• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Gas Retailers Deny Big Profit: Station Owners Say Zone Pricing and Corporate Underpricing Cut Their Gains to Pennies Per Gallon

Posted on: Tuesday, 2 May 2006, 06:00 CDT

By Kira Peikoff, Newsday, Melville, N.Y.

May 02--As the public fumes over oil and gasoline industry profits, gasoline retailers say they make pennies per gallon and that a practice called zone pricing sometimes squeezes their profit to nothing.

Under zone pricing, oil companies charge dealers different prices based on how competitive the companies deem each location. Station owners say oil companies do not disclose their criteria for the zones, a point of contention at a news conference in Hauppauge yesterday.

"Everybody thinks we're making money, while we're working on 6 cents a gallon," said Curt Reichert, owner of an Exxon station in Huntington that was charging $3.23 a gallon yesterday for regular unleaded. "Little do they know that this is one of the worst times in the 27 years I've been here."

Reichert leases the station's property from Cumberland Farms, which supplies Exxon gas at a zone price plus an 8-cent royalty for use of Exxon's name, which Reichert called "a double punishment." Last year at this time, he said, he was making 10 cents a gallon and selling four times the volume. The property is at the edge of a zone, Reichert said, so a nearby station sometimes charges 5 cents less, further hurting his business.

Reached by telephone before the news conference, state attorney general candidate Jeanine Pirro said, "Zone pricing schemes are causing an anti-competitive market," adding, "It seems these zones are simply created to put some gas stations out of business."

Kevin Beyer agreed.

"[Zone pricing] is bad for business, and it's bad for consumers," said Beyer, president of the Long Island Gasoline Retailers Association. "It's used to keep prices up to make the most they can at every location. They'll never tell you how they break up their zones."

Last week, Beyer, who operated a Sunoco station, said he became an independent retailer. He can now choose among suppliers and shop for prices. He said business has already improved because he has been able to lower his prices and still make a profit of about 9 cents on a $3 gallon after taxes, service fees and credit card fees.

But independents can be hurt, gas retailers said. If a major oil company takes over a station nearby, it can set prices below-market rates because the company is supplying gas to itself. This forces other stations, including independents, to cut their profit or even sell at a loss, retailers said.

Rich Catania, who owns Advance Service Center, an independent station in Huntington, said, "Many times, I'm being underpriced."

For several days last month, Catania said, he was selling gas for exactly what it cost.

"There's something wrong here," he said. "The oil companies are making billions in profit."

ExxonMobil Corp., which last week reported an $8.4-billion profit for the first quarter, referred questions to the American Petroleum Institute, an industry group.

"The basic aim is to be more competitive, and I think that helps improve the situation for consumers," Ron Planting, an economist at API, said. "If they had to sell it all at one price, it would tend to be a higher price."

-----

Copyright (c) 2006, Newsday, Melville, N.Y.

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

NYSE:XOM, Unknown:CLF, NYSE:SUN,

Source: Newsday, Melville, N.Y.

More News in this Category