Fuel Sites Declining

Although throughput per site increasing, more pressure to grow inside sales, says study

Published in CSP Daily News

By  Angel Abcede, Senior Editor/Content Development Coordinator

LONDON, Ontario -- Major Oil has largely exited U.S. retail operations and has begun the process in Canada. "With refinery utilizations high, integrated oil sees little need to be in retail," said a Desjardins Capital Markets report. Confirming trend lines seen via other industry sources, research numbers from The Kent Group document the continued decline in the number of fuel retail sites, along with an increase in the average throughput of each site.

That decline translates into newer, larger locations able to handle greater fuel volumes and higher sales inside the store, according to Michael J. Ervin of London, Ontario-based Kent. Reporting on the results, Montreal-based Desjardins Capital Markets noted that "productive convenience store operations have been of escalating importance given retail gas margins [per unit] have been stagnant over an extended period of years. Overall site economics depend on the combination of good gas volumes and convenience store profitability."

Margins, while stagnant, have remained consistent, the report said, and unaffected by crack spreads at the refinery. Desjardins Capital Markets reported that retail margins do tend to increase in times of falling gasoline prices (as retail prices lag behind the decline in wholesale prices) and decrease in times of increasing retail gasoline prices (as retail prices lag behind the increase of wholesale prices).

The larger concern for retailers is the continued decline in demand for motor fuels in North America. The Kent Group numbers say that demand in motor fuel is expected to decline between 0.5% to 1% per year, due to fuel formulation mandates and increasing consumer preference for fuel-efficient cars. Other factors include the aging population and a lower level of vehicle ownership among young adults compared to years past.

At the same time, alternative fuels are not expected to make inroads soon. As an example, the infrastructure necessary for liquefied natural gas (LNG) is not in place. Certainly truck fleets operating in local areas have been able to transition to LNG, but such is not the case overall. Another example would be electric cars. The report said it will be "many years" before they represent a significant part of the automobile population.

Retailers failing to keep up may fall even further behind, as the firm also predicts a continued rise in nontraditional gasoline providers, such as hypermarkets. This segment typically uses low-price strategies to attract and then hold onto customers. Today, volume per site in this channel is two to five times that of traditional competitors, the Desjardins report said.

Currently, hypermarket volume in the United States is 12%. In Canada, it's 8%. That volume will increase as these chains expand further. The good news for U.S. fuel retailers in traditional channels is that growth in this segment appears to be slowing. For Canada, the prediction is for more growth.

Click here for an in-depth look at how hypermarkets have affected the gasoline market.

By Angel Abcede, Senior Editor/Content Development Coordinator
View More Articles By Angel Abcede