By Joe Petrowski
The oil industry has had a history of proclaiming a “Golden Age” of opportunities and profits, as gross margin generation moves along the value chain from E&P through refining, distribution and retailing. Despite the fears about future usage all indications are that we are entering a Golden Age in fuel retailing. Some history and current facts will underscore that claim.
In 1970 we had 240,000 stations and today, after 45 years of consolidation, we are down to 154,000 stations. Although there are still 58,000 single-site stations ripe for a roll-up it appears the massive downsizing is over. While new stations are being built, the trend is definitely to sell more fuel in fewer stations. In 1970 the average station sold 320,000 gallons per station year and today that volume is 975,000 gallons per station year. In 10 years that volume is projected to be 1.2 million gallons per station year.
And many of the stations of 1970 were bay repair shops, “two-pump dumps” and fuel-only locations. Today we have transformed to full service convenience stores generating $400,000 gross margin per site year.
In 1970 the largest 12 retailers controlled less than 30% of the sites nationwide, and in no region did they have a concentration greater than 10% of the volume. Today the largest 12 retailers control 80% of the volume nationwide and in 10 states they control over 30% of the volume, which has a positive effect on margins for all retailers.
The number of vehicles is increasing as are the miles driven. In 1970 we had 112,000 vehicles averaging 4,000 miles per vehicle year. Today that is 234,000 vehicles averaging 14,000 miles per vehicle year. While vehicles are more efficient and will become even more efficient through less weight and more complete combustion, we will still sell 8 billion gallons more per year of transport fuels through vehicle growth and miles driven per vehicle.
Alternate fuels are an opportunity not a threat. Retail margins on natural gas are five times that of diesel and gasoline. Potential higher ethanol blends are 3 times the conventional margin when one considers the RIN value. If the feedstock is biogas (a growing source) margins will exceed $1.50 per gallon. Some retailers are also benefiting from partnering with local utilities and pre-loading electric sales on a loyalty card to be used at a series of charging stations tributary to their retail site.
Social Media and Loyalty
Unlike other retailers threatened by the internet and social media some fuel retailers are leveraging social media and the internet to sell fixed price term fuel (fuel bank) or pinging customers with special prices and promotions for fuel sales outside the busy 8 a.m.-noon and 4-6 p.m. blocks.
Many retailers are also using loyalty programs to drive traffic by affinity tie-ins like carbon mitigation (Green Print, with which I’m involved) or donations to local charities or high schools.
So in sum, The U.S .retail fueling business has never been brighter and it is only exceeded by China that currently has 5,000 stations but needs at least another 100,000 given the population, size of country and growth in auto sales (number 1 in the world).
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October 2008, he was named CEO of the now combined Gulf Oil and Cumberland Farms, whose annual revenues exceed $11 billion and who now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now the Managing Director of Mercantor Partners, a private equity firm investing in convenience and energy distribution. Joe is also a member of the Gulf, Yesway and Green Print, LLC boards.