Out of Gas

July 6, 2007
By

John Ruch


Gazette Photo by John Swan
Like many other gas stations in town, TJ’s on Centre Street offers repair service, but no fuel.

Small stations disappear

JP CENTER—At first glance, it looks like the pumps at the JP Oil gas station are busy.

But try to pull in for a fill-up yourself, and you’re in for a long wait. As in forever.

The cars ahead of you are parked, and the pumps were shut off six months ago.


JP Oil is one of three Centre Street gas stations to quietly turn off the pumps in recent months and switch to auto repair businesses.

But gas prices are skyrocketing and Americans are buying more gas than ever. Why would a gas station close?

Because, industry experts say, they’re the middlemen with profit margins of mere pennies per gallon, squeezed between those rising prices and credit card fees.

“The business isn’t tough. We just don’t make money,” said JP Oil’s manager, who gave his name only as Evan, with a fatalistic smile.

“You can make more money on a 12-ounce coffee than on a 12-gallon fill-up,” said Jeff Lenard, spokesperson for the National Association of Convenience Stores (NCAS), a Virginia-based industry group that represents independent gas stations.

“What you’re seeing with these three stores is essentially a microcosm of what you’re seeing around the country,” Lenard said. “The little guy, the traditional gas station with not much else, is going away.”

Hatoff’s, a large independent gas station on Washington Street, looks like it isn’t going away anytime soon. Evan cited it as a successful model that has a large number of self-serve-only pumps, refuses to take credit cards and has room to sell extras like lottery tickets. It has a reputation for the lowest prices in town, he said.

“We’re successful because we run it like a business,” said owner Stan Hatoff. His business has been operating for 80 years, and Hatoff spoke the Gazette fresh from a trip to Europe, so something appears to be going right.

“It has to be a volume situation to get [customers] the price,” Hatoff said. “They’re working on a couple pennies [of profit] with one pump or two pumps,” he said of the smaller stations.

The only oil now at JP Oil, on the corner of Centre and Lochstead Avenue, is the motor oil in cars being repaired. The former Citgo at Centre and Lakeville Road closed last year and became T.J.’s Gas, which is now just T.J.’s Garage. Castillo Service Center at Centre and St. John streets has gone through similar ownership turnover and no longer sells gas.

All still have gas-price signs missing some numbers.

The larger Gibbs station at Centre and Goodrich Road is the only gas station still open in JP Center. There’s only one other gas station left on all of Centre from Jackson Square to Faulkner Hospital: Hyde Square’s JP Auto Service.

“The market is just totally out of whack,” Evan said in a Gazette interview last month at his shop, where he was supervising work on an SUV perched atop a mechanical lift.

“The actual price I should charge, it would’ve been $3.12 today, which allows me to make five pennies to the gallon,” he said. At his volume, with just a couple of pumps, that’s about $1,000 a month in profit—hardly a living.

High gas prices actually hurt the small retailers’ pocketbooks as much as it hurts those of their customers, Evan said. And, like many drivers, he, too, described himself as frustrated with what he called deliberate price manipulations by the industry.

“A month ago, a barrel of oil was $8 less than the year before, and gas was 32 cents higher,” he said. “Every year in the spring, the companies raise prices…then drop it so you think you’re getting a bargain. Then that’s the price it’ll be for the summer. Psychologically, they set you up.”

Evan spoke cynically of government attempts to lower gas prices. “Your executive branch [of the federal government]—they’re all oil men,” he said.

The national average pre-tax profit on a gallon of gas last year was 2 to 3 cents, Lenard said. That was on an average retail price mark-up of a mere 15 cents.

Lenard cited an NACS survey that found that 27 percent of customers will switch to another gas station to save 1 cent per gallon—even if driving to the new station literally costs them more in terms of the fuel it takes to get there.

“That’s one reason you see margins so low—because people will leave you for a penny,” he said.

Meanwhile, gas stations are squeezed on the sales end by customers using credit cards, which charge gas stations a flat fee and a percentage of the sale. More than 80 percent of his customers were using credit cards when he closed the pumps, Evan said.

Hatoff said that’s exactly why he doesn’t accept credit cards.

“There’s no reason,” Hatoff said. “The only people getting anything out of it are the credit card companies.”

“Credit card fees are outrageous,” Lenard said, adding that credit card companies often make more on a sale of gas than the gas station does. Credit card companies typically charge a fee of about 2.5 percent of the sale, he said.

While gas sales are up, especially because of the SUV craze, more customers are using credit cards to charge away the pain of those huge fill-up bills, Lenard said.

The cover story of the NACS magazine last month illustrated a paradox resulting from the various price squeezes: gas station/convenience store sales were up a record 15 percent last year—but profits dropped 23.5 percent.

NACS represents convenience stores along with gas stations because that’s the most common winning combination these days. There’s little profit in straight gas sales. Sodas, cigarettes and similar convenience-store items, with much better mark-ups, is where the business lies.

“Gas will get the customer in there, but it’s not where you make your money,” Lenard said. A station heavily dependent on gas sales is likely in trouble, he said.

Besides the industry-wide challenges, Lenard noted some challenges peculiar to New England.

In this small and crowded corner of America, there often isn’t room for a gas station to add a convenience store element, or vice versa, and the number of pumps tends to be small. That makes it hard to find a place to do volume business and to make real profits on non-gas items.

New England also has a cultural expectation of full-service stations where a worker pumps the gas—something unheard of today in most of the country. It’s unclear why, but may have the same allegedly safety-oriented roots as laws that still require full service in New Jersey and Oregon, Lenard said.

Whatever the reason, full-serve adds heavy labor costs to the already slim profit margins.

“Full-serve? Are you out of your mind?” said Hatoff when the Gazette dared to broach the subject.

Evan said JP Oil also labored under the full-serve expectation, which was particularly popular with women customers. He said it cost him at least 6 cents a gallon.

Hatoff’s has another advantage: unlike many independent operators, Stan Hatoff owns his station instead of renting it. While many stations may have a famous oil company name attached, the vast majority are still independent franchises, Lenard noted.

The number of independent stations is dwindling, Lenard said, down to 167,000 nationwide from 200,000 a decade ago.

“It’s a tough place to be,” he said.

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