I recently came across this Facebook meme that claims that gas stations “now make more money selling food than gasoline,” attributed to popular food critic Michael Pollan. First, he really did say this (more or less) in his booklet Food Rules:
Don’t get your fuel from the same place your car does. Gas stations in America now make more money inside selling foods (and cigarettes) than they do outside selling gasoline. Most of the food products at gas stations are highly processed, imperishable snack foods and excessively sweetened beverages. Let gas stations be gas stations and get your body’s fuel elsewhere.
Is this true? Yes, it is (and always has been). But so what? All it demonstrates to me is that Michael Pollan doesn’t understand the economics of retailing gasoline. When you strip away the pseudo-profundity of this statement, all you’re left with is a factoid swimming in a sea of ignorance.
If you haven’t thought about it, this tidbit is surprising enough to get your attention and insightful enough (Americans are so fat their appetites have eclipsed the oil industry) to be memorable. But at bottom, it’s just an irrelevant bit of trivia tacked on to trite finger-wagging about sugar and “processed foods.”
Gasoline is a highly competitive retail business, and it has tiny profit margins. I will wait another mile to fill up if I know I’ll save 20 cents a gallon. But once I stop, I’m not going to drive another mile to find a cheaper drink or snack. I buy what’s available. Food, drinks, and cigarettes have much wider margins than gas, especially at convenience store prices, and hence are more profitable.
For this reason, gasoline typically makes up 70% of a station’s revenue but only 30% of its profit. In fact, when gas prices rise, the margin on gas get even thinner, sometimes even a net loss, when you count the fees that businesses pay to credit card companies. On top of that, it means consumers have less disposable income to spend on snacks and beverages in the store, cutting into their most profitable areas as well.
Does the profitability of a particular product in a particular store mean anything about it’s nutritional value? No. The most profitable product in a gas station is bottled water, with a margin of 50% or more.
Pollan’s observation doesn’t say anything about how fat and stupid Americans are — it’s just an odd bit of information about the economics of the retail gas business. We all know that sugary treats aren’t healthy, but the only thing that boycotting minimarts is likely to accomplish is to bankrupt a lot of gas stations and make fuel more expensive for everyone. Meanwhile, people who enjoy junk food will just stop at 7-11 or WaWa to get our coffee and snacks anyway.