If you missed it, be sure to go back to listen to ‘Is Premium Gasoline Worth It?’. In that more in-depth discussion, Joe talks about the role of octane and additives as well as the refining processes required to boost octane levels.
In this follow up episode, Joe reflects on his trip home from the EKT Interactive studio where he observed some interesting divergences between premium branded and discount gasoline.
Listen now to hear Joe’s insight into how premium branded stations enhance their margins through premium gas and credit card fees.
Be sure to drop any comments or questions in the comment section below, or members can also reach out in the discussion forums.
Listen to Sound Off with Joe Perino below:
Hello. I’m Joe Perino. Welcome to Sound Off. This podcast is part of the EKT Interactive Learning Network and is brought to you by Oil 101, a free ten-part introduction to the oil and gas industry.
In this podcast, I wanted to revisit the question, ‘Is premium branded gasoline worth it?’
If you recall from that podcast, we examined three scenarios with regard to premium gasoline. One, should you buy the cheapest gasoline. Two, should you buy the cheapest gasoline and add an after-market additive such as Chevron’s Techron. Third, should you fill up at the premium branded gasoline pump every time.
Well, it looks like things haven’t changed since then, although gasoline prices have. In fact, on my way back from the EKT Interactive Studios, I had noticed that afternoon that gasoline prices had shifted about 20 cents a gallon along all the stations in route back to my home.
That meant that the Kroger station, which was at $1.55 went up to about $1.75 and now more recently $1.80. The Chevron station shifted from $1.59 cash price to $1.79 with premium still being $2.69, $2.79, or $2.89. Still a substantial gap there.
The interesting thing is that Kroger bounced back in set their gap between regular and premium at 40 cents a gallon, which is the typical gap. Since late March and into April, Kroger has been running a special where the gap is now back to 15 to 20 cents so that premium can be bought at Kroger for about $2.00 a gallon. That again, is here at the end of April.
Another thing I followed up on was the price of these third-party additives. If you recall last time, you can get a bottle of Techron concentrate for about $8.35, sometimes a little bit more at automotive stores. However, I went back to Walmart, and they have both Techron and STP for about $5.35 a bottle. That means one bottle treats 15 gallons of gasoline and should be used every 3000 miles.
If we update the numbers, the added cost per gallon for the third-party additive is not 5 and a half cents per gallon but probably now closer to 4 cents a gallon. Now you take a look at the Kroger versus Chevron station and you see that Kroger you can fill up there for about $2.05 a gallon including the additive, where Chevron is still now at $2.79. There is still a substantial gap.
In fact, the gap between some premium branded stations and a Kroger or a Raceway or wherever is so large that you could actually add a bottle of the third-party concentrate to each and every tank that you fill up and still be less than filling up at the premium branded gasoline station.
Recall now that means you are going to get 10 times the concentrate, in the case of Techron, by using the additive than you are by simply filling up at the gas station. Now you can see, again, how much these premium branded gasolines enhance the margin for the gasoline retailer.
Speaking of enhanced margin, another thing to look at is the fact that most premium branded gasoline stations and some unbranded charge a premium for accepting credit cards.
I looked into this and a very rich source of information is the 2015 National Association of Convenience Stores Report which tells us that about 75 to 80% of gasoline is purchased using debit and credit cards. Price is still the number one criteria and people will drive out of their way as much as ten miles to get gasoline that is less expensive.
They also report that the cost of the various purchase methods ranges from zero cost to the retail station for cash, about 1% to handle a debit car, and between 2 and 3% to handle a credit card. That depends of what card you are using. American Express, Visa, MasterCard, Discover, etc.
Let’s assume that you are paying $2.00 a gallon. That means that the cost of credit would be 4 to 6 cents more. I think as most of us have noticed, the typical cost of credit is 10 cents more per gallon and not just the 4 to 6 cents. I have seen it range from 4 cents at one unbranded station to as much as 20 cents at certain branded gasoline stations.
Again, this another way of their ability to enhance their margin through the premium charge for using a credit card.
Now, going forward, I am going to keep my eye on this subject. It’s one of my favorite subjects to talk about. I’ll get back to you with another updated podcast in the future.
Meanwhile, if you have any questions or would like to make a comment, we’d like to hear from you.