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
Updated February 10, 2011 and originally published September 22, 2008.