GREENWOOD VILLAGE, Colo — If Arapahoe Road west of Interstate 25 is part of your daily commute, you’ve likely witnessed a bit of a show recently; as a new gas station moved in, it steadily drove gas prices along that corridor down.
Ever since a Quik Trip opened at the corner of Arapahoe Road and Syracuse Street in Greenwood Village, that station has lowered its prices, sometimes multiple times a day.
On Friday, the station was selling regular gas for $2.40 a gallon, more than a dollar less than Colorado’s statewide average of $3.44. And as the Quik Trip lowered prices, the three other stations along the mile stretch of the road did the same.
The price change along that small stretch of the roadway is similar to a price war off I-25 in northern Colorado which was also tied to a Quik Trip moving in last year. Skyler McKinley with AAA Colorado said price wars like this often happen when new stations move in.
“These new operators can come in and sell fuel fundamentally at a loss because they weren't making that much money off it to begin with in order to change consumer behavior and make folks aware that that station exists,” McKinley said.
To understand how some stations are able to sell gas this far below the market rate, you have to understand the economics of a gas station. McKinley said profit margins on gasoline at gas stations are relatively small at only about 1.5 percent, even though fuel is what drives people to the gas station in the first place.
“(Gas stations) make their money off you coming inside, buying some Doritos, a Diet Coke, a roller hot dog,” McKinley said. “That's where the money is to be made at gas stations.”
McKinley said 80% of gas stations around the U.S. have a convenience store attached. Industry estimates have found about 44% of people who stop to buy gas will make a trip inside the gas station’s store. About a third of them will buy something. One of the biggest profit margins for gas stations come from the tire air pump, McKinley said.
So what does this mean for you? For starters, you should be checking gas prices around your area. If fluctuations like this exist in one place, they may exist in other parts of the metro area. If you live far away from the cheapest price, keep in mind that you may spend more burning gas to drive to find a great price. Gas apps like Gas Buddy can help. Google Maps also lists gas prices around your area.
And remember, gas wars don’t last forever.
“Historically, when these price competitions happen, they don't go on for years. It's not sustainable,” McKinley said.
Across the street from the new Arapahoe Road Quik Trip sits a Valero station that’s been there for years. After Quik Trip opened, that station kept up with the price drops for awhile. But a manager inside the store told 9NEWS the station owner can’t afford to keep lowering the price on fuel. On Friday, that station was selling regular gas for $2.89 a gallon, nearly 50 cents more expensive than the station across the street. The manager said his station saw sales slump 40% since it hasn’t been able to compete with the prices next door.
“These neighborhood gas stations won't be able to sustain this in quite the same way because there's so much competition, right nearby, and not everybody's going to plummet their prices,” McKinley said.
Have a question about a consumer story? Email 9NEWS reporter Steve Staeger at steve@9news.com.
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