Self-Service Becomes Institutionalized: 1971–84 (Part 4 of 4)

[Editor note: This post completes a four-part history of the rise of self-service filling stations in the United States. Part I examined the discovery and early regulation of this new marketing strategy; Part II covered 1947–51; Part III reviewed the period 1950–70).]

“Government intervention unintentionally promoted self-service. The gasoline shortage of 1974 educated motorists to serve themselves to reduce waiting in line, and the seller’s market deteriorated the quality of service. Regulatory minimum wage and overtime pay scales, which had been steady for years, jumped 25 percent in 1974 and covered more stations.”

Prior to regulation under the Economic Stabilization Act and the Emergency Petroleum Allocation Act (1973–81), independent gasoline retailers were foiling the ambitious expansion plans of the majors with their low-cost service and discount prices. Central to this success was self-service. By reducing labor expenses and increasing volume, independents more than neutralized the brand-name goodwill of their rivals.

In the late l960s, several majors began to experiment with self-serve.  In early 1971 it was reported that “major-company resistance to allowing their brands on self-serve pumps has . . . pretty well collapsed.” Mobil and Shell launched aggressive self-service expansions across the country where allowed by law, and most other majors were at least in the experimental stage.

While the majors were in the start-up phase, independents were turning to self-service outlets in record numbers.  By 1972, an estimated 15,000 self-serves were in operation, a far cry from less than 1,000 stations a decade before. Next to remote-operated and some coin-operated pumps, convenience store tie-in’s were the most popular form of self-service.  Unattended pumps sprouted in front of a variety of establishments – the flower shop, cleaners, car wash, hamburger stand, supermarket, and ice cream store. Self-service, commented the National Petrole­um News, “seems to defy standardization.” The market’s discovery process, despite the regulatory obstacles, was at work.

The attractive economics of self-service was one thing; legal barriers in many areas was another.

In 1971, customer dispensing was illegal in 14 states – Florida, Oregon, Kansas, North Dakota, Minnesota, Iowa, Illinois, Indiana, Ohio, Michigan, Pennsylvania, Maryland, New Jersey, and Vermont. Many states that did not prohibit self-service had municipalities that did.  In Texas, for example, self-serves were illegal in Houston, Dallas, Fort Worth, Austin, and Waco. But steady progress was being made toward legalization, particularly in the late 1960s, and pressure was mounting for further repeal.

Self-service had a flawless safety record, was endorsed by the National Fire Protection Association, and had an organized lobbying group, the National Self-Service Gasoline Association (founded 1969).  The most telling argument in favor of self-service was the fact that insurance rates were lower for self-serves than for conventional outlets. Against legali­zation were vested full-service dealers organized in powerful trade associations and well represented on state flammable liquid committees that recommended policy to state fire marshals. [1]

The growth of self-service came to a sudden halt in mid-1973.  The problem was motor fuel availability for reasons described in the last chapter.  Unbranded independents found their lifeline of surplus gasoline drying up, and majors had less gasoline for expansion.  Arco aborted a national self-serve expansion two weeks after it began. Over a short period, the market share of full service actually increased to the detriment of not only self-serve dealers but manufacturers and distri­butors of coin-operated and remote dispensing units. A sign of the times was when Indiana legalized self-serves in July 1973 only to find no takers.

Soon after the motor fuel shortages of early 1974 eased, self-service resumed its growth.  The majors’ split island concept — a self-serve bay next to a full-service bay — and the independents’ high-volume self-serves and convenience stores led the way. Between 1975 and 1977, the market share of self-serve gasoline doubled to 30 per­cent, and a year later it broke 50 percent to over­take full service. Truck-stops were also converting their diesel stations to self­-service. The wave of the future had belatedly arrived.

The dramatic growth of self-service reflected market realities on the one hand and legalization on the other.  By 1980, most munici­palities and all states except Oregon and New Jersey allowed self­-service.  Among the new legal areas were Kansas and Dallas, Texas (1972), Michigan,  Indiana, Georgia, Michigan, and Los Angeles, California (1973), Florida (1974), Minnesota and Ohio (1975), Illinois and Denver, Colorado (1976), and North Dakota (1977).  Legalization failed in Oregon (1977) and New Jersey (1978).  Back-sliding was averted in a number of cases.  Bills to make self-serves illegal were defeated in Maryland, Massachusetts, Missouri, Pennsylvania, and Rhode Island in 1975 alone.

Smaller victories for full-service protectionism were important.  Florida and Indiana passed legislation to require one atten­dant per station to supervise fillup’s. Maryland in 1977 placed a two-year ban on conversions to self-serve.  In a challenge by Sun Oil, a federal judge upheld the law with a non sequitur: “The overriding local interest in this case is the preservation of motorist safety on Maryland highways.­” Illinois banned live-in labor at self-serves — a frontal attack on low costs and prices. Other laws imposed self-serve license fees, banned latched nozzles, and prohibited coin and card pumps.  Iowa went the other way.  After legaliza­tion it required state vehicles to use self-service gasoline to reduce cost.

With less prohibition, market factors went to work.  Dramatic price increases for gasoline sent motorists to self-serves to save a typical 3 to 4 percent off the full-serve price.  The increasing value of time encouraged self-service, which was quicker.  Self-serve equipment benefitted from improved technology and lower production costs. The rise of specialty automobile repair shops and extended car warranties, as well as water-free batteries, longer-life hoses and tires, elec­tronic ignition, and less frequent oil changes, diminished the need for station repair work and attendant services. Gas, not car maintenance, was in demand; many service stations were really gas stations ripe for self-service.  Scale economies favored high-volume self-serves.  Finally, tie-in sales of self-serve gasoline and convenience store items were a natural.  Consumers econo­mized time with their purchases, and overhead expenses for gasoline were spread over hundreds of items.

Government intervention unintentionally promoted self-service. The gasoline shortage of 1974 educated motorists to serve themselves to reduce waiting in line, and the seller’s market deteriorated the quality of service. Regulatory minimum wage and overtime pay scales, which had been steady for years, jumped 25 percent in 1974 and covered more stations. Coupled with other manpower problems, statutory increases in labor costs made labor economics the biggest concern for gasoline marketing.  Gasoline allocation rules for new stations by the Federal Energy Office and then the Energy Regulatory Administration, based on the “nearest comparable outlet,” encour­aged entrants to copy high-volume self-service stations to gain the largest allocation.  This, in turn, reduced allocations for existing stations to penalize existing full service, split stations, and self-serves.

Government intervention not only benefitted but penalized self-serves relative to full-serves.  The Office of Occupational Safety and Health (OSHA) required push nozzles in place of continuous (latched) flow nozzles.  This increased the labor of self-service and required the server to stay beside the gas tank.  General inflation, coupled with rising real oil prices in the 1970s, doomed coin-operated dispensing.  Remote operation from a centrally located cashier was now necessary.  Other intervention such as vapor recovery laws and price audits neutrally disadvantaged self-serves and conventional stations.

The cumulative effect of price and allocation regulation (Department of Energy), environmental requirements (Environmental Protection Agency), safety regulation (Occupational Safety and Health), and state regulation was too much of an economic burden for some entrepreneurs.  Pat Griffin, one of the leading lights of the self-serve industry, bowed out with these words:

“We simply reached a point . . . that although we were well-financed and reasonably knowledgeable, we just couldn’t compete anymore. . . . We were no longer competing with oil companies.  We were competing with the U.S. government and City Hall.”

Another well-known self-serve marketer, Mary Hudson, closed 25 stations and reduced operations in her remaining 31 stations because of federal regulation.

Self-service has become an institution is 48 states despite a variety of obstacles.  Today only Oregon and New Jersey deny consumers the choice of self­-service to save money and time.  In 1983, over 70 percent of gasoline nationally was dispensed by motor­ists; in 1984, the figure rose to 75 percent.

Pure Politics

The safety issue has lost respectability, but pure politics by vested interests remains alive and well.  Minnesota passed a law in 1984 to prevent full serves from converting to self-serves.  In Maryland, “full services” of air and water are required.  Air for tires is required in New York. Dealer­-sponsored bills to require traditional station services wherever gasoline was dispensed failed in Georgia, Florida, and Illinois in the early 1980s.  So did attempts in Kentucky and Washington, D.C. to prohibit alco­holic sales, beer in particular, where gasoline is sold.

Self-serves have not been above using the political means for advantage. The Serve Yourself and Multiple Pump Association, representing West Coast self-serve dealers and jobbers in the fight for legalization since 1947, came out in favor a California divorcement bill in 1984.  The motivation was to eliminate major-company self-serve competition, led by Arco, that was threatening independent self-serves.

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[1] Complained the founder and lobbyist of the National Self-Service Gasoline Association, A. L. Overton: “Our opponents are not safety organizations. They never hold safety meetings, they are never concerned about safety until we apply for the legalization of self-serve. Then all of a sudden they become experts on safety.”

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Source: Robert Bradley, Jr., Oil, Gas, and Government: The U.S. Experience (1996), pp. 1695–1700. Full citations therein.