In Gardner, an old-fashioned gas price war breaks out

06/02/2014 3:00 PM

06/04/2014 10:43 AM

George Johnson owns the All Star convenience store and gas station in Gardner, so every day he drives down Main Street checking for the lowest gas prices in town.

Lately it’s been quite a show — an old-fashioned gas price war, with prices sometimes changing a couple of times a day. Motorists at times have saved 20 cents and more per gallon compared with prices just a few miles up Interstate 35 toward Kansas City.

The price war started sometime after QuikTrip built its first store in Gardner. It’s next door to a Casey’s General Store, part of another major chain, which along with other fuel retailers in the southern Johnson County town was pretty much satisfied to sell gas at the same price as in nearby cities.

But with QuikTrip, considered among the most aggressive companies in the nation in how it sells gasoline, that peace was shattered. One small gas station in Gardner closed when QuikTrip opened.

QuikTrip said it didn’t start the price war in Gardner, but it isn’t running from it, either.

“We’re not going to get beat,” said Mike Thornbrugh, a spokesman for QuikTrip, which is based in Tulsa and is the largest seller of gas in the Kansas City area. It also has one of the best wholesale buying operations in the country, which often gives it access to cheaper gas.

Gasoline price wars, common a few decades ago, are rare nowadays because a market leader in an area such as QuikTrip sets the retail price and others follow. But occasionally, knowing that customers will often go far out of their way to save mere pennies on gas, a store still tries to build volume by slicing prices to the bone.

“It’s a race to the bottom,” said Ronald Leone, executive director of the Missouri Petroleum Marketers and Convenience Store Association.

Though the Gardner price war has been a boon for motorists, Johnson and other gas operations, often family-owned, have been hit with a financial wallop.

Johnson needs to keep his gas prices in line with the big guys or he’ll lose customers. But after paying credit-card fees — a majority of his customers use the cards — he’s often had to sell gas at a loss.

Johnson says he stays afloat by relying even more on sales of soft drinks and chips inside the store.

His situation highlights an often overlooked change in the petroleum industry. In the past, the big oil companies also owned plenty of local gas stations. Price wars were more common decades ago because the oil companies often had to drain an oversupply of gas and made their profits elsewhere in oil and refining.

But oil companies and refiners became ever larger through acquisitions and mergers that cut down on competition. In the meantime, they sold off or franchised their gas stations, and convenience store chains sprung up.

The oil companies now sell their gasoline to retailers, usually at a well-entrenched markup, and they make good profits.

The fiercest competition for your gasoline dollar today occurs among retailers — from convenience store chains’ 127,000 outlets to independently owned operators.

Actually selling fuel to motorists is a tough ballgame. The more than 100 convenience-store chains and tens of thousands of stores owned by people like Johnson, who has just one, get the smallest sliver of your fuel dollar.

With no price war, fuel retailers in the Kansas City area have lately been charging roughly 15 cents a gallon more than the wholesale cost of a gallon. On Friday, gas prices in the area averaged more than $3.50, according to AAA.

That 15 cents a gallon is their gross profit before expenses such as credit card fees.

But it’s the gas price that draws in the customers to a store like Casey’s, where the company — and others — can reap a 60 percent profit margin on products like pizza and fountain drinks.

If a retailer doesn’t respond to a price war, customers just go elsewhere. The retailers then lose the revenue from food and soft drinks. Smaller players have even more of a need to eke out some profit from gas sales to help pay the bills.

In a price war, the big market leaders have deep enough pockets and often don’t pay as much for wholesale gas, so they don’t suffer as much financially as the smaller operators.

Voicing concerns about a price war’s effect is a sensitive topic for fuel retailers. Johnson, 73, worries he’ll be blamed when prices climb back up.

But it’s not as if he has anything to say about it, because he’s merely reacting to the prices set by the market leaders.

If Johnson has any lingering doubts about joining the price war, they fade when a loyal customer like Richard Gibson comes into his store and is asked if he would go elsewhere if gas was cheaper.

“Yeah, I might,” Gibson said.

Johnson’s convenience store is part of a $2.5 million investment he made five years ago that included an adjacent liquor store.

The convenience store is near some athletic fields, and he has high hopes for more business from the nearby BNSF Intermodal and Logistics Park, which is expected to add thousands of jobs.

Even without a price war, he has found running a convenience store to be tougher than expected. He got rid of a management company because of the cost and sold the liquor store to reduce debt.

He relies on his son, wife and three paid employees. His wife works 80 hours a week with no pay, and Johnson has gotten a job selling electrical components to help out with the finances.

The store, he said, “was going to be my retirement.”

Meanwhile, prices continue to swing back and forth. Briefly last week, they were between $3.42 and $3.62 before settling in at $3.52 a gallon, which was cheaper than in nearby Olathe. The price was still $3.52 on Tuesday — the same as in Missouri, where prices typically are cheaper because of lower gas taxes.

Anher Mahmood, who owns a Valero station in Gardner, now ofters a “happy hour” price in the evening and on weekends with an additional 5-cent discount per gallon of regular gas.

“I’m not going anywhere,” he said.

While gas prices get the notice, another threat to the independent stores could be longer lasting.

Casey’s is building a new and larger store in Gardner.

In a recent conference call with analysts, a Casey’s executive said besides continuing to offer fresh baked pizzas, the company’s stores are beginning to offer made-to-order submarine sandwiches and well-stocked “beer cave” walk-in coolers. In some locations, it’s even delivering the pizzas.

Casey’s, based in Des Moines, has 1,735 stores, all company-owned and more likely in rural areas. It’s the eighth largest convenience chain in the U.S. behind 7-Eleven and some oil-company franchised store chains.

QuikTrip has 653 stores, all company-owned. And they’re in large metropolitan areas, so each store is thought to have considerably higher sales than a Casey’s.

The company’s Gardner store has been open less than a year, but it’s already getting improvements. Behind a curtain, workmen are hammering away on a kitchen that will serve, among other things, grilled sandwiches and freshly baked personal pizzas and slices.

“This business is changing dramatically, and if you’re not ahead of the curve you’re going to be left behind,” said QuikTrip’s Thornbrugh.

To reach Steve Everly, call 816-234-4455 or send severly@kcstar.com

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