Why Mom-and-Pop Gas Stations Are Often First to Slash Gas Prices
By now, the initial surprise over low gas prices has worn off. But people looking for the very best deals might have noticed a trend: Small, unbranded gas stations are often the first to cut prices when the price of crude oil falls. Many continue to stay competitive even when larger brand-name stations start cutting their prices as well.
Take Pronto Food Mart. It’s a tiny neighborhood gas station that was one of the first places in Austin to slash prices. It still offers the cheapest gas in Central Austin according to GasBuddy.com.
Shopkeepers at Pronto pride themselves on being on the front lines of the war against high gas prices.
"We initiated the low prices in Austin," said Al Mak, one of the store's managers. "Because no one was going down. The gas was coming in at a lower cost, but people sustained the higher prices!”
Pronto can afford to undercut the competition because it buys unbranded gasoline. There’s no big oil company sign at the store. When Mak sees a station with a Shell or Chevron sign, he’s thinking one thing.
“Under contract my friend! For 15, 20 years," he said. "(They) can’t offer lowest prices like we do!"
To understand how staying unbranded keeps prices low, it helps to know something about how gas is sold and transported around the country. Pronto gets its gas from a fuel distributor, known in the business as a "jobber."
The jobber has contracts with different oil companies and controls fleets of trucks that go buy fuel, branded and unbranded, at a central distribution hub called a "rack."
"That's where the large tanker trucks pick up the fuel and distribute to all the retail stations," said Denton Cinquegrana, Chief Oil Analyst with Oil Price Information Service. "A lot of the racks will have maybe as many as ten different suppliers. And if you're not tied to a contract, you could almost choose from any one of those particular suppliers on a given day."
Cinquegrana said large chain stores such as Costco or HEB also take advantage of unbranded gas to offer lower prices.
"The Costcos, the Sam's Clubs – they may be able to negotiate themselves better terms because they sell so much gasoline," he said.
Gas stations that sign a contract with an oil company get some perks. For one, there's brand recognition. Big oil companies put secret additives into their fuel at the rack that they say help your engine. And most importantly: Contracts provide a stable supply if gas gets scarce.
"That supply agreement comes in handy when product gets tight," said Clay Johnson, the President of Tex- Con Oil fuel distributors in Austin. "This last fall through November the whole chain from San Antonio to Austin, diesel supply was very tight. It was hard to get, so it was nice to have some relationships and some contracted supply at that time."
But for smaller stations, the freedom to buy in at the lowest price is worth the risk. That's because gas is not where they're making most of their money.
"They're willing to take less money on their gasoline sales," said Denton Cinquegrana. "Lets say if the average margin in the area is ten cents a gallon, they're willing to take maybe seven or eight cents to get you in a store to maybe buy a coffee or a sandwich. That's where they're real margins are."
Back at Pronto Food Mart, Al Mak says the low prices have brought in more customers.
"If they find a retailer who is being conscious with their prices and service, people just patronize more," Mak said.