When Rick Levitan was hunting for a business venture six years ago, he considered opening a golf driving range or a restaurant. He ended up buying gas stations. After all, he had spent 14 years working for Mobil. He knew firsthand that oil was liquid gold.
Today, Levitan, who owns stations in Columbia, Ellicott City and Pikesville and operates a service center in Tysons Corner, is surprised to find himself struggling, even with $3-a-gallon gas. Especially with $3 gas.
At the pump these days, as the tab flashes past $30, $40, even $50, you start wondering who's piling up all that money. Judging by the dirty looks and nasty comments aimed at gas station managers, many of us believe the station owners are raking it in.
But Levitan opened his books to me to show that surges in gas prices generally hurt the guys at your local station. The big winners are the oil companies (you knew that already) and the big credit card companies. At least oil companies have excuses and expenses; it's their platforms, pipelines and refineries that took the hit from Katrina. But for Visa and MasterCard, the misfortune along the Gulf coast adds mightily to what Levitan calculates as an almost threefold increase in fees from each purchase of gas over the past few years.
Every time you slip your card into a gas pump, the station owner pays 3 percent of the purchase to the credit card company. A station that sold 130,000 gallons per month back when gas cost $1.29 -- when about 70 percent of buyers used cards -- sent $3,546 to Visa and MasterCard.
At that same station today, gas costs $3, and probably 80 percent of customers use cards because who carries $50 to fill up? This station now sells about 10 percent less gas because drivers are cutting back, but still the credit card companies get $8,277 a month.
So the station owner, who in the best of times works with a profit margin of 8 cents per gallon, now sees his credit card fees shoot up from 2 cents to 7 cents.
Why can't the station owner hike his price to cover the higher fees? Because the cash-only, off-brand station down the road pays no credit card fees. To be competitive, our man must cut his margin.
This week, independent stations such as Lowest Price are charging the highest price. Such stations buy gas from Big Oil on the spot market; in normal times, they get gas cheaply for the same reason you can buy cut-rate airline tickets from a consolidator. Like airlines, if oil companies have too much product, they'd rather sell for a lower price than sit on it.
But right now, with supply short because of Katrina, stations owned or controlled by Big Oil get a rare price advantage over independents.
Still, Levitan says he's making even less money than usual because customers are trying to use less gas. That means fewer snack shop and service customers -- the real profit centers for station owners.
Levitan, who grew up in Bethesda, went to work for Mobil right out of the University of Maryland. Oil was a good business to be in; the company makes money at every step from production to refining to distributing and marketing. But the huge mergers that consolidated the industry over the past decade made life rougher for station owners. Levitan's Mobil stations in Howard County have been controlled by five big oil companies in five years. Despite the Mobil signs, Sunoco controls his stations. Result for Levitan: higher costs and smaller profits.
In the past month, Sunoco has raised Levitan's price for a gallon of regular by 99 cents -- from $1.89 to $2.88. Add 42 cents for taxes and you're at $3.30, before credit card fees or any profit.
This is a wild time for everyone from producer to consumer. Levitan finds it hard to swallow ExxonMobil chief executive Lee Raymond's latest pay increase -- 37 percent, to $38.1 million. At the same time, Levitan's margin at the pump has dropped from 7 percent to 4 percent.
Customers won't likely shed tears for station owners. But they deserve at least the sympathy we give mom and pop pharmacies driven out by the likes of CVS. "We're indentured servants," Levitan says of his relationship with Big Oil. "If I had it all over again, after college I'd have gone to work for Starbucks."
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