Fuel costs presenting retailers with tough choice

RONNIE ELLIS
CNHI News Service

Glasgow July 06, 2008 10:25 pm

— Bill Wininger knows many of his customers think he’s swimming in gasoline profits. He’d say it’s more akin to drowning in rising expenses.
As gas prices at the pump follow spiraling crude oil prices, Wininger — who owns six Traveler’s Plaza Food Markets in Barren, Metcalfe and Monroe counties in southern Kentucky — is making less money, not more.
“We’ve actually made less profit the past two years,” Wininger, 65, said. “We make more when gasoline and crude goes down because the street price doesn’t go down as fast. Through April of this year, gross profit on gasoline and diesel at all product levels was only 7.2 cents.”
But it’s hard to explain to his customers.
“The complaints have actually slowed up some,” he said, “but by the same token, people get angry when gas goes up 20 cents every day.”
Adding to the problem is the hidden fuel costs added to nearly every non-fuel item his stores stock and sell.
“Everything is up. A lot of wholesalers even have added fuel surcharges for delivery,” Wininger said. He either must pass that along to his customers or eat the loss. He’s doing some of both, trying to balance his own expenses and profit calculations with what customers will tolerate. He’s already seen some drop-off in gas sales.
“It’s not significant yet, but we can see the downward trend,” Wininger said.
Laura Goins, director of communications and organization of the 6,000-member Kentucky Retail Federation, said retailers are hit by gas prices from all sides. Like Wininger, most are reluctant to raise prices too quickly because they know their customers are already cutting back on purchases. The minimum wage went up 70 cents July 1 and retailers are paying much more for delivery and shipping of goods and products.
And it’s not just the little guy who’s hurting, she said.
“Our members range from the local dry cleaner and local groceries to the large, chain department stores,” she said. “It’s not just the small retailers who are hurting. It’s across the board.”
Gas prices have gone up so fast and far, according to Goins, that some older pumps won’t calculate prices at more than $3.999 a gallon. Gov. Steve Beshear recently declared an emergency which allows those retailers to calculate prices manually if the cost exceeds $4 a gallon.
That’s the case at a small country store, the 1297 Market on Kentucky highway 1297 at Railton near the Barren County-Warren County line. Laura Rediess, 27, whose father, Edward Patrick, owns the store, said in mid-June they were selling gas at $3.99.
“That’s as high as our pumps will go,” Rediess said. “If gas goes over that — well, when it goes over that — we’ll have to put up a sign and add it up inside the store.”
Most of her customers are neighbors, friends who live in the small farm community about 14 miles from Glasgow. That makes it even tougher to pass rising costs along.
“We see these people every day.” Rediess said. “We really do business with our neighbors.”
Rediess does a brisk walk-in, cold-cut sandwich business. Everything she uses costs more — bread, the meat, even the mustard and mayonnaise. Soft drinks, too. The day she was interviewed, she paid a $15 fuel surcharge on top of the wholesale price for 10 cases of Pepsi.
Because of its smaller sales volumes and distance from Glasgow and Bowling Green, the store pays higher wholesale prices for gas. That makes the price per gallon higher. Rediess has noticed some customers who used to fill up at the 1297 Market, now buy “three or four gallons to get them to town where they can fill up for less.”
According to Marita Lile, of Witty’s Muffler Shop in Glasgow, customers are cutting corners on maintaining their vehicles as fuel costs go up.
“People are only doing what they absolutely have to do,” Lile said. “They’re waiting until their water pump completely goes out or their tires go completely flat. When people are spending so much on gas that they can’t afford groceries, they aren’t spending money on car repairs.”
Their decisions may be endangering others, she said.
“People are driving on tires with the steel showing,” Lile said. “It’s dangerous and it’s dangerous for you and me out there on the road with them.”
Things are no better in the restaurant industry.
Stacy Roof, president and CEO of the Kentucky Restaurant Association, said restaurants see less business while enduring climbing prices. She said food costs are up between 50 percent and 100 percent over a year ago. Flour, for example, is up 70 percent over last year.
“Everything is higher and the suppliers are adding transportation surcharges on top of that,” Roof said. “Gas is the root of all this evil.”
Like Wininger and Rediess, restaurant owners sometimes find it difficult to pass along higher costs. Roof said customers are already cutting back.
“People are still going out, but they are spending less of it at sit-down restaurants,” she said. “Instead of buying a steak dinner, they’re going for a hamburger.”
Roof said when patrons see a crowded parking lot or have to wait for a table, they incorrectly assume the restaurant is raking it in. But, she said, the average profit margin is between 3 and 4 percent at restaurants — before fuel prices went up. Now business is down.
And it’s not just the owner who’s feeling the pain. Waiters and waitresses do, too.
“If a restaurant isn’t as busy, the tips aren’t as plentiful,” Roof said.
Wininger doesn’t see any easing of gas prices.
“No, I don’t see any let-up,” he said. “I see it continuing to climb. I’d venture to say this time next year, it’ll be $6 a gallon.”
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. He can be reached by e-mail at rellis@cnhi.com.

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