Are We Using Common Cents?

Mitch Morrison, Vice President of Retailer Relations

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It was a few years ago when CSPexamined the true value of one-tenth of a penny, explaining how Murphy Oil mined hundreds of thousands of dollars by focusing on that often-ignored fraction. Today, we ask a question about something so assumed, so ingrained, so reflexive that perhaps many of us have never before asked the question: Why?

Why do we continue affixing a centsper-gallon profit model on gasoline instead of the percentage profit we ascribe on virtually everything else we sell?

 I came across this question last winter during a visit with my friend Mark Hawtin, senior vice president of strategy and business development for KSS Fuels.

“Did you ever consider why we look at gasoline profits based on pennies instead of percentages?” he said. “It’s antiquated. It doesn’t make sense. … We believe the convenience sector is giving away thousands of dollars per unit.” (For an in-depth look at this topic, see our cover story on p. 54.)

The question haunted me. It is neither esoteric nor incubated in some think tank; it is incredibly timely. We no longer live in an era of $2-per-gallon gasoline. Prices have permanently settled at more than $3, with frequent spikes above $4.

Accompanying permanently higher prices is that we pay the Banks of America, the JP Morgan Chases and their large credit-card colleagues a percentage fee. So while they prosper at every fuel increase, we take home less and less.

The timing of this question is prescient. A federal judge recently didn’t like how the Federal Reserve distorted the Durbin Amendment on debit-card swipe fees. As you may recall, our elation over passage of the Durbin Amendment as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act was tempered when the Federal Reserve imposed a 21-cent swipe-fee cap, well above the 7- to 12-cent fee anticipated and originally considered.

NACS, one of the litigants contesting the Fed’s decision, nailed retailers’ sentiments: “The court has vindicated our position that the final Federal Reserve rules on the implementation of the Durbin Amendment were flawed,” said NACS senior vice president of government relations Lyle Beckwith in a statement. “By following the law and using their own data, the Fed should produce a debit-card rule that lowers these outrageous fees paid by merchants and ultimately consumers.”

The convergence of the federal ruling with a new pricing model at the forecourt promises great opportunities for us. At the least, lower swipe fees means we’ll keep more pennies per gallon. But why stop there? A new pricing model will deliver fresher analytics, appreciating the correlation between pricing at the forecourt and in-store transactions. We also expect operators to assume a more detailed category-management approach to the fuel island and greater pricing creativity, from intraday pricing ranges tied to peak and off-peak traffic to more sophisticated forecourt-backcourt loyalty offerings.

This is an exciting time for our industry, one that heralds great opportunity. But when we adjust our fuel prices tomorrow, don’t forget to begin the process with a question: Why?

Remembering a Friend

Arnie Van Zanten joined CSP in a coaching capacity nearly nine years ago when we embarked on Jim Collins’ “Good to Great” process. In a short time, Arnie became a friend, mentor and guide.

Some of you had known Arnie for decades. His stretch in the c-store industry was long and impressive. He served as senior vice president for Coastal and executive vice president for National Convenience Stores. Arnie was fascinated by the intricacies of supply-chain logistics and understanding how things moved from here to there, how prices were established just right for people to want to buy, how men and women of different races and philosophies could create seamless synergies.

Arnie passed away peacefully last month with family around him. He had been diagnosed with prostate cancer some years ago. Yet when you asked about his health, he would say, “Life is great,” then ask about you, your job, what was exciting you at work and at home. He was predisposed toward positive thinking, seeing the good in people and reinforcing their strengths.

For me, Arnie became a confidante and valued friend. Our relationship grew stronger in recent years, and he was in many ways like an uncle—the one you saw only once or twice a year, but whose every interaction was memorable and left you craving for just a few more minutes of his presence. 

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