24.4.05

THINGS THAT MAKE YOU SAY D'OH! The price of gasoline goes up and ... people buy cheaper grades ... and some of them put their purchases on the never-never. Gas retailers say high prices bad for business.
It sounds hard to believe, but gasoline retailers' profit margins are at a 20-year low.

Even more surprising, their troubles are being exacerbated by high pump prices. That has prompted motorists to avoid premium-grade gasoline and pay more often with credit cards -- both of which reduce earnings that already were just a few pennies a gallon.
There's something perplexing about the vertical disintegration within the awl bidness, but I'm a bit tired to parse it tonight. Perhaps once classes end, as this is interesting.
With more than 70 percent of profit on the sale of gasoline going to oil companies and refiners, more gas stations are owned by the John Griffins of the world. Of all the places to buy gasoline, fewer than 10 percent are owned by oil companies and refiners, according to the Department of Energy. That is down from about 15 percent in 1998, reflecting the industry's efforts to shed these less profitable assets and to focus instead on production and refining.
The strategy of using gasoline as a retail loss leader, with the snacks and lottery tickets carrying the business (and the beer, outside DeKalb), appears to be running afoul of the Principle of Complements.
But lately, with a bigger chunk of consumers' budgets going toward fuel, some gasoline retailers say they are beginning to see a drop-off in spending inside their convenience stores.

"They think retailers are villains. And retailers, to be quite frank, are trying to survive. It's tough out there. Everybody is fighting for business," Griffin said. "We appreciate that they buy stuff.

"I hope they buy a Twinkie."
There's some rather technical stuff out there, from years ago, about stand-alone costs and subsidy-free prices. Might be worth another look.

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