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THIS MEANS WAR – But what is impact on existing gas stations, smaller outfits?

South Boston News / June 24, 2013
When morning dawned Friday, regular unleaded gas in town cost around $3.30 a gallon at most locations. By the end of the day and continuing into the weekend, the price of gas had plummeted to a low of $2.96 in the Centerville area.

What happened? A price war, that’s what.

Boyd Archer of Nathalie had gotten a call from a family member informing him of the steep drop in the cost of diesel fuel. He proceeded to the gas station that had fired the first shot — the new Murphy USA across from Wal-Mart — and filled up the tank of his full-size pickup.

“Let me tell you what, when you’re getting 36, 37 gallons of diesel, it makes a big difference,” he said.

Next door, the Gas House was likewise busy, drawing a stream of traffic that spilled out onto Old Halifax Road. The lines were longer, with cramped access compared to the newly-built Murphy’s, with its more spacious lot and ample room between pumps. But Marsha Hite of Virgilina said she didn’t mind the inconvenience of crowding into the Gas House drive if it meant supporting a long-established local business.

Hite had a ready answer for why gas in town would suddenly fall below $3 a gallon — a price that other retailers felt compelled to match, albeit mostly in the Centerville and Halifax areas.

“It’s Wal-Mart,” she said, referring to the big-box retailer across the street, which has a cozy business relationship with Murphy USA. She said she would rather buy gas at the Gas House because “they [Wal-Mart] get enough of my money.” When asked if she thought Wal-Mart was trying to run out the competition, she nodded her head in agreement.

“It may be a chain, too,” she said of the Gas House, “but they’ve been here a long time. They provide jobs for local people. I know Wal-Mart does, too, but I’m a little sentimental about it.”

Ricky Newbill, manager of the Gas House, was tight-lipped about the situation. He offered a terse statement but said he wasn’t authorized by ownership to say anything else.

“We’ve been honored to serve Halifax County for over 40 years and we appreciate everyone’s support,” he said.

The Gas House — officially, a Quality Plus gas station — underwent a complete renovation last year, with Winston-Salem, N.C.-based Quality opting to raze the old modular home, put up in 1973, and replace it with a stick-built home.

The Gas House is indeed a residence; Quality is known for its unusual business model whereby the manager lives on the premises, but handles the retail side of the operation through a drive-up window. The first Gas House debuted in Danville, two years before the company opened its second station in South Boston. Today Quality operates 54 locations, mostly in North Carolina.

As part of its South Boston overhaul, Quality not only rebuilt the Gas House, but landscaped the grounds and installed an extra pump island.

The latter improvement, especially, was much needed this weekend.

Doris Boyd of Chase City sat in her car Saturday morning, idling behind another vehicle at the pump. Her reasons for patronizing the Gas House were twofold: she’d rather buy gas here rather than do so at home because gas “is too high in Chase City.” But why the Gas House and not Murphy USA? Habit, perhaps, and loyalty: “We come here all the time,” she said.

The question looming over the Gas House — and other gasoline retailers in town — is how long gas stations can afford to wage a price war with Murphy, which enjoys market clout that few rivals can match.

Murphy USA is closely tied to Wal-Mart, with more than 1,000 stations built next to Wal-Marts around the country. The company also operates some 100 freestanding stations under the name of Murphy Express. The parent company, Murphy Oil, announced plans in late 2012 to build more than 200 new locations near Wal-Mart stores. It often leases or purchases property from Wal-Mart, which in turn offers Murphy’s gas card discounts to shoppers as a tie-in.

Wal-Mart and Murphy USA are both based in Arkansas.

The closeness between the two companies — and Murphy’s penchant for pricing gas below the retail cost of other dealers — has drawn accusations that the companies are engaged in predatory behavior. Murphy’s has been a target of states that ban below-cost sales of gasoline, although both it and Wal-Mart have lobbied to overturn the laws as hurtful to business competition.

A 2005 Federal Trade Commission report looked at one such situation, in Minnesota, where the state’s Department of Commerce ordered Murphy USA to cease and desist sales of below-cost gasoline. The FTC generally sided with Murphy and other cut-price gas retailers.

“These [anti-predator] laws are likely to harm consumers by depriving them of the lower prices that more efficient gas stations can charge while still covering their costs, including their fixed costs,” the FTC found.

Antitrust law broadly views below-cost pricing as predatory market behavior. But it draws an important distinction: not only must the practice be severe enough to drive rivals out of business, it must persist long enough to keep them from coming back.

Billy Humphries, the owner of Johns BP on Edmunds Street in South Boston, says he is fearful that that may be exactly what is happening in South Boston, and points to recent moves by his gasoline supplier to illustrate the point.

“BP has told me if I don’t start selling 300,000 gallons [a year], they’re going to pull my signs and not sell me any gas,” he said, adding that requirement applies to other local retailers, too: “I’m on the chopping block with eight other BP stations in the county.”

BP was forced to drop gas prices 10 cents citywide when Murphy USA entered the Danville market, and now “BP is pulling out of the area because the Wal-Mart gas stations are running them out.” He said the edict from BP to increase his volume or lose his supply “just floored me.”

Humphries says he tries to keep his gas price a penny below Sheetz in Riverdale — which had not joined the Murphy’s gas war as of yesterday, with regular unleaded selling for $3.29 — because “it’s unbelievable how much a penny can matter to somebody. When you get 10 gallons of gas you save 10 cents.” But with Murphy driving the price down by 30 cents or more, he says he can’t afford to match price.

“I pay more for my gas than what Murphy’s is selling it for. I make 7 cents on every gallon I sell.” With the revenue he takes in, Humphries can employ 3-4 workers. “When Wal-Mart takes your money, they do not invest it in the county, they invest it in China, and China invests in them.”

Humphries said he is looking at various options for staying with the gas retail business should BP draw back from the South Boston market (one option would be to sell ethanol-free gas, which is higher quality and less corrosive for vehicles). His family opened Johns BP — formerly Johns Amoco — in 1984, and today the building is paid for, which gives Humphries more ability to reinvest in — and reinvent — his business. But he said other gasoline sellers with higher fixed costs may not be so fortunate.

He said he felt especially bad for the owners of the Gas House, with what it must have cost to rebuild the station. “I don’t know why Halifax County approved a gas station right beside a gas station. The man probably spends his whole life savings to revamp the place and then Halifax County approves Murphy’s …. Those big box stores are pushing everybody else out.

“I believe in free enterprise, but he’s redone his place and now he’s got to deal with this. I don’t think it’s fair, I really don’t …. For Murphy’s to come in and chop the legs out from the local community — that’s the way I look at it. I don’t mind friendly competition, but the way they’ve done it, I don’t think that’s right.”

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History shows Murphy Oil/Wal-Mart strategy is to locate in an area, sell at or under cost for a few weeks to drum business and run off the competition, then they'll raise prices to prevailing price in the area.

Unfortunately those few weeks can sometimes put a competitor under, esp in case of being right next door to an existing cut-rate station. When Sheetz opened in Danville they did that to a next-door Exxon station.

Don't exactly like BP strategy re their local branded stations either, but if the Humphries family will go 100% non-ethanol they'll get my business. That ethanol scam foisted on Americans by EPA and the corn lobby has stunk since it was introduced. Worse fuel mileage, damage to engines not designed to use it, and using food crops to produce fuel are all borderline criminal in my book.

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