Independent Gas Stations Feeling Pain at the Pump, Too
BY Kasey Wehrum
Nov. 11, 2005--Consumer angst over gas prices reached a boil on Nov. 9, as the nation's top oil executives took to Capitol Hill, to answer harsh questions from lawmakers. But the recent surge in prices, amid record oil-company profits, has also taken a toll on an unlikely group -- independent gas stations.
Their marquees may bear the names of oil giants like Exxon and Shell, but to the surprise of many motorists, the majority of the 167,000 retail outlets selling gas in the U.S. are independently owned and operated. With prices up an average of 37.5 cents per gallon from just a year ago, these small businesses have been dealt a one-two punch of shrinking profit margins and consumer backlash. While even gas station operators themselves do not deny that there can be price gouging in their industry, they contend that such practices are the exception and that many owners are now struggling.
Selling gas is a highly regulated industry, with many factors contributing to the fluctuating price of a gallon. Broken down into its components, the cost of a gallon of gas is determined 50% by the cost of crude oil, 27% by refinery costs, 15% state, local and federal taxes and 8% distribution and marketing, according to the Energy Information Administration, a division of the Department of Energy. Add to that local competition and the lack of negotiating power independent retailers have with wholesale gas distributors.
"The first nine months of this year have been terrible for retailers," said Jeff Lenard, director of communications for the National Association of Convenience Stores, which represents 111,000 gas retailers -- less than 4% of which are owned by major oil companies. "The public assumes that the strong profit statements of the big oil companies trickle down to the local retailers. They don't. They also assume that as prices rise, local retailers are collecting more profit. Actually, rising gas prices tend to shrink profit margins." Currently, retail profit margin is down four cents, according to Lenard.
The high prices have also hurt gas station owners in an area that's traditionally provided a boost to the bottom line -- their on-site convenience stores. A customer now paying $50 to fill up his SUV, instead of $35, is less likely to tack on a snack and a soda, they say.
And then there's dealing with the frustrations of angry consumers. "When prices go up, people tend to blame the retailers, which is really misdirected," Lenard said, adding that in the weeks following Hurricane Katrina, some retailers faced tremendous jumps in wholesale gas prices and actually sold gas at a loss.
Mike Rexford, an independent gas retailer in Tonawanda, N.Y., has gone so far as to encourage customers to car pool, in an attempt to curb overall demand and ultimately lower prices. "The best way to get the price of crude oil down is not to use it," he says. When gas prices were at their peak, Rexford said, his station dealt with many customers who were rude and accusatory. "When you take all things into consideration, especially the price of crude oil and credit-card fees, my profit margins are a joke."
The good news for consumers and retailers alike is that the average price of gasoline has been slowly dropping for five consecutive weeks. According to the Energy Information Administration, the average retail cost of regular gasoline is down to $2.29 a gallon, compared to $2.92 consumers were seeing during the first week of October.
Last updated: Nov 11, 2005
Staff editor KASEY WEHRUM has written for Inc. magazine on subjects ranging from the businesses behind professional bull riding to gadget inventor and father of the infomercial, Ron Popeil. His work has appeared in the New York Times, Worth, Budget Travel, and on MSNBC.com. He lives in Brooklyn.