Gasoline Service Station

SIC 5541

Industry report:

This category includes gasoline service stations primarily engaged in selling gasoline and lubricating oils. These establishments frequently sell other merchandise, such as tires, batteries, and other automobile parts, or perform minor repair work. Gasoline stations that include other activities, such as grocery stores, convenience stores, or carwashes, are classified according to the primary activity.

Industry Snapshot

According to the U.S. Census Bureau, 95,093 gasoline stations with convenience stores were in operation in 2008 with industry-wide employment of 725,298 workers who earned wages of nearly $12 billion. Texas led the nation with 9,288 establishments followed by California with 5,925 establishments, and Florida with 5,552 establishments. The other gasoline stations category numbered 19,051 stations with a workforce of 171,292 workers who earned slightly over $3.5 billion in wages. California and New Jersey led in this category with 1,679 gasoline stations and 1,677 gas stations, respectively.

In 2006, there were approximately 167,500 retail gasoline stations operated in the United States. These establishments took very different forms than they had before, with self-service islands and ancillary retail outlets--convenience stores, known as C-stores--creating major changes in the distribution of market share.

The total number of stations has been steadily decreasing since 1982, reflecting a trend by major oil companies to close smaller-volume franchises and concentrate on maximizing gallonage at major locations. Cost cutting in the oil industry in general, as well as environmental legislation mandating upgrades for the gasoline service station industry, meant that most dealers were looking for ways to reduce expenses and increase sales.

Traditional "mom-and-pop" style stations were frequently a casualty of market changes as consumer emphasis shifted more toward large, multifunction, automated outlets, and as many non-traditional outlets were beginning to open. To survive, gasoline service stations will continue to expand the range of goods and services they offer and emphasize convenience to the consumer through automatic pay machines, more self-service islands, and streamlined traffic flow organization.

Compounding the competition are inflated gas prices that jumped after Hurricane Katrina in 2005 and have remained high into the late 2000s. Crude oil began 2005 at $42 per barrel and was $70 by September of that year. The price of crude oil hit $100 per barrel in 2007, and entering 2008 it was more than $90 per barrel, resulting in pump prices of roughly $3.00 per gallon.

Organization and Structure

The U.S. market for consumer gasoline had four major competing categories in the 1980s, 1990s, and early 2000s: service stations, which offered service through at least one bay and had a volume greater than a set limit (typically 20,000 gallons per month); pumpers, which had more than six nozzles and had a volume exceeding a set limit (typically 50,000 gallons per month) and possibly having such ancillary services as a C-store, car wash, or remote bays; convenience stores, with a minimum of 600 square feet of retail space, the primary business of which was the sale of food items, typically with one or two islands and fewer than six nozzles; and others, facilities with gasoline volume below minimum volume for pumpers or service stations that may also include ancillary services such as a C-store, car wash, or bays. All of these competitors except convenience stores fall under this classification.

Within this relatively simple categorization of outlet types, a complex web of supply sources and brand loyalties exists. More than two-thirds of gasoline service outlets were branded by major oil companies by 1992, a trend that continued into the early 2000s. Managers of branded stations, called dealers, owned their own station, and "lessee dealers," rented from the branding company. Dealers bought gasoline either directly from parent companies or from branded distributors, called jobbers, who bought from parent companies. The others, known as independents, bought from unbranded jobbers who distributed products from a variety of companies on a surplus basis. The independents were at an obvious disadvantage in terms of purchase price and supply reliability; such factors virtually guaranteed the domination of the market by branded dealers.

Sales of accessories such as tires, batteries, oil, and anti-freeze--as well as services such as carwashes, lube jobs, and tune-ups--were once considered fringe options for gasoline retailers. In the early 1990s, however, an increasing number of facilities responded to competitive pressures by incorporating these various services into their business plans, with the result that the distinction between C-stores and service stations or pumpers grew progressively tenuous. Standard delineation of industry classifications such as "principle" focus of business became less obvious; only income proportionality allowed pinpointing in many cases.

Background and Development

Gasoline service stations are a phenomenon of the twentieth century. Brought into being by the simultaneous maturity of petroleum production and refinement and the invention of the combustion engine, gasoline service stations began as suppliers for a "lunatic element" in the population who used "horseless carriages" for recreational transport purposes. These early stations were actually supplied by horse-drawn tank carts; conservative petroleum refiners did not initially trust such odd contraptions as fuel-powered trucks.

The mass production of the automobile spurred mass construction of gasoline servicing facilities, with all the major oil companies staking a claim on some corner of the fledgling consumer market. Small family-run franchises were the norm and remained the mainstay of the market in remote areas well into the 1970s.

Domestic gasoline production capacity grew with World Wars I and II, as did the Big Three automakers' factories. Consequently, by the 1950s, average American families had at least one car, and that car was large, gas guzzling, and a source of intense pride. The heyday of the labor-intensive service station with several attendants in uniform to service every customer reached its peak in those post-war years.

The revolution of form that results in modern service stations began in the 1970s, when self-service islands came into vogue. In 1975, only 22 percent of the market share went to self-service facilities; in 1992, 86 percent went to self-service; and in 1997, self-service was the mainstay, with maybe one or two pumps reserved for full serve at larger stations. There were 220,000 full service stations in the 1970s; by 1997 there were 40,000. Self-service essentially ended the "service" orientation of gasoline retailers; consumers made it clear that lower prices were more important than uniformed attendants. Small, unbranded dealers were the first to feel the impact of this emphasis on price over service. No longer able to compete on the basis of superior individualized attention to detail, small dealerships began to close.

In the early 1980s, department stores also began withdrawing from the gasoline retailing market. Giants such as J.C. Penney and Kmart found it difficult and increasingly unprofitable to compete against major oil companies. Simultaneously, the large oil companies embarked on extensive expansion of services and renovation of facilities in branded retail outlets as their competitors forged elaborate marketing schemes to encourage brand loyalty.

Architectural homogeneity and multipurpose stations became a chief focus for most. The Texaco "family of buildings" style, which basically eliminated structural clutter and revamped unplanned layouts, became a model for the industry. The trend toward having similar building structures increased with the addition of C-stores to many stations throughout the 1980s and into the 1990s.

The history of gasoline stations has been marked by trends. The first seven decades of the twentieth century saw an evolution of gasoline service stations that corresponded to consistent increases of consumer interest and disposable income. The last three decades revolutionized the industry through successive waves of automation and streamlining. If self-service was the trend of the 1970s, credit-card payment was its corollary in the 1980s, and debit card machination in the 1990s was the overwhelming trend. As the twenty-first century began, stations were experimenting with machines that take cash at the pump.

This streamlining process, a "more with less" motto of productivity, characterized most facets of the gasoline retailing industry in the early 1990s. Although in the 1970s self-service sped up pumping and allowed customers to buy more gas while allowing retailers to operate with fewer employees, in the 1980s credit-card payment capability sped up transactions even more while simultaneously seeming to encourage larger sales. One survey showed that customers purchased 45 percent more fuel when using a credit card than when paying cash.

Improving on the modern self-serve, charged-with-credit tank of gas was in-pump point of sale (POS) technology, which allowed customers to purchase gasoline with credit cards without ever interacting with a cashier. Initiated in the 1980s, widespread adaptation of POS technology had largely occurred by the mid- to late 1990s. Despite the expense of installing units, consumer fascination with speedy, paperless transactions made it virtually mandatory for retailers to install POS technology at a cost of approximately $5,000 per unit. Self-service pumps with POS capability allowed consumers to fill their tanks without ever interacting with another person, cutting personnel needs while increasing overall efficiency.

In the 1990s service stations rushed to install POS pumps in all their service bays. By the end of the decade, it was rare to pull into a station and not see POS technology in place. However, despite the convenience of POS technology, 60 percent of all consumers still paid with a check or cash inside the store according to a 1999 survey of convenience stores conducted by NFO Research Inc. Only 21 percent of all consumers paid at the pump, preferring to go into the store and make additional purchases beyond the gasoline.

The last consumer-driven shift in the gasoline service station industry in the early 1990s was the emerging market domination of stations with C-stores. Aiming for gasoline sales of 100,000 to 200,000 gallons per month, major oil companies installed large numbers of branded stations with ancillary food stores in strategic locations such as major highway intersections. The investment for one of these station/superstore units was high, including state-of-the-art fiberglass underground storage tanks, vapor recovery equipment, multiproduct dispensers, roomy and attractive fuel islands with elaborate security lighting systems, and capacity for dispensing alternative fuels such as natural gas. Each site was a major investment and ensured that only major oil companies would be able to compete in the new C-store market.

The late 1990s saw an expansion of the convenience store/gasoline station in the form of multifranchising. Known as "co-branding," it involved the pairing of two or more franchises under one roof, a move that benefited the franchisee as well as the customer. Fast food outlets, such as Burger King, McDonald's, and Subway, became popular co-branders with gasoline stations. In Memphis, Tennessee, Mirabile Investment Corp, the area's largest Burger King franchisee, teamed full-size Burger King stores with Exxon gas stations and convenience stores. Subway had about 1,270 of its 11,000 North American outlets in nontraditional locations, co-branded primarily with convenience stores and gasoline stations. Texaco teamed up with Burger King, Taco Bell, and Subway, and the company planned to build or rebuild 63 outlets in the Los Angeles area in 1997, co-branding with Star Mart convenience stores and/or a fast food franchise. In 1996, Amoco Corporation shared the cost of property and maintenance costs of 50 new gas stations with McDonald's--up from 13 in 1995.

Adapting to consumer demand was not the only expensive challenge for gasoline service stations in the early 1990s. Environmental legislation targeted retailers in a number of ways, primarily in the arenas of gasoline evaporation, underground storage tanks, and improved refrigerants. Like C-store investment, environmental compliance spelled doom for those small independent retailers who remained in business in the early 1990s.

Stage II of the 1990 Clean Air Act stipulated that retailers use equipment that captured gasoline fumes when gasoline was discharged into a vehicle's gasoline tank. Marketers in California, New Jersey, Missouri, New York, and Washington, D.C., were already using Stage II equipment in 1993, and marketers elsewhere may need to do the same, or the EPA may mandate on-board canisters in automobiles. Pump nozzles will most likely bear the brunt of the requirement because canisters could leak while the automobile is in motion. Estimates of costs for updating pumps ranged from $20,000 to $40,000 per station.

Underground storage tanks (USTs) came under attack by the EPA because older tanks were made of steel, many of which had rusted through, contaminating surrounding soil and threatening water supplies. New regulations went into effect in late 1993 and were estimated to cost $100,000 per station as individual sites sought to repair or replace existing tanks. Station remediation costs were estimated to cost an additional $155,000.

Chevron was one of the first major companies to replace steel tanks with corrosion-resistant fiberglass and has underground monitors to detect leaks of less than a quart an hour. But for the small independent stations, removing the tanks and cleaning the soil was too costly a proposition, and many were forced to close in the mid-1990s.

Other environmental costs included updating refrigerant installation facilities. As chemical manufacturers phased out dangerous, ozone-depleting chlorofluorocarbons (CFCs), retailers learned to use hydrofluorocarbons as refrigerants. Hydrofluorocarbons as refrigerants and reformulated gasolines were the two major new product technologies in the early 1990s.

According to U.S. Census Bureau figures, after rising from $209.4 billion in 1999 to $244.5 billion in 2000, retail sales for gasoline stations fell to $237.7 billion in 2001. A number of factors had a negative impact on the industry's health during the early 2000s, including weak economic conditions, a subsequent decline in consumer spending levels, and unstable gasoline prices. For example, gasoline prices increased from an average of $1.00 per gallon in early 1999 to $1.80 in May 2001 before declining again. Terrorist attacks against the United States on September 11, 2001, further exacerbated already volatile gasoline prices.

In the October 2002 issue of National Petroleum News, NPD Automotive Products Group Spokesman David Portalatin remarked on the emergence of high volume retailers, known as HVRs, explaining: "Unlike the traditional gasoline service station whose profit margin is gasoline-dependent, HVRs can operate at much lower retail prices. By taking advantage of consumer demands for lower-priced gasoline, HVRs can drive tremendous traffic volume to their sites. In fact, it's not uncommon for HVRs to sell 500,000 to one million gallons per month as opposed to the average retail gasoline facility that may sell 100,000 gallons in the same period."

By the mid-2000s, the most difficult issue for the industry was still the instability of fuel supply prices. After the beginning of the U.S.-led war with Iraq in early 2003, prices began rapidly climbing. In 2004, the price of crude oil was 50 percent higher than it had been only the year before. The increased expense at the pump was costing stations sales in other products, as customers learned to forego the discretionary purchases. In addition, consumers are more likely to pay higher totals by credit card than by cash, which adds cost in transaction fees. According to National Petroleum News, "for many companies, credit-card processing costs now exceed labor costs."

Because of an upswing in supermarkets entering the retail gasoline market, the number of retail outlets selling motor fuel bucked the trend and increased by more than 1,600 sites in 2005, totaling 168,987. As smaller outlets struggled with the increasing competition, however, the number dropped to about 167,476 in 2006.

According to NACS, the association for convenience and petroleum retailing, the 146,294 convenience stores selling fuel in the United States accounted for about 75 percent of all gasoline purchased in 2006. Those sales amounted to $405 billion.

Gross sales of gasoline jumped dramatically in the mid- to late 2000s in large part because of steady increases in the cost of crude oil. Hurricane Katrina exacerbated the situation when it hit the Gulf Coast in August 2005. The average price of regular gasoline rose from $1.78 per gallon on January 3, 2005, to as high as $3.07 per gallon on September 5 of that year as Hurricane Katrina tightened gasoline supplies. Hurricane Katrina initially took out more than 25 percent of U.S. crude oil production and 10 to 15 percent of U.S. refinery capacity. Additionally, major oil pipelines feeding the Midwest and the East Coast from the Gulf of Mexico area were shut down or forced to operate at reduced rates for a significant period.

With prices at the pump fluctuating above and below $3.00 per gallon into the late 2000s, Meijer stores have taken an aggressive approach to keep its customers informed. The company sends text messages to subscribers' cell phones to alert them the price of gas at its stations will increase shortly. However, the message does not include the expected price. As of May 2007, about 6,000 customers had signed up for the free service.

Current Conditions

In 2008, there were approximately 161,768 retail gasoline stations operating in the United States, a decline of a little more than 2,500 compared to the previous year as industry consolidation picked up pace. The industry viewed credit card fees as their leading concern followed by fuel prices. According to the NPN Readership Survey, 67.9 percent of fuel retailers indicated credit card fees was their chief concern followed by 60.2 percent viewed fuel prices as a problem area.

Gasoline service stations incorporated other features to compliment and "�offset the current lackluster performance of fuel as a major profit generator," Keith Reid noted in the August 2008 issue of National Petroleum News. For instance, 24.7 percent of those surveyed operated stations that provided auto service, 24 percent provided lube service, and 58 percent provided at least one car wash operation.

Of the 146,341 convenience stores in the United States as of December 31, 2010, 117,297 retailed fuels, a 1.7 percent increase over 2009. Following a two-year downturn in the total number of operations "�caused by many traditional fuel-based operators exiting the industry is turning around,' cited from Convenience Store News in January 2011. Moreover, 80.2 percent of the 146,341 convenience stores sold fuel. Industry watchers predict further industry consolidation as mass retailers, supermarkets and warehouses enter the retail gas market. A total 145,000 convenience stores collectively generated $511 billion in sales, with $328 billion derived from fuel sales in 2009.

The overall industry had to contend with rising fuel costs that grew from an average of $2.78 per gallon in 2010 to $3.17 per gallon in 2011. Unfortunately, that trend was expected to continue on into 2012 as prices for crude oil climb to about $99 per barrel by the fourth-quarter. Thus, the projected average price per gallon of gas was on target to reach $3.29 in 2012. Additionally, rising gas and distillate refining margins will ultimately contribute to increased retail prices as well.

Industry Leaders

Based in the United Kingdom, BP Plc (formerly known as BP Amoco) operated 28,500 stations throughout the world in 2006 and was the largest oil and gas producer in the United States. The third-largest integrated oil company in the world, BP had revenues of $274.3 billion in 2006 and employed approximately 97,000 workers worldwide. Revenues reached more than $301.8 billion in 2009 with a reported 80,300 employees.

Exxon Mobil was the largest integrated oil company in the world. Its 2006 sales reached $377.6 billion. The company operates more than 35,000 stations in more than 100 countries. Exxon Mobil's revenues fell to $310.5 billion in 2009 with 80,700 employees. The next-largest competitor is the Netherlands-based Royal Dutch Shell, with 45,000 stations worldwide and 2006 revenues of $312.3 billion. Royal Dutch Shell grew its revenues to more than $458 billion in 2008 before falling to $378.1 billion in 2010 with an estimated 101,000 employees. Other industry leaders were Speedway SuperAmerica, LLC, and Pilot Corporation.

Workforce

According to the U.S. Census Bureau, gasoline stations--those with convenience stores and those without--employed approximately 900,000 people in 2005, falling slightly to 896,590 in 2008.

America and the World

The supply of gasoline and refined products is the only important aspect of the gasoline service station industry that is international in scope. In terms of consumption, in 2002 the United States imported almost 60 percent of its oil, according to the API. While more than 42 percent of the nation's oil came from domestic sources, Canada was the leading foreign source (9.7 percent). Other leading foreign sources included Saudi Arabia (7.8 percent), Mexico (7.7 percent), and Venezuela (7.3 percent). Oil imports have fluctuated since 1991, and figures will shift as domestic production and refining capacities shrink and alternative fuels increase in both popularity and by government regulation. The possible ramifications for retailers hinge primarily on questions of supply; over-dependence on foreign petroleum has historically resulted in price wars and shortages.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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