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The Retail Petroleum Marketplace
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Retail Fuels Market: Agenda Who sells fuel in America? How do retailers determine price? What influences fuel prices? How profitable is fuel retailing?
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WHO SELLS FUEL IN AMERICA?
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Convenience Industry 148,126 stores in the U.S. –120,950 sell fuels 58% are one-store companies Less than 1% owned and operated by integrated oil companies 80% of U.S. fuels sold through c-stores
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A Small Business Industry
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Independence is Dominant
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HOW DO RETAILERS DETERMINE PRICE?
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Retailers’ Conundrum
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Fuels Drive Sales, Not Profit
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Consumers Shop Around 2011-2012 Consumer Survey: –63% shop for fuel by price –66% shop for price by observing prices at the store and while driving –52% of consumers will change their shopping behavior for 3 cents per gallon
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Consumer Loyalty is Fickle
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How Do Retailers Set Price? Evaluate competitive market conditions Review historic performance associated with competitive price deltas –Might utilize price optimization software –Direct correlation between gallons sold and in-store sales Consider cost of goods sold and breakeven –What margins are available? –What is the balance between in-store sales lift and fuel margins?
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WHAT INFLUENCES FUEL PRICES?
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Prices Follow Seasonal Trends
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Demand Drives Seasonality
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Crude Oil Drives Retail Prices
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Crude Drives Wholesale
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Retail Follows Wholesale
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HOW PROFITABLE IS FUEL RETAILING?
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Retail Margin Volatility
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Slim Average Mark-Up YearRetail PriceRetail Mark-Up% of Price 2011$3.5118.2 cents5.2% 2010$2.7816.6 cents6.0% 2009$2.3413.1 cents5.6% 2008$3.2518.0 cents5.5% 2007$2.7914.2 cents5.1% 2006$2.5713.8 cents5.4% 2005$2.2714.8 cents6.5% 2004$1.8412.8 cents7.0% 2003$1.5613.2 cents8.5% 2002$1.359.7 cents7.2%
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Conclusion Retailers set price based upon: –Competition for price sensitive customer Customers shop at 45 mph and will leave for pennies –Store-wide breakeven calculation –Typically make pennies per gallon Cost of Goods Sold: –Changes frequently – several times per day –Does not affect all retailers equally or at same time –Crude oil price is dominant factor in retail price
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John Eichberger Vice President, Government Relations jeichberger@nacsonline.com (703) 518-4247
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