Tuesday, May 27, 2008

Peeved at Prices? Don't Blame the Dealer

I worked at gas stations off and on for forty years. I live in a tourist trap town way up in the mountains, and gas prices have been 40-50¢ higher than the metro areas the tourons come from for the 28 years I've lived here. I used to get customer complaints all the time. It's a waste of time to unload on the hose jockey or cashier, but I guess they have to vent at somebody.


Every time Sohaila Rezazadeh rings up a sale at her Exxon station on Chain Bridge Road in Oakton, her cash register sends the information to Exxon Mobil's central computers. If she raises the price of gasoline a couple of pennies, chances are that Exxon will raise the wholesale price she pays by the same amount.

Through a password-protected Web portal, Exxon notifies Rezazadeh of wholesale price changes daily. That way the oil giant, which is earning about $3.3 billion a month, fine-tunes the pump prices at the franchise Rezazadeh has owned for 12 years.

Now, however, Rezazadeh says she cannot stay in business. Credit-card fees are eating her profit margins. Exxon, which owns the station land, last week handed Rezazadeh a new lease raising her rent about 30 percent over the next three years. She stuck a copy on the window of her station to show customers who are angry about soaring pump prices. Rezazadeh has told Exxon that she cannot make money with the rent that high. Her territory manager's reply, she said, was simple: When you go, leave us the keys.

Although Exxon owns and operates few stations anymore -- less than 10 percent of the 12,000 Exxon outlets in the United States -- it uses franchise agreements to maintain tight control over stations that bear its brand. The company dictates everything from the number of pumps to hygiene practices to the placement of food on convenience store shelves. "They monitor everything," Rezazadeh said.

Even some of Exxon's successful and loyal dealers complain. Jerry Daggle owns five Exxon stations in Northern Virginia, and even though they have different competitive conditions and prices, "Exxon magically lets me make about 8 cents a gallon" at each one, he said.

Well, at least their profit has gone up. Forty years ago when gas was 30¢ a gallon, the dealers only made a nickel. Those were the days when two, count 'em two, impeccably turned out attendants, who made maybe $1.75 an hour and could just about live on it, would trot out and wash your windshield and rear window and check under your hood, the point of which was really to sell stuff, oil, wiper blases, whatever. Everything was done right at the car window and the customer never had to get out of the car, which was very handy for the occasional driver who forgot his pants (I worked at a station in Hollywood once. Trust me, it happened!).

Daggle, who has been an Exxon dealer for two decades after working his way up from pumping gas, said he has done well. But he still cannot fathom how the oil company can charge him different wholesale gasoline prices for each of the five Northern Virginia stations he owns. The stations all sell the same Exxon-branded gasoline, delivered from the same terminal in Newington, where it arrives via the same pipeline. Sometimes, Daggle said, it's even dropped off by the same truck and driver hours apart on the same day.

The only thing that's different is the price, which can vary by 35 cents per gallon, Daggle said. [...]

Historically, gasoline marketing has been a low-margin business. For decades, when oil was plentiful, margins were kept low to move as much crude oil through the system as possible. Now, major companies don't have to fight to move product, but they are still battling for nickels and dimes at the pumps.

Like other parts of the retailing business, gasoline marketing has become more concentrated and high volume than it was in the days when mom-and-pop gas stations lured customers with free drinking glasses.

Trading stamps. I remember S&H Green Stamps and Blue Chip Stamps. You'd paste 'em into booklets and redeem them for mail-order merchandise. If you forgot the stamps when you gave the customer his change or credit card slip to sign (I'm dating myself again. Heh.), boy would they howl!

Oddly enough, when prices are rising rapidly and consumers are most upset is usually when profit margins are slimmest for station owners. When prices are falling, as they were in September 2006, is usually when jobbers and station owners make the most money.

How much depends largely on Exxon. "If I had raised my gas, within a couple of days, almost inevitably, they would have raised my wholesale price. It's an unspoken rule," Daggle said. He said his Gainesville station makes most of its money from repairs, not gas sales.

Selling gas remains a cutthroat business in an industry awash in profits. Three years ago, when Daggle bought the Gainesville station, a share of Exxon stock was about $50. Buying and fixing up the station has cost him $800,000, and he hasn't yet drawn a profit from it. "If I had bought the stock," he said, he would have nearly doubled his money and would have "never lifted a finger."

Any money a station makes these days is from the service bays or the convenience store. Selling gas is almost a public service, and here's the rub: gas always has been and still is, even at $4+ a gallon, the cheapest thing you can buy for your car.

It's going to get worse before it gets better, on the off chance it ever will get better.

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