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Monday, May 29, 2023

Gas Price Wars Putting Owners on Front Lines

Gas Price Wars Putting Owners on Front Lines By JEFF WEISS Contributing Reporter Everyone’s done it. You’ve driven through an intersection and decided to purchase gas only to find two gas stations literally across the street from one another and one’s unleaded price is 5 cents lower than its competitor. You subsequently pull into the cheaper station and wonder why there’s such a price difference. The corner of Kester and Burbank in Van Nuys epitomizes this scenario, where a Chevron station last week was selling unleaded for $2.12 a gallon, while the Union 76 a stone’s throw away was retailing for $2.17. A look at these two stations may help better explain the complicated world of gas prices and why one neighborhood may have vastly different prices than another. Last week, the average price of gas in California was $2.148 a gallon, 36 cents higher than the national average and 23.9 cents higher than it was last year at this time. Los Angeles had the dubious honor of being the nation’s highest priced city for gasoline. And many industry experts think that high prices could be a permanent trend. Station owners blame the oil companies and OPEC for the skyrocketing prices and no one contacted both inside and outside the industry believed there was any price gouging by station owners. There are several factors, however, that go into what price a station owner decides to offer his gas. “Some people like to work on margin but I work on volume,” Rafaat Salib, owner of the Chevron at Burbank and Kester said. “Our price is pretty much limited to how much Chevron sells us gas for. That cost depends on how many stations you have, if you have one it’s very difficult to survive. Since I have five stations throughout Los Angeles and a sixth on the way, I’m able to keep my prices low.” Across the street at the Union 76 station, owner David Zebrack claims that Salib’s lower prices do little to alter his business. “I think his costs are a little bit lower and he tries to drive business into his Chevron store and he’s tried to keep his volume at a different level. We compete more with the company-operated Chevron on Sepulveda,” Zebrack said. “We’ve studied the different traffic patterns to see how they affect business. We’ve tried different pricing strategies and we’ve been a couple cents below the Chevron and even when we are lower we don’t see any appreciable increase in volume. We tend to stay 2 to 4 cents above him. They make their own business decisions and we make ours.” Price and profit The price contrasts do have much in common with how much profit margin the owner sets for his station. “I usually make 5 to 7 cents per gallon. It depends on what the oil company sells it to me for, it depends on my cash flow, it changes daily,” Salib said. Since Zebrack does less volume than Salib, he insists that his profit margins need to be higher to turn a profit. Unlike Salib, Zebrack owns only one other store and does not own the station’s property. “We usually run between an 8-to-12-cent profit margin per gallon. It’s pretty comparable for the industry. We try to keep it at that rate, although dealers occasionally might need to get an extra penny or two per gallon to make up for the credit card price.” Retailers agree that the spike in gas prices has done nothing to increase profits. In fact, many gas station owners claim that high prices have only decreased profits, due to many people’s decisions to drive less to cut costs. “No gas station owner likes it when gas prices go up,” Zebrack said. “There’s a misconception that the station owners are making more profit now, but that’s just not true,” Zebrack said. “It’s understandable though, when the consumer gets gas there’s nobody at the oil companies to complain to, so they announce their displeasure to us.” Salib also acknowledges that high prices make it increasingly difficult on the retailer because they constantly have to juggle prices to stay competitive.

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