Husqvarna Chainsaw Fiasco

I learned that lesson from a former employee years ago. He told of working for an old guy who sent him out for some item to purchase. When the guy returned with his purchase and showed the old guy the price, the guy asked him what the other two prices were.. Employee said "HUH?" That has always stuck with me, and getting at least 3 prices for anything over around $50 is now what I do.

RJ

No excuse for bad attitude, but gas prices are an odd case. Assume a station buys 3,000 gallons at a time (pretty typical). They sell it at a price that is usually 1-5 cents above their invoice (plus all the taxes). If the price of gas goes up 3 cents and they were selling at 2 cents over cost they have to dig into profit from other sales to cover the increase, but they can recoup that as they sell the new load. The problem comes when the price starts to drop. If the station across the street buys a new load that is 6 cents cheaper and cuts their retail price while you still have 2,000 gallons in the tanks you are pretty much up the proverbial creek sans paddle. If you price match the guy across the street you lose money on every gallon you sell. If you don't it takes forever to empty your tank and refill with cheaper gas. Most stations split the difference.

Most of the c-store gas stations actually sell their gas at almost no profit because they make the money on beer and cigs. The low gas price is just to get you in the door. Stations that sell gas and do mechanical work can also keep their prices lower. The ones that only sell gas usually have the highest prices because they have to make enough profit to run the business, and that will depend on volume and the local competition.

Tim Douglass

If they shop efficiently, in the $250-300/month range. :) However, grocery stores are a _low_ margin operation. 4% gross profit is a "healthy" store. that $300 of revenues means maybe $10-12 gross profits.

Then, there's the _other_ side of the story. The town I grew up in was considerably bigger -- metro area circa 250,000 -- but it was a one- newspaper town. Just after the Korean conflict, the paper raised it's ad rates significantly. The local owner of three grocery stores went in to 'talk about it'. The paper said, in almost so many words, "If you don't like our rates, advertise in another newspaper". He pulled _all_ his newspaper advertising. Eliminated 'advertising' as a line-item in his budget. *REDUCED* his shelf prices by the amount of the expense reduction. Sent a one-time mailing to every household in town, announcing why he wouldn't be running any more newspaper ads, what he'd done with his prices, and asking people to patronize his stores. 15 years later, he had 10 stores in town, and the _smallest_ of his stores did twice the volume of the next-largest store in town.

Since that time, they've run a newspaper ad precisely _once_. And _never_ done any radio or TV advertising. The one occasion was to mark the opening of a new "showplace" store -- lots of exotic vegetables, etc. And more than twice the square footage of any prior store.

They bought one full-page ad, and the newspaper ran a THREE PAGE (three _full_ pages, including the entire front page of the 'family' section) "feature" story about the new store. (Yes, the newspaper management was _drooling_ at the thought that they might start behaving like a 'regular' grocery again -- picking up several full pages of ads every week.)

They're a _strange_ operation. They don't advertise -- that one newspaper ad was the *only* piece of paid-for advertising they've done in more than FIFTY YEARS now. They don't even hang sale signs in the windows. Or have sale flyers in the store. Their prices are generally stable/predictable, and -- except for 'loss-leader' sale items at other stores -- usually lower than at the competition. Combined with superior customer-service (would you believe that they _still_ have the 'bag boys' take groceries to your car and load 'em for you?), it's a _very_ successful model.

Most stations operate on a replacement cost basis. They adjust their prices day by day according to the cost of replacement gas on the wholesale market that day, whether they actually buy any replacement gas that day or not. (Chain stations may actually purchase futures contracts day by day, but independents rarely have the capital to play that game, and just have to sweat out a changing market.)

Pricing on the basis of replacement cost means they see an increased profit margin on gas they bought cheaply in a rising market, and a decreased profit margin on gas they bought dear in a declining market. But they always generate enough money to buy replacement gas on any given day. As long as the price swings aren't too rapid and radical, they don't have to dip into other revenues to refill their tanks.

Actually, most stations don't do it exactly that way. They do boost prices immediately when the wholesale cost of gas goes up, but they reduce prices more slowly as the wholesale price declines, often waiting for a competitor to make the first move. That delay helps to protect their profit margin in a declining market.

Jacking up prices on a commodity they already have in their tanks is when charges of profiteering are heard, And when the prices at different stations move the same way and the same amount at about the same time, charges of price fixing start to be heard.

Because nearly every station's prices seem to move so closely in sync with every other station in a given area, collusion is a tempting explanation. It usually isn't true, though. It is just the way the modified replacement pricing models work out in a competitive market.

Gary

It's interesting to note that where I live, the cost of auto gas here is ALWAYS higher than any town in a 40 mile radius. On the "busy" side of town, gas is about 5 or 6 cents higher than on the "dead" side of town, along entry/exit routes. We have a real estate tycoon here who has his hands into everything, and interestingly enough, he owns both high and lower priced stations around here, including the highest, and the lowest. Also owns a major propane distributor, along with a large liquid transport trucking company. Hmmmm....

RJ

I can't imagine any family spending enough on groceries for the store to make a $300 profit per month on one family.

Yes, it feels good to do this sorts of things, but it doesn't really hurt the store all that much. Many store owners would gladly trade a $50 loss in profit for a $300 savings in expense.

Brian Elfert

Why would any c-store add pay at the pump if they make little or no money on the gas?

Plenty of research has shown that people often buy more than they planned on, once they get in the store. Customers certainly won't buy anything extra if they never even set foot in the store.

Brian Elfert

I work for a large metro newspaper, and yes, grocery stores are huge advertisers. The owner of one chain went bankrupt and we lost several million dollars as a result of the bankruptcy.

Now that I work at a newspaper, I have mixed feelings about advertising. On the one hand, my job depends on advertising, but on the other hand I'd rather pay less for the goods I buy.

There are three big grocers in town, two chains and SuperTarget. The two chains advertise like crazy in all media. About the only advertising SuperTarget does for food is a weekly insert in the sunday paper.

SuperTarget has lower prices on almost all groceries, in some cases far lower. I stil go to the chains occasionally, but only because SuperTarget doesn't carry as much.

Brian Elfert

Its one of them chicken/egg things. Unless they advertise, you won;t know what the prices are, but it cost money to do that. Balance, I guess, is the key. If sales go up from advertising, they can sell for less. Ed

Robert Bonomi wrote: (clip) Combined with superior customer-service (would you believe that they _still_ have the 'bag boys' take groceries to your car (clip) ^^^^^^^^^^^^^^ Yeah, but will they repair my Husky chain saw, since I didn't buy it there?

Knowing the way _this_ grocery store operates, they just *might*!

They've been known to go further out of their way for customers.

I think they do it because customers want it, other gas stations have it, and they'd lose customer traffic if they didn't have it. (I don't think that they're making little or no money on gas sales, though.)

Just based on my own experiences and observations, even though I always pay for gas at the pump, *since I'm there*, I may also walk into the store and pick up something else (quart of milk, loaf of bread, whatever). If I had to make a *separate trip*, I probably wouldn't buy those things at the convenience store, but *since I'm there anyway getting gas* I just might. I also appreciate that pay at the pump means I don't have to stand in a long line inside the store in order to make my other purchases.

Gary

Because they set the card reader on the pump up to be really finicky

- about a third of the time I get "Card unreadable, See Attendant" error which gets you inside the store. The attendant doesn't have any problems reading the card at the counter...

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My experience has been the exact opposite. When my debit card mag strip was too worn for any store cashier to accept with a swipe, the gas pumps always took it. Since that is basically what I use it for

I simply use another pump or another station. Never have gone inside under those rare circumstances. I'd be lost without my debit card. Lane