News
Moving target
Who makes the decisions behind those volatile prices at the pump?

By Terry Scruton
staff writer

 

It’s tempting as you watch those numbers on the fuel pump whiz by – climbing higher and higher – to run into the store, find the manager and give him or her a piece of your mind.

But is it really the manager’s fault? Does the manager decide how high, or low (OK, mostly high) the price at the pump will be? Or is that decision made by some higher level person at a corporate office far away from the fueling station itself?

According to representatives from Natso, the organization representing truck stop owners and truck plazas, and NACS, the National Association of Convenience Stores, the answer to that question is: It depends.

Holly Alfano, vice president of government affairs for Natso, said that if a truck stop is independently owned, the owner is the one most likely making those decisions. But if it’s a chain truck stop like Flying J or TravelCenters of America, it could be someone in management who is in charge of pricing for the entire chain.

 “It depends on how the operation is set up,” she said.

Regardless of who makes the final decision, the factors they look at are the same. While there are numerous factors considered, the two main ones are cost and competition. How much does the fuel cost the retailer to buy, and how much is the guy down the street charging for his fuel?

While feeling out the competition is usually a simple process – sometimes literally just looking out the window at the place next door – keeping up with the cost of the fuel itself can be difficult, even for retailers.

John Eichberger, vice president of government affairs for NACS, said the wholesale cost of fuel can change several times throughout the day, and many retailers receive two or three shipments a day, while others only get deliveries every other day. Eichberger said adjusting fuel prices to keep up with these changes is a tricky business.

 “It’s a constant struggle to post a price that’s attractive to customers while posting a price that’s sufficient to cover your costs,” he said.

That struggle also comes into play when retailers are deciding prices for different regions. We’ve all seen instances where one retailer will have fuel at one price, and elsewhere it will be selling for 5 or 10 cents cheaper.

Alfano said the reason for differences from region to region, however, is that the deciding factors for prices change. She said the tax burden, for example, is a huge factor in diesel price variations. The tax burden in California is significantly higher than in most other states, so the price of fuel is going to be higher there.

Alfano said shipping costs and a station’s proximity to a wholesale fuel terminal also play a role.

 “If it’s close to a terminal, then the cost of shipping will be lower,” she said. “But if it’s farther away, then obviously that will add some to the cost.”

Eichberger said other factors can change, too, such as the rent on a given location, which may be higher in one state than it is in another.

In addition, Eichberger said oftentimes a retailer who gets deliveries three times a day may be on the same block as one who gets deliveries every other day. So if the wholesale price goes up, the first retailer has to pay more for that shipment later in the day; therefore, the retail price goes up. Meanwhile, the second retailer isn’t getting a shipment until tomorrow, so the price there stays the same.

 “The variations in retail prices can be extraordinary,” Eichberger said. LL

terry_scruton@landlinemag.com

Aug/Sept Digital Edition