The Retail Petroleum Marketplace

Retail Fuels Market: Agenda

• Who sells fuel in America?

• How do retailers determine price?

• What influences fuel prices?

• How profitable is fuel retailing?

WHO SELLS FUEL IN AMERICA?

Convenience Industry

• 148,126 stores in the U.S.– 120,950 sell fuels

• 58% are one-store companies• Less than 1% owned and operated by integrated

oil companies

• 80% of U.S. fuels sold through c-stores

A Small Business Industry

Independence is Dominant

HOW DO RETAILERS DETERMINE PRICE?

Retailers’ Conundrum

Fuels Drive Sales, Not Profit

Consumers Shop Around

• 2011-2012 Consumer Survey:– 63% shop for fuel by price– 66% shop for price by observing prices at the

store and while driving– 52% of consumers will change their shopping

behavior for 3 cents per gallon

Consumer Loyalty is Fickle

How Do Retailers Set Price?

• Evaluate competitive market conditions• Review historic performance associated with

competitive price deltas– Might utilize price optimization software– Direct correlation between gallons sold and in-store sales

• Consider cost of goods sold and breakeven– What margins are available?– What is the balance between in-store sales lift and fuel

margins?

WHAT INFLUENCES FUEL PRICES?

Prices Follow Seasonal Trends

Demand Drives Seasonality

Crude Oil Drives Retail Prices

Crude Drives Wholesale

Retail Follows Wholesale

HOW PROFITABLE IS FUEL RETAILING?

Retail Margin Volatility

Slim Average Mark-Up

Year Retail Price Retail Mark-Up % of Price

2011 $3.51 18.2 cents 5.2%

2010 $2.78 16.6 cents 6.0%

2009 $2.34 13.1 cents 5.6%

2008 $3.25 18.0 cents 5.5%

2007 $2.79 14.2 cents 5.1%

2006 $2.57 13.8 cents 5.4%

2005 $2.27 14.8 cents 6.5%

2004 $1.84 12.8 cents 7.0%

2003 $1.56 13.2 cents 8.5%

2002 $1.35 9.7 cents 7.2%

Conclusion

• Retailers set price based upon:– Competition for price sensitive customer

• Customers shop at 45 mph and will leave for pennies

– Store-wide breakeven calculation– Typically make pennies per gallon

• Cost of Goods Sold:– Changes frequently – several times per day– Does not affect all retailers equally or at same time– Crude oil price is dominant factor in retail price

John Eichberger

Vice President, Government Relations

jeichberger@nacsonline.com

(703) 518-4247