5/25/07
Suppliers and their profit margins
Editor's note: Part three of three
By STEPHEN H. SUTHERLAND
In a March 30, 2005, Record-Eagle news story, Linda Casey, spokeswoman for Marathon-Ashland Oil Co.—which supplies gasoline to area Speedway and Marathon stations—insisted that despite record prices, oil companies and retailers were not cashing in on the high costs, saying profit margins for gasoline were only running at one or two cents a gallon.
On Aug. 30, 2006, I also spoke with Casey about the increased margins. Her first reaction was to state that Speedway reported a 10-cent profit margin for their retail outlets for the past quarter. Even at 10 cents, this reflects a 500 percent increase in profit margins before Hurricane Katrina two years ago.
I then explained to her that the current profit margin was approximately 27 cents plus. She seemed to be at a loss for words and said she would look into things and get back to me. I later received a call back from Angela Graves of Marathon-Ashland, who explained that the 10-cent margin was a gross margin, and an average of all stores. Graves also stated that Speedway's philosophy was to price competitively per market. I then asked her if Speedway had a ceiling for profit margins. Her answer was that she did not know of any profit margin ceilings.
So before Hurricane Katrina, Casey stated Speedway was only making about 2 cents per gallon. Within a day or so after Katrina, local margins spiked up to approximately 42 cents (plus) per gallon. On Aug. 30, 2005, Casey stated Speedway was only making about 10-cent per gallon profit, while on that particular day the local margin was actually in excess of 27 cents per gallon. Hmmmm.
Two weeks ago, Speedway tried to lead the pack locally at $3.499 per gallon, but Mutual and a few others pulled it back to $3.399. Then last week Speedway again tried to lead the pack upward to $3.659, but again Mutual and others pulled it back to $3.599. By May 24, Speedway was at $3.659, $3.599 and $3.549 depending on the station. OK, maybe Speedway will settle at a competitive price, but they have definitely taken the lead on price increases in the Traverse City area.
Since Katrina, local suppliers definitely have shared in the increased profits. But I must add, when there is a hit to be taken, the local suppliers are the first in line—after you, the consumer.
Suppliers also can save by purchasing their fuel at downstate racks and many suppliers receive various discounts of 1 percent plus. This means that suppliers at times can increase their margins by 5 cents per gallon or even more over what I am quoting.
So in closing, I would like to answer the question, "Who sets the gas prices?"
THEY ALL DO! The major oil companies, the feds, the state, local suppliers and don't forget about OPEC.
This was another rocky week for the local suppliers, by last Friday they had lost most of their margin, but by Thursday the margins had rebounded back to 25 plus cents per gallon. Lets all thank Speedway for their strong leadership this week!
| Friday | Monday | Tuesday | Wednesday | Thursday | |
| 5/18/07 | 5/21/07 | 5/22/07 | 5/23/07 | 5/24/07 | |
| Retail | 3.399 | 3.499 | 3.659 | 3.599 | 3.549 |
| Cost of fuel | 3.348 | 3.41 | 3.442 | 3.357 | 3.294 |
| Margin | 5.1 cpg | 8.9 cpg | 21.7 cpg | 24.2 cpg | 25.5 cpg |
Although the retail price of Gas has dropped this week (5/27 – 6/1), it has not dropped as fast as the cost of fuel has dropped.. Margins have increased to about 31.4 cents per gallon as of Wednesday.
| Friday | Monday | Tuesday | Wednesday | Thursday | |
| Retail | 3.479 | 3.479 | 3.479 | 3.479 | 3.469 |
| Cost of fuel | 3.265 | 3.265 | 3.265 | 3.165 | 3.165 |
| Margin | 21.4 cpg | 21.4 cpg | 21.4 cpg | 31.4 cpg | 30.4 cpg |
CPG = Cents Per Gallon
Again, please be aware, the quoted prices are approximate and can vary from rack to rack and station to station. Some retailers are not able to purchase at the above prices while others are doing considerably better, since I am only quoting prices out of Traverse City.
Thanks for reading and keep the questions coming.
The GasMan -