Article content continued

On Merivale Road, with a string of gas stations between Baseline and Hunt Club, price fluctuations and matching are par for the course.

“They drop it at the end of the day to try to help their volumes,” McTeague says. “And perhaps get a few more people into the store. Maybe there’s a sense at the end of the day you’re not moving enough (gas), or you’re just trying to meet your Costco or No Frills, or whoever down the street, offering gas at cost.”

In fact, the cheap Costco prices – often three to four cents below the lowest station in the area – seem to drive competition on Merivale. On Monday, with Costco closed, prices held firmer, $130.9 at the stations that were open – still a bargain compared with $1.38 at a trio of stations near Greenbank.

McTeague says a box store like Costco has numerous other means to reap revenues, including membership fees, and can sell gas below cost to attract customers or reward members. Other stations also use gas prices as a loss leader, but with smaller profit margins. Speaking just prior to the holiday weekend, McTeague said the base price for a litre of gas in Ottawa was $1.24. Anything lower is below cost.

According to McTeague, the oil companies killed off many of the independent stations in Ontario in the late 1990s. Now, it’s mini-market store/stations that dominate the market.

“When you’ve got big box stores throwing away gasoline as a loss leader, is it any wonder the major oil companies have gotten out of the business of selling gasoline?” McTeague says. “They’ve sold a lot of their stations to – you guessed it – convenience stores.”

Convenience stores hope to sell gas at a price that will attract customers into the store. Sometimes that means selling gas for little or no profit. Diesel and premium gas provide higher margins for stations, according to McTeague.

Otherwise, because stations all pay virtually the same price for fuel, the retail profit margin is the 12-cent or 13-cents above $1.24, at least in Ottawa. When the price hovers around $1.24, sales of cigarettes, pop and chips drive station profits, not the sale of fuel.

wscanlan@postmedia.com