GAITHERSBURG, Md. -- Fuel marketers generally complain about margins, volumes, regulations and the challenges of a highly competitive retail environment under the best of circumstances. But those complaints ring particularly loud and true of late.
An exclusive Oil Price Information Service (OPIS) winter report card for fuel data supports the notion that the recent winter of 2016-17 was less than stellar, with most gasoline retailers dealing with the twin ills of volume and margin attrition.
The tepid performance could point to a slowdown in merger and acquisition (M&A) activity or postpone already-delayed plans for a few convenience-store roll-ups to execute initial public offerings (IPO). The winter covers much of a first calendar quarter that has seen limited price volatility crimp rack-to-retail margins in a large part of the country. It’s not the kind of quarter that a retail chain wants to lead with in a prospectus.
In the report card, OPIS looked at nearly 130,000 unique gasoline fueling sites in the survey and coupled it with volume readings from about 10,000 stations. The volume data was mixed. A strong last 11 days of 2016 gave way to considerable demand destruction in 2017.
But the two years differ in this regard: For virtually all of 2016, an OPIS private survey of actual gallons pumped suggested that the Energy Information Administration (EIA) was often overstating motor-fuel demand. So far in 2017, the OPIS demand statistics point to EIA understating gasoline demand, although there’s no question that consumption has declined. (For more on the OPIS Demand Report, click here.)
Here's a look at our winter's tale*:
| Region | 2016-17 margin | 2015-16 margin | Margin change | Volume change | Profit change |
|---|---|---|---|---|---|
| Northeast | 22.8 cents | 21.6 cents | +5.7% | -1.8% | +3.8% |
| Southeast | 14.0 cents | 14.4 cents | -3.3% | -3.2% | -6.4% |
| Midcontinent | 18.0 cents | 18.2 cents | -1.0% | n/c | -1.0% |
| Southwest | 13.0 cents | 14.7 cents | -11.8% | -0.7% | -12.5% |
| West | 27.7 cents | 33.4 cents | -17.3% | +2.4% | -15.3% |
| USA | 18.6 cents | 19.7 cents | -5.2% | -1.2% | -6.4% |
*Winter consists of all days between winter solstice and vernal equinox. West category includes Rocky Mountain states.
Some more highlights of the winter report card:
- The average price of gasoline for the recent winter was $2.304 per gallon, or about 43 cents per gallon (CPG) above the winter 2015-16 number. (The gap has recently narrowed to less than 30 CPG, which perhaps is an argument for a demand recovery.)
- Volumes in every portion of the country showed attrition, with the notable exception of Western states. A less-harsh price environment in California and the Pacific Northwest may have been the difference-maker for this region, where volumes rose 2.4%.
- The average U.S. gross margin was 18.6 CPG, down from last year’s 19.7 CPG.
- The greatest destruction in volume took place in Southeastern states, where OPIS measured a decline of 3.2%. That’s a particularly notable decline since that portion of the country has the briskest population growth.
- The combination of lower volumes and lower margins was felt most severely in the Southwest. Volume attrition was small, with a typical station losing about 575 gallons per month in sales. However, margins tailed off from 33.4 CPG in winter 2015-16 to 27.7 CPG in this most recent winter. For a typical Southwestern site, OPIS calculates the numbers add up to a gross-profit drop of about $5,500 per month.
- Margins improved in the Northeast, where rack-to-retail gaps this winter averaged about 22.8 CPG, up 1.2 CPG from the previous winter. But volumes dropped approximately 1.8% per store, and that kept profit growth at bay, slicing about half the proceeds of better margins.
- If there were a misery index for gasoline-marketing regions, the Southwest would have taken over that slot from the Midcontinent this past winter. Gross margins eased 17 CPG to 13 CPG per station.
- There’s no surprise that Western states continue to see the best margins (and the most expensive real estate). But these margins plunged by 17.3% to a gross 27.7 CPG. Western geography saw some of the heaviest discounting to large-volume buyers, with sporadic wholesale deals at 10 CPG under OPIS Low popping up like mountain snow flurries. Arizona and New Mexico had particularly aggressive discounts.
Overall, the loss of volume made the stretch between solstice and equinox tougher than in many recent years, delivering a variety of seasonal affective disorder to many marketers. If one were to identify the region with the most stress, it would probably be the Southeast, where many small retailers appear to be on financial hospice. Gross margins on fuel per site fell to $9,855 per month in a market that probably has the most new builds in the country.
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