By Dwight Rutledge, PetroClear
Fuel site operators are keenly aware of the difference between what they sell at the forecourt and what they sell inside the C-store – especially with regard to profit margins. While many consumers assume that fuel sites rake in big profits of a dollar or more per gallon at the pump, industry sources have confirmed what fuel retailers already know – gross margins on gasoline (the markup before expenses are factored in) have averaged 20 cents per gallon (7%) over the past five years. After expenses, profits are pennies per gallon, and a fuel site usually makes an average of about 30 cents total on a typical fill-up.
Those low-margin sales, however, are the drivers for higher-margin sales inside the C-store. According to industry data, 58% of a store’s total sales on average are motor fuels, but those sales only account for 34% of profit dollars. Retailers know that if they can attract a consumer to the fueling island, they have a much better chance to convince that consumer to go inside the store and make additional purchases.
The High Cost of Contaminated Fuel
Because gas consumers are extremely price sensitive, cutting profit margins on fuel even closer to the bone is one way to draw business away from the competition. But what about the ways a fuel site operator can drive business away? A big one has nothing to do with the price of the fuel and everything to do with the quality of the fuel. News reports about a few recent incidents that have occurred at fuel sites across the United States illustrate the importance of taking steps to avoid dispensing contaminated gas:
- Customers at a gas station in Rome, Georgia claimed they got bad gas that was contaminated with water. One of them missed a day of work, spent another two days draining his vehicle’s fuel tank and eventually had to spend thousands of dollars to replace the entire fuel system. An investigator confirmed the contamination claims and the Georgia Department of Agriculture shut down the station’s pumps until all of the tanks and lines could be drained and cleaned or replaced. Source: WSB-TV Atlanta
- An alderman in Milwaukee, Wisconsin alerted his constituents about the shutdown of a fuel station that was selling gas mixed with water. Consumer complaints prompted state officials to send an inspector to the site and stop the fuel operation until faulty tanks could be repaired and tested. One customer who bought bad gas had to have her spark plugs replaced and her fuel system cleaned, which cost about $800. Source: FOX6 Milwaukee
- A gas station in Gallatin, Tennessee had to stop selling fuel after the Department of Agriculture responded to a series of customer complaints about bad gas. One complaint came from a woman who said she was a loyal customer until she incurred over $1,000 in auto repair bills. A lab analysis found that the station’s fuel “failed the phase separation test and workmanship test, which usually indicates water in the fuel.” Inspectors ordered the station to cease its fuel operation for several weeks until they could reassess the situation. Source: WKRN Nashville
The fact that all of these situations attracted the attention of state inspectors as well as local news outlets should be a major cause of concern for fuel site operators everywhere. That’s because reputation is playing a bigger role in why people buy gas and C-store items at certain stations.
Brand Reputation Matters – A Lot
The results of one industry survey indicate that while most consumers still say they buy gas based on price, they are almost twice as likely as they were just six years ago (57% vs. 31%) to seek out a fueling station based on brand. According to another survey, more than two in three Americans (71%) believe that convenience stores share their community’s values and do business the right way.
Imagine the damage to a fuel site’s reputation when consumers show up to fill their tanks and are greeted with roped-off fuel islands and notices of a state-mandated shutdown of the fueling operation – or worse, if hundreds or thousands of consumers learn about it on the local news. Obviously, fuel purchases are impossible during these nightmare scenarios, but as the numbers indicate, high-margin C-store purchases can be in serious jeopardy as well – for the duration of the shutdown and even well after the situation has been resolved.
The best way to avoid an interruption in fueling operations caused by contaminated gas is to put the highest priority on a strong quality assurance program at the pump. At the core of any such program is dispenser filtration. The basic function of fuel dispenser filters is to prevent a variety of contaminants from being pumped into your customers’ vehicles, including water, which was the culprit in all three fuel-site shutdowns referenced earlier.
The Many Benefits of Dispenser Filtration
Water intrusion can happen at various points in the distribution cycle, from refining and delivery to condensation within the storage tank. Phase separation is a condition that occurs when the presence of water causes the alcohol to separate from the gasoline solution in a fuel tank. When alcohol in the fuel absorbs the water and becomes oversaturated, it drops to the bottom of the tank and closer to the pump intake tube, which increases the likelihood that it will be distributed to consumers.
Serious engine damage can result from this type of fuel contamination as well as from the presence of particulates. Even the smallest particulates can create abrasion in an engine’s components and lead to long-term performance problems that a mechanic can trace back to contaminated gas. Quality fuel dispenser filters that are changed at recommended intervals are a cost-effective way to mitigate the risk of customers experiencing costly engine problems due to fuel contamination.
In addition to preventing water and particulates from damaging customers’ vehicles, a regular dispenser filter maintenance program can offer retailers an early warning about potential trouble in their site’s fueling system. Corrosion within the storage tank is likely when debris that resembles coffee grinds appears in the filter media. Frequent filter clogging is another indication of a problem – either with the fuel or the tank – and filters with specific functionality will slow the flow of fuel when they detect phase separation, sense the presence of water or collect an excessive amount of particulate.
If there’s anything that keeps a fuel site operator awake at night, it’s the possibility of being the subject of a state regulatory inspection or a local news report initiated by an accusation of selling contaminated gas. A prolonged fuel island shutdown is bad enough, but much worse are the resulting consequences that include diminished sales of high-margin C-store items and long-term damage to the fuel site’s reputation in the community. Given the increased levels of competition in today’s retail fueling industry, it could be difficult if not impossible to recover from even one contamination incident. Establishing and maintaining a regular dispenser filter maintenance program is a comparatively small investment that brings big rewards – peace of mind for you and your customers as well as no disruption to your high-margin C-store sales.
Dwight Rutledge is Business Development Manager at PetroClear, a Champion Laboratories brand dedicated to manufacturing fuel dispenser filters. He has over 35 years of experience in the petroleum-equipment industry. For more information, please visit www.petroclear.com.