SCOTTSDALE, Ariz. – With hypermarkets tightening their grip on the retail gasoline business, independent petroleum marketers – who still sell half of all the nation’s retail gasoline – continue to search for answers to what is proving a difficult business issue: How does one compete with these high-volume national chains selling fuel below most marketers’ cost for the product?
During a 90-minute panel discussion at the Petroleum Marketers Association of America’s Motor Fuels and Lubes Conference last week, it was evident the industry remains somewhat at a loss as to how to compete under such challenging circumstances.
According to industry statistics, the so-called hypermarket industry more than doubled its share of he U.S. retail gasoline market in 2001, increasing from 5 percent to 11 percent. And most in the petroleum industry expect it will grow by another 5 percent to 6 percent or more during 2002, according to PMAA Vice President Tuminello.
“Americans love cheap gasoline,” said Tuminello, former executive of the Louisiana Oil Marketers Association, who moderated the panel discussion. “Americans are obsessed with gasoline prices.”
And she should know, as the Gulf Coast region currently sports some 518 hypermarket locations with gasoline – accounting for an astounding 42 percent of the hypermarket industry’s total gasoline sales in the U.S. In comparison, the region with the second-highest concentration of hypermarkets is the Midwest, with 215 such locations selling gasoline.
While the challenge of competing with these retail behemoths -- which routinely sell gasoline priced 5 cents to 10 cents or more below the lowest-priced convenience store in town -- is impacting a growing number of independent marketers, their approaches to competing run the gamut, from fighting them, to hiding from them to fleeing from them altogether. According to those on the panel, a single solution – including legislative action – as yet to be found.
According to H.T. “Tommy” Strasburger, president of Temple, Texas-based Strasburger Enterprises, the consequences of trying to dance with the elephants was clear: “You’re going to get stepped on,” he said. For Strasburger, who was forced to deal with a Sam’s Club outlet selling gasoline at 92 cents per gallon – his cost for product at the time was 98 cents per gallon – it was time to rethink his approach to the c-store business in the shadow of the big boxes.
“We have taken a new approach to building stores,” he said. “We are going back to the old K.I.S.S. approach – keeping things simple. We are doing so as economically as possible, building low-cost buildings that can be run by just one person.” Strasburger also said his company is looking at expanding its use of dealers, who he believes can operate locations more cost effectively than his company can. “We need to keep costs as low as possible, and we need to diversify our offering.
For Lazar J. “L.J.” Gielen (pictured), of Shop Rite Inc., which operates 42 stores – including truckstops and tobacco stores – and a grocery wholesale business from its headquarters in Crowley, La., the choice was fight over flight. The company recently build a 15,000 square-foot truckstop with a wide range of products and a restaurant. Sites like this one, he said, allow the company for forego gasoline margins and match the price of nearby hypermarkets. “Our secret? Hard work, competitive spirit and good people with longevity,” he said. The company is also aided by the fact that it operates its own construction company, so it can keep building costs within reason, and it mnages its own grocery supply.
“We’re going for store volume,” he said. “We’re not looking at gasoline for profits; we’re looking at it as a draw.”
But not everyone is capable of battling the big boxes head on, and for Glenn Pumpelly, it didn’t take long to realize this. “For us, it was an issue of focus,” said Pumpelly, president of Pumpelly Oil Inc., based in Sulpher, La. After two hypermarkets began selling gasoline in his market, Pumpelly first fought back, but then decided to sell off his company-operated c-store business. “When you bring to giants like that into a market of our size, you take a big hit. We spent 18 months scrubbing costs out of the business, and the amount of energy we put into just surviving didn’t make sense for us.”
While each panelist agreed their approach worked for them, the also conceded he industry needs to seek an answer that will work for many. “I think this business is changing, and I think we’ll all be amazed at how different this business will be in three years.”
