Service station operators also feeling pain at the pump

Media Release 24 March 2011

Service station operators also feeling pain at the pump.

The pain being felt at the petrol pump from high prices is not restricted just to motorists, says the Motor Trade Association (MTA). The near record price of petrol is making life increasingly difficult for many independent service station operators who are already coping with motorists frustrated by the rising price of fuel.

Many independent service station operators work on a fixed margin basis, typically around 4 to 4.5 cents per litre. As the price of fuel has risen in recent times, so have many of their costs directly related to fuel retailing of which they have little or no control over.

Working on a fixed margin basis means that the product their business is primarily based around is becoming increasingly uneconomic to sell. This at a time when the government takes a larger amount from each litre of fuel whenever the price goes up: currently taxes and levies account for more than 90 cents of every litre of 91 octane unleaded petrol (91 ULP).

For many operators, the current gross margin on 91 ULP is less than 2 percent and it is dropping with each successive price increase.

MTA spokesperson Ian Stronach says “There aren’t that many business models that work around a fixed margin mechanism like this. Many retailers are able to adjust and maintain margins as prices go up, but for many independent service station operators this is not a choice, they are trapped with a falling margin every time the price of fuel increases.”

91 ULP has increased by 44 cents per litre or 25 percent since October 2010 translating to direct increases in the cost of holding fuel and processing fuel sales.

Many stations regularly receive fuel deliveries of up to 40,000 litres at a time, which, based on current costs, could mean additional holding costs for the operator of more than $16,000 per load. This fuel usually has to be paid for within 48 hours of delivery, inevitably before much of it has even been retailed.

As fuel costs increase, so does the tendency for motorists to use card based payment facilities rather than cash. This also adds further costs for operators as they pay a percentage based fee when a card is used. With card processing fees around the 1.25 – 1.5 percent level, the available margin is quickly consumed. In some cases, depending on the type of card presented, when loyalty schemes are in operation, operators are actually losing money on some transactions; it is costing them to sell the fuel.

Smaller margins on fuel in recent years has seen a greater emphasis being placed on shop sales as a profit centre. In the past, operators have had the capacity to cope with modest margins on fuel on the basis that they could make up for it with better margins on their convenience store offering. With fuel now taking a steadily larger amount from motorists’ pockets however, operators are finding motorists have less to spend on more profitable ‘shop’ lines.

Compounding the whole situation is the rise in drive-away thefts. As the cost of fuel has increased, so too has the number of motorists who are filling up and using stolen, obliterated or simply no registration plates at all, just driving away. Having to meet the cost of the stolen fuel means operators are in some cases pumping fuel for the next fifty or so customers to make up that loss.

Stronach said “There’s been a bigger focus lately on the plight of motorists, and rightly so. But many people forget that there are hundreds of independent service station operators out there that are finding things equally tough. They’re faced with vocal and critical customers on one hand, while on the other they are confronted with a financial model that’s less viable with each successive price increase.”

While a higher margin for fuel retailers would go a long way to rectifying many of these problems, the highly competitive nature of the market at present means there is little likelihood of this. In the meantime, independent operators may have little choice but to turn a deaf ear to their own customers.

ENDS

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