Prices Up, Margins Down
LAKE WORTH, Fla. -- For petroleum marketers in Florida and across the United States, steeper credit card fees and a doubling of inventory costs are eroding their already pennies-per-gallon profits to the lowest point in 20 years, reports the Palm Beach Post.
"We're making less profit from gasoline than [at any other time] in the 15 years since I've been here," said Don Miele, owner of Miele's Motors, a Texaco station in Lake Worth, Fla..
Independent, single-location distributors such as Miele's are left bearing all the costs of increased insurance and labor along with higher property taxes and other expenses without the support of a corporate parent. "The mom-and-pop operators have felt it the worst. They have the least ability to borrow money and the least ability to absorb depressed profits long-term," Jim Smith, president and chief executive of the Florida Petroleum Marketers and Convenience Store Association in Tallahassee told the newspaper.
While there's no breakdown available on how many of Florida's 9,500 retail gasoline outlets are small businesses, the number of independents is expected to decline due to the current profit squeeze, said Jacob Bournazian, an economist with the federal Energy Information Administration in Washington.
"They are probably below 5 cents a gallon on their actual net profit," Bournazian said. "A lot of those station owners are going to sell their property to a corporation or become a franchisee, or they're going to go into hock."
Those that don't throw in the towel are adapting by adding other products and services. More and more these days, commuters pulling into the corner gas station can do everything from getting a cup of premium coffee to check-cashing to picking up that last-minute grocery item.
Angel Fernandez, owner of West Palm Chevron in West Palm Beach, has already learned that lesson. The independent station owner says 60 percent of his revenue now comes from the convenience store portion of his station.
He and others point to 3 percent credit card fees coupled with higher pump prices as a major profit-killer. If gas were $1 a gallon, the credit card fee would be 3 cents. But if gas is $2 a gallon, it's 6 cents on a gallon.
On the sale of two gallons at $2.50 a gallon, the retailer typically makes about 8 cents a gallon, or 17 cents total on the sale. The 3 percent credit card fee takes 15 cents, leaving 2 cents. That's why retailers prefer the oil company's own credit card to one such as MasterCard, because they are not charged a fee.
And math-challenged customers apparently don't understand that a dollar doesn't buy as much gas as it once did.
"Customers will buy $20 worth of gas, and say, 'My (gas gauge) needle only goes halfway up. What are you guys doing to the pumps?' " Fernandez said.
"The biggest myth out there is that the retailer is making more money," he said, adding that he makes more on candy and soft drink sales than on gasoline. "We are making less."
Higher gas prices also mean the cost of gas inventory is more than doubled, tying up more cash.
"What used to cost them $8,000 a load costs them $22,000 a load," the marketers association's Smith said.
At 8-cents-a-gallon profit, that means the retailer has more than $20,000 tied up to make back $750. If gas increases by 70 cents a gallon, the dealer is forking out $6,000 more per load.
Making matters worse, some retailers say, is that funds are electronically -- and rapidly -- transferred from their bank accounts when a truckload of gas is delivered. They don't receive payment from their customers until after the credit card transactions are processed.
At Miele's, which doesn't sell milk, cigarettes, beer or any other food items, gas is sold only full-service, an old-fashioned amenity that sets them apart. Miele and his wife, Ann-Marie, count on the station's eight bays where vehicles are repaired and serviced to stay in business.
Ann-Marie Miele says customers love the pampering that comes with full service, adding, "It's better than a manicure."
At Gun Club Exxon in suburban West Palm Beach, customers such as Luz Maria Arce of Lake Worth are as likely to pull in for a pastry as for gas.
"Any time I'm going this way, I stop and get gas. The food is cheap," Arce said, while buying a $1.50 Argentinian empanada.
In fact, owner George Segurola considers the low-profit gas pumps a way to bring customers into his 2,400-square-foot food mart. One section holds the Latin American Cafe, with seating for 14. Breakfast, lunch and dinner are served, including everything from 50-cent Cuban coffee to $6.99 pork chop dinners.
"Without the gas, I would do half the business," Segurola said of the small enterprise he started four years ago.
Waving his arms toward the food items such as cookies, candy and bottled water, he said, "This is where the 30 percent profit margin is."
Segurola's store mirrors the industry trend not only toward foodservice, but other services such as check-cashing and lottery sales.
But after plunking down more to fill up their vehicles in recent months -- to fill a Ford Expedition can easily top $60 -- people aren't spending as much inside the stores. Rob Iosue, spokesman for the Society of Independent Gasoline Marketers of America in Reston, Va., said, "Folks that pay cash come to the stores with $20 or two twenties. These days that can be consumed completely filling up an SUV."
Convenience stores continue to look for ways to expand business, such as coffee centers, and capitalize on saving people time, a commodity that doesn't have a price.
At Miele's, the commodities being sold are convenience and something that can't be priced. "This place is like Cheers on TV. When people come in, we know them on a first-name basis," Miele said.
"We're making less profit from gasoline than [at any other time] in the 15 years since I've been here," said Don Miele, owner of Miele's Motors, a Texaco station in Lake Worth, Fla..
Independent, single-location distributors such as Miele's are left bearing all the costs of increased insurance and labor along with higher property taxes and other expenses without the support of a corporate parent. "The mom-and-pop operators have felt it the worst. They have the least ability to borrow money and the least ability to absorb depressed profits long-term," Jim Smith, president and chief executive of the Florida Petroleum Marketers and Convenience Store Association in Tallahassee told the newspaper.
While there's no breakdown available on how many of Florida's 9,500 retail gasoline outlets are small businesses, the number of independents is expected to decline due to the current profit squeeze, said Jacob Bournazian, an economist with the federal Energy Information Administration in Washington.
"They are probably below 5 cents a gallon on their actual net profit," Bournazian said. "A lot of those station owners are going to sell their property to a corporation or become a franchisee, or they're going to go into hock."
Those that don't throw in the towel are adapting by adding other products and services. More and more these days, commuters pulling into the corner gas station can do everything from getting a cup of premium coffee to check-cashing to picking up that last-minute grocery item.
Angel Fernandez, owner of West Palm Chevron in West Palm Beach, has already learned that lesson. The independent station owner says 60 percent of his revenue now comes from the convenience store portion of his station.
He and others point to 3 percent credit card fees coupled with higher pump prices as a major profit-killer. If gas were $1 a gallon, the credit card fee would be 3 cents. But if gas is $2 a gallon, it's 6 cents on a gallon.
On the sale of two gallons at $2.50 a gallon, the retailer typically makes about 8 cents a gallon, or 17 cents total on the sale. The 3 percent credit card fee takes 15 cents, leaving 2 cents. That's why retailers prefer the oil company's own credit card to one such as MasterCard, because they are not charged a fee.
And math-challenged customers apparently don't understand that a dollar doesn't buy as much gas as it once did.
"Customers will buy $20 worth of gas, and say, 'My (gas gauge) needle only goes halfway up. What are you guys doing to the pumps?' " Fernandez said.
"The biggest myth out there is that the retailer is making more money," he said, adding that he makes more on candy and soft drink sales than on gasoline. "We are making less."
Higher gas prices also mean the cost of gas inventory is more than doubled, tying up more cash.
"What used to cost them $8,000 a load costs them $22,000 a load," the marketers association's Smith said.
At 8-cents-a-gallon profit, that means the retailer has more than $20,000 tied up to make back $750. If gas increases by 70 cents a gallon, the dealer is forking out $6,000 more per load.
Making matters worse, some retailers say, is that funds are electronically -- and rapidly -- transferred from their bank accounts when a truckload of gas is delivered. They don't receive payment from their customers until after the credit card transactions are processed.
At Miele's, which doesn't sell milk, cigarettes, beer or any other food items, gas is sold only full-service, an old-fashioned amenity that sets them apart. Miele and his wife, Ann-Marie, count on the station's eight bays where vehicles are repaired and serviced to stay in business.
Ann-Marie Miele says customers love the pampering that comes with full service, adding, "It's better than a manicure."
At Gun Club Exxon in suburban West Palm Beach, customers such as Luz Maria Arce of Lake Worth are as likely to pull in for a pastry as for gas.
"Any time I'm going this way, I stop and get gas. The food is cheap," Arce said, while buying a $1.50 Argentinian empanada.
In fact, owner George Segurola considers the low-profit gas pumps a way to bring customers into his 2,400-square-foot food mart. One section holds the Latin American Cafe, with seating for 14. Breakfast, lunch and dinner are served, including everything from 50-cent Cuban coffee to $6.99 pork chop dinners.
"Without the gas, I would do half the business," Segurola said of the small enterprise he started four years ago.
Waving his arms toward the food items such as cookies, candy and bottled water, he said, "This is where the 30 percent profit margin is."
Segurola's store mirrors the industry trend not only toward foodservice, but other services such as check-cashing and lottery sales.
But after plunking down more to fill up their vehicles in recent months -- to fill a Ford Expedition can easily top $60 -- people aren't spending as much inside the stores. Rob Iosue, spokesman for the Society of Independent Gasoline Marketers of America in Reston, Va., said, "Folks that pay cash come to the stores with $20 or two twenties. These days that can be consumed completely filling up an SUV."
Convenience stores continue to look for ways to expand business, such as coffee centers, and capitalize on saving people time, a commodity that doesn't have a price.
At Miele's, the commodities being sold are convenience and something that can't be priced. "This place is like Cheers on TV. When people come in, we know them on a first-name basis," Miele said.