Insight into Exxon

[widebody911]

http://www.washingtonpost.com/wp-dyn/content/article/2008/05/24/AR2008052401961.html

Every time Sohaila Rezazadeh rings up a sale at her Exxon station on Chain Bridge Road in Oakton, her cash register sends the information to Exxon Mobil's central computers. If she raises the price of gasoline a couple of pennies, chances are that Exxon will raise the wholesale price she pays by the same amount.

Through a password-protected Web portal, Exxon notifies Rezazadeh of wholesale price changes daily. That way the oil giant, which is earning about $3.3 billion a month, fine-tunes the pump prices at the franchise Rezazadeh has owned for 12 years.

Now, however, Rezazadeh says she cannot stay in business. Credit-card fees are eating her profit margins. Exxon, which owns the station land, last week handed Rezazadeh a new lease raising her rent about 30 percent over the next three years. She stuck a copy on the window of her station to show customers who are angry about soaring pump prices. Rezazadeh has told Exxon that she cannot make money with the rent that high. Her territory manager's reply, she said, was simple: When you go, leave us the keys.

Rezazadeh, who fled to the United States from Iran in 1979, is part of the long chain that links motorists with the big oil companies. Major integrated U.S. oil companies -- which produce crude oil, own refineries and sell gasoline -- have been reaping billions of dollars in profit from high oil prices over the past two years, but they are still working to extract every penny they can from the marketing end of the business. Exxon Mobil doesn't break out its earnings from marketing alone, but its 2007 profits in worldwide refining and marketing -- known as the downstream part of the oil business -- reached $9.6 billion, 43 percent of that coming from the United States.

Although Exxon owns and operates few stations anymore -- less than 10 percent of the 12,000 Exxon outlets in the United States -- it uses franchise agreements to maintain tight control over stations that bear its brand. The company dictates everything from the number of pumps to hygiene practices to the placement of food on convenience store shelves. "They monitor everything," Rezazadeh said.

Exxon says it does all this to maintain uniform quality, while recognizing dealer needs. "We recognize . . . that we are in a difficult time with the run-up in crude oil prices," said Ben Soraci, director of U.S. retail sales for Exxon. "Retailers are under a lot of pressure, and they are on the front lines every day with the motorist, who is also feeling a lot of pressure."

Ultimately, Soraci said, "it's in our interest to see them succeed. It's not in our interest to see them hand us the keys."

But some Exxon dealers say the company is trying to squeeze too much out of them.

Like Rezazadeh, Scott Burnham was struggling to cope with low margins and rising rents. On May 9, he closed his station on scenic Knickerbocker Road in Closter, N.J., and abandoned it to Exxon. In March, Exxon had said it would raise his rent by a third over two years. Burnham tried to line up buyers for the franchise, which he purchased for $475,000 just two years ago. But one backed out, saying that the station would lose money no matter how much gasoline it sold.

"Why is the government giving Exxon subsidies and tax breaks when they're making billions of dollars and when they squeeze every dime they can out of every dealer who made that profit for them?" Burnham said.

Soraci said rent increases reflect rising real estate values. "We have excellent real estate out there that is superior to our competition," he said, which allows the dealers to "compete more effectively."

Even some of Exxon's successful and loyal dealers complain. Jerry Daggle owns five Exxon stations in Northern Virginia, and even though they have different competitive conditions and prices, "Exxon magically lets me make about 8 cents a gallon" at each one, he said.

He said micromanaging extends to the snacks sold at Exxon's On the Run convenience stores. The company uses a "planogram" to show dealers where to put candy bars and soda. "If I want to put Coke on a different shelf, I have to get special permission," Daggle said. Recently he was reprimanded for selling mulch on the perimeter of his award-winning Gainesville station; the mulch, though popular in the neighborhood, wasn't an approved product.

Technology has enabled Exxon to tweak its wholesale prices not just by region or state, but by zones as small as a street corner. Although such practices bring cries of outrage from some station owners, they elicit shrugs from some economists.

"Retailers put a lot of effort into understanding local markets, whether they're in the airline business where prices for every seat are often determined on daily basis, or book sellers," said Richard J. Gilbert, an economics professor at the University of California at Berkeley, who has studied the gasoline marketing business. "There's a lot of fine-tuning to adjust prices to local market conditions. The gasoline companies are not very different in that regard."

"We feel very strongly that zone pricing is a method of pricing that at end of the day allows our dealers to be as competitive as they can be at the retail level," Soraci of Exxon said. "It gives us the opportunity to give a particular retailer or trade area a lower price if competitive conditions require that."

Daggle, who has been an Exxon dealer for two decades after working his way up from pumping gas, said he has done well. But he still cannot fathom how the oil company can charge him different wholesale gasoline prices for each of the five Northern Virginia stations he owns. The stations all sell the same Exxon-branded gasoline, delivered from the same terminal in Newington, where it arrives via the same pipeline. Sometimes, Daggle said, it's even dropped off by the same truck and driver hours apart on the same day.

The only thing that's different is the price, which can vary by 35 cents per gallon, Daggle said. "If I could have driven a truck to Gainesville and drive the gas from there to Shirlington, I could have made 50 cents a gallon."

On occasion, he said, he has persuaded Exxon to lower his wholesale price to help match price cuts by a station next door in Gainesville.

Historically, gasoline marketing has been a low-margin business. For decades, when oil was plentiful, margins were kept low to move as much crude oil through the system as possible. Now, major companies don't have to fight to move product, but they are still battling for nickels and dimes at the pumps.

Like other parts of the retailing business, gasoline marketing has become more concentrated and high volume than it was in the days when mom-and-pop gas stations lured customers with free drinking glasses.

Cambridge Energy Research Associates, a consulting firm, noted in a report that in 1977, the United States had 223,118 gasoline outlets. By 2007, the number of outlets had declined to 164,292 -- even as the amount of gasoline sold increased. The average station now pumps 73 percent more than in 1977. And companies are trying to boost revenues by attaching convenience stores to the stations. In 1977, only 5 percent of gas stations had convenience stores; now, 65 percent do.

"The industry we're part of is an extremely competitive industry," said Exxon's Soraci. He said major oil companies' market share has dropped 20 percent in recent years as mass merchandisers such as Costco vie for customers.

Oddly enough, when prices are rising rapidly and consumers are most upset is usually when profit margins are slimmest for station owners. When prices are falling, as they were in September 2006, is usually when jobbers and station owners make the most money.

How much depends largely on Exxon. "If I had raised my gas, within a couple of days, almost inevitably, they would have raised my wholesale price. It's an unspoken rule," Daggle said. He said his Gainesville station makes most of its money from repairs, not gas sales.

Selling gas remains a cutthroat business in an industry awash in profits. Three years ago, when Daggle bought the Gainesville station, a share of Exxon stock was about $50. Buying and fixing up the station has cost him $800,000, and he hasn't yet drawn a profit from it. "If I had bought the stock," he said, he would have nearly doubled his money and would have "never lifted a finger."

[onewhippedpuppy]

Greedy gas companies, in bed with the government and conspiring against the little guy? No way!!!!!

[The Gaijin]

Tell it to people who work at Walmart or are processing claims at Geico or managing a McDonalds.

Please - it the way of modern corporate America. Armies of MBAs squeezing every bit of cost and productivty like blood out of a turnip. Why does anyone expect an Exxon to be any different?

[Superman]

Survival of the fittest. Get what you can. With more money and power, you get more control. With more control, you get more money and power.

Then there are the guys who think about this only long enough to declare this to be the perfect economic system. The checks and balances, they say, are the competitors. But....competitors' wars with each other eventually end with a loser......and a buyer.

Ever play the game called "Monopoly?" How does the game end?

[kach22i]

Evil people running evil corporations just makes more evil in the world.

Evil doers, they are going to get it.

I heard that once, it really stuck too.

[Joeaksa]

Refueling at Costco is looking even better and better!

[sammyg2]

Anasshat was stupid enough to spend nearly half a million for a franchise that they have to pay rent for? Idiots, stupid is as stupid does.

If they had any brains they would have bought the land and the station and then negotiated terms with a company for a franchise.

Sorry, I don't feel any sypathy for people who make bad business decisions and then try and blame their mistakes on the big, bad oil companies. Ridiculous.

[m21sniper]

Originally Posted by The Gaijin

Tell it to people who work at Walmart or are processing claims at Geico or managing a McDonalds.

Please - it the way of modern corporate America. Armies of MBAs squeezing every bit of cost and productivty like blood out of a turnip.

Which is exactly why i'm self employed.

[WolfeMacleod]

Several stations in and around Seattle have closed or puleld thier pumps because they cannot afford to sell gas.
the first one I remember was a Texaco station near our Autocross track. Pulled his pumps last year. We used to hit Autocross with almost nothing in the tank, do our runs, and then fill up for the trip home.
Not any more.

Saw a station with Deisel at $5/gal on Saturday. Several of them, actually. And this wasn't a particularly high priced station, either.

[Superman]

Boy, are you guys confused. There are several people here on OT who can help you to understand that the poor oil companies are not in control of anything. They are the victims. Their profit margins are as thin as mylar. They are at the mercy of OPEC. They are hammered by environmentalists and regulations. And their market is purely competitive....no chance for unusual or high profits.

The real victims here are the poor oil companies.

[Porsche-O-Phile]

The only ones that make more $$$ off the high price of gas/oil than the oil companies is the government.

[126coupe]

Originally Posted by Joeaksa

Refueling at Costco is looking even better and better!

Just filled up at Costco in Laguna Hills, CA $4.03 for regular
When I got home I filled my other car at Shell $4.06 for regular .....Big Deal!
20 gallons X .03= 60 cents weeeeeeeeeeeeee

[widebody911]

Originally Posted by Minkoff

Just filled up at Costco in Laguna Hills, CA $4.03 for regular
When I got home I filled my other car at Shell $4.06 for regular .....Big Deal!
20 gallons X .03= 60 cents weeeeeeeeeeeeee

Not to mention the 1/2 hour wait - every time I drive past a CostCo station, there always seems to be a huge line...

[126coupe]

Originally Posted by widebody911

Not to mention the 1/2 hour wait - every time I drive past a CostCo station, there always seems to be a huge line...

We waited about 10 minutes.

[jyl]

Not correct.

US gasoline consumption/day = 388.6MM gal/day = 141.8BN gal/yr
Federal gasoline excise tax $0.184/gal
0.184 * $141.8BN = $26.1BN Fed gas tax/yr
vs
Profits of US integrated oil companies in 2007 = $127.99BN

http://www.eia.doe.gov/basics/quickoil.html
http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/
http://fpc.state.gov/documents/organization/103679.pdf

Granted, if you include total state taxes on gasoline, you can roughly double that $26.1BN. And the $127.99BN integrated oil company profit includes $45BN from Royal Dutch Shell and BP, some of which (maybe 1/3?) was earned outside the US.

So make those adjustments if you like.
$26.1BN * 2 = $52.2BN total federal, state, local tax on gasoline
vs
$127.99 - ( $45BN * 0.33 ) = $112.9BN total integrated oil company profit less amounts earned ex-US

Still not even close.

Disdain for the govt is fine but let's get the numbers right.

Originally Posted by Porsche-O-Phile

The only ones that make more $$$ off the high price of gas/oil than the oil companies is the government.

[on2wheels52]

And I assume everyone waits with the engine running.
Jim

[Tobra]

John, I am relatively certain that the tax on gasoline at the pump is not the only source of revenue the government derives from petroleum

[jyl]

My wife buys gas at COST because we're there every couple of weeks anyway. And her car's engine shuts off when the car is immobile. I don't bother - too long a drive.

Since COST sells such a high volume of gas, when gas price is rising rapidly I suspect COST's price advantage is reduced. They are selling gas purchased at yesterday's price, while the sleepy station on the corner might be selling gas purchased at last week's price.

[David]

Someone at Exxon is a freakin idiot.

They only allow 8 cents per gallon no mater what the price is. You have to use the credit card option to not run up against the $50 limit on a debit card and the credit card companies charge a percentage so the more a gallon costs, the less a retailer makes (or the more they lose). So it's a lose lose situation for the retailer. Unfortunately a lot of retailers are going to go under before anything's fixed.

[jyl]

Then you come up with the data, please.

Originally Posted by Tobra

John, I am relatively certain that the tax on gasoline at the pump is not the only source of revenue the government derives from petroleum