By Chuck Strouse
By Scott Fishman
By Terrence McCoy
By Ryan Yousefi
By Ciara LaVelle, Kat Bein, Carolina Del Busto, and Liz Tracy
By Pepe Billete
By Ryan Yousefi
By Kyle Swenson
“I really hope something can be done for those of us that gave our lives to this miserable business.”
This is the first installment of a two-part article. Next week: Taking big gas companies to court -- and getting taken to the cleaners.
In the Seventies Miami motorists had a host of choices when the gas tank ran dry. In addition to the major brands, dozens of independents offered lower-cost alternatives -- Thoni, Hudson, Highway Oil, Kayo. But over a twenty-year period the independents disappeared, and when Texaco bought out Florida's 128 Majik Markets in 1990, the transformation of Miami-Dade and Broward counties was complete. Today the five largest oil companies doing business in South Florida -- Amoco, Mobil, Shell, Chevron and Texaco -- control more than 70 percent of the market. Amoco, which owns the most stations, pumps more than a quarter of the gas.
In an unrelated Eighties antitrust case involving the oil industry, a federal judge wrote that a ten- to twenty-percent share of any market or submarket is “within the range that economists and the Department of Justice believe confer market power and lead companies to charge monopoly prices and engage in other uncompetitive behavior.” That would certainly qualify Amoco. And if the gas companies took advantage of their ability to share pricing and marketing data, which evidence from court documents suggests they do, all five of the majors might deserve scrutiny.
That's especially true of the way they're behaving lately. In addition to pressuring the handful of lessee dealers that have somehow survived, the big players are now hammering their wholesale distributors, or jobbers, and the owner-dealers they serve. For the past month, the jobbers have been paying five cents or more per gallon above what the company-ops have been selling it for retail. “It's bizarre,” says Richard Wheeler, general manager of Miami jobber Martin Petroleum. Asked if Martin's suppliers had explained the price difference, Wheeler laughed. “Explanations? No explanations.”
Once refiners produce gasoline and store it in strategically located terminals, it typically moves to the pump through two retailing channels. Jobbers buy gas at the terminal and pay a wholesale price, then deliver it to owner-operated stations, tacking on a few pennies per gallon for shipping and overhead. The dealers then add their margin, which has to cover loans, equipment, and other expenses.
Lessee dealers are served directly by the companies and, under most circumstances, pay a higher price that ranges from a few cents to more than fifteen cents. (The amount varies according to a complex set of marketing circumstances that are difficult to explain, according to the companies. Critics might describe the methodology as whatever they can get.) The dealers then add enough cents per gallon to offset expenses and put food on the table.
Given the relative costs, logic dictates that the wholesalers pay less for fuel than the retailers. But the company-ops throw a wrench in the equation: They pay nothing for gas, which instead is internally transferred on the books. And they pay no rent, meaning they can sell cheap and still show a paper profit.
Florida has a law that prohibits oil companies from selling gas below their costs. But given the vagaries of how cost can be calculated, proving that company-ops are engaging in predatory pricing is difficult if not impossible. That doesn't satisfy Wheeler, who takes a looks-like-a-fish, smells-like-a-fish view: “Every major oil company in Florida has been selling below cost in the last month,” he says.
With jobbers paying more for gas than direct-serve stations, those who rely on the wholesale channel are feeling the crunch. The owner-dealers can take a loss for a while but not indefinitely. “If this continues for an extended period of time, they won't be able to stay open,” notes Wheeler.
But why would the companies want to squeeze out their wholesalers and the stations they serve? The answer, according to Miami attorney Luis Konski, is that they probably don't. Konski, who represents dealers in industry lawsuits, believes the companies already have sufficient control and have no reason to trade additional market share from one hand to the other. The purpose, he says, is to use up all the gas from the refinery and make as much money as possible. Whatever way prices can be set to maximize revenues, that's the way they'll be set. “It's a win-win situation for the suppliers,” Konski says. “They just don't care.”