The Society of Independent Gasoline Marketers of America is celebrating 50 years of representing the largest group of independent petroleum marketers in North America. The national, Virginia-based organization has 255 members, who operate throughout the U.S. as well as in Canada and abroad. SIGMA has seen many changes to the petroleum industry in half a century, which is worthy of a retrospective look as well as a glimpse of what’s to come in the near future.
The 60s: SIGMA’s Dawn
SIGMA was founded in 1958, a time relatively calm and without regulation for the petroleum industry. The 1960s proved to be a golden period for major oil companies, with a growth in oil exploration, production and marketing. Competing oil companies found new ways to attract customers with snappy slogans, such as Exxon’s “Tiger in Your Tank” introduced in 1959, and eye-catching logos, such as the Phillips 66 shield’s red, white and black color scheme, which also first appeared in 1959 and is still in use today.
In 1968 the retail outlets owned by SIGMA members averaged just over 45,000 gallons per month in fuel sales—up from about 39,000 gallons in 1959.
At the end of this decade a concept started to become popular and would soon pave the way for the future of fill-up stations everywhere – self-service – but this idea would not take off until the 70s.
Additionally, major highways entered into the American culture, making such impacts on oil companies like Phillips 66 to introduce their “Highway Hostesses,” young women who made visits to the stations’ restrooms, ensuring they were clean and stocked. This new interstate culture began becoming increasingly concerned with speed and getting to where they were going faster, which soon would bring together food and fuel in the form of convenience stores.
The 70s: Shocks and Regulations
When the Organization of Petroleum Exporting Countries (OPEC) announced an oil embargo against the U.S. on Oct. 17, 1973, the event rocked the petroleum industry. The action was retaliation for the American support of Israel during the Yom Kippur War, but the impact of the embargo was vast, spurring everything from crude oil prices tripling to the concept of oil conservation and rationing.
Another oil crisis caused by the Iranian Revolution in 1979 shocked the nation again. These two events put supply into utmost concern for the petroleum industry; meanwhile the new environmental regulations hit gasoline marketers hard.
Because of the raw economic conditions, gasoline marketers began to look for new business models, including transitioning to self-service. SIGMA reports that in 1974 only 6 percent of U.S. stations were self-service; by 1978 Americans could pump their own gas at 68 percent of stations. Also, the gasoline margins were diminishing, so the independents started to look to c-stores as a new revenue stream.
In the 60s, independent marketers tended to be smaller, privately-branded operations, but their business began to change. They had been busy competing with the majors over price, but in the 70s, independents saw big oil abandoning the retail market. This was helped by the 1974 congressional vote to end the oil depletion allowance, which gave the majors an incentive to sell their own products through general tax breaks. With that gone, big oil saw no advantage of being in the marketing business. This set the stage for independent marketers to grow, but the new obstacle became more governmental oversight including price and allocation controls.
The oil price spikes turned consumer loyalty upside down, abandoning their favorites for whatever was cheapest. This was a boon for the independents; the total number of outlets represented by SIGMA members grew from 7,700 in 1968 to 16,200 outlets in 1978 with the average volume increasing to more than 64,000 gallons.
The 80s: C-store Growth
With the oil shocks in the 1970s, the 1980s was a comparatively calmer time. The volume sold by SIGMA members almost doubled from 1978 to 1988, from 12.5 billion gallons to 21.8 billion. By 1989, nearly one out of every five gallons of motor fuel sold that year in the U.S. was by SIGMA members, for a total of 26.5 billion gallons.
The environmental awareness introduced in the 70s stuck, however, and caused major changes in product formulation. For instance, the Environmental Protection Agency required that all large gas stations offer at least one grade of unleaded fuel. This brought about a drop in leaded gasoline sales, according to the 1990 SIGMA Statistical Report, which showed the number one grade of gasoline in 1983, leaded regular, fall to fourth place in 1987. By 1989, unleaded grades made up 90 percent of total gasoline sales.
Other changes were afoot during this time period as well, such as the introduction of electronic fuel pumps and point of sale devices. Plus, with the increasing popularity of self-service stations, marketers saw more customers coming into their stores, which caused a jump in the number of convenience stores. According to the SIGMA Statistical Report, the decade began with just 26 percent of SIGMA members offering c-stores; by 1989, that number had spiked to 58.5 percent.
The 90s: Profit Centers
Bigger and better could succinctly wrap-up the trend in gasoline stations in the 1990s. Marketers capitalized on the popularity of c-stores and began to increase their size, which sometimes doubled a site’s previous square footage. With the expansion came the addition of new services, such as car washes, quick-service restaurants and ATMs, all which added new sources of revenue.
Governmental environmental restrictions also continued into the 1990s. Most notably is the 1988 EPA mandate, which announced all underground storage tanks had to be upgraded by 1998. When the deadline approached, thousands of stations were closed because operators could not afford the costs of compliance.
The advances in technology also put pressure on marketers to renovate by doing such things as installing new pay-at-the-pump devices and multi-product dispensers. Some of those who embraced the new tools found the computerization saved time, cut costs and made it easier to sell fuel.
Even though the majors had been continuing their exit out of the marketing segment of the petroleum industry, there was a new competitor that entered during this time period. By the late 90s, hypermarketers started entering the business, marking a new type of competition for the independents. This change started to force marketers to be more innovative and efficient.
Also, during the decade, retail service stations saw a rapid decline. According to the NPN Station Count, there were 210,120 retail outlets in 1991, but that number fell to 175,941 in 2000. However, gasoline sales actually increased during that time, showing a consolidation shift in the industry.
For SIGMA members, in 1990 the typical amount of fuel supplied was 91 million gallons to 100 retail outlets. That same member operated 44 motor fuel outlets, on average, and sold 2.08 million gallons a year. In 1997 that same SIGMA member would be supplying 125 million gallons to 100 retail outlets and operated 57 motor fuel outlets, which averaged sales of 2.19 million gallons.
The most dramatic sales increase in those seven years was from non-fuel sales. In 1990 the average SIGMA member had made $30.6 million in sales not from fuel, and that sales number jumped to $67 million in 1997. This spike clearly shows how important other services besides gasoline became at stations.
The new revenues required major renovations to the old sites and, often times, brand new stations. The SIGMA Statistical Report charts the average member in the beginning of the decade as spending $1.33 million on remodeling and a little over $1 million on new construction. However, at the end of the decade a member was spending $2.99 million on site renovations and over $2 million to build new stations.
The 2000s: Present and Beyond
Many of the trends set in the late 90s have continued into the first decade of 2000, including different types of motor fuel, more regulations and fewer sites. There are a number of new challenges, such as the sharp crude oil price increases that have reached historical proportions this past year. Additionally, the war in Iraq and other unrest in the Middle East have also lead to extreme volatility in the industry. Motor fuel price changes have fluctuated several cents within days.
However, a new path for independent marketers might be forthcoming in facing some of these challenges, such as the proliferation of biofuels. “More (types of) motor fuels in the market and more different types of vehicles provide new opportunities,” said Paul Reid, president of SIGMA.
Motor fuel sales by SIGMA members continue to increase, with selling 57.3 billion gallons in 2007, according to the 2008 SIGMA Statistical Report. An average SIGMA member sold 207 million gallons of fuel last year. SIGMA members supplied some 32,500 retail outlets with fuel in 2007.
The 2008 report also acknowledges that there are a few trends happening in the industry. More and more SIGMA members are turning into “roll-up” companies, with large and mid-sized chains buying up smaller ones. Additionally, there have been a number of SIGMA members selling their retail sites, but staying in the industry as wholesalers and terminal operators. Despite the loss, SIGMA has gotten several new members, most of which are high volume retailers.
Federal regulations have also continued in the 2000s. More environmental requirements in 2007 had members spending an average of $270,000 each to meet those regulations. In order to meet EPA deadlines, members are typically replacing and improving equipment.
So how will independent marketers overcome these new hurdles?
“Marketers need to commit to continue improvement through education, learning and networking,” said Reid. “SIGMA is primarily focused on the things that matter most to marketers—federal government relations with topnotch Washington D.C. lobbyists; relevant education through masters programs, share groups and convention workshops; robust networking at SIGMA meetings.”
To help members’ to compete and provide a backdrop to foster the exchange of ideas, the organization holds events throughout the year, and as Paul Reid puts it, “SIGMA meetings are made to order for this type of operating environment.”