“2 ¢ Worth from 2 C-Store Vets”

by Sam Jacobsen, Middleton, WI and

Richard Meyer, New Berlin, WI

The co-authors of this article are Sam Jacobsen and Dick Meyer. Sam is a co-founder and past chairman of the National Association of Convenience Stores (NACS) and also founder of the Middleton-based PDQ Food Stores; he opened his first store in Madison in 1962. Dick Meyer is a financial executive with 28 years as a c-store veteran and considered a leading consultant and analyst on c-store trends and dynamics; he resides in New Berlin, WI and is a past Chairman of the NACS Suppliers Board of Directors. This background is provided solely so you can evaluate the credibility related to this gas price issue.

So many are riddled with gross inaccuracies that we thought your readers should have a few “fair and balanced” facts for evaluation. In talking about the minimum mark-up law in Wisconsin and Minnesota, consumers misunderstand that marketers sustain profitability with a 6 cents-per-gallon (cpg) margin, a number obtained from the National Association of Convenience Stores (NACS). Here are a few real facts about the c-stores industry:

1. The highly competitive independent c-store operators are very motivated to sell the lowest price fuel possible because history has shown their margins per gallon are in a close range despite selling price. NACS reports the gas margin averaged 12.7 cpg in 2001, which is the same in 2004 despite the average price at the pump being up 33% between 2001 & 2004. Understand, too, that c-stores buy their gas on the “open” wholesale market and have no control over the world-wide high cost of gasoline delivered to the pumps.

Meanwhile, since more customers are paying with plastic and c-stores pay about 3% of the fuel selling price to the credit card companies (and over 50% of fuel customers are using credit cards to purchase fuel), the only winners in this scenario are the credit card companies that resist working with the c-store industry on a more equitable fee arrangement. One might do the math on 10 gallons x $3.00 gas = $30.00 x 3% to the credit card company. That’s $.90 cents per fill-up or 9 cents per gallon to the banks.

2. NACS reports there are 138,000 stores in the U.S. as of end of 2004 with 92,000 (67%) of them operated by independent operators with 1-10 stores.

3. One more fact, we should note, the Industry average cost of equipment and improvements to sell fuel approximates 8 cents/gallon and that’s only fixed costs.

4. Omitted in much pseudo “research”, too, is a fact of corporate existence - c-store retailers have partners, including the Federal and State income tax authorities that can assess about 42% of whatever profit is made The Shareholders who took the financial risk would like a reasonable return. What may be left over can be referred to as “gassing up” the economic machine – with capital improvements, new growth, better service and added employment.

5. Finally, many reporters’ thesis repeatedly refers to “guaranteed profit” to the retailer. They could not be further from the truth. The 6% law only refers to a mark-up margin before operational costs are calculated. The reader is lead to understand the 6% mark-up represents the store's “profit” on gas. Wrong. Gross profit is the amount you have to pay all your bills - little things like the wages of the Industry’s approximate 1.5 million employees, rent for the $1 million + “convenient” corner fuel sites, utilities, etc.

Convenience stores are one of the few remaining entrepreneurial landscapes in our great country. During our post 9/11 economy, including our trials with Iraq and Katrina, it would be great if our citizenry were not flooded with incomplete hypotheses that seek a “goat” and sound-bite answer to what are longer-term issues. Fuel pump prices in the U.S. have been historically the lowest in the world. International and now domestic issues have been at play for a long time as related to our Nation’s fuel reserves and dependency. It would be best if we focus our attention to a long term situation.