AAAPresentation_030609.pptx

Understanding the Retail Petroleum
Marketplace
Why are we here?
Retail Prices
$4.500
$4.000
$3.500
$3.000
$2.500
$2.000
$1.500
$1.000
$0.500
$0.000
3-Jan
3-Feb
3-Mar
3-Apr
2006
3-May
2007
3-Jun
3-Jul
2008
3-Aug
2009
3-Sep
3-Oct
3-Nov
3-Dec
Average
Source: OPIS
“Show Me The Money!”
Who Owns Gasoline Retail?
Number of Stores
All Motor Fuel Retail Stations
200,000
195,000
190,000
185,000
180,000
175,000
170,000
165,000
160,000
155,000
150,000
195,455
161,768
19951996199719981999200020012002200320042005200620072008
Source: NPN
The Convenience Industry
• Sells 80% of the gasoline in the U.S
• 114,673 C-stores (79.1%) sell motor fuel
– 64,463 (56.2%) owned by companies with 1 store
– 6,773 (14.6%) owned by companies with 500+ stores
• Major oil pulling out of retail
– Fewer than 2% owned/operated by major oil companies
– Consumers think they own 63% percent of stores
– BP, ConocoPhillips, ExxonMobil have announced intent to sell all
retail holdings; Shell is almost completely out
Types of Ownership
• Major Oil Owned and Operated
– Directly supplied
– Profit/loss included in corporate earnings
– First priority to fuel supplies
• Branded Independent
–
–
–
–
Sell only brand of supplier
Pay premium, receive marketing assistance
May receive image assistance
Second priority to fuel supplies
Types of Ownership
• Unbranded/Private-Branded Independent
– Buy product on open market—
• Spot, long-term contract, futures market (hedge)
– Establish own brand identity
– Often pay less for fuel because no marketing premium
– Last in line for fuel supply
The Convenience Industry
Independent,
Unbranded;
45%
Major Oil
Companies;
2%
Independent,
Branded; 53%
*BP, ConocoPhillips,
ExxonMobil exiting retail
*Consumers think major
oil owns 63% of stores
HOW ARE
GASOLINE
PRICES
DETERMINED?
Retailers’ Conundrum
2007 C-Store Sales Mix
Sales - $577.4 B
Pre-Tax Profit - $3.4 B
Motor
Fuels;
34.5%
In-Store;
29.1%
Motor
Fuels;
70.9%
In-Store;
65.6%
In-store sales are critical to a successful business.
How Retailers Determine Price?
• NACS 2009 Consumer Fuels Report:
– 70% of consumers shop on the basis of price
– 26% will turn left across a busy intersection to save 1 cent
– 36% will drive 5 minutes out of their way to save 3 cents
• Competition for customers drives pricing decisions
• Fuel delivery schedules impact competitiveness
– Wholesale prices can change several times in one day
– Retailers do not receive deliveries at same time and pay different
wholesale costs - affects ability to price competitively
– When wholesale prices increase, margins decrease as retailers
compete to not lose customers
– When wholesale prices decrease, margins recover until retailers
drop prices to gain customers
Retailer Profitability
Gross Margin
Retail Price
Rack Price
10-Feb
20-Jan
30-Dec
9-Dec
18-Nov
28-Oct
7-Oct
$0.000
16-Sep
$0.000
26-Aug
$0.100
5-Aug
$1.000
15-Jul
$0.200
24-Jun
$2.000
3-Jun
$0.300
13-May
$3.000
22-Apr
$0.400
1-Apr
$4.000
11-Mar
$0.500
19-Feb
$5.000
29-Jan
$0.600
8-Jan
$6.000
Breakeven
Source: OPIS and NACS
2008-2009 Retail Profitability
Month
Average Retail Price
Average Retailer Margins
January
$3.038
$0.171
February
$3.009
$0.109
March
$3.228
$0.117
April
$3.425
$0.081
May
$3.739
$0.102
June
$4.022
$0.120
July
$4.057
$0.215
August
$3.780
$0.203
September
$3.704
$0.175
October
$3.132
$0.449
November
$2.182
$0.292
December
$1.697
$0.166
January
$1.765
$0.079
February
$1.901
$0.081
Source: OPIS
Annual Retail Profitability
Year
Average Retail
Price
Average Retailer
Margins
% Margin
2006
$2.558
$0.138
5.39%
2007
$2.785
$0.138
4.96%
2008
$3.244
$0.179
5.52%
2009
$1.823
$0.080
4.39%
*Average retailer breakeven approximately 12 cents per gallon.
Source: OPIS
WHAT GOES INTO
THE PRICE OF GAS?
Components of Retail Price
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2007
2006
Crude Oil
Taxes
Refining
2008
Dist/Mktg
Source: U.S. Energy Information Administration
Components of Retail Price 2008
$2.00
20.0%
$1.50
10.0%
$1.00
0.0%
$0.50
-10.0%
$0.00
Crude Oil
Taxes
Refining
Dist/Mktg
Nov-12
30.0%
Oct-12
$2.50
Sep-12
40.0%
Aug-12
$3.00
Jul-12
50.0%
Jun-12
$3.50
May-12
60.0%
Apr-12
$4.00
Mar-12
70.0%
Feb-12
$4.50
Jan-12
80.0%
Retail Price
Source: U.S. Energy Information Administration
Distribution/Marketing
• Includes everything after the refinery:
– Pipelines, terminals, distributors, retail ops/overhead
• Costs of Distribution – est. 7 cents
– Pipelines and terminals
– Wholesale distribution
4 cents per gallon
3 cents per gallon
• Retailer Breakeven Costs – est. 12 cents
–
–
–
–
Store operating expenses
4 cents per gallon
Amortization of equip.
3 cents per gallon
Inventory shrink
1 cent per gallon
Credit card fees*
4 cents per gallon
*Average cost of all motor fuel transactions, including cash, for operating year 2007
CRUDE OIL AND RETAIL
Crude Oil vs Retail Prices
$150.00
$5.000
$4.500
$130.00
$4.000
$110.00
$3.500
$90.00
$3.000
$2.500
$70.00
$2.000
$50.00
$1.500
$30.00
Crude Oil
1/10/13
11/10/12
9/10/12
7/10/12
5/10/12
3/10/12
1/10/12
11/10/11
9/10/11
7/10/11
5/10/11
3/10/11
1/10/11
11/10/10
9/10/10
7/10/10
5/10/10
3/10/10
1/10/10
$1.000
Retail
Source: U.S. EIA and OPIS
Crude Oil vs Retail Prices
$5.000
$150.00
$4.500
$130.00
$4.000
$110.00
$3.500
$3.000
$90.00
$2.500
$70.00
$2.000
$50.00
$1.500
$1.000
Crude Oil
2/17/13
2/3/13
1/20/13
1/6/13
12/23/12
12/9/12
11/25/12
11/11/12
10/28/12
10/14/12
9/30/12
9/16/12
9/2/12
8/19/12
8/5/12
7/22/12
7/8/12
$30.00
Retail
Source: U.S. EIA and OPIS
Refining and Pipeline System
Finished Gasoline Movements 2007
(1,000 bbls/year)
9,780
8,773
11,299
78,374
131,855
6,848
6,206
6,028
523,475
29,821
120
250
Crude Oil vs Wholesale Prices
$150.00
$5.000
$142.52
$4.500
$130.00
$4.000
97.8% Increase
$110.00
$3.500
$90.00
$3.000
$72.05
$3.501
$2.500
$70.00
$2.000
$2.157
$50.00
$1.500
62.3% Increase
$30.00
Crude Oil
1/10/13
11/10/12
9/10/12
7/10/12
5/10/12
3/10/12
1/10/12
11/10/11
9/10/11
7/10/11
5/10/11
3/10/11
1/10/11
11/10/10
9/10/10
7/10/10
5/10/10
3/10/10
1/10/10
$1.000
Rack
Source: U.S. EIA and OPIS
Crude Oil vs Wholesale Prices
$5.000
$150.00
$4.500
$130.00
$4.000
$110.00
$3.500
$90.00
$3.000
$2.500
$70.00
$2.000
$50.00
$1.500
$30.00
Crude Oil
2/17
2/3
1/20
1/6
12/23
12/9
11/25
11/11
10/28
10/14
9/30
9/16
9/2
8/19
8/5
7/22
7/8
$1.000
Rack
Source: U.S. EIA and OPIS
Retail
Rack
Source: OPIS
1/10/13
11/10/12
9/10/12
7/10/12
5/10/12
3/10/12
1/10/12
11/10/11
9/10/11
7/10/11
5/10/11
3/10/11
1/10/11
11/10/10
9/10/10
7/10/10
5/10/10
3/10/10
1/10/10
Wholesale vs Retail
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
Retail
Rack
Source: OPIS
2/17/13
2/10/13
2/3/13
1/27/13
1/20/13
1/13/13
1/6/13
12/30/12
12/23/12
12/16/12
12/9/12
12/2/12
11/25/12
11/18/12
11/11/12
11/4/12
10/28/12
10/21/12
10/14/12
10/7/12
9/30/12
9/23/12
9/16/12
9/9/12
9/2/12
8/26/12
8/19/12
8/12/12
8/5/12
7/29/12
7/22/12
7/15/12
7/8/12
Wholesale vs Retail
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
Retailer Profitability
$6.000
$0.600
$5.000
$0.500
$4.000
$0.400
$3.000
$0.300
$2.000
$0.200
$1.000
$0.100
$0.000
$0.000
10-Feb
20-Jan
30-Dec
9-Dec
Rack Price
18-Nov
28-Oct
7-Oct
16-Sep
Retail Price
26-Aug
5-Aug
15-Jul
24-Jun
3-Jun
13-May
22-Apr
1-Apr
11-Mar
19-Feb
29-Jan
8-Jan
Gross Margin
Breakeven
Source: OPIS and NACS
Up Like a Rocket,
Down Like a Feather?
$4.500
$4.088, July 10
$4.000
147 Days, Up 36.5%
$3.500
$3.000
$2.992, Feb. 13
$2.500
$2.000
154 Days, Down 59.6%
$1.500
$1.651, Dec. 11
$1.000
$0.500
$0.000
3-Jan
3-Feb
3-Mar
3-Apr
3-May
3-Jun
3-Jul
3-Aug
3-Sep
3-Oct
3-Nov
3-Dec
2008
Source: OPIS
BANKS PROFIT MORE
THAN FUEL RETAILERS
Credit Cards and Gasoline
•
•
•
•
•
Cards cost retailers about 2.5% of transaction
64% of consumers buy gas with plastic
49% are more likely to use plastic when prices go up
Higher prices yield higher fees paid by retailer
In 2007, credit card fees paid by convenience industry
doubled industry profit
Credit Card Fees Exceed Profits
Fees Eclipse Margins
Average Gross
Average Credit
Retailer
Card Fee
Margins
Month
Average
Retail Price
January
$3.038
$0.171
$0.076
$0.095
February
$3.009
$0.109
$0.075
$0.034
March
$3.228
$0.117
$0.081
$0.036
April
$3.425
$0.081
$0.086
($0.005)
May
$3.739
$0.102
$0.094
$0.008
June
$4.022
$0.120
$0.101
$0.019
July
$4.057
$0.215
$0.101
$0.114
August
$3.780
$0.203
$0.095
$0.108
September
$3.704
$0.175
$0.093
$0.082
October
$3.132
$0.449
$0.078
$0.371
November
$2.182
$0.292
$0.055
$0.237
December
$1.697
$0.166
$0.042
$0.124
January
$1.765
$0.079
$0.044
$0.035
February
$1.901
$0.081
$0.048
$0.033
Net Margin
After Fees
Source: OPIS, NACS
Conclusion
• The petroleum retail market is dominated by small
companies—not Big Oil
• Retailers lose margin when prices increase—recover margin
when they decline
• Prices are driven by competition, need to sell in-store goods
• Retail profitability is very volatile…must assess over a period
of time not a single reference
• Credit card fees are a significant problem for retailers,
especially when fuel prices rise
Resources
• U.S. Energy Information Administration
– This Week in Petroleum (
http://tonto.eia.doe.gov/oog/info/twip/twip.asp)
– Gasoline and Diesel Fuel Update (
http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp)
– Petroleum Statistics
• Anything you want to know about sales, production,
refining, etc.
(http://www.eia.doe.gov/oil_gas/petroleum/info_glance/petroleum.html)
Resources
• Oil Price Information Service
– Retail Fuel Watch
• Weekly data for 360 markets
• Annual subscription approx. $2,000
• www.opisnet.org
• NACS
– Annual State of the Industry
– Annual Gas Price Kit (www.nacsonline.com/gaspricekit)
– Jeff Lenard (703) 518-4272, jlenard@nacsonline.com
Questions?
John Eichberger
NACS
1600 Duke Street, Alexandria, VA 22314
jeichberger@nacsonline.com
(703) 518-4247