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Brought low at ground zero
SoVaNow.com / June 26, 2013A gas price war has broken out in our quiet little town. Unlike with most wars, an obvious question presents itself with this surprising turn of events:
What’s not to love?
To arrive at an answer other than “nothing,” it first helps to step away from the sweet, sweet smell of sub-$3 gas wafting through the air. If only fine wines were this cheap: Gas in South Boston suddenly is priced some 60 cents below the Virginia average. I wonder if the Visitors Center is advertising this fact to motorists zooming by on Route 58.
Now that we’re almost a week into Discountapalooza (Discountapocalypse?), it might be a good idea to recap the story thus far (especially for those who might have missed the story in our Monday edition): Murphy USA, the new gas station in town across from Wal-Mart, fired the first shot by dropping prices at the pump beginning Friday morning. The cost of regular unleaded at 8 a.m. was $3.23, according to a store clerk, but that had dropped by $3.04 by the end of the day. Sometime over the weekend, gas fell below the magic $3 mark. As of yesterday afternoon, the price at Murphy’s had settled in around $2.83.
Most, but not all, stations in the Centerville area felt compelled to follow suit, although few dared to fully match the rock-bottom prices set by Murphy USA. (Interestingly, although maybe not surprisingly, Riverdale gas stations, including Sheetz, have pretty much ignored what’s going on in Centerville, which must be killing their local customer count even if passersby on Route 58 are oblivious to the price-cutting inside town.) The one station that has matched Murphy penny-for-penny is located next door: Quality Plus, better known as the Gas House. Some consideration of the Gas House’s plight might bring into focus the more troublesome aspects of this episode in craz-e-e-e capitalism.
Quality Plus is a Winston-Salem, N.C.,-based chain of gas stations, some 50 in all. A few of those stations double as both a place of business and a live-in residence for the station manager, hence the name Gas House. Quite a few folks around town consider the Gas House to be a local, or at least quasi-local, business, which is not unreasonable. For one thing, the South Boston Gas House has been around for 40 years; it was the second store in the chain (the Danville Gas House was the first). For another, the local family that runs the place is not just a bunch of store clerks earning minimum wage. The station serves as their home, for pete’s sake. The Gas House may not be a strictly community-based enterprise, but the model is not so very different from a national or regional business headed by a local franchisee.
Murphy USA, by contrast, is tightly affiliated with Wal-Mart, albeit an independent corporation. Both companies are based in Arkansas; Murphy builds its stations next to Wal-Mart stores; and cheap pricing is the calling card of both operations. And both are downright ruthless about running out Mom-and-Pop competitors when it suits their purposes. In the case of Wal-Mart, survival by independent retailers often hinges on their ability to secure a location that can pick up some of Wal-Mart’s foot traffic, or, if not that, serve a market niche that Wal-Mart isn’t particularly interested in pursuing.
It’s a lot tougher to differentiate your business model when mostly all you do is sell gas. One has to believe the current gas price war has put Quality Plus is a very tough spot: the company only recently rebuilt and re-landscaped the Gas House, which presumably cost a pretty penny. One supposes that the idea was to make back the money over time, a cent or two with each press of the pump. Instead, the company is confronting a situation that makes it practically impossible for it to recoup its investment. Chances are, Quality is losing money with each gallon it sells (as are all the other stations that have dropped prices well below the regular retail price, still around $3.30).
A friend who understands the gasoline retailing business explained to me how this stuff works. First, contrary to popular opinion, profit margins in the average gas station are low: maybe 7 cents a gallon at most places. Stations only make money by selling a decent volume. So when a Murphy USA comes to town, the choices are brutal: match price and protect one’s market position at the cost of taking a financial beating, or stand pat, sacrifice sales and hope your customers come back when (or if) the dust settles. The larger outfits can offset their losses in one market by raising prices at sister stations in other markets, although this strategy is obviously not without risks in such a price-conscious business. On the other hand, if you’re an independent station owner without the means to spread the pain, the only sure place for you is up a creek.
The reason the Great Gas War of 2013 is bothersome to some people (including me) is that it encapsulates all that has gone haywire for small town economies. It’s not exactly a big secret at this point that Wal-Mart is a major factor behind the demise of downtown commercial districts, and you see the same story writ small playing out as small gas retailers confront their own no-win futures. As it happens, Murphy USA also poses a threat to the Exxons and Citgos and BPs of the world. The company might even cut down on the profit-making that Big Oil is so good at — much more so than the small gas station owner who lives next door. Problem is, at the end of the day Big Oil will be just fine. Will the same be true of your neighbor?
We live in a time when an ethos of cheap reigns, and the gods of the marketplace demand greater efficiency, speed, competitiveness and low, low, low prices or else the mere mortals toiling away at their modest dreams of making a living cannot hope to survive. Without a doubt, this market ethos has brutalized Southside in at least one way: through the advent of free trade. In the pursuit of streamlined markets, Southside workers in industries such as textiles and furniture were put into wage competition with Chinese peasants, with predictable results. Hence one example where the pursuit of cheap hasn’t served the area’s interests one whit.
What is more galling about the situation, however, isn’t that the basic theory is wrong — on balance, the pluses of trade outweigh the negatives — but rather that the costs and benefits are unevenly distributed. Markets always will produce winners and losers, as they should, but increasingly the question of who’s who is being decided not on the individual merits but as a function of influence, position and prestige. There’s a big difference between achieving business success as a result of hard work and smart ideas and simply raking in the bucks due to one’s dominance in the marketplace, which can be sustained by factors that have nothing to do with what you and I might consider business acumen. (The point can be illustrated in a single word: lobbyists). This method of operation — rent-seeking is the term — has become a powerful drag on the economy, and it’s bad for the country’s soul, too. Someone invests in a business, puts his heart into it, achieves success — then one day, MegaCorp rolls into town and, seemingly immune to the ordinary strictures of the marketplace, runs the small guy out. Is this really the way capitalism is supposed to work?
The moral of the story is not that you’re a bad person for filling up your gas tank this week. Heck, I’ve shopped at Wal-Mart too many times to claim clean hands. But it is worth a moment to ponder the fact that the rules of the marketplace are not immutable, handed down by God, and thus beyond the scope of public desires to soften the rough edges. There are times when entire industries could use a little Wal-Marting to cut them down to size. (Hmm, where are those in-store health clinics?) Other the other hand, you have to be careful not to let the pursuit of cheap bring ruination to places that are struggling with enough problems as it is. That price-busting haircut being given out? It could be your own.