Regarding WNY Gas Prices, Some Perspective Is In Order

ALBANY, NY (12/05/2008)(readMedia)-- In response to Congressman Higgins' statement today on gas pricing, New York Association of Convenience Stores President James Calvin made the following comments:

DISTORTED PICTURE: Attempting to draw conclusions about retail profitability based on a snapshot of price data at any given moment produces misleading results. Due to extreme volatility and the cyclical nature of the motor fuel trade, you can only get an accurate portrait by examining data from a longer period of time. For example, Mr. Higgins notes that the Oil Price Information Service (OPIS) reported that the average retail gas margin in the Buffalo-Niagara Falls market for the week of November 24, 2008, was 55.1 cents. To provide context, it would have been relevant to also mention that on April 28, 2008, OPIS reported that retail gas margins in Western New York were among the lowest in the country, averaging a mere 2 cents per gallon (see attached chart). In fact, that report showed that many retailers experienced negative margins - that is, they were selling fuel for less than they purchased it, and that is even before factoring in expenses. It's not fair to point fingers when retail margins are elevated without acknowledging the offsetting periods when they are low or even non-existent.

PROFIT MARGIN: The term "profit margin" here refers to gross margin - the difference between what the retailer pays supplier for the fuel and what he charges the consumer. The retailer doesn't pocket the gross margin, but the net margin. Much of the gross margin goes to pay expenses associated with selling gas - property taxes, labor, energy, environmental protection, and especially credit card processing fees, which at a pump price of $2.00 wipe out 4 to 6 cents of the retailer's gross margin per gallon right off the top.

NATIONAL AVERAGES: Because of state policies and market differences, the national averages Congressman Higgins wants Western New York to match do not apply to this region. If we're always supposed to match the national average, then why are we paying per-capita property taxes more than double the national average? Why are our combined federal, state and local taxes on motor fuel 25% higher than the national average? Why do tax-collecting Western New York convenience stores sell less than half the cigarette volume of convenience stores nationwide?

CONCENTRATED OWNERSHIP: Congressman Higgins' concerns about too few companies controlling too much of the market can be attributed in part to gas stations and convenience stores having to either close or sell to chains because their businesses were decimated by customers shifting cigarette and gas purchases to "tax free" outlets on Indian reservations. This tax-evasion phenomenon - at least half of Erie County smokers and nearly three-quarters of Niagara County smokers buy from the reservations - makes it nearly impossible for independent retailers to survive.

TOLL OF TAX EVASION: The sharp increase in the state's cigarette tax on June 3, 2008 triggered a new wave of cigarette tax evasion, making it even harder for chain and independent retailers to remain viable. The resulting plunge in the sales of tobacco, once the top-selling category inside a typical C-store, has exerted additional pressure on them to replace that loss of revenue with higher gross margins from other product categories, including motor fuel. Chronic, ever-worsening tax avoidance has now produced a fundamental change in operating conditions for Western New York convenience stores.

None of this is to suggest it's inappropriate for Congressman Higgins to comment on, and express his constituents' frustration with, retail gas prices in Western New York. However, we would hope that any analysis of the marketplace would be fair, provide proper context, and minimize hyperbole.