The cost of gas: How two stations set their prices

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HAVERTOWN — Steve Kehler spends most of his time working on cars or managing paperwork at the auto repair shop and gas station he runs in this Philadelphia suburb.

Unless an overnight gas shipment forces him to play another round of pricing roulette: Should he raise prices to keep up with pressure from his wholesaler? Or will that kill sales?

"It's not an exact science," he said.

Earlier this week, Kehler's wholesale price jumped by 4 cents a gallon. The price is set by Sunoco Inc., from whom he leases his gas station and is contractually obligated to buy.

Shipments arrive overnight, whenever a remote sensor tells Sunoco that Kehler's tanks are low. The wholesale increase means Kehler will have to raise his pump prices soon — if he wants a shot at breaking even on gas sales.

That decision — the type of pricing dilemma gas station managers face daily — is not as much of a no-brainer as you might think. If a station raises its prices before its competitors, it may lose gasoline sales. But the longer station managers wait — with wholesale prices rising — the more money they lose. And sometimes they have no choice but to cut prices to keep cash flowing in.

In the end, Kehler decides to wait a full 24 hours before raising his prices by the 4 cents a gallon his own wholesale prices have already risen.

Eighty-eight miles west, in the quaint south-central Pennsylvania river town of Marietta, Kelly Bosley spends more time worrying about the coffee bar and sandwich counter than gasoline sales at the Rutter's Farm Store she manages.

Unless the Sheetz gas station across the street changes its prices. When Sheetz raises its prices above Rutter's, Bosley's pumps are often suddenly swamped. When Sheetz drops its prices, Bosley's pumps empty just as abruptly.

A change in Sheetz's prices typically triggers a call to headquarters. As a company-employed manager, Bosley has to wait for a go-ahead from headquarters to raise prices.

She takes a drive every morning to assess prices at two other area stations, which she calls in to Rutter's main office.

"They call me and tell me when to change it," Bosley said. "Sometimes they do, sometimes they don't. Like, last night they called at 10 o'clock and lowered me. I never know."

Bosley says she has been asked to change prices as much as twice a day, but lately only gets a price-change call three times a week. Kehler changes prices with each new load of gasoline — about every three to five days.

Like many gas retailers, Kehler has accepted the fact that he's not going to make money selling gasoline. He hopes the pumps will drive business to the moneymaking side of his business — auto repair.

At many other stations, it's the convenience store that rules the roost. Gas is seen as a loss leader, something a station sells to attract the people who will then be tempted to buy much higher-profit-margin items like coffee and sandwiches.

To keep the customers coming, Bosley's Rutter's is adding a smoothie and milkshake machine, and already offers coffee and cappuccino drinks as well as made-to-order sandwiches.

Bosley posts large ads at the pumps and positions a plethora of goodies, from sandwiches to key chains, between the door and cash registers to generate impulse sales.

"That's why my deli case is here," Bosley said.

Kehler has made an even more dramatic decision: He's agreed to move his auto repair shop elsewhere so that Sunoco can turn his existing shop into a convenience store.

Neither Kehler nor Bosley like high prices, which hurt sales and anger customers.

"We're all reluctant to hit that $4 mark," said Kehler, who said raising prices from $3.99 to $4 will have more of an impact on sales to the driving public than a typical one-cent hike.

"It's a psychological thing," Kehler said. "It means a dime in their eyes."

Already this year, Kehler says high prices have cut demand for his gasoline by about 27,000 gallons a month. He's not eager to see prices pass the $4 barrier, cutting demand further.

When the time comes, Kehler says he may hold prices steady at $3.999 a gallon for days and accept a steadily shrinking profit margin rather than be the first station in the area to post $4 a gallon for regular gas.

"You don't want to price yourself out of the market," he said.

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