CA--Gas Costs Exhaust Profit Margin, Businesses Passing Increases onto Customers : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread


Gas costs exhaust profit margin

Businesses are starting to pass price increases along to their customers.

By Robert Rodriguez The Fresno Bee (Published March 14, 2000)

The rising cost of fuel is squeezing consumers at more than just the gas pumps.

Businesses that are heavily dependent on fuel are absorbing the cost or passing it along. Company officials say they are left with little choice, given the record increases.

In the past two weeks, gas prices rose by 12 cents, reaching more than $2 a gallon at some Bay Area stations. A new statewide gas survey is due today.

Already, the impact is being felt in flower shops, among gardeners, with trucking companies and at airlines.

Allegiant, a Fresno-based air carrier, has seen its fuel prices rise by 50% in the past six months. To defray the cost, it has added a fuel surcharge of $6 a ticket.

Its president, Jim Patterson, said the airline's second-greatest expense is fuel, next to employee labor.

Patterson said the major carriers have slapped fuel surcharges on flights ranging from $20 to $60 a flight. "This definitely has a trickle-down effect," Patterson said.

Marcos Hernandez admits his new gardening customers are not getting as good of a deal as his longtime patrons.

The price of gas has taken its toll because every piece of equipment -- gas-powered leaf blower, edger, lawn mower, extended-cab Chevrolet pickup -- costs more to use. "I tell my new customers the problem is the gas price, so I have to charge them a little bit more," Hernandez said. "I would charge new customers $10 or $15 more a month."

While several local flower shop managers say they are holding off on raising their delivery fee as long as they can, at least one northwest Fresno store expects to increase its fee from $1 to $2.

"The price of gas just keeps getting higher and higher," said Denise Francis, an employee of Woodward Park Florist and Gifts.

Trucking companies, which consume massive amounts of fuel, also have begun using fuel surcharges. Dan Miller, vice president of Smart Refrigerated Transportation in Lathrop, said his company's fuel costs have gone up 49 cents a gallon over a year. On average, the company's fleet of big-rigs goes through 1 million gallons of diesel fuel a year.

The company began its surcharge at 4% about a month ago. Currently, it charges 5.5% to its customers that include Minute Maid, Foster Farms and its parent company, Save Mart.

"They all understand, since every carrier is doing it," Miller said. "The awareness of fuel costs is so widespread that they are expecting it."

The diesel price has jumped so quickly that Mike Haltom, transportation manager for Best Buy's distribution center in Dinuba, has no idea how long the company can hold out before raising prices. That does not bode well for Best Buy shoppers.

The high price of fuel, a 45% jump for Best Buy, is taking a bite out of company profits, but in the highly competitive world of retailing, Best Buy has not increased prices on such things as computers, televisions and other appliances. Haltom said the company has about a 5% profit built in on each item sold and about 10% of its margin is being eaten by the higher fuel price. On a $1,000 computer, the additional cost would be about $25.

Chris Millier, service manager for Paul Evert's RV country in Fresno, said people have not been turned off by the idea of owning an RV. "Some of these things have 100-gallon tanks, so for one that's pretty empty it costs anywhere from $125 to $200 to fill it," Millier said. "But, if someone can afford the RV, then they can afford the fuel."

He said it will take months to see a trend taking shape among buyers.

"I would attribute our business to weather. This weekend the sun was out, it was nice and we had an awesome weekend, but last week it rained and it wasn't so good," Millier said.

Those who can't pass along the cost are frustrated by the spiraling increases.

"We have to swallow it," said Mike Hill, general manager at OK Produce. "That is the only thing we can do at this point. The agreements we have with our customers doesn't allow us to do that right now.",1703,143183,00.html

-- (, March 14, 2000

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