How Do Retailers
Get and Sell Gasoline?
Retail gasoline prices directly reflect wholesale prices. However, how and when retailers purchase wholesale gasoline can differ significantly, leading to varying prices and/or margins on the gasoline they sell. The wholesale market has complexities that lead to retailers having different cost structures, whether they are branded or unbranded, have long-term contracts or buy on the spot market or, in the case of tight supply periods and rising wholesale prices, even the time of day that the wholesale product was purchased can play a role in determining the retail price.
Retail Gasoline Supply
Retailers obtain gasoline supplies based upon the nature of their relationship with their suppliers, and because there are several different ways that retailers can purchase gasoline, the cost structure and availability of gasoline may vary greatly from one retailer to another, even those operating under the same gasoline brand. There are three primary supply arrangements influencing a retailer's operations:
Major oil owned and operated – Less than five percent of the approximately 164,000 retail gasoline facilities in the United States are owned and operated by the major oil companies.
Branded independent retailer – Approximately 52 percent of retail gasoline facilities are operated by independent business owners who sign a supply contract and sell gasoline under a brand owned or controlled by a refining company.
Unbranded independent retailer – Approximately 43 percent of retail gasoline facilities are operated by independent business owners who do not sell gasoline under a brand owned or controlled by a refining company. QuickChek sells fuel under the QuickChek brand and buys fuel only from major domestic oil refineries.
Retail Gasoline Pricing Considerations
Wholesale gasoline is a commodity that is traded on the open market. As such, its price can change by the minute, which may influence the cost structure for a retailer.
In 2006, convenience stores sold, on average, about 3,350 gallons of gasoline per store per day. The average underground storage tank has a capacity of 8,000 or 10,000 gallons, so many retailers average a shipment of gasoline once every day or so. However, high-volume, those selling three or even four time that amount, may receive multiple shipments each day.. The cost of each delivery can vary significantly, especially when wholesale prices are in flux.
QuickChek’s strategy is to offer our fuel every day at a value price for our consumers.
The National Association of Convenience Stores estimates that in 2007 the break-even mark-up for a gallon of gasoline was 12 to 13 cents per gallon, and the Oil Price Information Service (OPIS) reports that average gross margins on gasoline in 2007 was 13.8 cents per gallon. In addition to wholesale prices and competitive pressures, gasoline retailers must consider the following costs and expenses:
Federal, state, and local excise and sales taxes, which average approximately 47 cents per gallon in the United States. (The federal gasoline tax is 18.4 cents per gallon and each state has additional gasoline taxes.)
Transportation fees (one to three cents per gallon, depending on distance).
Credit card transaction fees (approximately 2.5 percent of the price of each transaction on credit card).
Retailer overhead (employee wages, rent, electricity, depreciation and other costs of doing business).
Retailer net profit (varies from day-to-day and market-to-market, retailer net profits can range from negative numbers to several cents per gallon). NACS estimates that the average retailer had a net pretax profit of between one and two cents in 2007.
Data from NACS