Strategy

Not feeling pumped

Despite popular perceptions, gas retailers are barely scraping by.

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.

Meager profits are the main reason for the shrinkage, according to the report. While gas may now be close to $1.50 per litre, the average retail markup is less than 7¢. With a low profit margin, stations must sell high volumes to remain profitable. Alternatively, they can expand into higher-margin products like pop or car washes.

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. So be kind to your local gas station owner. He may be suffering more than the rest of us.