David Mamet said “The surprise is half the battle. Many things are half the battle, losing is half the battle. Let’s think about what’s the whole battle.”
According to NACS, in 2008, convenience stores sold approximately $414 billion in gasoline sales with the average store selling 118,526 gallons per month. On Monday, (2/23/2010) Yahoo reported the national average for the price of gas at $2.68 per gallon up $.73.1 cents from the same time last year. Fred Rozell, Retail Pricing Director at Oil Price Information Service, is predicting a high of $3.25 for this summer. If Fred is correct, then the retail price on gasoline will have increased $1.33 cents per gallon from the summer of 2009. If that isn’t painful enough, look at the corresponding increase in credit card fees of a little over three cents ($.033) per gallon.
Cause/effect: If Fred is correct, the average retailer will pay an additional four thousand dollars ($4,000!) in card acceptance costs totaling nearly $9630.009 per month this summer. The impact of these increases will significantly reduce margins on gasoline sales. Is there any doubt this is happening? A quick look at the gasoline balance sheet at $2.65 per gallon shows that retailers are already half way there!
Where’s the surprise? This summer won’t likely be as painful to the retailer’s pocketbook as the summer of 2005. The difference?; Total demand remains low as the economy continues to suffer while people keep their cars, boat’s and RV’s in the driveway. Without a big increase in demand it’s unlikely that prices will reach the $4.00 range. Reflecting back just a few years ago to when retailers experienced this trend and eventually saw profits disappear the call for change was sounded.
Robert Shapiro, author of “The Costs of “Charging It” in America: Assessing the Economic Impact of Interchange Fees for Credit Card and Debit Card Transactions” correctly identifies the “Whole Battle” when he says, “credit companies and banks compete with each other by offering large rewards that are financed by fees”, “The competition is driving fees up rather than driving fees down.”
The Whole Battle is asking how the retailer can compete with Financial Institutions for the consumers “Method of Payment”. This summer will mark another battle won or lost, how will you fight back?