I made my cable television debut Friday morning on Fox Business Network’s “Money for Breakfast” program.
A producer for the program called me the day before to ask about the impact of falling oil prices on convenience store and gas station owners. The segment was designed to coincide with the release of Exxon Mobil’s record-breaking earnings (see story, “Largest U.S. Oil Companies Report Strong Yearly Profit Growth” on www.csnews.com).
So, I prepared my thoughts around the impact of volatile oil price on convenience and petroleum marketers, after reaching out to some knowledgeable friends in the c-store industry.
I arrived at Fox Studios on Avenue of the Americas in Manhattan at 7:15 a.m., and 45 minutes later I was in the studio with host Charles Payne and a mutual funds expert. An oil industry analyst was on a remote feed.
A news reporter announced Exxon’s record 2008 results, and noted the sharp decline in profits in the fourth quarter as oil prices slid from historic highs. Then, the two other commentators discussed the impact of the results (good for oil stocks; even better for mutual funds that have invested heavily in ExxonMobil).
Then, Charles Payne turned to me: “So, why is Exxon selling off its convenience stores?” he asked.
Hmm. That wasn’t exactly the question I was expecting, but I don’t think I dropped the ball, explaining that oil companies have been divesting their retail operations for more than a decade because the oil business is more lucrative than the retail business. I pointed out that of the industry’s more than 140,000 stores, oil companies own less than 2 percent. Despite all the oil company logos you see along the road, the rest are either independently-owned, part of a retail chain or franchised/licensed operations. Indeed, 62 percent of the industry’s stores are run by single-store owners.
In answer to a follow up question more in line with what I was expecting, I pointed out that even though oil prices have dropped dramatically from their highs of last summer, convenience stores are still facing difficult market conditions due to the current economic recession, a drop in consumer spending, and a decrease in fuel volume as Americans are driving less.
In all, I was on air for about 2 minutes. I really didn’t expect to get more time than that, but if I had more time, I would have liked to have pointed out the following:
- Last summer, when gas was $4 per gallon, c-stores were getting hammered in the store as consumers spent all their money at the pump.
- The higher price on each fill-up meant credit card transactions at the stations increased, as did credit card fees -- rising to more than $7 billion for the c-store industry (twice the industry’s total net profit).
- Inventory costs were higher too. If a c-store retailer had 8,000 gallons in its tanks, that was $32,000 tied up in inventory -- and when that was sold off, the c-store retailer had to write another check for $32,000 to refill those tanks.
- In the fourth quarter, as gas prices dropped, some c-store did have a small window to make a little more profit on fuel as wholesale prices fell faster than retail prices.
- However, so far this year, with the economy reeling, consumers have continued to reduce spending both at the pump and inside the stores. So, although gas prices are down, so is customer and vehicle traffic.
- On top of all that, you have the media noise about the state of the economy that has contributed to flagging consumer confidence and scaring businesses to freeze investments and make more layoffs. And credit card usage is still high because consumers have leveraged themselves so much over the past year.
Well, I guess I’ll save all that for my next TV appearance. Better yet, let’s hope economic conditions for convenience stores improve before I get near another TV studio.
-- Don Longo
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