Having the nation’s lowest gas prices might be good news for motorists, but the figures are bad news for independent gas stations and convenience stores struggling to compete.
Some independents retailers say they are selling regular gas below cost in hopes of creating more in-store sales. Even then, it is difficult to be profitable when most convenience store items sell for less than $5, owners say.
“We are swimming in oil, but all independents are struggling to survive,” said Manoj Nampoothiry, owner of Elliott’s Exxon on Cherry Road in Rock Hill.
GasBuddy.com reported two weeks ago that Rock Hill’s average gas price in August was the nation’s lowest. Historically, the area’s gas prices have been lower than average because South Carolina’s 16.75 cents per gallon gas tax is the nation’s third lowest; a pipeline that runs from the Gulf Coast crosses the state; and increased domestic production is aided by low prices for natural gas.
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Driving Rock Hill gas prices even lower is competition. QuikTrip, the Oklahoma-based chain of convenience stores, has aggressively entered the market with seven locations in York County and plans to build more. Kangaroo stations operated by The Pantry, and others by Murphy USA, are also affecting prices, analysts say.
QuikTrip’s business strategy is low margin and high volume. In Rock Hill that translates to a $3.04 price per gallon for regular gasoline. The lowest price recorded Saturday by GasBuddy.com was $3 at the Sam’s Club off Dave Lyle Boulevard.
Most York County independent retailers contacted by The Herald said they are buying gas at $3.04 or $3.05 a gallon, but selling it a penny or two cheaper because of competition.
“Typically, most of us sell at a loss,” said Chris Corn, owner of the Little Giant Food Stores off Dave Lyle Boulevard. When fees associated with credit and debit cards are included, the loss could be 7 or 8 more cents a gallon, according to the National Association of Convenience Stores.
Corn said it’s almost impossible to offset that loss with in-store sales. “I’m hoping the market corrects itself,” he said.
QuikTrip sees competition differently.
“The traditional competition with convenience stores is over,” said Mike Thornburgh, spokesman for QuikTrip, based in Tulsa, Okla. His company’s major competitors, he said, are big-box retailers and grocery stores. When loyalty card programs are included in the cost, those retailers are selling below cost, Thornburgh said.
A recent survey by Market Force, which studies consumers’ behavior, determined customers’ favorite places to fill up are grocery stores and wholesale clubs.
Nationally, Kroger had the highest customer loyalty score among gas retailers at 79 percent, followed by Costco and QuikTrip at 78 percent and Sam’s Club at 76 percent, according to the Market Force survey.
Murphy, which operates both stand-alone stations and those at Wal-Mart Supercenters, was fourth at 68 percent.
“Being competitive with QuikTrip is a dying game,” Nampoothiry. “They have huge pockets; you can’t compete with them.”
And, apparently, sustainable pockets.
“Are their lower prices sustainable? Yes,” said Matthew Lewis, an economics professor at Clemson University. “It’s the way the industry is moving. They are not trying to drive competitors away, but drive people into their stores.”
QuikTrip stores in York County offer a wide variety of products, from fresh-baked doughnuts and hot dogs to candy, coffee and other items traditionally found in convenience stores.
The strategy is working, as QuikTrip’s “inside” sales are three to four times its “outside” sales, Thornburgh said.
For independent retailers to compete, they need to find “what makes them famous,” said Jeff Lenard, spokesman for the National Association of Convenience Stores.
“You can be close on price, but you have to have some other selling point,” he said.
Often owners will stress their customer service, but that is a difficult strategy against QuikTrip, Lenard said.
QuikTrip pays more than the minimum wage, and full-time positions such as store manager pay $70,000 annually, while mid-level managers make $40,000, Thornburgh said. Bonuses are given for customer service, attendance and longevity.
Finding a niche
The Brownie family has operated a gas station in Sharon since 1953. Herschel Brownie, 63, remembers the days when he would wash the windshield, check a vehicle’s oil and tire pressure, and pump gas for customers.
Brownie said his western York County location is somewhat insulated from the affects of QuikTripand other bigger competitors. Yet his customers pass those locations daily on their way to work. He has to give them reasons to patronize his Marathon gas station in a time when there is little loyalty and “no margin on gasoline.”
Brownie says his crew of 12 full-time workers strives for “fast, good service.”
“And, we offer services others don’t. We take personal checks and have commercial accounts where people pay by the month,” he said.
Nampoothiry says he is relying on a “we-know-your-name” relationship with his customers and the fact that he will cater to them by stocking items they like. From an inventory standpoint, having the cigarettes, energy drinks and soft drinks they like doesn’t make sense as he stocks small quantities of these items his customers want. But he hopes it keep them coming back to shop, Nampoothiry said.
“We take care of our customers,” he said.
More competition ahead
Locally gas prices are expected to drop slightly more this fall now that the summer driving season is over, industry analysts said. Typically, prices increase in the spring when more people travel.
Weather, however, can affect prices. Tropical storms in the Gulf of Mexico frequently cause refineries to close. When supply decreases, retailers such as Nampoothiry benefit because of his association with Exxon. Name brand stations “are the front of the line for (gasoline) supply,” said Lenard of the National Association of Convenience Stores.
In the longer term, the area’s growth should mean more competition, said Mekael Teshome, an economist with the PNC Financial Services Group.
Increased competition would mean gasoline retailers of all types would have to work harder to define their niche, especially when location, ease of station entry and price are the top reasons for choosing a gas station, according to the Market Force survey.