A New 'Misery Benchmark'

Coast to coast, the economy presents a ‘dangerous ' time for petroleum retailers

Published in CSP Daily News

LOS ANGELES -- From California to Pennsylvania, Florida to North Dakota, and all points in between, the extraordinary run up in gasoline prices is taking its toll on consumers and retailers. In Los Angeles, Andre van der Valk hasn 't been paid in six months. He has a job as owner of four service stations in Southern California, but he hasn 't taken a salary this year so he can pour all his money into buying fuel for his stations, according to a report in the Los Angeles Times.

Fuel sales at his sites have fallen as much as 10% as customers cut back on driving. The lost volume means fewer [image-nocss] customers flow through the convenience store to buy coffee, sodas and other money-making items.

Making matters worse, with each price increase, more people use credit cards to buy gas, taking a bigger bite out of station profits. A dealer typically pays a 10-cent transaction fee, plus 2% to 2.5% of the total fuel sale for each customer. The cash crunch is exacerbated by the soaring cost of buying fuel. Over the weekend, Van der Valk paid $38,000 for 8,700 gallons of regular gas and diesel, up from about $22,000 at the beginning of the year.

It 's a strain on Van der Valk and his two grown sons, who work at the stations. Because his sons are also skipping paychecks, he said, "three families are living off of savings now."

Ken Santarelli, owner of Santarelli and Sons Oil, Peckville, Pa., which distributes gasoline and owns several convenience stores, told the Times-Tribune gasoline dealers are victims of a truism in gasoline retailing that may confound customers forking over $4 per gallon: The owner of the pumps doesn 't make much money from selling gasoline. For the few cents made off each gallon of gas sold, credit-card companies take another slice of the total transaction.

“We face higher prices, lower volumes and tighter competition,” he said. “No one in this business makes money off of gas, and the smaller guys are struggling.”

Meanwhile, the president of the North Dakota Petroleum Marketers Association told the Associated Press that rising gasoline prices are hurting gas-station owners like never before.

Mike Rud said 2002 was viewed as the "misery benchmark" for gasoline retailers, when gas stations averaged 7% profit on fuel. He says so far this year, the profit margin has dropped to less than 4%.

Rud said some stations are giving drivers a few cents off per gallon if they pay in cash rather than by credit card. He says credit cards are costing marketers 12 cents a gallon in processing fees.

Brian Littlejohn, owner of Littlejohn's Mini Mart in Omaha, Neb., told the Midlands News Service he 's making only 2 cents a gallon because some of his customers must make a decision: Do I buy gas or food?

Sometimes Littlejohn offers specials to entice customers to walk inside the store or to get both gas and food. On some Fridays, for example, he gives free orders of chicken if a consumer buys $25 of gas or more.

And in Florida, a Hollywood Chevron manager is greeting customers with a smile and often offers free coffee to regulars as they come into the gas station to pay for fuel, while at a Shell station in Plantation, Fla., customers save about 6 cents per gallon by paying with cash instead of using credit cards.

South Florida gas retailers in high traffic areas are fighting for customer loyalty as prices continue to rise, according to a report in the South Florida Sun-Sentinel.

"The number of retailers on the brink of bankruptcy is now at a dangerous level," said Bill Douglass of Sherman, Texas-based Douglass Distributing. "In the past four months, 10 of the dealers to whom I supply motor fuel have relinquished to me the deeds to their businesses," he told Congress last month.

“It was one thing when they were buying $12,000 loads of fuel; it 's another thing when they 're buying $30,000 loads of fuel,” Douglass told CSP Daily News in April.

The bad news for consumers, noted the Times, is that fewer gas stations further limits choices and competition, and that pushes up prices. But some motorists said they were surprised to hear that station owners were struggling.

"That just tells me that the oil companies are grabbing all of the profits," Tanya Rutter, a personal trainer who lives in Manhattan Beach and drives an 18-year-old Datsun 240Z, told the newspaper.

On Monday, Democratic presidential candidate Barack Obama said he would push for a tax on record-high oil-company profits like those being collected by Exxon Mobil Corp. "We'll use the money to help families pay for their skyrocketing energy costs and other bills," Obama said.

Regardless, Brandon Wright, a spokesperson for the Petroleum Marketers Association of America, told the Times-Tribune times are tough for gas retailers. Breaking even at the pump, many are scrambling to expand their more profitable store offerings or add quick-serve restaurants. But they are running up against the credit crisis, with banks more hesitant to lend.

“People see the Exxon sign outside, hear about record profits and think the guy running the place gets a paycheck from Houston,” Wright said. “Most of these places are independently owned franchises.”

Editor's Note: Rising gas prices are just one of a number of economic factors affecting petroleum-retail and c-store operators. For an in-depth look at how the economy is affecting the industry, watch for the June issue of CSP magazine.