Because of consumer price sensitivity, retailers know the importance of setting their price to be as competitive as possible in a market area. If their retail price is significantly higher — for whatever the reason — retailers lose not just the gas sale, but any chance of capturing the additional in-store sale.

The fact remains that costs can vary in a market area, and the retailer with the highest retail price may not be making the most money per gallon. Depending on the terms of supply arrangements, operating expenses and other factors, the store with the highest price in a market might actually realize less profit per gallon than the competition. There are usually several factors that could contribute, and some or all of them could be at work in a given area:

• Taxes: State taxes can vary widely in a given metropolitan market area. For example, gasoline taxes in New York state average 59.7 cents per gallon, while in neighboring New Jersey, taxes average 32.9 cents per gallon. A number of municipalities across the country also assess local taxes on fuel, and these could vary by city or county. Competition does not recognize political boundaries, so the impact of varying tax policies on individual retailers can be quite different — a competitor operating in a higher taxed jurisdiction is at a disadvantage compared to the retailer in a lower taxed area.
• Proximity to Product: Distribution costs affect the retail price of gas. In some cases, being a few dozen miles further away from a terminal can have a significant impact on costs. While most metropolitan areas are located near several wholesale terminals, retailers in more rural areas may be forced to drive more than 100 miles to obtain supplies.
• Fuel requirements vary by region, state and even county. In general, the more densely populated areas of the country are required to sell a different blend of fuel in the summer months. This fuel costs more to produce, and supply challenges during the spring transition can create added costs to the process.
• Business Costs: Rent is a considerable expense for retailers in some areas. Highly desirable locations cost more to operate. For example, there are less than 50 gas stations on the island of Manhattan because retailers find it difficult to make sufficient income selling gas on costly real estate. Across the country, factors include whether the site is owned or leased, when the property was bought or leased and the terms of this contract. These all can play a role in the costs required to sell fuel.
• Market Conditions: Some high-volume retailers may get new deliveries multiple times a day, but even average retailers get new deliveries several times a week. When wholesale prices fluctuate rapidly, the day — or even the time of day — that fuel is delivered can significantly impact the cost. Today it is not uncommon to see wholesale prices move 10 cents or more in a given day.
• Brand: A branded retailer typically pays a premium for fuel from a branded supplier in exchange for marketing support, supply guarantees, imaging assistance and other benefits, including the value of the brand, which is still important to many customers. However, when supplies are tight, these retailers may see lower wholesale costs. In extreme cases, there is a “market inversion”, where branded retailers are selling fuel for a price less than unbranded retailers can find it on the spot market. Other factors that could impact the branded retailers‘ costs are the terms of the contract and market conditions at the time the contract was signed. Finally, there are situations where the branded supplier offers discounts.

The retail price of gasoline is affected by a variety of factors, including the supply and price of crude oil, refinery operations, transportation, retail overhead and taxes. The worldwide price of crude oil, which is the raw material for making gasoline, is determined by supply and demand and is often affected by world events. Crude prices are affected by a large number of factors including growth in world demand, OPEC actions, political uncertainties, etc. Timing and availability of imports from outside the U.S. can affect the supply/demand balance as well as unfore- seen operating problems within the refining and distribution system, particularly during periods of major refinery maintenance. A $1 per barrel increase in crude generally translates to a two to three cent per gallon increase in the price of gaso- line. (The price of crude affects all states fairly evenly.)

The second major contributor to the price of gaso- line is the amount of tax that is paid. In West Virginia our state tax is now 32.2 cents per gallon. Furthermore, federal tax is an additional 18.4 cents per gallon. In West Virginia every time you fill up you pay 50.6 cents tax on every gallon. That is a lot of tax! In WV we pay 3.6 cents per gallon more in tax on each gallon of gas than the national average.

West Virginia has only one very small refinery in the state, located in Newell, WV. It is operated by Ergon and has a limited capacity. Again, with the exception of one state, Maryland, our surrounding states have a huge advantage over us.

West Virginia has approximately 1300 retail locations that sell gasoline. The average station sells approximately 54,405 gallons per month. Typically, when a station sells fewer gallons they charge more for it to allow them to cover the fixed costs (payroll, facilities, and insurance) for their business. Stations with large volumes can often sell their products for less.

Due to our limited distribution system — no pipelines and limited terminals, our state has less inventory than others. Much of our fuel comes from out of state. Bringing fuel from out of state increases trucking costs.

Credit card companies and their member banks engage in anti-competitive activities to collectively set the outrageous rates they charge retailers for processing transactions. This behavior has forced the convenience and petroleum retailing industry to pay the credit card companies more than twice as much as it makes in annual profit. The industry is pursuing legislation to address this problem.

Concerned about the high cost of credit card transactions and the market power exercised by the credit card companies, the convenience and petroleum retailing industry has been pursuing congressional oversight of credit card policies and practices and the effect this has on merchants and, ultimately, consumers.

In 2006, convenience stores for the first time made less money — $4.8 billion — than they paid credit card firms for pro- cessing transactions — $6.6 billion. The situation worsened in 2007 when the industry reported profits of only $3.4 bil- lion and credit card fees of $7.6 billion. In 2008, credit card fees continued to be the industry’s top pain point, surging another 10.5 percent to reach a record $8.4 billion — nearly three times the level just five years ago.

With more than two-thirds of consumers using plastic payment technology, most convenience and petroleum retailers have no choice but to accept credit cards. To do so, retailers must sign a contract that includes anti-competitive terms to reinforce the market domi- nance of the major credit card brands. The largest component of the fees paid by a retailer is called interchange (also known as “swipe fees”). When a consumer makes a purchase from a retailer using a credit card, the payment is processed through the retailer’s bank and the bank that issued the credit card. The issuing bank charges the retailer’s bank an interchange fee to process the transaction. These interchange fees are passed on to the retailer and, ultimately, every consumer pays for them.

Higher taxes already drive West Virginians to border states to shop; a bottle deposit would create an even greater incentive for many residents that live near state borders. Stores in border counties of deposit states experience a 4.6% loss of sales to non-deposit border states, which affects not only businesses but also local and state tax revenues. A bottle deposit would add $1.20 on a 12- pack of soft drinks — a cost that could be avoided by purchasing the same product in any neighboring state. Consumers could then collect $1.20 in refund by returning the containers to West Virginia recycle cen- ters.

Administrative Burden

Retailers would be required to collect, keep track of and remit the taxes.

Bottle Deposit Facts

■ Forced Deposits Do Little to Help the Environment.

As stand-alone efforts, forced deposit programs provide surprisingly little benefit for litter control or recycling. Even the most comprehensive bottle deposit targeting all beverage containers only addresses 8.5% of roadside litter and 4% of municipal solid waste generated. Besides, the return rates achieved by deposit programs are dropping rapidly, especially in states where comprehensive recycling alternatives are widely accessible.

■ Forced deposits impose a hidden, regressive tax on consumers.

First, consumers pay higher prices to cover increased costs for beverage manufacturers, distributors, and retailers to operate the container redemption system and for handling fees mandated in several forced deposit states. Second, consumers lose their deposits if they do not take their containers back to designated redemption sites — even though they may still recycle the containers by other means. Unfortunately, the higher costs are borne dis- proportionately by those least able to pay — low-income families and seniors.

■ Forced deposits are costly to operate and administer.

Analysts on both sides of the issue agree on one thing: forced deposit programs are the most expensive way to provide litter control and recycling.

Comprehensive recycling programs are better investments. Comprehen- sive litter control outperforms forced deposits.

The West Virginia Oil Marketers & Grocers Association is mangaged by a dedicated board of directors.

Day-to-day operations of OMEGA are conducted by the organization's president. The role of the president is to assist members in increasing their business effectiveness and profitablilty by providing resources for education, training and ideas exchanged; encouraging a high level of business ethics and a postive image for the industry; encouraging governmental action beneficial to the industries through active participation of its membership; and, providing cost effective services for the membership.

Federal and state taxes account for one-fifth, or approximately 15 percent, of the cost of a gallon of gasoline in West Virginia. 

OMEGA members are local entrepreneurs employing thousands of West Virginians. Profits from OMEGA businesses stay in the community and strengthen the state economy.

Selling restricted products - tobacco, alcohol and lottery - to individuals under age is illegal in West Virginia. State and federal law prohibits selling tobacco and lottery products to anyone under age 18.  An individual must be 21 to purchase alcohol.

In an effort to meet customer demand and increase product offerings, more and more OMEGA member grocers and convenience stores are providing in-store food service.