Location Part of Gas Price Equation
By Betsy Lee
As gas ran into his rusting, red two-door sedan, Tim Woods watched intently as the numbers clicked by. First $1, then $2, then $4.50. At $1.93 a gallon, Woods could only afford to put enough in his tank to get to the next station. Woods, who was pumping gas at Sun City Pure, 1301 Dr. Martin Luther King Jr. St. S., said he rarely purchases gas south of Central Avenue because prices are higher.
"See, here's what you do," Woods explained. "You get what you need here and then when you are out up north, you fill up."
Over the Fourth of July weekend, a PointsSouth telephone survey revealed that St. Petersburg gas prices ranged from $1.79 to $2.09 per gallon. Average gas prices at stations north of Central Avenue were 10 cents cheaper than those at similar stations to the south. The drastic difference prompts many residents to question why.
"Everything is more expensive here," Woods said, referring to the south side of St. Petersburg. "We don't know why, we're just used to it."
Interviews with spokespeople from gas companies, gas station owners and customers shed light on the disparity.
Part of the answer lies in the residents themselves. Woods is not alone in his search for the cheapest price. Marian Newkirk, another south St. Petersburg resident, said she usually goes to the place where she can get the best price, especially now that gas prices have increased. Kenny Martin, who drives all over St. Petersburg for work, said he doesn't worry about filling up on the south side of town when it's for work.
"But when it's my personal car, I'll drive out of my way," Martin said.
When residents choose not to spend gas money in their neighborhood, the gas stations suffer. Gas station owner Ashraf Khalil said his gas station at Fourth Street and 22nd Avenue South struggles to make money because often patrons only purchase two to three gallons.
"They buy enough to get them around the corner," Khalil said. "This means very little profit."
According to Jim Smith, president and CEO of the Florida Petroleum Marketers and Convenience Store Association (FPMA), gas stations in less affluent areas end up charging more for their gas in order to make a profit. This concept is illustrated in St. Petersburg. The median income for the area with the cheapest gas price this July 4 was $39,531, while the median family income in the area with the highest gas price was $23,143.
"You have a limited resource base," Smith said. "There is a finite population with a finite purchasing power."
Small revenues keep Khalil from lowering his prices, which means he will continue to attract fewer customers. Selling a limited amount of gas also effects Khalil's business indirectly. The amount of gas he sells determines the price at which he purchases gas from the company.
Khalil's Citgo station fails to meet the sales requirement set by Citgo, so he cannot directly purchase gas from the company. Instead he purchases gas through a "jobber." The jobber serves as an intermediary between Khalil and Citgo, decreasing Khalil's profits even more. Also because Khalil does not sell enough gas in one day, Citgo will not provide him with their logos or emblems. He purchases these from the company.
In Florida, 65 percent of gas retailers are independent business owners like Khalil. These independent business owners either rent or own their station and pay for gas to be brought to them. According to Mickey Driver, spokesman for Chevron-Texaco, prices to the independent dealers can vary. Prices range because of time spent with the company and the amount of gas an owner can purchase.
"The more you buy, the bigger discount you get," Driver said.
In this system, owners with only one station can end up paying more for their gas. In order to make money, gas station owners say they are forced to pass that increase on to their customers.
Discounts can help larger chains stay afloat while smaller companies fold. Isaac Martin's liquor store is an example of this phenomenon. Ike's Liquors, 1443 16th St. S., used to be a gas station. Martin said he couldn't stay afloat.
"You can only sell gas for three to five cents more than you pay for it and that's just not good enough," Martin said. "Those pennies and nickels don't add up very fast."
Linda Casey, spokewoman for Marathon-Ashland Petroleum LLC, said chain ownership can help individual gas stations stay in business.
"Individuals are struggling. That's why what you're used to, the mom-and-pop gas stations, are disappearing. They can't compete," Casey said. "If we have to lower our price at one station, we can spread the lost out over our 1,700 other stores. A guy who owns one store doesn't have that luxury."
Smith, from FPMA, said independent gas station owners can be forced out of business by larger chains. He said they are faced with the question, "Do I go out of business because I set my prices too high or too low?"
According to Smith, California is an example of what happens when independent gas retailers are run out of business. Economist Frank Wolak, in a San Jose Mercury News article, wrote only 15 percent of California gas stations are independently owned and often California's gas prices are 50 cents higher per gallon that the rest of the nation. According to Jim Smith, of FPMA, more than 60 percent of Florida's gas retailers remain unaffiliated with large chains.
Independent gas retailers are struggling to stay in business in all parts of St. Petersburg. Bill Smith, manager of Freeman's Mobil at 8301 Dr. Martin Luther King St. N., said he always struggles to make money off gasoline. According to Bill Smith, gas stations that can't sell more than 1 million gallons of gas a year are closing rapidly.
Khalil, who can't begin to move that kind of gasoline per year, said he is hanging on by selling other items. Khalil said one of the other good things about being a southern St. Petersburg convenience store is that you can sell a variety of other items like socks, boxers and white T-shirts. These items go quickly at his Citgo, but most of the people arrive there on foot.
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