Thursday, January 29, 2004

Cheap(er) gas, could it catch on?

By James Pilcher
The Cincinnati Enquirer

FLORENCE - Greater Cincinnati gasoline prices continue to peak at all-time highs for this time of year, but there is at least one oasis in a stormy marketplace.

The TravelCenters of America location in Florence off Interstate 75 did not follow the almost 30-cent jump taken by its half-dozen competitors along Burlington Pike earlier this month, staying about a quarter below the competition for almost a week.

And Wednesday, gasoline hit an average of $1.70 for a gallon of regular unleaded in Northern Kentucky. Yet all the stations along Burlington Pike were at $1.46 a gallon Wednesday morning. That's thanks in part to TravelCenter's strategy of keeping prices stable, leading to the unwillingness of neighboring stations to lose sales by not meeting those prices.

National experts say the station's policy of consistent pricing could be a first. And it may spread, with the 152-store TravelCenters chain considering taking it nationwide in areas with competition.

Why the change in pricing strategy?

"One of the things that irritates the consumer the most is the way gas prices jump around," the local center's general manager, Roger Lister, said. Lister, who has run the station since it opened at the site of a former well-known truck stop four years ago, said: "We're getting off the roller coaster, and we're not going to play their game anymore."

Lister and officials with the suburban Cleveland-based chain started the new policy in October and say they are so far pleased with the results.

"Our overall revenues and volume are up, but we can't say yet whether that's because of this strategy or not," Lister said.

Customers notice

Customers seem to have noticed the new policy, especially with other stations having to follow suit in the immediate area. Three days after going up almost 30 cents earlier this month, those other stations were back down in the mid-$1.40s.

"I always know they're one of the cheapest ones, so I don't really even have to look at the price," Michelle Vallandingham of Florence said as she filled up her Mercury minivan, paying a penny more a gallon at the TravelCenter than she could have paid across the street at a Speedway station. "I like the name brand, and I like the convenience. I believe it when I hear that they have been stable, just thinking back over the last year."

Lister said his station changes prices no more than once a week. And an informal street survey of the station's prices by the Enquirer over the past month indicates that he has not gone below $1.40 or above $1.49.

But competitors such as Marathon Ashland Petroleum, which operates Speedway stores throughout the Tristate, including the one across from TravelCenter on Ky. 18, say Lister must be selling gas below cost to keep the prices so stable.

"They should have been below cost a couple of times, based on what we are paying for product," several times in the last month, Marathon Ashland spokeswoman Linda Casey said.

Still, she acknowledged that TravelCenter refused to raise prices during what she called "market corrections" at least three times in the past month, or when the price went up by double-digit figures.

It evens out

Lister and corporate officials deny selling below cost over the long term, saying only that their retail prices might dip below what they paid for their gas for a day or two, but that they try to stay just above the break-even point.

During that big price swing two weeks ago, for example, the TravelCenter was selling gas for $1.46 while the "rack" price, or what wholesalers paid refiners for gas, was $1.41 for this region.

"That gives a pretty good idea of our margins," said TravelCenter manager of retail operations Glenn McArdle, who declined to offer any more specifics other than the privately held company has about $2 billion in annual revenues.

Lister points to a week in December when he was 10 cents more expensive than the Speedway across the street.

"We lost a lot of volume, but then they were a dime higher than us the next week and we actually ran out of regular," Lister said. "I actually sold premium at the regular price for two hours. I figure, whatever money I lost that day I'll make up by getting a dedicated customer."

McArdleacknowledged that the Florence location is a bit of an anomaly for the chain. Usually, the centers are in more rural areas along the interstate, catering to truck drivers.

"In some places, it won't work," he said. "This ultimately is a different business model, not that this one is better or worse.

"And the bottom line is that we don't need to make as much money off gas as other petroleum marketers, so we can afford to do this."

Other business

Indeed, the Florence TravelCenter has a thriving truck business, with truckers buying diesel, taking showers, washing their clothes and buying sodas and chips and even TVs and videos. And the store also has three fast food outlets - Pizza Hut, Popeye's chicken, and Subway - as an additional revenue stream. Lister and McArdle won't say how much of the store's business comes from gas and how much from other sources, just saying it is less reliant on gas sales than the standard convenience store.

One expert said that if TravelCenter were to take the Florence gas-pricing model nationwide, it would definitely be a first for a market that can see retail prices change several times a day on the whims of the commodities markets.

"This is a lot like the pricing model already used for diesel and big trucking companies, which pre-negotiate their prices," said Tom Kloza, publisher of the Oil Price Information Service's independent petroleum industry newsletter. "The test will be whether they can get that loyalty when the competitor undercuts by a dime. Consumers tend to punish pretty hard on price."

At least one such consumer said he's willing to give the station his business, to a point.

"What's a penny here or there, but I will go somewhere else for a nickel," Bill Elstun of Walton said while filling up his Chevrolet Tahoe for the second time in a week. "But I stop here all the time, and probably will keep doing it."


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