Duluth-area gas sellers say there's no price conspiracy

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People fill up their cars with gas last week at the Super America at Woodland Avenue and St. Marie Street in Duluth. (Bob King / rking@duluthnews.com)

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When it comes to gas prices in Duluth, it sure looks like collusion to resident Robert Mattila.

“The gas stations in Duluth have had a monopoly on the price,” he said.

“Everybody has the same price. It doesn’t matter what time of day. It seems they all raise and lower their prices at the same time. I don’t understand how they can do that in a competitive market.”

Mattila isn’t alone.

Local complaints about gas price differences fly when prices climb. And the suspicion lingers when prices fall.

Drive to Two Harbors or Cloquet, and prices are usually less than in Duluth. Get off the beaten path, and gas can even be cheaper in isolated towns. Head down Interstate 35, and you’ll likely find cheaper gas at the Beroun and North Branch exits and in the Twin Cities, where prices vary widely.

“They have a difference in prices where here, there isn’t any difference,” Mattila said.

An often-spouted explanation is that Duluth is at the end of the pipeline, so transportation costs boost local pump prices. But most of the area’s crude oil comes from Canada, and much of its gasoline is refined in Superior.

“You’d think it would be less in Duluth-Superior,” Mattila said. “But it’s not cheaper.”

For the most part, he’s right — a News Tribune analysis of gas prices in Minnesota from July through November found that on average, gas prices in Duluth were 5 cents higher than the state average.

If there are area gas retailers involved in collusion — getting together to control prices — neither the Minnesota or Wisconsin Attorney General’s office has found evidence of it over the past several years, both the agencies said. The Wisconsin Attorney General’s Office, for example, recently closed an investigation into alleged price fixing in Eau Claire, Wis., without finding anti-trust wrongdoing.

However, proving collusion, said Ben Wogsland, a spokesman for the Minnesota Attorney General’s Office, is difficult.

“There’s no law against prices going up simultaneously,” he said. “To the consumer, it looks like entities colluding.”

Erin Roth of the Wisconsin/Minnesota Petroleum Council, a trade group, said high volume stations with multiple locations in a market are often the price leaders.

“Local retailers in Duluth-Superior don’t sit in a smoke-filled room and decide what the retail price of gasoline is going to be today,” he said. “But you can bet retailers in St. Louis County are very cognizant of what their competitors are doing.”

Except for minimum markup required in both states to protect small “mom and pop” businesses from being undercut by big, high volume chains, there are no price regulations.

“Prices mimic each other,” Wogsland said. “It’s essentially a peer market driving the price of gas.”

Narrowing gap

The News Tribune analysis of gas prices in Minnesota from July through November confirmed that price discrepancies exist around the state, but not to the extent that many believe.

Ten to 15 years ago, price differences of 10 cents or more could be found between Duluth and the Twin Cities, prompting many travelers to fill up in the Cities before heading north. But today those differences have dropped.

The News Tribune found gas that was 4 cents cheaper in the Twin Cities than in Duluth. Cloquet came in four cents cheaper than

Duluth; Two Harbor, five cents cheaper; Hibbing, nine cents less. International Falls came in 10 cents more than Duluth, based on

prices listed daily on MinnesotaGasPrices.com.

So what’s the reason for the price differences? According to David Podratz, plant manager at Calumet Superior, formerly Murphy Oil, which supplies much of the gasoline in the Twin Ports, it’s largely because they’re different markets.

“Each market is independent,” Podratz said. “They set their own prices. It’s as simple as that.”

Some communities, such as those in tourist or highly traveled areas, can historically maintain higher prices, said Roth, of the petroleum council.

The lower gas prices in the Twin Cities are a result of its much larger, more competitive market, industry experts said. Moreover, it’s made up of many suburban and community sub-markets battling it out.

In Minneapolis, more competition per capita means retailers may get very aggressive, resulting in even more varied prices, said Lance Klatt, executive director of the Minnesota Service Station and Convenience Store Association.

Increased competition also is attributed to narrowing the gap in prices between Duluth and the Twin Cities, as big oil companies have sold off their stations in recent years and more stations have sprung up, including unmanned self-service locations.

Matching prices

While pump prices in the Twin Cities can vary by 20 cents or more, according to the five months of prices examined, they varied by just eight cents on average in Duluth.

“It’s single market here, opposed to a bigger market where parts are directly competing with another,” Podratz explained. In Duluth, if a store lowers its gasoline prices by two cents, it will get a lot of business, and other stores will soon lower their prices to match it, he said.

Little Stores routinely do just that.

“We’re basically a follower in gasoline prices,” said Mike McKinney, co-owner of Cloquet-based Best Oil Co., which operates Little Stores across the region. “We’re matchers, not leaders, in the price market. Our price will pretty much be the same as the one next to us.”

Lindsey Lindberg, manager of the West End Little Store, at 1831 W. Superior St., is quick to match prices with the nearby M & H station at 1230 W. Michigan St., long known for its low pump prices.

She also keeps an eye on what the Holiday and Spur stations on 27th Avenue West are doing.

“Typically, we have to stay with them to get the business,” she said.

Over at that Spur Station, they’re matching what the Holiday station is doing across the street.

“We have to go by Holiday prices,” said longtime cashier Dave Gimpel. “We match Holiday.”

How prices are set

But more factors than market and competition go into the setting the price at the pump.

The biggest reason is the cost of crude oil, which accounts for more than half the price. The list of factors that can drive the price of crude up and down is a long one, including extreme weather, what’s happening in the Middle East, the stock market, demand around the world, supply disruptions, unemployment, seasonal fluctuations, even holiday shopping.

Also contributing to gasoline prices are the wholesale prices retailers pay, as well as state and federal gasoline taxes, currently totally 43.4 cents in Minnesota and 51.3 cents in Wisconsin, which is why prices are higher in Superior.

But what about Duluth’s distance from the pipeline?

Actually, there are two pipelines. The crude oil pipeline, coming from North Dakota and Canada, passes through Superior on its way to Chicago, with Superior one its first stops.

Although the Calumet refinery in Superior, formerly Murphy Oil, turns the crude oil into gasoline, the finished product is sent south through another pipeline to terminals in Esko, Wrenshall and the Twin Cities, Podratz said.

Distributors could fill up any of those terminals, but most likely fill up in Esko or Superior, then drive to Duluth for deliveries, he said. The advantage pales in comparison to the Twin Cities, which has two, much larger, refineries in Southern Minnesota from which to draw.

When wholesale suppliers, like Best Oil, also own stations they supply, retailers see savings because the middle man is eliminated.

Other affiliations also give stations advantages.

Although the former Murphy Oil sold its contingent of Spur stations about 10 years ago, the company still has supply agreements in place with the refinery, better positioning them for the best deals for wholesale gasoline.

“They would be first in line for fuel supplies,” Podratz said. “Those agreements between dealers and Calumet are still in place, though they’re completely independent and set their own prices.”

Those Murphy USA pumps at Walmart stores in Hibbing and Cloquet have helped drive prices down in those communities.

The elusive profit

Above all, merchants need to make a profit, and industry experts say profits have been declining, even as prices rise.

“Every year, we see we’re making less per gallon, and I don’t think that will change,” said Best Oil co-owner McKinney, estimating profits at less than 10 cents per gallon.

“It’s very common for profit to be in the single digits, which means we don’t make any money if a credit card is used,” he said, referring to the 2 percent to 3 percent fee retailers pay when customers pay with a credit card. That fee would be about 9 cents on a $3 gallon of gas, wiping out the profit.

The situation is even more dire in Cloquet, where stores also struggle to keep up with the low prices on the Fond du Lac Reservation, where stations don’t have to pay property taxes.

When the price of gas goes up, it only gets worst.

“When gas goes up, our members don’t like it any more than consumers,” said Klatt, of the service station association, which claims nearly 500 store members. “They like it worse.”

That’s because convenience stores make their money from their in-store business, not gasoline sales, Klatt said. “The higher the price of gas goes, the more our members’ (credit card) fees go up, and the less consumers have to spend in the store,” Klatt said, noting that those merchant fees are a percentage of their credit card sales.

For anybody looking at a gasoline retailer’s profit and loss statement, the margins are extremely low, McKinney said.

“It’s a very tough business,” he said. “If it was easy, more people would get into it.”

Investigations editor Brandon Stahl contributed to the data analysis for this story.

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