Gas Prices and Fuel and Retailers
HOSED!

Volatile prices take a toll on gas station owners

January 26, 2009
Last year's record-high fuel prices played a big role in a rash of shuttered gas stations at Indianapolis-area intersections.

Four-dollar fuel put a squeeze on margins, pushed up credit card transaction fees and led consumers to spend less on higher margin snacks and soft drinks—giving a new push to a decade-long consolidation of service stations.

This year's lower fuel prices, in turn, have been as much a relief to station owners as they have for drivers.

The number of gas stations nationwide has slipped from about 200,000 in the 1990s to fewer than 160,000 today, said Keith Reid, editor in chief of industry publication National Petroleum News. In Indiana, the count has dropped from 3,500 to about 3,000, the magazine's survey shows. Recent closings include stations at 62nd Street and Keystone Avenue, 86th Street and Ditch Road and at 62nd Street and College Avenue.

More stringent requirements for underground storage have helped drive some of the consolidation, and fierce competition from other convenience retailers and big-box gas operations is another factor. But most recently, fuel-price volatility has been the biggest hardship.

"The general rule of thumb is the higher the price on the street, the less money you make as a retailer," Reid said. "Unless you're in a rural market, you must make money on something other than gasoline, like car wash, food-service or a convenience store."

While single-store operators struggle to survive, some of the chain operations are using their economies of scale to eke out profits and grow.

In September, Anderson-based Ricker Oil Co. bought 32 BP stations in the Indianapolis area, adding to a collection of stations it operates mainly in Fort Wayne and Anderson.

After closing the transaction, the company actually reopened a couple of BP stations that had been closed by the previous franchise owner, including at 56th Street and Georgetown Road, Emerson Avenue and Washington Street and 16th Street and Tibbs Avenue.

"There's a lot of challenges going on," said Jay Ricker, the company president. "Indiana, unfortunately, has had one of the lowest average fuel margins in the nation, 49th."

The typical gas station in Indiana made just 3 to 4 cents per gallon for fuel in 2008, down from 7.5 cents per gallon in 2007, said Scot Imus, executive director of the Indiana Petroleum Marketers and Convenience Store Association.

And the 2008 numbers actually are better than they could have been; through August, as prices flirted with and exceeded $4 per gallon, the margin averaged only 1.2 cents.

Imus' group is feeling the impact of a falling station count as its membership has fallen about 10 percent per year for the last couple of years.

High fuel costs aren't the only problem. Ricker points to the state's requirement that stations pay sales tax in advance at a rate determined only twice a year, and Visa and MasterCard's policy of charging gas stations fees higher than other retailers (a practice that's being challenged in a federal court case).

"We've added stores because I think the single-store operators will have a tough time down the road," said Ricker, whose firm now owns 53 stations and supplies another 52.

Rodric Reid, who owns one station, at the corner of 25th Street and Keystone Avenue, definitely is feeling the heat. He's scraping by for now, hoping the economy turns around by 2010.

Station owners had hoped lower fuel prices would encourage customers to buy more in their convenience stores, but so far Reid hasn't seen much progress. His station has a full lineup of snacks, along with a Noble Roman's Pizza and Tuscano's Italian Style Subs franchise.

"People are using the savings to catch up on bills rather than buying candy and pop and pizza inside the store," Reid said. "That's where we make most of our money."

These days, fewer stations are truly "service" stations thanks in large part to competition from car repair outfits, tire companies and big-box retailers like Wal-Mart that offer oil-changes and tire-rotation, services that were once performed almost exclusively by corner gas stations. The same stores, along with Kroger and Meijer, also are elbowing into the gas business.

Very few stations are run by oil companies, which now are focused mainly on finding oil. Most stations are owned by small chains, suppliers or single-store operators.

Often, the single locations are owned by immigrants, Ricker said.

"They have a different economic model," Ricker said. "They can in many cases run it because they're putting in sweat equity."

When a station closes, it doesn't have to become an eyesore, industry officials say.

In many cases, the real estate is perfect for another retail use, such as the new Walgreens store that replaced an old filling station at the corner of Michigan Road and 86th Street. Operating stations also pay into a state-maintained fund to pay for remediation of pollution left behind by abandoned stations.
Source: XMLAr00103.xml
ADVERTISEMENT

Recent Articles by Cory Schouten

Comments powered by Disqus