By Bill Scott, founder of StoreReport LLC & Scott Systems Inc.
I have always been interested in how my customers react during rapid changes in fuel costs. Three decades ago, as fuel prices rose, profits would likewise increase, because street prices (dictated by competition) normally rose faster than the average cost of fuel already present prior to the increase.
In other words, if my customer had 6-million gallons of fuel on hand when the prices went up, for a time he would be selling the cheaper fuel at a higher profit margin, as competitors used the rack costs to determine their street prices. Conversely, when prices began to drop, the opposite was true, as the more costly fuel would be sold for a time at a lesser profit as the street and rack prices decreased. Hence: profits would be directly proportional to the rising cost of fuel, and would settle down only as the cost of fuel stabilized.
Yesterday, I decided to run an analysis of three customers located in three different areas of the country to see how they fared during the past 12 month period beginning in October of 2014 and ending in September of 2015. Note: All fuel taxes have been removed from the selling and purchase price of the fuel. The Y (vertical) axis is represented in dollars, and the X (horizontal) axis is the date of purchases and sales.
In the graph for this company, I attribute the sharp spikes in the graph to be attributed to the company’s failure to process the purchases and sales in a timely matter, but it could also be because of carelessness. The rise in profits during December 2014 seems to have occurred as the purchase price of fuel begins to bottom out, then the profits begin to take a beating, until the price begins to reach its highest level and profits begin to accelerate again. Now let’s look at Company Two.
Company Two seems to be more stable, however the profits seem to peak at the same time as Company One during December 2014 and except for February 2015 remain fairly stable from March 2015 through August when they begin to drop again. Now let’s look at Company Three.
Again In December 2014, profits are higher during December 2014, but drop sharply from January 2015 through February, taking a nose dive in early March, picking up speed in the second week and remain fairly stable except in mid-August, and then a severe drop in the later part of September.
It would be interesting if we could get some comments from others to shed some light on these graphs. It is obvious to me that we are seeing a different set of figures than we noticed back in the 1980s.