More gas stations shutting down

By Kim Jae-won

The number of gas stations going out of business jumped 40 percent during the first seven months this year from a year ago as a result of the government’s measures to control prices amid escalating competition.

According to the Korea Oil Station Association (KOSA), 174 gas stations were shut down from January to July, up 40 percent from the previous year. The figure has been gradually rising over the last few years. The annual figure rose to 108 in 2009 and 127 in 2010 before peaking at 205 last year. Industry watchers say the number will surpass that to reach around 300 this year as 10 to 30 gas stations close every month.

Gas station owners say that low profit margins and fierce competition force them to shut down.

“The average profit margin stood at less than 4 percent in the first half of this year,” said a representative of the gas station owners’ association. “We pocket little after deducting 1.5 percent for credit card fees and salaries for employees.”

Industry watchers say state-subsidized cheaper stations dubbed as “Saving Gas Stations,” cornered other players already suffering from small margins. The government subsidized about 50 won to 100 won per liter for those stations since January to lower gas prices in the industry by boosting competition.

Another state-run player also made the competition even harder. Nonghyup, or the National Agricultural Cooperative Federation, expanded its gas station business after 2010 managing about 400 in-house brand gas stations nationwide. Observers say Nonghyup is expanding its presence in provincial regions where it has a strong foothold with its financial and retail services.

Market watchers say the market is already saturated because there are too many gas stations in the country. As of July, Korea has 12,852 gas stations about 4,000 more than that of Britain, which is about 1.5 times bigger than here in terms of size and population.

“The market’s demand and supply system has collapsed. It is inevitable to see that the industry will undergo tough restructuring,” said another industry source. He said that the ideal number of gas stations lies somewhere between 7,000 and 8,000 based on the country’s size and population.

Others say Korea may go down a similar path to Japan which saw its number of gas stations drop drastically during the last decade. The figure marked about 60,000 in the early 2000s in the neighboring country, but plunged to 34,000 after going through a painful restructuring period over the last 10 years.