Refined Product Marketing More than half of the $150 billion domestic refined product revenues reported by FRS companies in 1983 was derived from the sale of gasoline. This proportion has tended to increase in recent years primarily because consumption declines in other petroleum products, on a combined basis, have exceeded those of gasoline. Nonetheless, the volume of gasoline distributed by FRS companies fell by 12 percent between 1977 and 1983. Shrinking demand and, more recently, falling prices have put great pressures on FRS companies to adjust and modernize their marketing operations. Part of that process has involved downsizing the relative importance of investments for this function. Thus, the FRS marketing asset base has shown no growth in recent years. In 1977, net PP&E devoted to marketing had a book value of $8 billion in comparison to $11 billion for refining. In 1983 the book value of marketing assets was virtually unchanged ($8.2 billion), while the book value of refining investments had risen to $21 billion. Throughout the 1977-83 period, the combination of asset disposals and depreciation of marketing assets has offset the value of new investment commitments. Investment in marketing has not ceased but has focused on restructuring rather than on expansion, with emphasis on high-volume gasoline outlets and, more recently, associated convenience stores. The FRS companies have reduced efforts to market products to retail outlets over the 1977-83 period. The proportion of refined products sold by FRS companies through wholesale-resellers has tended to rise steadily in recent years. On a value basis, sales through wholesale-resellers more than doubled between 1977 and 1983 while total product sales increased 78 percent. Between 1981, when the value of product sales peaked, and 1983, sales to wholesalers fell only 12 percent in comparison to a decline of 19 percent for total product sales. Within gasoline marketing operations, revamping gasoline distribution networks has been the prime strategy. The proportion of gasoline sold through wholesale resellers has risen while the proportion of sales to retail outlets, particularly to lessee and open dealers, has fallen. By far, the most dramatic change with respect to direct sales was the reduction in the number of outlets supplied. In 1977, FRS companies supplied gasoline directly to about 180,000 outlets. By 1983 that number was reduced by almost 80,000 (see Table 23). In this process, the number of lessee and open dealers served fell by 46 percent and the number of company-operated stations fell by 18 percent. The volume of product marketed has also fallen, but not nearly as much. As a result, throughput per outlet supplied increased by more than 40 percent since 1977. Distillation Table 22. Domestic Refinery Configuration for FRS Companies Ranked by Total Energy Assets and Domestic Industry, 1981 and 1983 Crude Octane, Unleaded Percentage of Capacity Capacity 1983 Crude distillation capacity in barrels per calendar day. Other capacities in barrels per stream Includes catalytic reforming, fresh feed catalytic cracking, hydrocracking, and alkylation capacities. day Din Includes hydrotreating and hydrorefining capacities exclusive of pretreated catalytic reformer feed, naphtha desulfurization, and naptha olefin or aromatics saturation. Sources: FRS companies' crude distillation capacity from Form EIA-28; other capacities from Energy Information Administration, Petroleum Supply Annual, 1983, Vol. 1, and Oil and Gas Journal (March 26, 1984). Among FRS companies, strategies vary with respect to gasoline marketing. Smaller companies rely most heavily on wholesalers and company-operated outlets. In 1983, 63 percent of their gasoline sales were through wholesalers. Lessee and open dealers for this group are the least important part of their marketing network, less than 12 percent. For the midsize group of firms, lessee and open dealers still account for the largest share of retail gasoline sales (45 percent). Sales volume for the top four group is divided between wholesalers (42 percent) and dealers (38 percent). Sales through company-operated outlets have increased in recent years, but amount to less than 15 percent of total gasoline sales in 1983 for these two groups. The largest twelve companies, as a group, rely less heavily on wholesale distribution than does the group of smallest companies. Table 23. Changes in FRS Companies' Gasoline Distribution, Selected Years, "Retail here includes lessee dealers, open dealers, and company owned and operated outlets. NA Not Available. Changes in marketing structure appear to be reducing average marketing costs for FRS companies (see Table 24). For all FRS companies, marketing expenses per barrel decreased from $1.76 in 1981 to $1.56 in 1983, or 11 percent. Variations among companies are substantial. Paralleling differences in marketing strategies are differences in average marketing expenses. As can be seen in Figure 19, the three groups fall into distinct strata. The top four group has the largest marketing expenses per barrel; the all other group, the smallest, and the five through twelve group is in the middle. Cost cutting is particularly evident for the top four group in 1983. Their per-barrel marketing expenses fell from $2.36 to $2.30 (2.5 percent) from 1982 to 1983. However, the top four group's marketing expenses were still almost twice as large as the other groups in 1983. The five through twelve group's marketing expenses increased from $1.25 to $1.29 (3.2 percent) while the all other group remained constant at $1.17. Lowest costs are indicated by the smallest companies, which are least involved with distribution directly to retail outlets. Differences between the middle group and top group are remarkable, given that their general approach to gasoline distribution appears similar. |