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Sheetz, O'Connor Spar Over Below-Cost Selling

It may not be Tyson vs. Lewis, but the Sheetz-O'Connor slugfest in the political ring of Virginia's State House certainly has its share of drama. While Virginia lawmakers consider banning the sale of below-cost fuel, a couple of industry heavyweights — Michael O'Connor and Stan Sheetz — are both actively lobbying their own positions.

O'Connor, president of the Virginia Petroleum Marketers and Convenience Store Association, is pressing the State House to follow its Senate colleagues and approve a measure he feels would restore equilibrium to retail gasoline prices.

"The bill says you can sell it at what you can buy it for and that's all it says," O'Connor said. "It's very simple. We're saying you shouldn't be allowed to treat gasoline as a loss leader."

Counterpunching O'Connor's jabs, Sheetz, who, as president of the 270-store Sheetz Inc. has made a living on aggressive gas prices, is pressing the state to keep its nose out of what he considers a free-market debate. The state was expected to act by March.

Keeping pace with major supermarkets and mass merchandisers, the Sheetz chain is renowned for charging as much as 10 to 15 cents per gallon below street price, drawing angst and consternation from many of his c-store and petroleum marketing brethren.

O'Connor, speaking for many jobbers and smaller c-store retailers in Virginia, contests that Sheetz only slashes prices in competitive markets, but lifts them as soon rivals' doors are shuttered.

Sheetz said he is doing nothing illegal and accuses the marketers of sour grapes over his superior gasoline program. "This legislation is stupid and if they think my prices are predatory then let them take me to court and sue me. There are already federal laws on the book against predatory pricing. Truth is, I offer gas at a better value because my economics work," he told CSNews.

Sheetz emphasized that while he sells gas at a profit he has no problem with retailers who treat it as a loss leader. "Of course I make a profit," he said. "I'm not in the business of losing business. I buy gas at below-rack prices so I can price better and I make my economics work.

"But what's wrong with the concept of a retailer selling gas at a loss-leader?" he asked. "If you look at the state of the industry and see people's break-even is something like 9 or 10 cents a gallon, that means they have to make 10 cents a gallon just to break even. So if I price it at a nickel profit, I'll make a profit yet they would lose a nickel a gallon."

Livelihoods Jeopardized?

As CSNews went to press, the Virginia House Commerce and Labor Committee was reviewing a proposed measure and set to vote in late February on whether to move the bill to the entire House. Unlike the Senate, which approved the measure 23-12, it was uncertain how the House would vote.

Virginia lawmakers face a conundrum. On one hand, unabated competition sparked by the growth of supermarkets and mass merchandisers selling gasoline has resulted in lower street prices. On the other, below-cost selling jeopardizes the livelihoods of longtime traditional operators who are economic cornerstones in many communities.

This tension is being played out in much of the country, as groups like the Petroleum Marketers Association of America lobby for state and federal legislation that prevents retailers from selling gasoline below the wholesale cost of traditional operators.

As for the Virginia measure, O'Connor doesn't understand Sheetz's opposition. "If his testimony is true and their prices are so much better because they're able to buy better, then he's got nothing to worry about because the bill only goes after people who are selling gas for less than what they're paying for. They're the ones we're after."
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