(KTLA) – As gas prices continue to remain high across the country, savvy consumers are often looking for the best deal to get the most out of their hard-earned money. Sometimes, finding the best price can only come by crossing a lane or two.
So why do petrol prices vary so much from station to station?
Experts say it comes down to a few key factors: taxes, wholesale prices and profit margins.
So let’s start with taxes. According to NACS, the Fuel Convenience and Retail Association, all gas retailers must collect the federal excise tax on gas, which is currently about $0.18. States also have their own fees and taxes. In California, the tax is as low as $0.86. Alaska has the lowest state gasoline taxes at about $0.33, according to NACS and the American Petroleum Institute.
But gas taxes can also vary from city to city. Gas stations might be just a block away from each other, but across city lines, and those cities might have different gas taxes.
But the main reason for the disparity, experts say, comes down to margins and competition.
Petrol dealers have to buy their gas from somewhere, and wholesalers have their own prices. For gas stations, a big factor in pricing comes down to the brand of gas they sell. Chevron is priced differently than Exxon, which is priced differently than Shell. Some are more expensive than others, and the extra cost is paid by the customer because gas stations don’t make a huge profit on every gallon sold. Many consumers are fine with paying more for certain brands because of reputation or manufacturer recommendations.
And the higher volume of gasoline sold means the gas station is likely to get a better wholesale price, making it easier for them to sell gas at a lower retail price.
Another thing to consider: Does the gas station have an on-site convenience store? Most gas stations make little profit from selling gasoline, but those with convenience stores make more than half of their total profit from items sold inside, NCAS says.
Gas stations with convenience stores tend to price their gas lower, knowing they will make up the difference in store sales. Lower prices entice people to spend money in stores where the margins are much more favorable to the owner’s profit. So if you buy a large soda and some sunflower seeds, you’re probably helping to keep those prices down.
As in most industries, the biggest reason for price differences probably comes down to competition.
If a gas station without a convenience store is near one that does, it may be beneficial to adjust those prices accordingly. If a gas station is not a brand-name business, it will have its own set of challenges that are different from a branded business, including less wholesale gas discounts. A store that is inconvenient to drive to may have to lower prices to attract customers who would normally go to a competitor across the street, which is not that hard to get to.
There are a number of reasons why one gas station might sell gas cheaper than the one next door. In the end, it all boils down to a complicated equation for business owners looking to maximize their profits while testing what the consumer will tolerate and prioritize.