How Do Gas Stations Set Their Prices?

Sometimes, the best story ideas come from readers. Take this email that came in this week:

I want to know why Orland Park, Orland Hills and Tinley Park can have cheaper gas prices than Mokena and Frankfort when they have an additional Cook county tax added to the pump price? Also New Lenox and Joliet also have cheaper prices for the same brands of gas than us. 

The question intrigued me, so I put in a call to Shane Pochard, spokesman for Speedway, . I asked him to explain the ins and outs of how his company determines what people will pay at the pump. 

How are prices set?

Pochard said Speedway sets the prices at individual stations based on a variety of factors, including the cost of crude oil and comparing the prices of competing gas stations.

According to the U.S. Energy Information Administration, what you pay for a gallon of gas is broken into four areas in approximately the following percentages:

• Cost of crude oil: 66 percent
• Refining costs and profits: 12 percent
• Distribution and marketing: 11 percent
• Taxes: 11 percent

How much money do stations make at the pump?

"Typically, we're making pennies on the dollar," Pochard said. "That's not where we focus our income potential. We try to drive people inside (to the convenience store)." 

Credit card swipe fees—what a business pays credit companies in order to accept customers' charge cards—eat into profits as well, Pochard said. And stations don't factor this into the price because they'd rather stay competitive, he added. 

How can stations owned by the same company in the same town vary in price?

This can happen for a couple of reasons, Pochard said. The most mundane explanation is that stations don't change prices at the same time.

A more business-minded reason is competition. A Speedway station in a part of town with competitive stations might keep its prices lower than another station across town that has no competition, Pochard said. Those competing stations are called "hyper-marketers," he added, and it's something the company keeps an eye on.

"If a hyper-markerter is (in the area), we have to lower our price to meet it," Pochard said. "We'll try to meet those prices. We want to be in a competive area."

Why don't gas prices drop immediately when the cost of crude falls?

"We get that question quite a bit," Pochard said. "The answer is that there's some lag time."

The gallon of gas you're putting into your car today was refined from crude oil bought months ago, he said. And that means you're paying for the rate of crude oil from months ago, not currently. Eventually, Pochard said, it evens out.

Editor's note: While reporting this story, I learned something interesting about the ownership of area gas stations. Speedway, which is owned by Marathon Petroleum Corporation, owns and manages the majority of the stations in the village. The two other Frankfort stations are owned by and . And guess who owns Atlas? Marathon Petroleum. 

PLEASE VISIT the listings for New Lenox gas stations in the Patch Places directory.