Gas Station Owners, Blamed When Prices Rose, Face Risks as Prices Fall

Volatile fuel costs make setting pump prices challenge for the small entrepreneurs behind many U.S. stations

By Benoît Morenne of The WSJ. Excerpts:

"Fuel station owners set the prices consumers see at the pump, based on what they initially paid to fill their underground tanks of gasoline and diesel. They have to sell that fuel for a corresponding amount to recoup their investments and manage a profit, which can take days or weeks, depending on how quickly they turn over their inventory.

Heightened volatility makes those pump pricing decisions painstaking for gas station owners such as Doug Robinson. When prices drop, he still has to sell the fuel he already bought for his two stations in central Texas at a higher amount. Because he doesn’t know where prices will go next, he also risks losing money on every new fuel order he places."

"Fuel stations are at the tail end of a supply chain that includes companies drilling for oil and gas, companies that turn crude into fuel and companies that transport that fuel to retailers. While many gas stations bear the brands of big oil companies such as Exxon Mobil Corp. and Shell PLC, those companies no longer own or operate most of those stations, which are run by licensees. Of the 116,641 convenience stores selling fuel in the U.S., slightly more than half are independently operated, according to the National Association of Convenience Stores. 

Those gas station owners typically make small margins on fuel itself, earning more from other items such as cigarettes and coffee. They face competition from other independent gas station owners, as well as chain retailers such as Costco Wholesale Corp. and Kroger Co., who can obtain supplies at an advantageous price and forsake fuel margins altogether, said Patrick De Haan, head of petroleum analysis at price tracker GasBuddy.

Kroger improved its margin per gallon from 35 cents to 42 cents in the first quarter compared with the same period last year, after an additional 600,000 households signed up for the company’s Fuel Points loyalty program, company executives told investors in June.

When wholesale prices go up, gas station owners tend to raise the price at the pump slowly so as not to discourage customers from stepping inside their convenience stores, where they generate most of their cash.

When wholesale prices go down, the owners also tend to lower prices more slowly because they have to recoup what they have already paid to fill the tanks. Just how fast they are able to sell their stock depends on an array of factors including consumer demand, regional competition and storage size.

Some stations, typically those further from harbors, have larger tanks and receive fuel deliveries that last several days or even weeks, said Katie Childs, vice president at Tuxis Ohr’s Fuel, Inc., a fuel delivery company based in Meriden, Conn. Some of her customers might sell just 20 to 30 gallons of diesel a day on average. “You could have 100 days of supply in there,” she said.

On top of fierce competition, retailers have to factor in credit card transaction fees, which can increase alongside prices. Dan Lukasavitz, who leases a BP-branded station in Dayton, Ohio, said he receives a fixed commission of 6 cents a gallon as part of a contract with a fuel distributor. But in the past few weeks, credit card fees increased to upward of 10 cents a gallon, leaving him with a loss on sales, he said.

“Our profit margins are gone right now,” he said."

"Buying and selling fuel involves making educated guesses on demand as well as future prices, gas station owners said, a gamble they sometimes lose.

Mr. Robinson, the Texas gas station owner, said he made a decision earlier this month not to place an order to refuel one of his stations, hoping that prices would go down by the following Monday. More drivers showed up at his pumps than he expected, and he ended up running out of gas, he said."

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