Many factors influence swings in gas prices from one location to another

The disparity in gas prices can be flummoxing for drivers trying to navigate today’s highly volatile
PHOTOGRAPHER:

Motorists filling up at the Mobil station on Wolf Road in Colonie on Monday would find themselves paying nearly 9 cents more per gallon than the average Capital Region cost of regular gasoline.

Just 12 miles east, it was a different story at the pumps. The Gulf station on North Greenbush Road in Defreestville was selling regular for $3.229 per gallon, 9 cents less than the regional average, according to www.AlbanyGasPrices.com, a local Web site devoted to monitoring area gas prices.

This disparity can be flummoxing for drivers trying to navigate today’s highly volatile gasoline market. Mere city blocks can sometimes mean the difference between a bargain or a premium price.

It’s a pattern that Mac Brownson has repeatedly seen since opening his station on Central Avenue in Albany more than two decades ago, and one that has gotten worse as the market has evolved.

“The differences right now are more striking than usual,” he said. “You literally have corner by corner pricing.”

Consumers often blame greedy station owners for these differences. But the causes are about as varied as prices from one station to the next. There is no single reason that stations across the street from one another have drastically different prices.

Purchase mode

One significant difference from one station to the next is how the operator purchases gasoline, said Jim Calvin, president of the New York Association of Convenience Stores. Capital Region stations might be operated by corporate oil companies, small businesses that buy wholesale gasoline through franchise agreements, or independent owners who purchase fuel on the open market.

Calvin said a price disparity often exists between branded gasoline and unbranded products sold on the open market. He said station owners can sometimes benefit from savings derived from their franchise agreements with larger oil companies; independent owners, meanwhile, aren’t locked into buying gasoline from one source and can scour the market for the most competitive prices.

“It may be cheaper at times or it may be more expensive at others depending on a lot of factors in the marketplace at the time,” he said.

Also, Calvin said a franchisee operating several stations within geographic proximity can buy gas in bulk and then dole it out as needed. These operators are often able to deliver a lower price per gallon than a single station owner who must purchase gas more frequently and at a higher cost.

“Each of those levels of the supply chain has their own costs built in into operating their business,” he said. “If you’re on the lowest rung of the ladder … very often, you’re going to have to pay the highest wholesale prices.”

Business model also has a sizeable influence over the purchase price at the pump. Calvin said some retailers are willing to charge less per gallon and attempt to attract a higher volume of customers; conversely, others are willing to sell less gas at a higher profit and augment these earnings with convenience store revenues.

“Each location has to decide on its own business model,” he said. “That business model, in part, is going to dictate to what extent fuel sales contribute to the overall viability of the business.”

For Stewart’s Shops, the business model is to sell gas as a supplement to their convenience store chains, said Mike Bombard, the company’s gasoline manager. Ultimately, he said the goal is to find the proper balance between profit at the pump and profit in the store.

“We are not a gas company,” he said. “We are a convenience store chain that provides gas for our customers.”

In some cases, Bombard said his company will offer competitive gasoline prices to draw growth for a particular location. But, he said, gas priced too low can make a station congested, which in turn thwarts customers from seeking the other products offered inside.

“All I’m going to do then is aggravate my customers that are just trying to get into my store for a coffee,” he said.

Credit card

Another significant factor setting apart the prices at corporate-owned stations and smaller independent retailers is the increasing tendency of motorists to use credit cards over cash, said Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops. He said independent owners pay roughly 3 percent of their credit card sales in processing fees.

With credit card receipts accounting for more than 80 percent of overall sales at the pump, Bombardiere said station owners sometimes need to compensate by raising their price per gallon. Conversely, the large corporate-owned stations — such as those operated by the Hess Corp. — have their own credit departments and can avoid this processing fee.

Brownson said credit card fees contribute to the already unstable prices of gasoline at his station. He said the fees account for roughly $300 per day of his overhead.

“That’s more than my payroll!” he exclaimed. “You swipe your card at my station and the first 10 cents [of every gallon] goes to the credit card company.”

Brownson, who is also the president of the New York State Association of Service Stations and Repair Shops, said high overhead also spurs many smaller station owners to charge a bit more than corporate chains would. And in most cases, he said stations are no longer owned by corporations, even though they usually carry gasoline with corporate brand names.

In 2005, the ExxonMobil Corp. divested all of the retail locations it owned in New York, Brownson said. Many station operators opted to buy their property from ExxonMobil and then agree to use the company name for 10 years.

“Customers didn’t see a difference — it was the same name on the window and the sign out front, ” he recalled. “But behind the scenes, we were struggling to get finances real quickly.”

But the result for Brownson and scores of other station owners was a sudden jump in overhead. He said expenses once covered by the company, such as upkeep and repair, suddenly became added costs for the independent owners.

“I struggle to make it every month,” he said of his business.

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