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High gas prices don't mean big profits for station owners

Recent survey finds gas station owners don't share in profits from rising oil prices.

(Photo: Ryan Remiorz/CP)

Record high gas prices across Canada have not meant big profits for gas station owners. Indeed, a recent study suggests the number of retail gas stations has been slowly dropping over the past two decades, with a “continued lack of profitability” as the driving force behind the decline.

There were 12,710 gas stations in Canada at the end of 2010, according to MJ Ervin & Associates, a consulting company based in London, Ont. That represents a 38% drop in retail outlets since 1989, when the country had 20,360 stations, the sector’s peak. Since that high-water mark, the number of stations declined an average of 2% annually. Indeed, Canada lost 354 gas stations between 2008 and 2010, a 2.7% decrease.

Meager profits are the primary reason for the sector’s shrinkage, according to the report. While gas prices may now be close to $1.50 per litre, the average retail mark-up is less than seven cents from the wholesale rate. With a low profit margin, gas stations must sell high volumes to remain profitable. Alternatively, they can expand into higher margin products like pop, chips or car washes. In fact, 76% of all gas outlets now offer something beyond fuel.

And while skyrocketing prices inevitably lead to allegations of price fixing, the study suggests a high level of competition within the sector. There are 99 different brand names operating across Canada with 71 companies involved in the management of these brands. Approximately 6,500 individual outlet operators are also involved in setting the price. Meanwhile, the “major” oil companies like Imperial Oil, Suncor and Shell own a minority of gas stations — just 16%.

That said, most of Canada’s gasoline originates from 15 refineries run by a total of nine refining companies. Furthermore, so-called “Big Box” retailers control just 11% of the overall retail gas marketplace, the report suggest they “have a much larger impact on the petroleum marketplace than their relatively small numbers might suggest.” Because gas bars associated with large retailing chains tend to enjoy high volumes of sales, they can afford to charge lower prices. They’re also able to cross-merchandize between their retail stores and their gas stations, creating greater flexibility in the price they charge for gasoline.

So be kind to your local gas station owner. He’s not getting rich from high prices at the pumps. In fact, he may be suffering more than the rest of us.