Analyst for Gasbuddy.com Dan McTeague thinks he knows what’s going on with Bonnyville’s “high” gas prices. They’re not.
“If we’re looking at today’s prices,” he says. “Here I’m not including the cost of transportation. It’s costing 59 cents at the wholesale price for gasoline. It doesn’t matter who your supplier is, you might get a penny off if you’re a nice person but that’s it. So 59 cents plus 4.47 for the carbon tax then a federal tax of 10 and a provincial tax of 13. Add another 4.32 for GST and that gives me 90.8 cents a litre.”
With the lowest gas price in Bonnyville today being at 101.9, that gives the local retailer an 11 cent profit margin. However, remember that McTeague didn’t include transportation costs in his estimate. Also, that has to cover staff and utility expenses for the building.
Now with gas in Cold Lake today being sold from between 86.9 to 88.9 cents a litre, that would mean all fuel in the city is being sold at a loss. What could be causing that?
McTeague says it’s likely the No Frills that’s driving prices down there significantly by using their gas station to bring people into the store.
“I think they’re probably using the low prices to get people in. On the back of your receipt you’ll get a two dollar coupon to buy some milk. It’s a classic loss leader.”
So No Frills can afford to lose money every time they sell gas by making up for it elsewhere, but what about the other gas stations in Cold Lake? Well it might not be bothering them as much as you’d think for two big reasons. 1), when you’re a mega oil company like Esso or Petro Canada, a tiny city like Cold Lake isn’t even a rounding error in your revenues and 2) you’re still making money by selling the gas to the grocery store in the first place.
“What you may lose at (your own) gas station, you can make up for in other ways. If they lose five, six or seven cents a litre at their stations they’re still ahead at the end of the day,” McTeague elaborates.
Now of course there’s the Wholesale Club in Bonnyville, which begs the question why we aren’t seeing prices driven down with a similar tactic there? A possible explanation is that the Wholesale Club is a bulk retailer instead of a regular grocery store. If prices are already cheaper inside the store itself, they wouldn’t be able to afford to take a hit at their pumps. Other factors like less competition from other grocery stores might be at play too.
The gap between St. Paul and Bonnyville is significantly less extreme with St. Paul being about five cents cheaper today. According to McTeague’s calculation, fuel there isn’t being sold at a loss, but the profit margin is still very thin. The Extra Foods there could be using a similar loss leader tactic, but to a lesser degree. Being closer to Edmonton, transportation costs a likely a little less for the town too.
According to McTeague, Bonnyville fuel retailers aren’t likely gouging their customers so much as residents in neighbouring communities are getting a really good deal.