This category includes gasoline service stations primarily engaged in selling gasoline and lubricating oils. These establishments frequently sell other merchandise, such as tires, batteries, and other automobile parts, or perform minor repair work. Gasoline stations that include other activities, such as grocery stores, convenience stores, or carwashes, are classified according to the primary activity.
447110 (Gasoline Stations with Convenience Stores)
447190 (Other Gasoline Stations)
In recent years, almost 127,000 gasoline service stations operated in the United States. These establishments took very different forms than they had before, with self-service islands and ancillary retail outlets—convenience stores, known as C-stores—creating major changes in the distribution of market share.
The total number of stations has been steadily decreasing since 1982, reflecting a trend by major oil companies to close smaller-volume franchises and concentrate on maximizing gallonage at major locations. Cost cutting in the oil industry in general, as well as environmental legislation mandating upgrades for the gasoline service station industry, meant that most dealers were looking for ways to reduce expenses and increase sales. This was especially true in the early 2000s. Traditional "mom-and-pop" style stations were frequently a casualty of market changes; consumer emphasis shifted more toward large, multifunction, automated outlets. To survive, gasoline service stations will continue to expand the range of goods and services they offer and emphasize convenience to the consumer through automatic pay machines, more self-service islands, and streamlined traffic flow organization.
The U.S. market for consumer gasoline had four major competing categories in the 1980s, 1990s, and early 2000s: service stations, which offered service through at least one bay and had a volume greater than a set limit (typically 20,000 gallons per month); pumpers, which had more than six nozzles and had a volume exceeding a set limit (typically 50,000 gallons per month) and possibly having such ancillary services as a C-store, car wash, or remote bays; convenience stores, with a minimum of 600 square feet of retail space, the primary business of which was the sale of food items, typically with one or two islands and fewer than six nozzles; and others, facilities with gasoline volume below minimum volume for pumpers or service stations that may also include ancillary services such as a C-store, car wash, or bays. All of these competitors except convenience stores fall under this classification. In 2003 industry players pumped 370 million gallons of gasoline each day in the United States, according to the American Petroleum Institute. This was a 2.4 percent increase from the previous year.
Within this relatively simple categorization of outlet types, a complex web of supply sources and brand loyalties exists. More than two-thirds of gasoline service outlets were branded by major oil companies by 1992, a trend that continued into the early 2000s. Managers of branded stations, called dealers, either owned their own station or rented from the branding company—the latter were "lessee dealers." Dealers bought gasoline either directly from parent companies or from branded distributors, called jobbers, who bought from parent companies. The others, known as independents, bought from unbranded jobbers who distributed products from a variety of companies on a surplus basis. The independents were at an obvious disadvantage in terms of purchase price and supply reliability; such factors virtually guaranteed the domination of the market by branded dealers.
Sales of accessories such as tires, batteries, oil, and anti-freeze—as well as services such as carwashes, lube jobs, and tune-ups—were once considered fringe options for gasoline retailers. In the early 1990s, however, an increasing number of facilities responded to competitive pressures by incorporating these various services into their business plans, with the result that the distinction between C-stores and service stations or pumpers grew progressively tenuous. Standard delineation of industry classifications such as "principle" focus of business became less obvious; only income proportionality allowed pinpointing in many cases.
Gasoline service stations are a phenomenon of the twentieth century. Brought into being by the simultaneous maturity of petroleum production and refinement and the invention of the combustion engine, gasoline service stations began as suppliers for a "lunatic element" in the population who used "horseless carriages" for recreational transport purposes. These early stations were actually supplied by horse-drawn tank carts; conservative petroleum refiners did not initially trust such odd contraptions as fuel-powered trucks.
The mass production of the automobile spurred mass construction of gasoline servicing facilities, with all the major oil companies staking a claim on some corner of the fledgling consumer market. Small, family-run franchises were the norm and remained the mainstay of the market in remote areas well into the 1970s.
Domestic gasoline production capacity grew with World War I and II, as did the Big Three automakers' factories. Consequently, by the 1950s, average American families had at least one car, and that car was large, gas guzzling, and a source of intense pride. The heyday of the labor-intensive service station with several attendants in uniform to service every customer reached its peak in those post-war years.
The revolution of form that results in modern service stations began in the 1970s, when self-service islands came into vogue. In 1975, only 22 percent of the market share went to self-service facilities; in 1992, 86 percent went to self-service, and in 1997, self-service was the mainstay, with maybe one or two pumps reserved for full serve at larger stations. There were 220,000 full service stations in the 1970s; in 1997 there are only 40,000. The number of service stations has decreased by one-third since 1980. Self-service essentially ended the "service" orientation of gasoline retailers; consumers made it clear that lower prices were more important than uniformed attendants. Small, unbranded dealers were the first to feel the impact of this emphasis on price over service. No longer able to compete on the basis of superior, individualized attention to detail, small dealerships began to close.
In the early 1980s, department stores also began withdrawing from the gasoline retailing market. Giants such as J.C. Penney and K-Mart found it difficult and increasingly unprofitable to compete against major oil companies. Simultaneously, the large oil companies embarked on extensive expansion of services and renovation of facilities in branded retail outlets as their competitors forged elaborate marketing schemes to encourage brand loyalty.
Architectural homogeneity and multipurpose stations became a chief focus for most; the Texaco "family of buildings" style, which basically eliminated structural clutter and revamped unplanned layouts, became a model for the industry. The trend toward having similar building structures increased with the addition of C-stores to many stations throughout the 1980s and into the 1990s.
The history of gasoline stations has been marked by trends. The first seven decades of the twentieth century saw an evolution of gasoline service stations that corresponded to consistent increases of consumer interest and disposable income; the last three decades revolutionized the industry through successive waves of automation and streamlining. If self-service was the trend of the 1970s, credit card payment was its corollary in the 1980s, and debit card machination in the 1990s was the overwhelming trend. As the twenty-first century began, stations were experimenting with machines that take cash at the pump.
Gasoline service stations generated $19.8 billion in sales in 1997, up from $14.5 billion in 1996, despite the decrease in the actual number of establishments. These figures illustrated an important trend—large oil companies were cutting unproductive franchises and pouring capital into strategic stations, increasing overall franchise income while reducing the number of individual franchises. The average gross profits per gallon rose 10.5 percent for C-stores in 1998. Total gasoline sales increased 3.3 percent from the previous year.
This streamlining process, a "more with less" motto of productivity, characterized most facets of the gasoline retailing industry in the early 1990s. Although in the 1970s self-service sped up pumping and allowed customers to buy more gas while allowing retailers to operate with fewer employees, in the 1980s credit card payment capability sped up transactions even more and, at the same time, seemed to encourage larger sales. One survey showed that customers purchased 45 percent more fuel when using a credit card than when paying cash.
Improving on the modern self-serve, charged-with-credit tank of gas was in-pump point of sale (POS) technology, which allowed customers to purchase gasoline with credit cards without ever interacting with a cashier. Initiated in the 1980s, widespread adaptation of POS technology had largely occurred by the mid-to late 1990s. Despite the expense of installing units—POS technology cost approximately $5,000 per unit—consumer fascination with speedy, paperless transactions made it virtually mandatory for retailers to install. Self-service pumps with POS capability allowed consumers to fill their tanks without ever interacting with another person, cutting personnel needs while increasing overall efficiency.
In the 1990s service stations rushed to install POS pumps in all their service bays. By the end of the decade, it was rare to pull into a station and not see POS technology in place. However, despite the convenience of POS technology, 60 percent of all consumers still paid with a check or cash inside the store according to a 1999 survey of convenience stores conducted by NFO Research Inc. Only 21 percent of all consumers paid at the pump, preferring to go into the store and make additional purchases beyond the gasoline.
The last consumer-driven shift in the gasoline service station industry in the early 1990s was the emerging market domination of stations with C-stores. Aiming for gasoline sales of 100,000 to 200,000 gallons per month, major oil companies installed large numbers of branded stations with ancillary food stores in strategic locations such as major highway intersections. The investment for one of these station/superstore units was high—state-of the-art fiberglass underground storage tanks, vapor recovery equipment, multiproduct dispensers, roomy and attractive fuel islands with elaborate security lighting systems, and capacity for dispensing alternative fuels such as natural gas. Each site was a major investment and ensured that only major oil companies would be able to compete in the new C-store market.
The late 1990s saw an expansion of the convenience store/gasoline station in the form of multifranchising. Known as "co-branding," it involved the pairing of two or more franchises under one roof, a move that benefited the franchisee as well as the customer. Fast food outlets, such as Burger King, McDonald's, and Subway, became popular co-branders with gasoline stations. In Memphis, Tennessee, Mirabile Investment Corp, the area's largest Burger King franchisee, teamed full-size Burger King stores with Exxon gas stations and convenience stores. Subway had about 1,270 of its 11,000 North American outlets in nontraditional locations, co-branded primarily with convenience stores and gasoline stations. Texaco teamed up with Burger King, Taco Bell, and Subway, and the company planned to build or rebuild 63 outlets in the Los Angeles area in 1997, co-branding with Star Mart convenience stores and/or a fast food franchise. In 1996, Amoco Corporation shared the cost of property and maintenance costs of 50 new gas stations with McDonald's—up from 13 in 1995.
Other technology that may dominate gas stations in the next century is the return of full service, without the helpful attendant in uniform. In 1996, BMW, Mercedes-Benz, and the German oil company Aral were testing robotic gas station attendants. Drivers pull up to specially marked pumps, swipe a plastic tank card, enter a PIN number, and the unit immediately identifies the make and model of the automobile. A red laser beam then guides the robotic arm to the car's fuel door. The robots even replace the cap when finished fueling.
Adapting to consumer demand was not the only expensive challenge for gasoline service stations in the early 1990s. Environmental legislation targeted retailers in a number of ways, primarily in the arenas of gasoline evaporation, underground storage tanks, and improved refrigerants. Like C-store investment, environmental compliance spelled doom for those small independent retailers who remained in business in the early 1990s.
Stage II of the 1990 Clean Air Act stipulated that retailers use equipment that captured gasoline fumes when gasoline was discharged into a vehicle's gasoline tank. Marketers in California, New Jersey, Missouri, New York, and Washington, D.C. were already using Stage II equipment in 1993; marketers elsewhere may need to do the same, or the EPA may mandate on-board canisters in automobiles. Pump nozzles will most likely bear the brunt of the requirement because canisters could leak while the automobile is in motion. Estimates of costs for updating pumps ranged from $20,000 to $40,000 per station.
Underground storage tanks (USTs) came under attack by the EPA because older tanks were made of steel and many had rusted through, contaminating surrounding soil and threatening water supplies. New regulations went into effect in late 1993 and were estimated to cost $100,000 per station as individual sites sought to repair or replace existing tanks. Station remediation costs were estimated to cost an additional $155,000.
Chevron was one of the first major companies to replace steel tanks with corrosion-resistant fiberglass and has underground monitors to detect leaks of less than a quart an hour. But for the small independent stations, removing the tanks and cleaning the soil was too costly a proposition, and many were forced to close in the mid-1990s.
Other environmental costs included updating refrigerant installation facilities. As chemical manufacturers phased out dangerous, ozone-depleting chlorofluorocarbons (CFCs), retailers learned to use hydrofluorocarbons as refrigerants. Hydrofluorocarbons as refrigerants and reformulated gasolines were the two major new product technologies in the early 1990s.
Alternative fuel sources such as natural gas, propane, methanol, ethanol, and electric power were making headway. In 1996 the natural gas-powered Ford Crown Victoria automobiles were on duty as law enforcement vehicles in Ventura County, California; Wixom, Michigan; and Savannah, Georgia. Ford also delivered 68 electric-powered Ecostars to utilities and other customers for testing in real-life driving conditions and aimed to build 250,000 vehicles by the year 2001 that ran on ethanol, gasoline, or a combination of the two. Chrysler Corporation also was expected to announce a major commitment to flexible fuel vehicles or FFVs, and General Motors has manufactured an electric car, the EV1. Traditional gasoline service stations will continue to change to meet the needs of these new technologies.
According to U.S. Census Bureau figures, after rising from $209.4 billion in 1999 to $244.5 billion in 2000, retail sales for gasoline stations fell to $237.7 billion in 2001. A number of factors had a negative impact on the industry's health during the early 2000s, including weak economic conditions, a subsequent decline in consumer spending levels, and unstable gasoline prices. For example, gasoline prices increased from an average of $1.00 per gallon in early 1999 to $1.80 in May 2001 before declining again.
Terrorist attacks against the United States on September 11, 2001, as well as a U.S.-led war with Iraq in early 2003, further exacerbated already volatile gasoline prices. Responding to the latter situation, a number of concerned industry associations—the American Petroleum Institute (API), American Automobile Association, National Association of Travel Plazas and Truck Stops, Society of Independent Gasoline Marketers of America, Petroleum Marketers Association of America, and Service Station Dealers of America and Allied Trades—issued a joint statement to the news media on March 20, 2003, assuring American consumers that the industry was working to maintain adequate fuel supplies and urging them to continue purchasing gasoline and diesel fuels.
During the early 2000s, the industry was characterized by ever-increasing competition. Supermarkets, warehouse clubs, and mass merchandisers—known as high-volume retailers (HVRs)—were steadily taking market share away from traditional industry players by offering lower prices. In late 2002, National Petroleum News reported that between 1998 and mid-2002, HVRs' share of the gasoline market increased from less than 1 percent to almost 6 percent. While market share percentages varied by state, HVRs were most successful in Texas, where they held more than 14 percent of the market, followed by Washington (13.9 percent), Arkansas (11.4 percent), Tennessee (11.1 percent), and Kentucky (10.2 percent).
In the October 2002 issue of National Petroleum News , NPD Automotive Products Group Spokesman David Portalatin remarked on the emergence of HVRs, explaining: "Unlike the traditional gasoline service station whose profit margin is gasoline-dependent, HVRs can operate at much lower retail prices. By taking advantage of consumer demands for lower-priced gasoline, HVRs can drive tremendous traffic volume to their sites. In fact, it's not uncommon for HVRs to sell 500,000 to one million gallons per month as opposed to the average retail gasoline facility that may sell 100,000 gallons in the same period."
Amid a challenging and increasingly competitive climate, industry players are focusing on ways to increase profits and reduce costs. Royal Dutch/Shell Group, which became the leading gasoline retailer in the United States after acquiring a number of stations and refineries from Texaco in 2001, announced plans to shutter 6,000 gas stations by 2004, representing 30 percent of its total locations. This was part of a strategy to increase sales at high-volume locations and close down lower volume stations. Station operators also looked at other ways to reduce costs. One potential area of savings involved reducing energy costs at convenience stores. These gasoline retailers had some of the highest nonmanufacturing energy costs on a per-square-foot basis because of a reliance on bright lighting, refrigerators, and the fact that many stores were open 24 hours.
In 2003 Exxon Mobil was the number-one integrated oil company. The result of a merger between Exxon and Mobil, its 2002 sales reached $178.9 billion. The company currently operates more than 40,000 stations in the United States. The next largest competitor is ChevronTexaco, with sales listed at $98.7 billion in 2002 and some 25,000 gas stations in the United States. Other key players in the U.S. market include the Netherlands-based Royal Dutch/Shell Group of Companies, with 46,000 stations worldwide and 2002 revenues of $179.4 billion. Based in the United Kingdom, BP Plc (formerly known as BP Amoco) operated 29,000 stations throughout the world, including 15,000 in the United States operating under the BP, Amoco, and ARCO trade names. BP was the second-largest integrated oil company in the world. By late 2001, it had fixed U.S. assets totaling approximately $40 billion. With revenues of $174.2 billion in 2001, BP employed 110,159 workers worldwide, including 42,000 in the United States.
In 2001, gasoline service stations employed 630,340 people, down from 689,400 in 1998. Workers earned an average hourly wage of $9.30. Service station dealers essentially managed all aspects of the stations, from ordering supplies to supervising personnel. Typically, they employed attendants who filled tanks at the full-serve island, checked oil, and cashiered, and mechanics who attended to more complicated maintenance and repair work.
The supply of gasoline and refined products is the only important aspect of the gasoline service station industry that is international in scope. In terms of consumption, in 2002 the United States imported almost 60 percent of its oil, according to the API. While more than 42 percent of the nation's oil came from domestic sources, Canada was the leading foreign source (9.7 percent). Other leading foreign sources included Saudi Arabia (7.8 percent), Mexico (7.7 percent), and Venezuela (7.3 percent). Oil imports have fluctuated since 1991, and figures will shift as domestic production and refining capacities shrink and alternative fuels increase in both popularity and by government regulation. The possible ramifications for retailers hinge primarily on questions of supply; over-dependence on foreign petroleum has historically resulted in price wars and shortages.
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