Thursday, September 22, 2022

Summer officially ended Thursday, September 22 and the first day of Autumn was ushered in with a break the streak of 98 consecutive days of gasoline price drops in the country. The streak stacks up as the second longest duration of lower gas prices on record, topped only by a 124 day streak that followed a rancorous OPEC meeting in November 2014. New streaks may be impacted by how much pain small retailers can endure from current pressure on wholesale-to-retail margins.

Metaphorically speaking, retail fuel profits began and spent most of summer in what might be described as the penthouse for the motor fuel category. But the most recent action in September has delivered both lower volumes and thinner gross margins. Whether this trip to the doghouse eventually translates to a longer stint in the outhouse will be determined by what happens in the next month or so.

The national numbers are misleading to say the least. OPIS MarginPro compiles implied rack-to-retail profits for more than 140,000 sites across the country. A glance through the database this morning reveals an average 30cts/gal profit across the 50 states. That is down 18.8cts/gal from August 2022 and off by about 5.6cts/gal from September 2021.

Ask a typical retailer in non-western states what might represent a modestly profitable operating cushion and the answer may be within a few cents of 30cts/gal. You’ll get much wider assessments for what is “break-even” but most marketers suggest that the fuel category can’t support low- or modest-volume stores at less than 15cts/gal of gross margin.

The national number obfuscates the granularity of retail margins across the country. Implied profits in many West Coast and Northeastern states are far higher than in interior markets, with press time gross margins of 45-80cts/gal in California, Washington, and New York for example.

Through use of the MarginPro tool, OPIS found a dozen states where fuel margins were low enough to promote worries about site viability should the meager returns continue. One wonders if gross margins in the low teens are adequate when balanced against higher year-on-year costs for labor, credit card fees, utilities and various other items that constitute station overhead.

Montana is an appropriate poster child for what is clearly a fuel margin roller coaster. Margins burst through 40cts/gal as the northern hemisphere greeted the summer solstice. Gross margins in Big Sky Country eventually flirted with 70cts/gal for some of the highest demand months in July. But so far in September, returns have descended steadily to where the 600 or so stations tracked by OPIS had pump prices just 3cts/gal above implied costs on September 20.

Colorado, a state which has seen an inordinate amount of “new builds” in recent years has also witnessed a steady September decay in the fuel category. Unless there is a dramatic intraweek change, the state will end summer with margins of less than 8cts/gal. Once again, this is a state where margins kicked off summer above 40cts/gal. July ended with pump prices a whopping $1.25/gal above costs but the September slide has whittled the gross margin down to just 8cts/gal.