MOUNT LAUREL, N.J. -- Every few year, major oil companies go through corporate changes in the way they manage their gas station properties based on the prevailing economic conditions.
The current climate has been for quite some time to get out of the real-estate business and focus solely on refining and selling fuel to gas stations thereby increasing shareholder stock value. The properties are primarily sold to jobber-distributors and the rest sold through mostly real-estate auctions to the general public.
Most of the jobbers have been gas station operators who and over time amassed a reasonable-sized portfolio through sheer hard work and determination. This is a very tough business to be in for the long haul.
As jobbers grow, managing the day-to-day operation of gas stations can be challenging, thereby leaving them with two primary options: sell the properties but maintain long-term supply contracts, or lease them out to dealers and/or commission lessees.
Keenly aware of the financials at every location they own, jobbers often hold onto the best sites while handing over moderate and marginal ones to the dealers/lessees.
Jobbers have mortgages to pay and are entitled to a profit just like anyone else. So every station leased out to a dealer has a certain breakeven number that has to be met and anything over and above that is the dealer's profit. With the economy the way it is since the last three years, even the moderate stations have slid to the marginal side making things even more difficult for the operator.
In every business relationship, unless there is a win-win situation, one party is going to suffer. I have been in the business for more than 25 years and operated several major branded stations.
What is missing from the picture is a very important fact. Few jobbers or distributors have taken into account the basic expense for a working dealer to pay his personal expenses. The national median income ranges from $41,000 to $44,000, barely enough for a household to meet its expenses. Some jobbers expect the dealer to work very long hours, not take a salary and survive on a paltry income.
We need to radically change this picture. A person with a family needs approximately $50,000 just to get by. Anything less puts you in the poorhouse, especially in this business. Unless and until jobbers make this shift there is always going to be a very high turnover of stations changing hands or closing down. I personally know of several large jobbers who own 100 to 300 stations each and have at least 30% of their stations in this predicament.
For the last 30 years, the vast majority of dealers across the country have been South Asian immigrants who have worked extremely hard to make it. Some have done well and others are living on a shoestring while putting in long hours. Many are losing their life savings, thanks to one-sided contracts. The best companies across the globe have learned one thing, and that is if the company is to profit, then the employees/partners have to share in it. The minute the little dealer feels shortchanged it is a losing battle.
I have yet to meet a single company salesperson, territory manager, etc, who has actually run a gas station with his own money. The lack of this key experience puts the jobber at a disadvantage as the dealers are constantly butting heads with their sales reps. Some dealers can play games too by crying the blues, when in fact they maybe doing just fine. But those cases are uncommon.
Jobbers have to get more nimble and more flexible with their dealers or risk losing to newer/smaller jobbers. The older generation of jobbers cannot survive forever with the 'my way or highway' concept, especially not the way this economy is going. Most folks who become dealers are not in it for the glamour as there is none.
Helping hard-working dealers thrive should be the No. 1 priority, as a distributor is only as good as his dealers and his reputation. Once both go, it is an uphill battle. I know of a company on the East Coast where dealers of this multi-branded jobber cannot sell their stations because the jobber makes their lives miserable. Even brokers are leery as this jobber has made it nearly impossible to get a new dealer approved while the existing ones cannot get out for fear of losing their life savings. The ones who do get out have been wiped out.
Due to overriding ambition some jobbers have taken on more than they can chew. When the debt load gets too heavy for the jobber, desperation sets in and dealers get squeezed from all sides. For example, jobbers can and are doing some of the following:
- Implementing a three-cent penalty for all gallons sold less than the stipulated monthly historical average.
- Holding on to the higher price for even one extra day to make a few extra cents when the price has already dropped.
- Debit the account of the dealer a little earlier than the stipulated norm.
- Over charge on freight by even a half a penny or more.
- Charge a flat fee for freight regardless of the load size.
- Annual rent has no rent increase cap.
- Forcing dealers to do major repairs such as the roof when typically it should be the landlord/jobber's responsibility.
- Fees as high $250 for a bounced check.
- Auto order of gasoline is easy on the jobber but can be a nightmare for the dealer as he cannot make a informed decision as to how much fuel he needs in order to circulate his monies to pay for it eventually.
- Dealer tank wagon price being invariably higher than competitors by using their own internal price setting formula for a particular location.
- Rack plus deals also too high to make the dealer uncompetitive.
If a jobber really wants to put a dealer out of business, he has enough tools in his belt to do so with relative ease. But in the long run, only those jobbers who really treat their dealers as partners will flourish and profit.
Kavi Pannu is president of American Business Advisors Inc., Mount Laurel, N.J. He can be reached at (856) 235-6700 or via email at gasstations123@yahoo.com.
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