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Fuel prices are often treated as a direct proxy for how gas station operators are performing. As US fuel prices have climbed to record levels in 2026 ($5.85 at the time of publication), we asked Andrew Ackerman, Executive Managing Partner at Sands Investment Group, and an industry expert on convenience store and fuel properties, to clarify: what do rising fuel prices mean for this asset class – and by extension, their operators?
The assumed impact is straightforward: When prices rise, the assumption is that margins must be tightening, and that when prices fall, the opposite must be true.
In reality, the relationship is far less direct.
Margins are shaped by a combination of cost structure, pricing behavior, and structural offsets within the business itself. These three forces have evolved meaningfully over time, particularly as labor costs have increased and operators have adjusted how they approach pricing in more volatile markets.
The result is a dynamic that runs counter to the common narrative. Volatility is not necessarily a headwind for operators. In many cases, it is where margin expansion actually occurs.
Fuel Margins Don’t Work the Way People Assume
It is easy to assume that fuel margins simply track the spread between wholesale and retail prices. In practice, operators have far more influence over that spread than most people realize.
Because the majority of stations are independently owned, pricing decisions are made at the local level. Operators are not just reacting to current wholesale costs. They are constantly weighing what the next supply load will cost, how competitors are positioned, how quickly the market is moving, and where they need to be to protect profitability.
That level of control introduces flexibility into the model. Margins are not just absorbed. They are actively managed.
1. Labor Costs and Pricing Discipline
One of the more important shifts in recent years has been the growing impact of labor on fuel pricing.
Labor compensation costs for convenience stores and gas stations rose roughly 32% between 2020 and 2024, according to Bureau of Labor Statistics data. As wages and benefits have increased, operators have had to adjust their approach. Instead of compressing margins to remain competitive, many markets have moved toward maintaining wider spreads to account for higher operating costs. Over time, that behavior has become more consistent across the industry.
Larger operators tend to set the tone, and smaller operators often follow. The result is a pricing environment that feels less reactive than it once was, with fewer instances of aggressive undercutting and more stability in margin levels.
This shift is not driven by fuel prices themselves. It is rooted in the underlying cost structure of the business.
2. Pricing Dynamics and Margin Expansion
Where the model becomes more nuanced is in how prices adjust as the market moves.
When wholesale costs increase, operators typically respond quickly in order to avoid margin compression. When those costs begin to decline, however, retail prices tend to adjust more gradually. This lag creates a window where margins expand, even as prices are coming down.
That pattern is described by economists as the “rockets and feathers” effect, but it is better understood as a combination of consumer behavior and operator strategy. Consumers tend to react more strongly to rising prices than to gradual declines, which allows operators some flexibility in how quickly they adjust. At the same time, pricing decisions are often based on anticipated replacement cost, which further supports holding higher prices until lower-cost inventory is secured.
Over time, this dynamic reinforces a consistent outcome. The most favorable margin conditions tend to occur when prices are moving, not when they are stable.
3. Rebates and Built-in Margin Offsets
There is also an additional layer within the model that is not always visible from the outside.
Many operators have supplier agreements that include rebates or incentives tied to volume or pricing. In certain structures, those rebates increase alongside fuel prices, providing a partial offset during higher-cost periods.
While these mechanisms do not eliminate margin pressure entirely, they contribute to overall stability and help explain why the model tends to hold up better than surface-level observations would suggest.
High Fuel Prices are Historically Temporary
Sustained periods of elevated fuel prices tend to trigger broader economic responses.
As prices rise, pressure builds across both consumers and businesses. Purchasing power declines, operating costs increase, and demand can begin to soften. Over time, those forces contribute to adjustments in supply and demand that bring pricing back toward a more balanced range.
For operators, this reinforces the cyclical nature of the business. Fuel prices do not remain elevated indefinitely, and they do not remain depressed either. The opportunity lies in how margins behave as the market moves between those points.
Bottom Line: Fuel Retail Remains a Resilient Business
Fuel margins are not dictated by price alone, and focusing on the headline number at the pump often misses what is actually driving performance.
What matters more is how operators manage their cost structure, how they respond to price movement, and how the underlying model supports them across different environments. Labor has pushed the industry toward more disciplined pricing, establishing a higher baseline for margins. Pricing behavior creates recurring opportunities for expansion as markets adjust, particularly during periods of decline. Supplier incentives add another layer of support that helps smooth out volatility over time.
Taken together, these factors explain why fuel retail remains a resilient business. Not because conditions are always favorable, but because the structure allows operators to adapt as they change.
Fuel prices alone rarely tell the full story. A clearer view of margin structure and pricing behavior is essential to understanding how these assets actually perform.
Contact our experts at SIG today to discuss your options.
