Rising Gas Prices Impact C-Store Business

10/3/2011

Exclusive CSNews study examines fuel prices, margins, branding security, technology, equipment, progress of alternative fuels and other matters

More than 80 percent of convenience store retailers say rising gas prices have had an impact on their business this year, with half saying these price increases have resulted in decreased profitability and another 40 percent citing lower store traffic.

Only 18 percent said rising gas prices had no impact on their business, according to the just released Convenience Store News 2011 Motor Fuels Study.

The national average for regular-grade gasoline this year is expected to be $3.53 per gallon, a 26.9-percent increase from 2010. Last year, gasoline prices rose 18.4 percent nationally.

Over the past decade, prices have fluctuated from a low of $1.34 per gallon in 2002 to a peak of $3.26, achieved in 2008. From 2000 to 2010, the national average has increased by 87 percent.

The retail price for 2011 is expected to reach a new high of $3.26, with government forecasters predicting that prices will continue to climb, hitting $2.64 per gallon as a national average for regular grade in 2012.

Regionally, the highest price in the nation for regular gasoline is forecast to be $3.75 per gallon in the West Coast region. The next highest is the East Coast, at $3.52 per gallon, according to the U.S. Department of Energy. The lowest gas prices are in the Gulf Coast, close to many of the nation's refineries, at $3.38 per gallon, followed by $3.42 per gallon in the Rocky Mountain states.

According to convenience store retailers surveyed by CSNews in August, fuel margins rose slightly in the first half of this year, to 15.1 cents per gallon, from 14.8 cents during the first half of 2010. Nearly 80 percent of respondents claimed their motor fuel sales increased in the first half of 2011, compared with the comparable year-ago period, while half reported higher gallon volume. However, less than 40 percent said their margins on fuel increased during the first half of this year compared to the first half of 2010.

On a per-transaction basis, 23 percent of c-store retailers reported their average gallons sold increased compared to a year ago, while 31 percent said their per-transaction volume declined.

The CSNews 2011 Motor Fuels Study also asked retailers about the technology and equipment they use in their forecourt, how many brands they sell, the impact of theft at the pump, the progress of alternative fuels and other matters.

More retailers use pay-at-the-pump technology today than five years ago, when CSNews last conducted its Motor Fuels Study. Ninety-three percent of retailers said they have pay-at-the-pump vs. the 89 percent who offered it in 2006. On average, c-store retailers maintain about five pumps and 10 fueling positions on their forecourt.

However, high gas prices haven't had much impact on fuel theft — also called drive-offs — in the industry. In fact, retailers reported drive-offs were slightly down from a year ago. One possible reason for the drop in drive-offs is that 63 percent of retailers now require pre-payment for gas purchases.

The percentage of retailers who sell unbranded fuel has increased since 2006. Today, 35 percent sell generally lower-priced unbranded fuel, compared with 33 percent five years ago. In contrast, 74 percent sell branded fuel — a significant decline from 81 percent in 2006.

Almost three-quarters of c-store retailers sell only one brand of fuel, while 14 percent sell two different brands. About 13 percent said they've switched brands over the past two years. In 2006, a whopping 20 percent said they had switched fuel brands in the previous 24 months.

On the topic of alternative fuels, 66 percent said they sell some type of alternative fuel, such as ethanol, propane, compressed natural gas (CNG) or another type of fuel. That's a 13-point decline from 2006. However, almost 80 percent of retailers said they expect to be selling some type of alternative fuel five years from now.

Ethanol is the most widely sold alternative fuel, offered by 45 percent of c-store retailers — a decline of 10 points from five years ago. Fifty-five percent of retailers, though, expect to be selling ethanol-based fuel within the next five years.

Interestingly, almost a quarter of respondents also said they expect to be selling electricity for battery-powered vehicles within the next five years.

According to projections from the U.S. Energy Information Administration, alternative fuel light-duty vehicles could hold a nearly 50-percent share of the nation's automobile fleet by 2035. As of 2008, these vehicles had a 13-percent market share. Currently, according to retailers, alternative fuel accounts for just 1.5 percent of their total fuel sales.

When it comes to how consumers pay for fuel, it's clear that debit card use has been on the rise over the past five years. Currently, about 17 percent of fuel transactions are made with debit cards, compared with 13 percent last year, and only 7 percent in 2006.

Credit cards are still the top payment method, though. Retailers report that 46 percent of their fuel transactions are made with credit cards. That's down from 53 percent last year and 48 percent in 2006. Approximately 35 percent of fuel purchases are cash transactions; that's up from 32 percent last year, but down from 39 percent of transactions in 2006.

Meanwhile, petroleum equipment is not getting any cheaper. The average investment in motor fuel equipment is $288,489, according to the study. That's up from $252,306 in 2006. Retailers are keeping equipment a little longer, too. The average age of petroleum equipment is nine years, up from 7.9 years in 2006. On average, retailers replace their equipment every 15 years, the study shows.

Among the various promotional and sales-driving technologies employed at the pump, the use of video monitors has seen the biggest gain in the past five years. In 2006, just 14 percent of retailers utilized video monitors. That figure is now almost 19 percent. On a wider basis, 83 percent of retailers use traditional pump-toppers, a slight decline from 88 percent five years ago.

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