Drivers turn to generic gas

At his Petro stations in Timonium and Ellicott City, Krug owns the property, buys generic gasoline from whoever gives him the lowest price and hopes consumers don’t much care about a tiger in their tank as much as they do about shaving the price of a fill-up.

Stations such as Petro may lack the market power of a well-known – and highly marketed – brand, but they can usually beat the prices of stations that carry logos like Exxon, Shell and BP Amoco, and make more money doing it. And at a time when pump prices have risen sharply, that has meant a boost in business for unbranded dealers.

“People’s perceptions about gas are changing,” said Paul Fiore, executive vice president of the Service Station Dealers of America and Allied Trades. “They’re not as concerned with brand names anymore.”

As a gasoline dealer, Krug knows equally well the worlds of branded and unbranded gas. “I’ve got one foot on the pier and one on the boat,” he said.

With Exxon, Krug said, “You’re playing on their football field with their referee using their football.”

But at his unbranded Petro stations, “We own the ground. We own everything. We’re like a really, really teeny oil company. We can sell any product we want.”

As a result, when most area stations were selling regular grade gasoline for between $2.03 per gallon and $2.09 a gallon, Petro sold regular for $1.99. And the business rolled in.

When she pulled in to Petro on a recent morning, Mary Fields was looking only at the price on the board, not the name on the sign.

“I saw the price and needed gas,” said Fields, who handles marketing for her family’s Ellicott City restaurant and fills her Land Rover with premium. “I pulled in because I saw the price. … When you’re dealing with premium gas, you do pay attention.”

Did it matter that the name Petro was unfamiliar to her?

“Heck no,” she said, glancing at the sign for the first time.

John King, who is retired and lives in Timonium, usually fills up at the same Petro, and sees no reason to choose a branded station over an unbranded one if the gasoline costs less.

“It’s the same stuff. All gas is the same,” King said, while filling the tank of his Lincoln.

He’s mostly right.

Unbranded dealers often buy “surplus” gasoline from jobbers, or middlemen, licensed by the major oil companies to sell their products. So an unbranded dealer could be selling the same gas sold by the major brands, that is, gasoline with the additives put in by the major oil companies to identify it as their brand.

Or a dealer can buy unbranded gasoline without the additives directly from refiners of companies such as St. Louis-based Apex Oil, which buys and re-sells gas.

Major oil companies argue that their proprietary additives make for better quality gasoline, but the unbranded dealers disagree. Unbranded dealers now represent just a tiny fraction of overall dealers, especially in urban and suburban areas. Of the Maryland trade association’s 1,000 members, only about 20 to 30 are unbranded.

Fiore says branded dealers typically don’t have an opportunity to switch to selling unbranded gasoline unless the jobber or oil company they’re under contract to decides it no longer wants the location. The reasons for bailing out could vary, involving profitability, volume or the lease or sometimes an oil company’s decision to pull out of a market.

But he expects more dealers to opt for the unbranded route, given the chance.

“From an independent dealer’s perspective, he typically has the opportunity for higher profit margins on an unbranded product,” especially in the current marketplace of higher prices, Fiore said. “If the situation is right, he can make 5 to 10 cents a gallon more than the branded dealer and still be cheaper on the street.”

Those higher margins proved a powerful lure for Krug and his business partner. They once ran five branded stations and now run just the single Exxon.

“We’re going toward unbranded because we control everything there,” said Krug, whose Petro station on York Road in Timonium used to be a Texaco. He has further developed the station, adding a car wash, a convenience store and a Subway sandwich franchise.

Being able to undersell branded stations during the recent gas price run-up has helped draw about a quarter more business to Charlie’s Service Station in Randallstown, said owner Chris Brocato. Brocato has run the station and garage for a decade, taking over from his father, Charlie Brocato. The station, a former Exxon, became unbranded in 1980 when Exxon pulled out, deciding the station was too small. Business has been easier since then, Brocato said.

As an unbranded dealer, Brocato buys gasoline on the spot market. He said he can better control his costs, enabling him to compete on price with branded dealers. When competitors were selling gasoline for about $1.99, Brocato was charging $1.91.

“We deal with less people, you’ve got less hands involved,” Brocato said. “We buy from one guy and he buys it right off the rack. It saves you a penny here and a penny there.”

While consumers complain about higher prices, dealers complain about them as well, because they say the fiercer competition that results often cuts more deeply into already thin profit margins.

“In an upward market like this, it’s very difficult for a retailer or wholesaler to make money,” said Peter Horrigan, president of the Mid Atlantic Petroleum Distributors Association, based in Arnold. “You’re replacing your product in the tank for more than what you sold it for. Margins get squeezed when prices go up.”

But a volatile market, with prices rising and falling swiftly, also carries risk for the unbranded dealer.

That’s because the branded market lags behind the unbranded market.

If prices quickly rise on the spot market, unbranded dealers may hold back on raising prices, choosing to absorb some of the increase to stay competitive.

“We have to suck up our increase in order to keep people coming in,” Krug said. “We have to maintain a price below the regular branded retail price of 4 to 6 cents, that’s how we maintain volume. If we didn’t, we’d lose volume.”

On the flip side, once prices start to come down, the unbranded dealers are usually among the first to post lower prices.

That’s been the case at Royal Farms, one of the convenience store chains that also sells gasoline. Royal Farms sells its own brand, Enroy, a combination of the words energy and royal, much of which it buys from major refineries. Much of Enroy gasoline is surplus product from Exxon’s traders.

“Being unbranded, we can go and buy from anybody in the market,” said Rob Rinehart, who buys gasoline for the more than half of Royal Farms’ 120 stores with gas pumps. “That’s the beauty of being unbranded. On any day, we can buy from any of 20 suppliers.”

Rinehart says Royal Farms’ gasoline business is up from a year ago, though not drastically.

“We are taking business from some of the branded stores, but not as much as you’d think,” Rinehart said. “People are creatures of habit. But there is a segment of the population that is strictly price shoppers and that’s where the increase comes in.”

At the Royal Farms store on 41st Street in Hampden, business has been up as much as 10 percent.

“I hear people complain all the time,” about high gas prices, said Pat Brown, a cashier. “They come here because it’s cheaper here.”

<!– ART CREDITBARBARA HADDOCK TAYLOR : SUN STAFF PHOTOS

ART CREDIT–> <!– CUTLINE TEXTMary Fields fills her Land Rover with premium gasoline at a Petro station. "I saw the price and needed gas," Fields says. "When you're dealing with premium gas, you do pay attention." She neither noticed nor cared that the name on the station, Petro, was unfamiliar to her.

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