The current political climate could have a profound impact [image-nocss] on retailers who sell fuel, he said, pointing out that "96% of our transportation is fueled by petroleum-based products." Yet, the political climate seems to encourage what he called "an all-out war" on petroleum.
"We face extreme challenges in petroleum retailing," he said, "worse that even those associated with tobacco." Because of these challenges, it is critical to get involved with trade associations representing the industry. "Shaping legislation affecting fuel retailing is extremely important," he added.
Domestic exploration needs to be expanded, for one. "All the dinosaurs didn't go to Saudi Arabia to die," he said.
The federal tax on gasoline is an area Petrowski expects to be targeted. While U.S. federal taxes are 18.4 cents per gallon, they are at least a dollar per gallon more in a dozen European countries, ranging from a low of $1.30 per gallon in Greece to $3.17 per gallon in the United Kingdom.
"Suggesting new taxes to the Obama administration is like ringing the dinner bell twice for me--it's simply not necessary," he joked.
An increase in federal taxes for gasoline is only one of many areas of concern, he noted. Corporate Average Fuel Economy (CAFE) standards could ultimately cost retailers $1.9 billion in retail margin, not including a loss of transactional sales.
Carbon taxes also area bad idea. "Cap and trade is asinine," said Petrowski. "It gives speculators another toy to play with."
Because of these expected political pressures, the number of gas stations in the United States will shrink, he predicted, and those most likely to exit are the single-store operators who make up the majority of the industry. "I worry about their long-term viability," he said.
Alternative fuels, however, do present promise. Biofuels already are a part of the landscape, and Gulf/Cumberland Farms is taking these alternative fuels seriously, especially in its designs for new stores. Petrowski said they are taking a "Baskin Robbins" approach in designing new stations, trying to be as flexible to alternative fuels as possible.
"We want to be open-minded enough to catch the wave for what might happen," he said, noting that his company is fuel agnostic. "We are fueling customers, whatever the fuel," he said, but noted that the idea "that we are all going to put up windmills and it will be happy days is delusional."
Petrowski also stressed that ethanol "is not a green fuel, but it is important," calling the food-versus-fuel debate "a sham." He said that the United States has more acreage dedicated to golf courses than it does farms related to ethanol production.
Which other fuels might hold promise for retailers? Compressed natural gas is one intriguing possibility. It currently is selling for about $4, and that breaks down to the equivalent of gasoline selling for 44 cents per gallons. "It's domestic, it's cleaner and it delivers less range, which means more trips (to refuel). As a retailer, I'd like to see that happen," he said.
A lot more needs to happen to make electric-powered vehicles viable, with the price of electricity the main determinant. Right now there are two competing systems: night-time changing at home or battery changeouts at stores, similar to what is done with propane tanks. Night-time charging could significantly damage fuel retailers, since drivers would not need to visit stores to refuel, but Petrowski said its success is heavily dependent on the growth of nuclear energy to deliver cheap electricity, as well as differential pricing. "We're embracing the changeout model," he said.
Not all of the industry's challenges come from external forces, noted Petrowski. "A lot of our wounds are self-inflicted" in fighting for customers at the expense of margin. And it's not just in the United States. He told the story of one retailer in Afghanistan who was selling gasoline for the equivalent of about 90 cents a gallon, in spite of the fact that the nearest competition was nearly 100 miles away, and on the other side of a steep mountain pass. When he told the retailer that the competition was non-existent, the retailer replied, "Yes, but I'm the lowest price in town."
So what can retailers do to survive in this climate? Petrowski presented a survival guide.
First and foremost, reduce costs. "You need to get net operating costs under 10 cents [per gallon]," he stressed.
Second, plan for a future that will include alternative fuels. "Structure yourself for alternative fuels and be proactive in understanding trends," he said.
Third, find a way to define customer loyalty beyond your gas price. "Loyalty can be many things" beyond just the price of your gasa smiling face, a welcoming store, a strong in-store offer or some type of formal loyalty program. "I don't understand the fascination on incremental pricing," he said, noting that 70% of truckstop fuel sales have nothing to do with the price, and are instead based on contract sales.
Finally, look at how you can better buy fuel, whether through hedging or supply-chain management. Petrowski said that oil pricescurrently around $50 per barrelhave probably peaked. "Long term, I don't know," he said. But, perhaps showing a bit of his 20 years of experience as a commodities trader, he coyly noted, "If I ever find out where oil prices are going, I won't tell anyone."
Approximately 400 top industry leaders attended the two-day State of the Industry Summit to discuss the industry's 2008 performance in dozens of key benchmark areas and examine areas of opportunity in light of today's economic climate.
Click on the links below for previous SOI Summit 2009 coverage:
Hunting for Capital
It's out there if you know how to get it, Ratajczak tells SOI Summit attendees
Survival Mechanisms
NACS SOI survey presents opportunities to grow amid the economic malaise
Keep Your Powder Dry
It may get worse before it gets better, Zimmermann tells SOI Summit attendees
Economy of Need
Convenience retailers should capitalize on one of the most basic consumer needs: food
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