The Retail Petroleum Marketplace
Retail Fuels Market: Agenda Who sells fuel in America? How do retailers determine price? What influences fuel prices? How profitable is fuel retailing?
WHO SELLS FUEL IN AMERICA?
Convenience Industry 148,126 stores in the U.S. –120,950 sell fuels 58% are one-store companies Less than 1% owned and operated by integrated oil companies 80% of U.S. fuels sold through c-stores
A Small Business Industry
Independence is Dominant
HOW DO RETAILERS DETERMINE PRICE?
Retailers’ Conundrum
Fuels Drive Sales, Not Profit
Consumers Shop Around Consumer Survey: –63% shop for fuel by price –66% shop for price by observing prices at the store and while driving –52% of consumers will change their shopping behavior for 3 cents per gallon
Consumer Loyalty is Fickle
How Do Retailers Set Price? Evaluate competitive market conditions Review historic performance associated with competitive price deltas –Might utilize price optimization software –Direct correlation between gallons sold and in-store sales Consider cost of goods sold and breakeven –What margins are available? –What is the balance between in-store sales lift and fuel margins?
WHAT INFLUENCES FUEL PRICES?
Prices Follow Seasonal Trends
Demand Drives Seasonality
Crude Oil Drives Retail Prices
Crude Drives Wholesale
Retail Follows Wholesale
HOW PROFITABLE IS FUEL RETAILING?
Retail Margin Volatility
Slim Average Mark-Up YearRetail PriceRetail Mark-Up% of Price 2011$ cents5.2% 2010$ cents6.0% 2009$ cents5.6% 2008$ cents5.5% 2007$ cents5.1% 2006$ cents5.4% 2005$ cents6.5% 2004$ cents7.0% 2003$ cents8.5% 2002$ cents7.2%
Conclusion Retailers set price based upon: –Competition for price sensitive customer Customers shop at 45 mph and will leave for pennies –Store-wide breakeven calculation –Typically make pennies per gallon Cost of Goods Sold: –Changes frequently – several times per day –Does not affect all retailers equally or at same time –Crude oil price is dominant factor in retail price
John Eichberger Vice President, Government Relations (703)