett]

Higher gas prices also mean more problems outside at the pumps. For starters, theft.

[Jitender P. Sethi]

Most tanks are not locked because deliveries come at night. So you got these people, they have three, 400 gallon plastic tank in their truck, pickup truck, two, three in the morning, pitch dark, they'll come with a hose, open your tank and they will take away 3, 400 gallon gas. So you could lose couple thousand dollars worth of gas. And those two, three hours and those.

[Zachary Crockett]

Price wars between stations, well, they get worse too.

[Garrett Golding]

They are really in a cat and mouse game with each other on who raises prices slowest because as the pump prices go up, consumers are going to go to the station that is 3 cents cheaper.

[Zachary Crockett]

But gas station owners face a bigger threat. The ebbs and flows of fuel prices. Electric vehicles. While EVs only make up less than 2% of all cars on the road, they now account for 10% of all new car sales. And around half of American consumers say they would consider buying one in the future. For station owners, installing EV chargers involves ripping up pavement and laying down cables. And beyond the construction costs, the hardware and software can run upwards of $50,000 for a single charger.

[Garrett Golding]

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.

[Zachary Crockett]

There is an incentive for making that investment. It usually takes at least 20 to 30 minutes to charge an electric vehicle with a fast charger, which means more time for customers to buy things inside the store. Gas station chains with massive stores along freeways like BUC EE's and Sheets are building out EV infrastructure more aggressively. But many of your run of the mill neighborhood gas stations are waiting to suss things out.

[Jitender P. Sethi]

Right now, it's not very lucrative to have those chargers. But I know many people who are building new gas stations or putting the infrastructure in underground so when the time comes, they can switch.

[Zachary Crockett]

All things considered, running a gas station can be a tough business. Owners have to contend with a lot of things that are out of their control, whether it's the global supply chain of oil or the shifting tides of the automobile market. But there's at least one silver lining. As JP Setti discovers when his own car is running low.

[Jitender P. Sethi]

I usually go to my own store, pay my own gas.

[Zachary Crockett]

That must be nice.

[Jitender P. Sethi]

At least I can make 30 cents a gallon.

[Zachary Crockett]

For the economics of everyday things. I'm Zachary Crockett. This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz Rapisik.

[Kai Trimble Lee]

You know what? I don't have any gas station friends. I'm gonna have to go make some gas station friends.

[Zachary Crockett]

The Freakonomics Radio Network the Hidden side of Everything Stitcher hey, this is Jeff Lewis from Radio Andy Live and uncensored.

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