Fuel Margins -- Why Doesn't Our Industry Want Them?

Large- and mid-sized chains need to ask themselves some questions.

Our industry hit record high sales for last year, and yet the bottom line profits were down approximately 24 percent. The blame for reduced profits has been placed squarely on the back of fuel margins and credit card fees. That is not shocking news to those of us who fight that battle every day as we struggle to keep our heads above water, selling more and more fuel gallons and making less and less cents per gallon.

The overall problem with fuel margins for the industry gets substantially worse as you travel the country from west to east. The closer you get to the eastern part of the country, the lower the fuel margins. This is due to a growing number of mid-sized and large chains that are considered "industry leaders" and are portrayed as "darlings of the industry" by most of our industry publications. Many of these companies are predatory fuel pricers that think the only way to compete is to use fuel as the whipping stick to continually beat competitors over the head until they are forced to close stores or completely go out of business.

This type of operator leads some of us who are students of the business to beg answers to some very important questions. For instance:

-- As "industry leaders," do you intend to lead us, and you, to reductions in profits as you give away the highest volume sales category at no margins?

-- Does it bother you in the least to be operating on extremely low fuel margins at the same time all of the oil companies are posting record profits quarter after quarter, year after year?

-- Why do you think the major oil companies are selling off their corporate stores and getting away from running c-stores? Could it be that they have had enough of trying to operate stores and deal with all of the day to day problems in an environment where there are no margins at the fuel islands, which is their core business?

-- If you are concerned about doing the things on the inside of your stores to help drive those sales up, wouldn't it make sense to operate with higher fuel margins and use those profits to fund your inside improvements?

-- Since our industry sells the lion's share of all petroleum products retailed in the country, shouldn't we be able to also share in the good times when there are huge profits being made in that industry?

-- Why would you spend huge dollars on fuel installations and do everything you can to get a zero return on that investment by giving product away?

-- Why do some of you persist in insulting our intelligence when you say we must learn how to operate our companies with a zero fuel margin?

If our "industry leaders" and our friends who publish the trade journals do not begin to address some of the concerns outlined in the questions above, then we have no one to blame for shrinking industry profits but ourselves. We got ourselves into this mess by playing "follow the leader" and we must get ourselves out of it by convincing those who lead us in that direction to see the negative results of their actions. Remember that the definition of insanity is doing the same thing over and over and expecting different results.

-- Larry@workmanoil.com

Comments

[Bill Murphy]

As much as I hate government regulation, predatory pricing by very large retailers needs some kind of regulatory check. As a small oporator tries to compete, he loses the much needed profits from fuel sales, and doesn't have the benifit of purchase power and deep pockets to actually compete. I had a very good businessman friend quote me this-- "Very seldom do you increase profits by lowering your prices" We need to practice this, make our margins and hope the "big boys" would follow. Surely even they can see the benifit of profitable margins.

[Mark Hawtin, KSS]

Bill’s right, there is an opportunity to turn this around. Often these larger companies use low fuel pricing to attract customers into their stores where a premium is charged for their products. This is where they make their margins.

My work focuses on helping fuel retailers of all sizes to increase their fuel margins without losing out on volume - there are tools on the market that quantify competitors' price impact on volume and help smaller operators identify where and when to change prices. We’ve noticed an increase in enquiries and implementations from smaller operators. Perhaps change is just around the corner.

[Brent Hargis]

Fuel margins may be more than what meets the eye. With the ever shrinking independent retailer slowly disappearing, more incentives and deals may be part of the cause for lower retail margins? Large companies may be receiving contract rebates for fuel based on volume sold, therefore this could cause market prices to actually be at or close to rack cost in order to drive volume higher.

[Scott Marshall,WEO]

I agree with Larry. Why should we lower our margins to compete when all we are doing is driving ourselves out of business. If the majority of the retailers would add margin to our prices, everyone would be better off. At the major discount retailers, I often ask myself, how many customers can they handle in a day and would the customer that shops there shop at other retailers anyway. The discount customer, were fuel quality does not matter, will always be a discount customer. Furthermore, at $3 plus prices, why should a retailer pay the customer to buy our product with a credit card. If we only make 1-3% margins and most of your customers pay with credit cards, we are the insane ones. Some retailers that I have spoken to about pricing call it "Stupid Competition". The news media does not help when they advertise nightly were the customer can buy gas at the lowest price and they do not even take the time to tell their viewers that the low prices fuels are not equal to the others. Ethanol fuels vs. pure gasoline? If we are going to survive, we need to get our prices up. I have been preaching this for years.

[Mark Button]

I am a single store owner that does a fairly large volume. I have seen margins range anywher from 7 cents to 22 cents over the past 15 years.
I think the answer lies squarely on organization of geting all of the independant fuel retailers to join together in ranks and form a sort of "union". We can put pressure on our distributors and the oil companies alike to obtain and retain higher fuel margins. It has been done with other industries, why not ourselves? I am not talking about a monopoly here, just an organized effort to retain the C-Store independants profitability!

Anybody that thinks this may be a good idea, please e-mail me at suprmark@mtaonline.net and lets share ideas on just how we may accomplish this task. Obviously something has to be done, I do not think it is reality to try and persuade the large chain retailers to raise their margins, or to try and persuade the oil companies to possibly lower their amazing profits so that we may survive. However, if we organize, there is strength in numbers.