Unfortunately (and much to Conor’s consternation) I’ve never published the article I’ve had rattling around for almost a year now on gas-station economics. That means I can’t link to it now to defend the proposed DC subsidy for gas stations, which may not ultimately be a sensible idea but makes more sense when you look at how most urban gas stations actually make money. (I don’t know from DC gas stations in particular, but I’m assuming they follow these patterns.)
1) Selling gas. Franchisees buy gas from their parent companies, with gasoline tax already built into the cost, and generally sell it at a standard markup (say, 8 cents on the gallon). So owners aren’t responsible for high gas prices, but they feel the pinch anyway. Furthermore, when customers buy gas with their credit cards, that profit is further eroded by credit-card fees. These combine a per-transaction charge with a smaller per-gallon rate, meaning purchases have to exceed a certain quantity to be profitable for the gas station (rather than having profit eaten by the transaction cost). This threshold is fairly low — 15 to 20 dollars — but if gas is expensive, or money is tight, proprietors are far less likely to make money on the sale. Any increase in gas taxes, of course, pinches profits further.
2) Selling tobacco. Minimum prices are mandated by the government through taxes, and rose significantly this year when the State Children’s Health Insurance Program was authorized. But while most customers will buy tobacco somewhere regardless of price, there are a lot of somewheres, not all of which are locally-owned gas stations. The margin between minimum price and the highest competitive price dwindles, and so do profits.
3) Selling lottery tickets. Hugely popular in urban areas, but prices are set by the government (in DC’s case, the District of Columbia Lottery and Charitable Games Control Board), so profit margins can’t be adjusted to compensate for loss in other areas.
4) Selling food. High profit margins, low sales. (And continued public-health awareness campaigns certainly don’t increase the market for pork rinds and Mountain Dew.)
Of course, the reason these markets are so tightly regulated is to inhibit demand for these products, which generally cause social harm; it’s possible to say that a gas station’s profits rely on feeding the addictions of its customers. But franchise owners aren’t merchants of death; plenty of them are naturalized or first-generation immigrants with a little bit of entrepreneurial capital and a lot of chutzpah, attracted to a business that used to be a lot more profitable than it is. They don’t necessarily delight in enabling addiction. I’ve seen one employee chide his regular customers for their smoking habits as he rang them up. (I know that’s anecdotal, but I don’t see any evidence at all being forwarded that gas station proprietors deserve to be indirectly penalized for the sinfulness of their wares.) If a gas-station subsidy makes sense — and I’m still not sure it does, mind you — it’s because it counteracts the penalties government is already exacting on people who don’t really deserve the punishment.