Record Oil Prices Aren't the Only Concern for Gasoline Retailers, Says NACS

ALEXANDRIA, Va.--March 21, 2005--In addition to record crude oil prices pushing gasoline prices to near-record levels, there are concerns that existing seasonal factors will continue to drive prices higher.

Limited U.S. refining capacity, strong demand for gasoline and complex seasonal gasoline blend requirements across the United States also have driven up wholesale gasoline prices, just as they have in previous years, according to the National Association of Convenience Stores (NACS).

Because convenience stores sell an estimated three-quarters of the gasoline purchased in the United States, conveniences store retailers are concerned by recent wholesale gasoline price increases.

Convenience store retailers dislike higher gasoline prices as much as their customers do, because as prices increase gasoline profit margins and in-store sales decrease while credit card costs, gas theft and customer grumbling increase, according to NACS.

NACS noted that when wholesale prices go up, prices at the pump typically lag as retailers absorb some of the wholesale price increases by reducing their margins to remain competitive. Competitive pressures from rising prices helped shrink gasoline margins in 2003, the most recent year from which data is available, to their lowest levels since 1985.

From the first week in February, the traditional start of the petroleum industry's transition to summer-blend fuels, to the time of the seasonal peak, gasoline prices have risen between 20 and 46 cents in each of the past five years. So far this year between Feb. 7, 2005 and March 15 crude oil prices have increased $9 per barrel, or the equivalent of 22 cents per gallon, while retail prices have increased only 15 cents, according to data from the U.S. Energy Information Administration.

Credit card fees, which cost convenience stores $3.2 billion in 2003, are another concern for retailers. The huge increase in gasoline prices in 2004 and 2005 accelerated the trend of consumers paying with credit or debit cards, and NACS estimates that upwards of 70 percent of all gasoline purchases are now paid with plastic. As credit card usage and gasoline prices increase, so do the fees per fill-up, since they are assessed on a percentage basis. The razor-thin profit margins for retailers selling motor fuels mean that banks generally take in more from a gallon than the retailers selling the fuel.

Many retailers also have reported an increase in gasoline theft, or "drive-offs." In addition, when gasoline prices rise, retailers lose in-store sales as consumers often curtail additional spending because of reduced discretionary income.

To help address consumers' concerns and correct misperceptions about gasoline price increases, NACS in early February released it annual online resource kit providing analysis and information about the U.S. petroleum industry. It can be accessed at www.nacsonline.com/gaskit2005.