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COLUMN: Gas wars competition, not collusion
Gas always gets people talking.
Gas prices, anyway, flatulence is slightly more taboo subject in most social circles.
At least a few letters to the editor (and phone calls) each month lament the disparity in prices across the Island, usually suggesting some form of price-fixing or collusion among the Big Oil companies.
Sometimes the writers and callers even suggest we’re in on it (the media, I mean), since we’re not putting our vast investigative resources into delving to the root of the corruption.
It happened a while back when gas prices in the Comox Valley dropped dramatically and again this week as the gas stations in Victoria began posting fuel prices under $1.
Cue the lineups at the pumps and the outcry over corruption from those of us left out of the cost-savings loop.
I’m in Duncan a couple times a week for my volunteer involvements and generally fill up down there, since pump prices are consistently a few cents cheaper.
Truth be told, I generally don’t understand how gas prices are set nor how they can vary so significantly from one community to the next.
I’ve had the system explained to me by the experts a number of times over the years, and read the reasoning in other reporters’ stories, but it still doesn’t quite add up.
I guess it would suffice to say I’m generally as confused as the guy at the next pump over.
Except when it comes to these recent price wars. That’s easy.
They’ve both – in the Comox Valley and Greater Victoria – resulted from Costco moving more aggressively into the fuel retail business.
The big-box retail giant is looking to draw new customers with low pricing and in order to compete, the other stations must follow suit or lose their loyal (unless the goods are cheaper elsewhere) followers. That’s how gas wars go.
It’s good for motorists looking to save a few bucks on filling the SUV, and probably for the big guys setting the price pace, but generally not good for business.
Profit margins on gas and diesel are ridiculously slim once it reaches the retail stage, which would be why all but a few holdouts have moved to the convenience or corner store scheme – they make their cash on the chips and lotto tickets and milk and bread.
Gas is just what gets you on the lot. And until the province legislated pay-at-the-pump a few years back to protect late-night workers, it was also what got customers in the door to buy all those goodies and pay the workers’ salaries.
Pre-paying for fuel was a smart move on safety, but likely not so good for business, especially for the small, independent station owners trying to make a living.
When the gas war erupted in the Comox Valley, several business owners in that exact situation were crying foul over the big-box bullies cutting them out of the market.
They complied with lowered prices just to keep some money coming in on the revenue side, but claimed doing so was a losing proposition and wouldn’t survive if the price war dragged on.
It’s the same argument small retailers shouted a the big-box explosion started taking hold in the North American retail market.
As customers flocked to the warehouses to save 30 cents on a four-litre tub of mayonnaise, their faithful corner stores worried they’d have few customers left. Many survived the challenge, but many others did not.
When it comes to gas wars, there’s no real mystery – someone upsets the apple cart looking to draw customers away from competitors, who in turn follow suit trying to hold on to their clients.
There’s no collusion or corruption, especially when the lowered prices often end up costing the retailer money.