BRIEF HISTORY OF GAS MARKETING

By Sam J. Jacobsen

Our older generation should easily recall when gas marketing was dominated by the big- brand oil companies. They all were higher-priced than the few low-priced independent marketers. It was not easy to find the independent marketer. It is safe to say the big names – Phillips 66; BP; Citgo; Mobil Oil – controlled and set the price for gas.

To the inside observer, what happened next was very interesting…

Starting in the 1950’s, a small group of true entrepreneurs discovered a profitable market for an innovative retail concept called “convenience stores” (“c-stores”). 7/11 of Dallas and Circle K of Phoenix ultimately turned out to be the independent leaders of the movement with over 10,000 stores.

In the 1960’s, the group formed the NACS (National Association of Convenience Stores) about 1,000 stores. Almost all of these stores were 24-hour operations. Their total gross profit food margins were in the $100,000 range. However, supermarkets, drug stores and market saturation of equal hours soon began to eat into the viability of the original concept.

Only a few states allowed self-service gasoline. But this turned out to be a natural marketing adjunct to the c-store industry. All outlets selling gasoline, from the majors to independents, adopted the c-store concept. Today, all States except two permit self-service gasoline. Consumers pay more for gas in those restricted states (net of state tax differentials).

As many recall, the major stations began closing in record numbers. As they did, c-stores purchased many prime locations. Furthermore, no new c-store combinations emerged from the existing gas-only outlets. The c-store marketing of gas shifted price control to the competitive, independent-minded c-store industry.

The majors tried hard, without success, to copycat what the c-store people had created. The oilmen had grown up in a single-minded and controlled discipline – they only had to deliver and read the gas meters. They could not be profitable in or understand the complexities of a convenience store, which required multiple, highly-trained disciplines.

In the decades before self-service gasoline marketing, the filling station operations were, in fact, little more than employees. Few if any were allowed to purchase the property locations. Their leases were easily canceled by the majors. The total cost was usually out of reach to the average operator. The major-brand supplier owned and controlled every facet of the “filling station”. To the average customer, he was the owner/operator of “his” station. To a business owner, he was in fact a second class citizen with no hope of controlling his economic destiny. Incidentally, this arrangement was largely controlled by off-shore oil interests. The American dream was not part of the operators’ expectations.

From this brief history, we now step into the period 1990 – 2005. In 1990, 7/11 and Circle K were in bankruptcy. In the 1980’s gas margins at the retail level ranged from 5 to 8 cents a gallon. A fight emerged over marketing control. From major retailers, divorcement legislation was pending in Congress and some states. But then a strange thing happened – the Petroleum Marketers Association joined the NACS movement. Suddenly national margins jumped from 7 cents to the 15 cent range and divorcement efforts disappeared.

Today, by developing million dollar c-store locations, the majors are striving to regain market dominance and convenience stores are reverting back to the oil companies original control arrangement. To insure future gas marketing competition, the independent c-store companies are the answer.