Clark Schinger owns a gas station. Like an increasing number of gas station owners, he is charging his customers who use credit cards a surcharge for every gas purchase. Effectively, there are two tiers of prices: one for customers who use credit cards and one for those who use cash. This is apparently not against the law in any state. Neither is it against the contract with the credit card issuers because the merchants can call this price difference a “cash discount” even though everyone knows it’s a credit surcharge.
Putting deceptive advertising aside for a moment, why do gas stations discriminate against payment method? They say they need to cover their losses. Clark has participated in a few discussions on Consumerism Commentary. Here are some of his latest thoughts:
Simply put, our hands are tied. We can’t really do anything about it… These unfortunate days, most of us, are paying out A LOT more than we are profiting… I make about $50,000/month in gross sales a month nowadays. My profit margin is about… $11,000/month. Out of these profits, I have to pay the mortgage for the new tanks that the GOVERNMENT mandated we put in… about $8,000/month. My electricity is a little over $2,000/month. Then there’s also the general bills such as phone service, fax service, maintenance costs which total to about 500/month. There’s also taxes that the business has to pay which is about 2,000/month. And I’m not even done with all of the costs…
I’m selling gas at cost to me to keep my prices low. If I keep them any higher, the consumers are just going to drive to another station that has same policies but sells the gas for a cheaper rate…
It sounds like there’s not a lot of profit in selling gasoline. If all merchants were to leave the business, that would decrease convenience and probably raise prices for everyone. Any merchant who raises his price across the board at a higher rate than the stations in the local vicinity will face fewer customers.
Merchant fees, paid by retailers to credit card companies like Visa, MasterCard, and American Express, are part of the cost of doing business. Every business that accepts credit cards must deal with merchant fees. It’s rare for other companies to charge different customers different prices, so why can’t gas stations deal with the problem?
If selling gas isn’t profitable, there’s a major flaw with the business plan. Not all gas stations ave convenience stores where products can be marked up for more profit to cover losses due to gasoline sales. Not all gas stations offer a car wash, which is another option for turning a profit.
I understand that the credit card companies charge merchants a high fee for transactions, and this fee can significantly eat into a profit margin when prices are so competitive. Gas station owners should, as a group, try to negotiate with credit card companies to lower this fee. Meanwhile, I plan to shop at gas stations that do not discriminate against payment method, particularly if they use misleading advertising.
Photo: Joe Shlabotnik
Subscribe
11:16 am (reply)
The gas station I frequented the most tried to do this about 2 months ago. They raised the prices for credit cards about 4 cents over cash transactions. After a few weeks, they went back to charging everyone the same. I assume they saw a decline in business as more customers went to the station down the street which all of a sudden had a distinct price advantage (they kept their prices for everyone at the price the other station declared for cash only).
I guess this is one example where voting with your wallet worked. But, it only worked because all the stations didn’t follow suit and discriminate based on method of payment.
12:16 pm (reply)
While it doesn’t make much sense to me for gas stations to be running at or below break-even, I don’t disagree with charging different prices for cash vs. credit. Credit costs them more and it doesn’t seem unfair for them to pass that cost on and/or try to encourage customers to use cheaper payment methods. Other merchants deal with credit cards perhaps because card users spend more. (e.g. if you had to use cash at the grocery store you might not buy as many impulse items.) Perhaps at gas stations cards might attract more buyers, depending on surrounding stations, but people are still going to buy the same amount of gas.
Despite the fact that I use a rewards credit card for most of my spending, I actually think credit card use is bad for all of us. It adds 1 to 3% overhead to everything we buy, without actually adding much to the transaction more often than not. I often get my gas at Arco which doesn’t take credit cards at all.
12:22 pm (reply)
This is nothing new. It was common practice as recently as 15 or 20 years ago for stations to have billboards that listed cash and credit prices for all grades of gas.
The station I worked at just out of college was one of the first to match their prices up.
1:18 pm (reply)
Do these gas stations that have cash discounts for gas also offer a cash discount for the goods they sell in their store? I feel like they should be uniform in offering a cash discount on all products which they sell.
1:32 pm (reply)
Mike: In my experience, the credit surcharge applies only to gasoline sold.
3:25 pm (reply)
Check out http://www.unfaircreditcardfees.com/. It is the interchange rates that most of the gas stations as well as other merchants are concerned about.
1:21 am (reply)
“why do gas stations discriminate against payment method?”
Do you presuppose by this statement that all payment methods are equal? Does the gas station take livestock in trade for their gas? Do they take out of state or second hand checks? Do they even take checks (some don’t) Do they take Euros?
There is a cost to the method by which a business is paid. The advantage to credit cards is you are guaranteed to get your money. The disadvantage is it costs you 2% of your gross sales to get this advantage. However cash has the exact same advantage without the disadvantage. Its not difficult to see why cash is preferable. Now if you are operating a furniture store operation on 100% margin, the 2% is irrelevant. If you are operating a gas station which regularly sells its gas on less than 10 cents margin well, then 2% on $4 dollar gas is 80% of your profit margin before costs.
Why do gas stations still have to operate on 10 cent margins? I don’t know, but it seems many still are. Maybe that will change. But in the meantime, to suggest you have some kind of right to purchase products using a credit card and to compare it to some kind of payment discrimination, really sounds quite ignorant for a finance blogger. The only currency that any mercant is required to accept in the USA is cold hard cash. Checks can be denied, and yes, so can credit cards.
If you want to be upset about it then by all means, take your business elsewhere. But to come here and whine about it on your blog like a child …. I’m sorry, thats just really lame.
2:33 am (reply)
Gas stations are free to do what they want as long as it’s not illegal. Just about every other business I’ve encountered is able to to charge all customers the same regardless of payment method, and a few gas stations—not all—seem to be the only businesses willing to tack on a surcharge for credit card payments. I feel sorry for the owners who have a tough situation to deal with, but not sorry enough to pay more using my preferred method. Nowhere did I claim I had a “right” to use credit… it’s an option that I will take advantage of when offered.
You might want to check the definition of “discrimination.” Charging two different prices to separate groups of customers is indeed discrimination. It’s not as serious as racial or sexual discrimination, but it is an accurate term.
I won’t address your personal comments except to say that it won’t be tolerated any further.
5:43 pm (reply)
if I am doing my math correctly, Clark is LOSING at least $1500 based on his numbers above and he says “And I’m not even done with all of the costs…”
So my question is: How long are you going to run a business that loses at least $1500 a month? I’d like to see all the books to understand the situation entirely, but losing money every month is not good business. I’d be getting out or cease operating I would think….pending the sale of the assets or the business…
Is the business being run as a tax writeoff or is the land appreciating fast enough to offset the loss? Just wondering…..
I see stuff on the internet like this all the time….people saying “i only bring in $5000 but my costs are $10000” and just wonder why they are in that business or continue to be…..unless that is not the actual case…..
8:07 pm (reply)
Gas stations make money on food marts, car washes, etc. Also, many oil company franchise contracts specify how much, in cents (and not percentages), the station owner can charge over the “wholesale” price they pay. These markups don’t change as the price rises, while the merchant fees – typically quoted as percentages – do rise as prices go up. So, the gas station owner gets increasingly hozed by these fees as prices go up.
ARCO stations in my area don’t accept credit cards, and charge $0.45 to use debit cards.
Gas station owners generally hate high gas prices. After all, if you just dropped $75 to tank up, you probably aren’t in a mood to pick up a hot dog and a six pack in the mini-mart – where the real money is made.