Gas is a zero dollar profit business

[dissentowner]

So the in the end the point is how can we fight back against the Oil companies? I could care less if the guy who owns the gas bar down the road is making a profit or not, it's the big petrolium companies we have to hurt somehow.

[MelBridgeman]

I will add this...if you franchise a gas station, say from Esso...you required (back when i worked) 30 K in cash...mostly to buy inventory..the actual station and most costs associated with it, including the cost of employees was provided for you depending on how much gas you sold...so as a franchisee most of your expenses were paid from from gas..and you may have recieved some % of the sales..and then you made money off of cigs and anything you sold in your store,the car wash.ect.. now this was with Esso, can't speak for other gas stations....it isnt a losing proposition, the two franchisees i worked for werent hurtin for cash...but they werent rolling in it either..in fact the first Esso i worked for was on 16th Ave NW...there were two Esso's a block from each other on the same side...one which is now an A&W i think...we closed the first one down, cause it was losing money....(both were onwed by the same guy)..cause all we sold was gas/smokes..+ the place was old and the one a block up was new w/ a car wash

But i think its rare to see one guy own only one station...

[Montana Moe]

This is true for most businesses (large items ie:Gasoline) are not the moneymakers, it is the little things that go along with it that are the "plus items" that keep these businesses afloat. When I was working at Home Depot, they explained in great detail that it wasn't the big ticket items that made the money (lumber, faucets, flooring, etc.) it was the add-ons that turned the profit (nails, plumbing fittings, flooring glue, etc.)

What is so difficult to grasp about that? Its the reason people try to sell you add-ons everywhere you shop for commodities/big ticket items. Cars, groceries, electronics, etc.

[Cowboy89]

Okay skeptics, now take a look at page 5 of the following document:

http://www.petro-canada.ca/pdfs/inve..._Q1_2008_E.pdf

This is Petro-Canada's Q1 2008 Earnings release. On page 5 is a breakout of revenue/expenses and earnings of all of their business segments (Aka Segmented Income Statement). Check out the Downstream segment which contains their retail gas stations and refineiy operations. Look at the Sales from customers line and then the "Crude Oil and Product Purchases" line and the "Intersegment Transactions" line which means purchases of oil for their downstream operations directly from their upstream operations. If you take the difference between the revenue and those two expenses you get their margin before accounting for the costs of refining and selling (which is denoted as "Operating, Marketing, and General").

Now take a look at the bottom line "Net Earnings(loss)." Notice that in Q1 2008 that of Petro-Canada's $3.7 Billion in downstream revenues which includes retail items they only made $184 Million compared to a profit of $1.076 Billion with a B for all segments. The margin on their downstream segment is very small compared to the Upstream side of things. That is where the Real money is made. So yes money is being made, but it's not really on the retail side of things.

[Daradon]

Originally Posted by MelBridgeman

I was talking specifically about being forced to buy X amount of product from Tim Hortons and not selling any of it and just throwing it out at 6 am when the new fresh donuts showed up

Ahhh ok. I thought you meant like boxes of chocolate bars and stuff.

[Flames in 07]

Originally Posted by driveway

I thought you were, but then you've shifted what you're saying a few times in this thread.

For example, first you said this:



But then you agreed with this statement:



So I'm not sure you even know what you're saying anymore.

Driveway you just don't understand. And the gap between where you are and reality here seems to be large. The RETAILER is someone who runs the site, the land may very well be owned by the name you see on the sign, but the RETAILER (the caps here is a hint that the person running the business on the site is not the same as the large oil company that you see on the sign) is always working on a tight margin. His cost goes up completely directly with the cost of crude.

It works like this in AB (and in most areas):

1. Producer. There are hundreds of these, they collect the oil into leases. Yes, Imperial is one of them, but they have a much smaller piece of the pie than many people would think, they have some large projects such as Cold Lake, but based on their sizable retail presence, on a relative basis they are a smaller player as a producer.

2. An aggregator and/or marketer and/or trader will collect the producers volume and eventually sell to ...

3. A refiner, for AB crude is generally either in Edmonton, the west coast (BC and Wash) Southern Ontario, Illinois, Minnesota, Ohio, Texas, Michigan, Oklahoma, Lousiana or China (I may have missed a state or two there

4. A distributor (sometimes the refiner) will move oil products from the refiner to distribution points and then on to the retail sites

5. A retailer, generally a small business where an individual will operate what are generally a refiner or distributors assets for a small cpl margin ... like 2 or 3. And anyone with experience a little more direct that 'an understanding of geopolitical issues' will tell you that gas alone won't keep the individual in business. They sell convenience items to make their money.

The point of the op is to say that #5 doesn't make much, which is true. #1 makes tons right now, #2 and #3 have profits that come and go (because of the fluctuating costs they pay #1. and #4 doesn't pay well in Canada but with the right model can do ok in the US because of the stronger critical mass of demand.

What you and Reggie and millions of other naive people do is blur them all together when in reality most of the time it is different folks in the chain. You are Blurring #5 with #1.

OK that's my way of making it as clear as possible for you, if you don't get it now, there's nothing I can do for you.

[Reggie Dunlop]

Originally Posted by Flames in 07

What you and Reggie and millions of other naive people do is blur them all together when in reality most of the time it is different folks in the chain. You are Blurring #5 with #1.

No, the problem is that you don't "get" it. You want me to believe that petroleum retailers are doing so out of the goodness of their heart and if they really wanted to make a fortune they'd operate potato chip stands.

They're in the business of selling gas because there's money to be made selling gas. Maybe not as much as they hope to, but then isn't that the way it is with everything? Everyone hopes to make more than they do.

[Flames in 07]

Originally Posted by Reggie Dunlop

No, the problem is that you don't "get" it. You want me to believe that petroleum retailers are doing so out of the goodness of their heart and if they really wanted to make a fortune they'd operate potato chip stands.

They're in the business of selling gas because there's money to be made selling gas. Maybe not as much as they hope to, but then isn't that the way it is with everything? Everyone hopes to make more than they do.

Yes they would run potato chip stand if people would come to them ... which they won't. They come to the location for gas. Many retailers sell stuff at a b/e level or loss (called loss leader) to get you to buy other things. So no they don't sell gas out of the goodness of their heart they do it to get you to buy other stuff.

You would be very surprised to see where and how retailers make money. I don't know this but from the behavior of dealerships, I sense that they make very little from new car sales, they make their money from add ons and service later on.

Just so I can learn, how exactly does knowledge of geopolitical issues help you understand how retailing gasoline makes money? I haven't been able to make that connection yet.

[Reggie Dunlop]

Originally Posted by Flames in 07

Yes they would run potato chip stand if people would come to them ... which they won't. They come to the location for gas. Many retailers sell stuff at a b/e level or loss (called loss leader) to get you to buy other things. So no they don't sell gas out of the goodness of their heart they do it to get you to buy other stuff.

Pretty ironic then that "Pay at the Pump" is a growing trend, to the point of being heavily advertised. They're giving customers the option of not setting foot in the store to begin with.

[Hakan]

Margin's should be low for retailing gas because of so much competition and the substitutability between gas brands. That doesn't mean squat though. Gas companies are so vertically integrated that end use margins mean little to their total profit.

If you want me to shed a tear for the impoverished retail franchise owner then you're barking up the wrong tree. The financials of a single gas retailer are available to anyone who wants to look into it. If the owner thought they would make a killing then that's their problem not mine.

Reggie's point still stands. Gas companies are making whacks of money off selling their own gas. I could care less about individual franchise owners. Boo hoo.

[Cowboy89]

Originally Posted by Reggie Dunlop

Pretty ironic then that "Pay at the Pump" is a growing trend, to the point of being heavily advertised. They're giving customers the option of not setting foot in the store to begin with.

That's done so that the majority of their customers that don't buy anything extra, ie Tim Horton's donuts and coffee, McDonald's Express, Krispy Kreme donuts, potato chips, chocolate bars, slurpies don't crowd the lines at their tils so that impulse purchasers don't balk at long lines. Look up Queing theory. It's also cheaper to run machines at the pumps than to pay an extra few minimum wage employees to run more tills inside to take money from people that aren't even really contribting to the bottom line.

Also if you need milk and gas at the same time you'd probably do it at the same place irregardless of whether or not you can pay your gas portion of your bill at the pump or not.

[Flames in 07]

Originally Posted by Reggie Dunlop

Pretty ironic then that "Pay at the Pump" is a growing trend, to the point of being heavily advertised. They're giving customers the option of not setting foot in the store to begin with.

Now that is the first well thought out thing you have said on this thread. Good point and very counter-intuitive to have it. Here's some background.

Once upon a time ... like 15 years ago money was made at the pump for the retailer. It was the early 90's when the shift to convenience goods evolved. Canada was very behind on adapting convenince pmt methods such as pay at the pump because of lost store traffic. However slowly the gasoline companies figured out that the customers can be segmented into those who aren't coming in anyway and those that will, and through testing they found that the pmt option didn't impact the store too much. And further, if they didn't add the pmt method, someone else would and that they would have lower gas throughput as a result to the point that they felt they couldn't be the one company without it ... therefore they all adopt it.

[Flames in 07]

Originally Posted by Hakan

Margin's should be low for retailing gas because of so much competition and the substitutability between gas brands. That doesn't mean squat though. Gas companies are so vertically integrated that end use margins mean little to their total profit.

If you want me to shed a tear for the impoverished retail franchise owner then you're barking up the wrong tree. The financials of a single gas retailer are available to anyone who wants to look into it. If the owner thought they would make a killing then that's their problem not mine.

Reggie's point still stands. Gas companies are making whacks of money off selling their own gas.I could care less about individual franchise owners. Boo hoo.

What you say at first is true, but then you fall of the rails with the rest.

What you say in the first paragraph is true, but then you blur the retailer with the big vertically integrated in the second and third paragraph which is not true.

That's fine, you don't have to care about the individual franchise owners, but I don't get the reason. Imperial makes good money and therefore you say boo hoo to the franchise owner who does not have anything to do with those big earnings or share in them in any way.

That's like me saying, Banks make lots of money so I don't give a crap about the tellers.

[Reggie Dunlop]

Originally Posted by Cowboy89

That's done so that the majority of their customers that don't buy anything extra, ie Tim Horton's donuts and coffee, McDonald's Express, Krispy Kreme donuts, potato chips, chocolate bars, slurpies don't crowd the lines at their tils so that impulse purchasers don't balk at long lines. Look up Queing theory. It's also cheaper to run machines at the pumps than to pay an extra few minimum wage employees to run more tills inside to take money from people that aren't even really contribting to the bottom line.

Okay. So then encouraging fewer walk-ins is a good business practice. Gotcha.

Less eyeballs on that Mountain Scent tree-shaped cardboard air freshener hanging by the counter.

I have no doubt that these places make money selling crap other than gasoline. Some may even make gobs o' dough doing so.

The only bone of contention I have is claims they don't get a cut of fuel sales, however small it may very well be. I don't even begrudge them for doing so.

[Flames in 07]

Originally Posted by Reggie Dunlop

Okay. So then encouraging fewer walk-ins is a good business practice. Gotcha.

Less eyeballs on that Mountain Scent tree-shaped cardboard air freshener hanging by the counter.

I have no doubt that these places make money selling crap other than gasoline. Some may even make gobs o' dough doing so.

The only bone of contention I have is claims they don't get a cut of fuel sales, however small it may very well be. I don't even begrudge them for doing so.

Well your bone of contention is evolving, before it was about colluding oil companies. Nobody has said they don't get a cut, in fact I think I have said 3 times that it is usually between 2 and 3 cents. But that 2 or 3 cents simply covers costs.

[Reggie Dunlop]

Originally Posted by Flames in 07

Well your bone of contention is evolving, before it was about colluding oil companies.

Oil companies don't collude?

Originally Posted by Flames in 07

Nobody has said they don't get a cut, in fact I think I have said 3 times that it is usually between 2 and 3 cents. But that 2 or 3 cents simply covers costs.

I don't believe it.

[Flames in 07]

Originally Posted by Reggie Dunlop

Oil companies don't collude? I don't believe it.

1) Got any proof, or just resembling the avatar?

2) That's good, ignorance is bliss

I still haven't heard how knowledge of "geopolitical issues" gives you any kind of understanding of how gasoline retailers make money. I'm quite interesting in learning the connection.

It would be nice if people with zero understanding of the industry such as yourself (don't worry your not alone, you represent millions of people) would just have half an open mind to learning something.

I mean, can't you just sit back for a second and say to yourself, maybe I don't know everything there is to know about the topic ... and that your background may not exactly be the best platform to base your beliefs from?

[Cowboy89]

Originally Posted by Reggie Dunlop

Okay. So then encouraging fewer walk-ins is a good business practice. Gotcha.

Less eyeballs on that Mountain Scent tree-shaped cardboard air freshener hanging by the counter.

I have no doubt that these places make money selling crap other than gasoline. Some may even make gobs o' dough doing so.

The only bone of contention I have is claims they don't get a cut of fuel sales, however small it may very well be. I don't even begrudge them for doing so.

I don't think that anyone's denying that they make a small margin. That small margin however doesn't necessarily cover overhead and make that much money for the owner. The point of contention that a lot of people miss is that when they see the price at the pump increase they assume that that particular gas station's margin's went up as well. In fact in a lot of franchise's it's written into their contract with the distributer what margin they charge. The increases or decreases in price come from further up the value chain.

Money is made by merging the convience store with the gas station. The customers that the gas station draws in combined with the customers that the convience store draws in combines two revenue streams with the overhead of only operating one location. The bigger piece of the pie is the convience sales for many of the above stated reasons. Now that it has been the trend for all gas stations to pretty much be convience stores, competition is now more fierce. Since the price of gas is clearly posted on the front sign, it's very hard to lift that up too much as that number is easily compared to the gas station down the street. However for other items they have a higher varition in prices and a higher opportunity to make more money.

[Reggie Dunlop]

Originally Posted by Flames in 07

I still haven't heard how knowledge of "geopolitical issues" gives you any kind of understanding of how gasoline retailers make money. I'm quite interesting in learning the connection.

It would be nice if people with zero understanding of the industry such as yourself (don't worry your not alone, you represent millions of people) would just have half an open mind to learning something.

I mean, can't you just sit back for a second and say to yourself, maybe I don't know everything there is to know about the topic ... and that your background may not exactly be the best platform to base your beliefs from?

I know enough that petroleum is a dirty, nasty bit of business involving drilling through a bunch of rock often in remote locations with inhospitable weather all for the liquified remnants of Dino the Dinosaur and his fern-filled former habitat. They're not doing it for fun and I know its a pretty important engine of our economy.

Anything else I need to know? I think I've pretty much got it covered in layman's terms.

[dissentowner]

Originally Posted by Flames in 07

1) Got any proof, or just resembling the avatar?

2) That's good, ignorance is bliss

I still haven't heard how knowledge of "geopolitical issues" gives you any kind of understanding of how gasoline retailers make money. I'm quite interesting in learning the connection.

It would be nice if people with zero understanding of the industry such as yourself (don't worry your not alone, you represent millions of people) would just have half an open mind to learning something.

I mean, can't you just sit back for a second and say to yourself, maybe I don't know everything there is to know about the topic ... and that your background may not exactly be the best platform to base your beliefs from?

Ok, you have made some good points but tryin to make anyone believe oil company's do not collude is trying to call everyone stupid. One jacks up the price and they all follow suit. It would be like your potato chips that keep the retailer in business all the same price no matter what the name brand. Same with cigarette companies, you can get a pack of Number 7's a helluva lot cheaper then Players but if everyone colluded like the Oil industry they would be the same price. You want to change my mind then give me any other product especially one as essential as gas that's prices all go up or change to within a margin of acent or two and that is it? Good luck. I buy your arguement of the retailer not making big bucks, okay, but don't insult my intteligence or anyone elses by saying Gas distributers are not in collusion with eachother..geez