Small Gas Stations and Convenience Stores - Paying Higher Prices for Gas, Drink and Food Inventory - A Suggested Solution

Last Update: February 26, 1998

The gas station business often takes a terrible beating, having to contend with 3-tier (or more) pricing schemes for the gasoline they buy. The lowest-price tier is enjoyed by the independent gas station, purchasing gas at the lowest price and even lower when the independent picks up the gas at the rack instead of having it delivered.

The gas station operator who owns his own station and has a major oil company name (Gulf, Exxon, Mobil) is in the middle of the pricing structure (who may have the option to buy his gas at the rack, at 2 cents or so less per gallon).

The operator paying the highest price is the operator who leases his station from a major oil company. He pays the highest price and usually cannot buy elsewhere.

Problems arise frequently for operators selling branded gas who find that stations not too far away selling the same brand may be buying their gas at much lower prices, effectively putting the higher-priced operator out of business.

This is not the only problem for gas station operators. The marriage of gas sales with convenience-store sales has created a much bigger problem for the small gas/convenience store operator. He/she seems to be paying more for almost everything he/she purchases, whether it be gasoline, beverages, cigarettes, candy, potato chips and so on.

The thing to remember is that a manufacturer or wholesaler is required to sell to competing retailers at the same per unit price, unless the lower price is cost justified (which it seldom ever is) or to meet competition, which defense also seldom applies for a variety of practical reasons.

Thus, the small gas station/convenience store operator sees his/her profits stolen by the lower prices and consequent advantage given to the larger stores and chains by what seems to be almost every manufacturer and wholesaler.

The problem, then, is what can the aggrieved operator do, if anything?

The question becomes even more important when a specific chain goes into an area with new stores and very low prices, low enough to take most of the small operator's business.

Although it is illegal for a manufacturer or wholesaler to sell below cost under various circumstances, it is not necessarily illegal for a retailer to have loss leaders (even at below cost) to attract customers.

The problem is, however, that what appears to the aggrieved operator (i.e., the small operator paying the higher prices) to be below-cost sales by the chain-store retailer, are probably not below-cost sales. The chain store is probably getting a variety of advertising and promotional allowances, volume discounts, other discounts, services and fees (such as shelf positioning fees) and retroactive reduction of invoices, among other ways of kicking back money, so that the retail sales are generally not below cost, and are probably even profitable.

What's worse, by offering low prices on hot items, such as certain named beverages or tobacco items, or gasoline (with or without any brand name), the convenience store part of the business makes a lot of profitable sales of other items, especially when these items cost less to the chain store than to the small competing store.

What I'm leading up to is a different outlook on the problem than many persons might suggest. Many persons would say you could sue the wholesalers and manufacturers (and they would be right), but you might instead consider suing your competitor, as someone inducing or knowingly receiving the unlawful discriminatory prices and services.

This would make it a much easier suit to maintain, only having to sue your competitor instead of 10 to 30 manufactures, wholesalers or other suppliers.

A typical suit might be 10 unrelated small stores against one or two large chains and perhaps 2-3 major manufacturers or suppliers.

For plaintiffs who insisted on suing the manufacturers and wholesalers, there is a way.

If several small competing stores are suffering the same injury, they could be joined in a single suit, even if they do not have exactly the same problem. In other words, any one plaintiff could maintain his/her claims against 80% of the defendants; another plaintiff could maintain his/her claims against 90% of the defendants, and so forth. No two plaintiffs would be suing precisely the same defendants, but there would be many defendants (particularly the tobacco, beverage and snacks defendants) who would be sued by virtually all of the plaintiffs.

Anyway, there are some ways by which the problem can be attacked. But suing through a trade association generally is not the way to go, because the trade association could not sue for monetary relief on behalf of its members.

Relevant Decisions.

  1. Federal Trade Commission v. Sun Oil Co., 371 U.S. 505, 83 S. Ct. 358, 1963 U.S. Lexis 2631, 9 L. Ed. 2d 466 (1963), in which the U.S. Supreme Court held (and you must read very carefully):

    "Respondent [oil company] is not entitled under Section 2(b) of the [RPA] Act to the defense that its discrimatory lower price was given 'in good faith to meet the equally low price of a competitor,' since the competing station is not a 'competitor' of respondent [plaintiff gas station] within the meaning of Section 2(b), which contemplates that a seller may meet the lower price of its own and not its customer's competitor." [Emphasis supplied by me.]

  2. An important case to look at explains the U.S. Supreme Court's decision in Sun Oil Co. is Swettlen v. Wagoner Gas & Oil, Inc., 373 F. Supp. 1022, 1974 U.S. Dist. Lexis 9209, 1974-1 Trade Cas. (CCH) P75,050 (W.D. PA 1974), aff'd, 511 F.2d 1395 (3rd Cir. 1975). [Note: I was unable to find such affirming decision in a thorough database search, and there may not be any affirming decision available, or at all.]

  3. A recent Supreme Court decision under the Sherman Act may be of interest to you, holding that it was not a per se violation of the Sherman Act for the oil company to require that its dealers sell their gas at a specified markup of 3.5 cents per gallon. Whether this vertical arrangement was lawful not was required to be tested under the rule of reason, which is more difficult and problematical for an antitrust plaintiff.

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