Small retailers feeling squeezed

Gas pains plague indies

Posted: Sunday, January 14, 2001

The numbers just don't add up for John Cook, owner of Cook's Corner Tesoro in Ster-ling.

He makes as little as 8 cents per gallon on the gasoline he sells. Out of that come sales taxes, electric bills, insurance, wages and repairs.

"If I sell a million gallons per year at 8 cents per gallon, I make $80,000, gross," he said, excluding his delicatessen, which he runs as a separate business. "My expenses are $134,000 per year. I have a net loss of $54,000."

That puts Cook in a crowd of independent gas station owners feeling the squeeze of competition from gas stations owned by refiners, fuel distributors and retailers such as Fred Meyer and Safeway.

He said he recently paid $1.57 per gallon for gasoline he can sell for $1.699 per gallon -- grossing not quite 13 cents per gallon. He said he needs 16 cents per gallon to break even.

"Isn't the main story here that they're trying to bust us?" he asked. "As soon as we get out of here, they have control."

The competition heated up in September, when Fred Meyer in Soldotna opened a station selling gasoline for about a nickel per gallon less than many competitors. The nearby Williams Express, owned by North Pole refiner Williams Alaska Petroleum Inc., soon matched Fred Meyer prices.

"They won't let you compete with them. If you went lower than them, they went lower than you," said James Barsis, owner of South Central Tesoro in Soldotna. "Those other companies can sell at prices that force us to sell at a loss."

Fred Meyer spokesperson Rob Boley said Fred Meyer means simply to offer convenience and competitive prices.

"We saw that gas prices were a lot higher there than in Anchorage and felt it offered us an opportunity to build our market," he said. "I do know that we've gotten thank-yous from many customers who appreciate us for bringing competitive pricing to a market with higher prices than Anchorage beyond what seemed warranted by location or transportation costs."

Fred Meyer had some good sales for the station's grand opening, he said, but now, it is settling into the market.

"Our objective is to make money on the gasoline business," he said.

Now, Safeway plans to open a gas station at its Kenai Carrs store and is considering selling fuel in Soldotna.

"When you get Fred Meyer and Safeway, it's such large volumes," said Don Dablemont, owner of Vaughn's Mini-Mart in Soldotna. "You can't compete if they're getting price breaks (from suppliers). If the refiner owns the site, they can take the loss at the refinery."

Dablemont said he used to make money selling gasoline. But his margin now is about 12 cents per gallon, and it has dipped as low as 7 or 8 cents per gallon. If he had not opened a convenience store, he would be gone, he said. But if customers stop coming for gasoline, even that could fail.

"We never had a year under a million gallons until this year," he said. "We never had a year under a million-and-a-half gallons. "

The independents said Fred Meyer buys low-cost, high-sulfur gasoline from Williams Alaska, while they pay more for low-sulfur gasoline from Tesoro. Boley said Fred Meyer buys from several sources. Fred Hammon, owner of Soldotna Y Chevron, said he recently saw Fred Meyer try several times to raise its retail price. But Williams Express never followed, and Fred Meyer came back down.

Barsis said Williams is keeping retail prices down to boost retail sales and making its money supplying retailers such as Fred Meyer and Safeway.

Independent station owner John Cook accused Tesoro of taking excessive margins on fuel sold from its refinery.

Williams Alaska spokesperson Jeff Cook said it is ridiculous to think that Williams, with one station in Soldotna and one in Kenai, sets central peninsula retail prices.

"We don't have the volume to control the price," he said.

Williams Alaska owns the Williams Express stores, he said, but each store must run at a profit.

"Really, what sets the price is the market -- supply and demand," he said.

If Fred Meyer takes customers, he said, Williams must lower its price or lose volume. But Fred Meyer and Safeway can afford to turn a smaller profit on fuel to draw customers for groceries and other products, he said.

"That's what will make it tough for the independents in the future," he said.

Ron Noel, vice president and general counsel for Tesoro Alaska Co., said Fred Meyer or Safeway could sell gasoline at a loss to bring customers into their stores.

"It's one of the characteristics of the future of retail gasoline," he said. "These big retailers, Wal-Mart, Kroger (which owns Fred Meyer), Safeway, they're all starting to sell gasoline. Tesoro is selling gasoline at Wal-Marts in the Lower 48."

However, he said, Tesoro needs the independent stations. It owns just 30 of Alaska's 180 Tesoro-brand stations. The rest are independently owned.

"That's our main business on the gasoline side," he said.

Company-owned stations are simply trying to compete, he said, and for much of last year, they sold gasoline at higher prices than most other stations.

Neither Noel nor Jeff Cook at Williams would comment on wholesale fuel prices. However, they confirmed that Tesoro gasoline has a much lower sulfur content than gasoline from Williams Alaska. Noel said Tesoro Alaska sells most of its gasoline to distributors who set their own prices for gasoline they sell to independently owned stations.

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