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Gas Stations Making Less Money Amid High Prices: Independent Retailer Group

Posted on: Wednesday, 11 June 2008, 00:00 CDT

By Lauren Krugel, THE CANADIAN PRESS

CALGARY - Many drivers are fed up with seeing prices well above $1.30 a litre posted outside their local gas stations, but their frustration should be directed elsewhere, says the head of a group that represents independent fuel retailers.

"Gasoline retailers make less money, our margins decline when gas prices go up," Jane Savage, president and chief executive officer of the Canadian Independent Petroleum Marketers Association said Tuesday.

"The place that you buy your gasoline is not the place that's making money."

Retailers generally bring in a gross margin of about five or six cents for each litre sold, Savage said.

"The same amount that a consumer sees on the street every day is the same amount that we pay every day also without any change in margin. In fact margins are declining," she said.

Gas stations have been seeing their credit card fees go up along with the cost of fuel, which eats into margins, Savage said.

With fuel so expensive lately, there have also been a lot more "drive-aways" - people filling up their tanks and driving away without paying.

"Theft increases and that goes directly to our bottom line," Savage said.

Gasoline averaged $1.37 a litre across Canada, a more than six per cent increase over the previous week, according to Calgary-based consulting firm MJ Ervin's pump price survey released Tuesday.

The highest prices were in Newfoundland and Labrador, with an average of around $1.50 a litre in Labrador City and Corner Brook.

Gas cost more than $1.48 per litre in Montreal, close to $1.44 in Vancouver and almost $1.32 in Toronto.

The best bargains were in oil-rich Alberta with $1.30 in Calgary, $1.28 in Red Deer and $1.27 in Lloydminster.

A barrel of crude oil - the main ingredient in gasoline - was worth about US$131.46 on the New York Mercantile Exchange Tuesday afternoon. It is down significantly from last week's record of US$139, but still around double what it was a year ago.

The gas stations run by big integrated oil companies - like Petro-Canada (TSX:PCA), Esso (TSX:IMO), Husky (TSX:HSE), Shell and Sunoco (TSX:SU) - have been in better shape because they are able to make profits from the production of crude oil.

But independent rural stations have been having a much tougher time, Savage said.

"Canada's losing a lot of gas stations hand over fist and that's because we can't make money at it."

MJ Ervin calculates retail margins by subtracting the wholesale gasoline price from the pre-tax pump price, said Cathy Hay, a senior associate with the firm.

"Based on the difference between those two price points, margins haven't been squeezed at all. So what that means is as the retailers price has gone up, they have been able to pass that cost on to the consumer," Hay said.

"So if they weren't to pass on that higher cost, they'd be in a pickle."

Retail margins on a per-litre basis usually stay stable no matter how much the price of crude oil and wholesale gasoline fluctuates.

However factors such as decreased sales volumes, both in gasoline and convenience items like chips and soft drinks, could potentially be having an impact on the bottom line, Hay said.

With margins so thin, it is up to retailers to find ways to save money in their operations, Savage said.

"We have to be competitive. We have to be efficient. Higher prices and higher credit card fees just drive us to be more so. That's what keeps most of us going," Savage said.

Source: Canadian Press

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