On the Gas Station Business

The gas station business is growing and is in demand. 

But, the gas station business is in turmoil, largely because of wildly zigzagging energy prices.  With oil prices once again hitting record highs, gas station owners are jockeying to see who can get fuel on tolerable terms. 

So if you boycott gas on a Wednesday, big deal, the gas stations’ business is up on Tuesday and Thursday.  I would imagine that most of the gas station business is the same cars with the same people that if they aren’t going one way they are coming back home the other way and can see the gas station. 

A gas station business is highly expandable – many gas stations are equipped with car washes that offer services free of charge (or at a discounted price), depending on the amount of fuel purchased.  And there has been huge growth in having fast food operations such as McDonalds, Wendy’s, various pizza brands, Subway and Quiznos

as an added profit center for their business.  I have heard some people say that the gas station business is a low margin business, and the real money is all made on beer, cigarettes, coffee, and junk food. 

Gasoline Prices

Refiners generally price their unbranded fuel about 2% or 3% below their house brands, which offer greater prestige and fancier additives.  Most of the time, wholesale prices adjusted uniformly when oil prices rise or fall.  Lately, intense gyrations in world oil prices have gas station owners obsessing about timing fuel purchases to the hour, so they can buy more at the troughs and less at the peaks.

Motorists might squawk, but even major swings in energy prices hardly altered the competitive balance among gas stations. 

This year has seen wholesale gasoline prices gyrate as much as 10 cents a gallon within a day.  In such times, a gas station owner's most crucial decision may be whether to refuel tanks at Tuesday afternoon's prices or hold out for cheaper terms the next morning. 

Sometimes that's because refineries have re-jiggered their price lists, helping house-brand stations get cheaper fuel.  In other cases, refinery shortages or heavy betting by speculators are jacking up prices in the unbranded market, to a degree that no one expected. 

Meanwhile, refinery outages in California has caused the price of unbranded gasoline to soar.  With more customers than they could satisfy, refineries offered their best deals to gas stations selling their own brands and jacked up wholesale prices for everyone else. 

For independent gas stations, which rely on cheaper unbranded fuel to be competitive, "these are tough times," says Mary Welge, an analyst at Oil Price Information Service of Wall, N.J. 

As prices continued to soar at gas stations, a letter circulating on the Internet called for consumers Tuesday to boycott gas stations, a move meant to hit oil companies with a one-day sales drop.

Higher prices at gas stations have forced some local residents to cancel vacations, share rides or run fewer errands.  One of the responses has been “if we boycott that company, it will send a message to them that we are sick of them spiking up the price of gas at gas stations to the stratosphere and they will have a glut on the market and perhaps have to lower the price in order to stay in business.”  (I say “fat chance of that happening.”)

The only thing scarier than the gas station prices is the thought that our government will go in and “solve the problem”.

Will our government really check into the customer being price raped at the gas station or is it just another cover to win votes?  Many consumers think gas stations prices are escalating mostly due to selfishness and greed.  But, gas station prices are considered to be “gouging” if there is a major emergency such as hurricane Katrina and consumers cannot buy gasoline anywhere else.  This is not the situation with gas stations today.  One can go across the street or down the street a block or two and, generally speaking, find a lower price at the next closest gas station.

What many don’t understand is why gas station prices are not ‘uniform’.  The oil business is an extremely complex business and there really are no simple answers.

Because of OPEC the price of a barrel of oil that eventually trickles down to the gas station pump is so high because the oil industry is not a true market economy.  The cartels manipulate production on a whim.

High gas station prices will murder the tourist industry as we head into the vacation season.

Stations

Currently major oil companies own about 5% of the nation's 169,000 gas stations. 

About 60% of stations carry the big companies' signage but are operated by independent licensees. 

The industry has been retrenching for years, in the face of tighter environmental rules, dwindling profits from service garages and the emergence of giant gas stations that can displace three or four smaller predecessors.  Motorists might squawk, but even major swings in energy prices hardly altered the competitive balance among gas stations.