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May 17, 2005

Last modified May 17, 2005 - 12:38 am

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Gas prices pinching: Customers, convenience stores hit by rising cost

Record high gasoline prices are pinching more than consumers' pocketbooks. They're squeezing the last drop of profit from gasoline retailers.

The recent spike in gas prices has been a double whammy for retailers, particularly mom-and-pop operators. On one side they're facing angry customers. On the other, they're scrambling to stay afloat as profit margins hit a 20-year low.

Dick Skewis, owner of the Village Mart in the Heights, has closed down two of his four stations and he's in the process of closing the third.

"It's not fun anymore," he said. "You get tired of being called a villain."

Independent retailers have a choice. They can sell high and lose business or sell low and go out of business. The sign above Skewis' station last week showed a gallon of unleaded selling for $2.299 a gallon, four cents more than most stations in town.

"I guess I'm making a statement because I'm mad," he said. "But I'm only hurting myself. Then again, maybe I'm not hurting myself. If we were selling four cents a gallon lower, we'd be losing more money than we already do."

By the time Skewis covers credit card fees (roughly 3 percent) and the cost of doing business (another 6 percent), he figures he's losing 8 cents a gallon.

He's not alone.

"There's been nobody in this town who's made money off gas since last July," said John Smart, owner of the Corridor Exxon in downtown Billings. "They (customers) think they're doing you a favor buying fuel, but they're actually hurting you."

Smart, who bought his first station in 1974, as the oil embargo hit, remembers making 8 cents a gallon in profit back then.

"This whole last week, with gas at $2.25 a gallon, I'm losing up to 2 cents a gallon on cash sales and 7 cents on credit cards. (Compared to the late 1970s, early 1980s) we'd have to be at $2.90 or $3 a gallon now to equate," he said.

Smart and Skewis both say sales have dropped off in the past few months. Smart has lost about 10 percent in volume, Skewis nearly 25 percent.

Hard times for independents have been a long time coming.

Skewis, who got into the business 30 years ago, watched as convenience stores took the place of corner service stations. By the mid-1990s, the hyper-markets - the Costcos, Wal-Marts and Albertsons - started moving in, he said.

Then, a few years back, the next blow came.

"They told us we'd have to find a way to stay in business without making a profit on gas," Skewis said.

That message has shaped the industry ever since. So, even as gas prices skyrocket, retailers nationwide find themselves scrambling to make up the difference between shrinking profit margins and the cost of doing business. Some lure consumers with specials on cigarettes and beer. Others have turned to car washes and coffee kiosks.

Skewis brainstormed several ideas - an ice cream store, a restaurant, a tanning salon, a coin laundry, even a health food store - before deciding to add a casino.

"A casino was not even on my radar screen. We were looking at a NASCAR video arcade when the idea came up," he said.

Today, Skewis says the casino and car wash are keeping his gas station afloat. But the casino wasn't an easy solution. Between gaming licenses and dealing with the city of Billings, he says it was an ordeal, and he's not sure how long it'll continue to subsidize his gas sales.

At the Corridor Exxon, Smart depends on his mechanics and his service bays to keep him in business.

"That's the only thing that's saved us," he said. "And they've got us hanging by a fingernail."

As gas prices soar, ripple effects squeeze retailers even tighter. Customers are more apt to charge their gas, typically costing the retailer a 3 percent credit card fee. That equates to about $3,000 a month for Skewis. That's a trend that continues to grow.

"We were once lucky if credit cards were 15 percent of our business," he said. "Now they're almost 50 percent."

Retailers also find themselves paying dearly for inventory.

"It's hard on the cash flow," said Dick Clark, owner of 15 Kwik Ways in Montana. "When you get 10,000 gallons at a time and the price is over $2 a gallon, you have to turn it pretty quick. And we have some stations that don't."

Not all gas stations are losing business. At Costco, where gas was selling for $2.219 a gallon for regular unleaded, assistant manager Frank Schwarz said business has picked up.

"People are more willing to go out of their way, because ours isn't the most convenient," he said.

But even at Costco, gas sales are not profitable, he said.

At the Flying J in Lockwood, manager Connie Fredrickson has noticed sales on the rise. Diesel sales are up "a lot," she said, and gas sales aren't far behind.

"We've probably had enough increase in sales to compensate for the (lower) profit margin," she said. "I don't think the price has affected us at all."

Independents like Smart and Skewis attribute that difference to an uneven playing field. They say independents are charged more for fuel than their large-volume counterparts, even though it's delivered in the same size of tanker.

"It depends where you are in the pecking order," Skewis said. "We feed off the bottom."

But, there's at least one independent that seems to be holding its own, even with gas priced at $2.40.9. The Reed Point Sinclair - the only station, in fact the only store, in town - has sold more gas this year than last.

"The local business is steady," said Julie Pratton, who owns the station and store with her husband, Ken. "That's basically what gets us through the winter."

Of course, they enjoy the advantage of being the only place within an 18-mile radius where locals can gas up or even buy milk or bread. But, so far, seasonal highway traffic hasn't seemed to ease up either.

"There's no turning back until after Labor Day for us," she said. "People have to get from point A to point B."

There have also been glimmers of hope. In the past week, Clark said, refineries dropped their prices by 4 cents. But, he adds, prices fluctuate daily "and they don't say for how long."

But the reduction allowed Skewis to drop his prices to $2.259, matching most of the stations across town.

It's a welcome shift for Skewis, but he's already seen the writing on the wall. His employee roster dropped from 60 to eight as he closes his third store. The benefits he once offered have disappeared.

"I used to be able to afford health insurance for my employees," he said. "We don't have anything now."

Smart predicts higher prices as China and India compete for the world's oil supply. He's concerned about his business and he's concerned about his staff.

"Between the employees and support staff, we have 13 families depending on our operation," he said. "And there's no cavalry coming to save us."

Copyright The Billings Gazette, a division of Lee Enterprises.

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