Two bucks a gallon riles drivers and retailers
by Becky Gillette
Published: May 31,2004
With gasoline prices 30% higher than a year ago, consumers aren’t happy. But taking it out on gasoline retailers, who have little control over the prices, can be misdirected.
The high gasoline prices have been devastating to both large and small gasoline retailers, says Jerry Wilkerson, executive director of the Mississippi Petroleum Marketers and Convenience Stores Association.
“It has been real tough,” Wilkerson said. “One of the main problems is we can’t get any straight answers about what is going on, and why it is going up so much. It is a very troubling thing for the local people.”
There was a popular campaign, spread mostly via the Internet, asking people to boycott buying gasoline on May 19. There have also been callers on talk radio urging consumers to boycott buying gas, and not buy anything inside the store as a way to force retailers to reduce prices.
Wilkerson said those kind of tactics won’t work.
“The guy you are buying from is your neighbor, and he doesn’t have anything more to do with local gas prices than the local carpenter,” Wilkerson said. “Not buying gas for one day really makes no difference. If people don’t buy it one day, they would have to buy twice as much some other day. I can understand consumers are frustrated and feel they have to do something, but that is not the answer. That’s not going to solve the problem. It is much larger than that.”
What is causing the high gas prices is a subject of much debate. The Consumer Federation of American and Consumer Union recently said U.S. petroleum companies are to blame for record high gas prices. The consumer groups said mergers in the oil industry have reduced competition, and resulted in the consolidated domestic oil industries making $80 billion in windfall profits since 2000.
But other analysts say it is a matter of supply and demand, and that the U.S. appetite for the popular SUVs that get low gas mileage has led to a 4.5% increase in gas consumption. Worldwide demand for energy has also increased, due in part to a booming economy in China.
“Demand is up worldwide, plus there is the unrest in oil-producing countries,” Wilkerson said. “There is a lot speculation about what the market is doing. It is so many things from all the environmental restrictions to the high cost of building a new refinery. They don’t want to allow drilling of certain areas like Alaska, which would increase supplies. And we don’t have an energy policy in this country.”
While it is obvious how high gas prices harm consumers, there is negative impact on gasoline retailers, both small and large, as well.
“They are all in the same boat, the big and little guys,” Wilkerson said. “There is really no difference whether it is a mom-and-pop operation or a chain operation. When gas was $1.25 per gallon, if you compare that to $2 per gallon, that is almost three quarters more inventory as far as dollars are concerned. You need that much more money to pay for inventory. You get more money in. But the profit margin on a gallon of gas is the same at $1.25 per gallon as it is at $2 per gallon. They don’t make any more money. But they have a lot more money invested. So if you look at your return on investment, you have almost cut your return in half.”
The price of gasoline impacts nearly every sector of the economy. Some are obvious like hotels and tourism attractions that might see fewer visitors this year because people will be forgoing vacations or vacationing closer to home. Other impacts may be less obvious. For example, if a family is spending more of its disposable income on gas, it will have less to spend on other things such as eating out.
“It is really a very negative thing as far as the economy is concerned,” Wilkerson said. “The price of gasoline affects everything. Basically everything we buy is trucked at some point. The entire cost of fuel is going to ultimately show up in everything from vegetables to the shirt you bought. It will show up in electricity bills. It affects the price of everything we deal with on a daily basis. I read in the paper today a minister saying they were going to have to slow up on church trips for kids in the summer.”
With prices so high, motorists are likely to be more price conscious, and look for gas stations with the lowest prices. Independents that buy unbranded fuel can have a leg up in this kind of marketplace. One such independent is the family-owned Love’s Travel Stops & Country Stores, the Oklahoma-based company that has about 160 stores in 18 states. The Love’s Truck Stop on Interstate 10 in Gulfport is often a dime or more cheaper than other stations in the area. Recently the Love’s in Gulfport also had the lowest prices of any of the Love’s stores across the country. The price was at $1.84 when it was closer to $1.96 per gallon at most other outlets.
“Our philosophy as far as pricing gas has stayed the same the 40 years we have been in business,” said Jenny Love Meyer, public relations director for Love’s Travel Stops & Country Stores. “We want to offer a competitive price to our customers. What you will find frequently is that we are the lowest in the area. It is our philosophy of doing business.”
Meyer said the company keeps prices low by making less profit and keeping a keen eye on the bottom line. The company makes approximately 10% profit off a gallon of fuel.
“A simple reason we can offer prices that low is that we keep our costs low,” she said. “We work very hard to keep those costs low. We’re non-branded. The difference is branded fuels are usually more expensive. We’re unbranded so we can make all our pricing decisions on our own, and offer the price we feel like we want to offer people.”
Meyer said sales are good at Love’s, but it is hard to determine if increased sales are due to customers switching to Love’s because of the low prices, or because sales generally increase this time of year when people take vacations.
Even being a low-price leader, Love’s takes a lot of hits from consumers angry about high fuel costs.
“The average consumer is frustrated and I understand that,” Meyer said. “The average consumer thinks it is us raising the prices, and that is not it at all. There are always other factors involved. We typically make less at a higher price than we do at a lower price. We understand the customers’ frustration with it. We don’t like the situation anymore than they do, and we are trying to keep the prices competitive for them.”
Contact MBJ contributing writer Becky Gillette at email@example.com.
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