Gas price spike = driver rate hike?

April 15, 2003

Despite a slight decline in gasoline prices, the cost of filling up remains high. And that leaves battle over whether operators should increase pizza delivery drivers' auto usage reimbursement rates heated as ever.

As of April 14, the national average cost for a gallon of regular unleaded gas was $1.67, about five cents below the record high average of $1.72, set on March 17.

On one extreme of the fuel price range is San Rafael, Calif., a suburb of San Francisco, where locals pay $2.39 per gallon. Head east to Oklahoma City and the cost plummets to $1.23.

Tim Lockwood, a delivery driver in Nashville, Tenn., said the highest he's seen prices rise this year is $1.59. As of April 11, prices had dipped to $1.43 per gallon in Music City.

"We've been watching it closely, hoping it wouldn't go higher; it's been a real nail biter," said Lockwood, who also is the treasurer of the Association of Pizza Delivery Drivers (APDD). "What's interesting is that we're happy to see it go down to $1.43. But six months ago, when it was really low, we'd have been cranked off to see a $1.43."

Lockwood, like several other delivery drivers interviewed, said they're disappointed the operators they work for haven't raised their auto use compensation -- typically a set fee per delivery run -- along with rising gas prices.

And it doesn't appear that will change any time soon, as no operator interviewed expressed plans to boost driver rates. Ramon De Leon, operations manager for Fisher Pizza, a six-store Domino's Pizza franchisee in downtown Chicago, doesn't think gas prices are high enough to warrant a compensation increase.

Will gas prices continue dropping?

Don't break the fall: According to the Associated Press, gasoline prices have fallen more than a dime since mid-March as optimism over a quick end to the war with Iraq has risen. As of April 8, the average cost of a gallon of gas in the U.S. was $1.67.

The slippery side of oil prices: The price of a barrel of crude oil hit $40, but is now hovering near $27 -- a drop of 20 percent since the war began. Quoted in Thom Calandra's column on, Michael Darda, chief economist at, said the crude price drop is likely hit $20 per barrel, the result of which could be a $140 billion boost to the U.S. economy.

Factoid: A $10 price drop on a barrel of crude oil equates to a 24 cent drop in the price of gasoline.

Prediction: Summertime gas prices should average $1.56 per gallon of regular unleaded.

Good news, but don't celebrate yet: Energy analysts warn that gasoline inventories remain tight, and despite low crude oil prices, it takes a while to refine that oil and replenish fuel stocks.

His drivers pay about $1.69 a gallon for gas, and he said the price would have to rise to $2 per gallon before he'd consider a reimbursement rate increase.

"We really try to get our drivers to focus on where their real money comes from: tips, not on hourly rates or mileage," said De Leon. "I was a driver myself for three years, and I know there's always something to complain about. This is just a small hardship that will pass."

Drivers acknowledge that gas price increases are a hazard of the job, but as some point out, reimbursement rates at many operations haven't changed in years.

"Pizza Hut has been paying 50 cents a run at every corporate or franchise location I've ever worked for, and that's since I got into the business in 1987," said J.W. Callahan, president of APDD. Callahan delivered pizza exclusively for 15 years before becoming operations manager in Warner Robbins, Ga., for Restaurant Express, a contract restaurant delivery service. "You'd think things would change some, but they haven't." (See related story "Pizza Hut memo warns of cut in driver reimbursements, hints at sales declines.")

Michael, a delivery driver in Knoxville, who asked to keep his last name confidential, said he's never gotten a good answer from any of his bosses as to why reimbursements shouldn't increase.

"I've been told, 'Well, we don't cut the rate when prices go down, so we'll not raise it when it goes up,' " Michael said. "That didn't make much sense to me, but that's the answer I got."

Is a rate hike deserved?

Based on inflation alone, drivers receiving 50 cents a run could argue for at least a small rate increase. For example, according to the U.S. Bureau of Labor and Statistics, from 1991 to 2001, inflation increased an average of 2.8 percent per year. If the average driver received 50 cents per run in 1991, to keep pace with inflation, he should have received roughly 65 cents per run in 2001.

And while 15 cents per run may not sound like a make-or-break number, over the course of a 100-run week (20 runs per day, five days a week), a driver would receive $15 extra dollars -- close to a tank of fuel in most cars.

Over the course of a 50-work-week year, that extra compensation adds up to $750, enough for new a set of tires, brake shoes and several oil changes.

Still, De Leon said the 60 cents per run Fisher pays is more than enough for drivers working in Downtown Chicago.

"It's almost twice as much as the government allows you to deduct per mile," said De Leon, referring to the U.S. legal minimum of 36 cents per mile. "And frequently these guys will have more than one order going to the same high rise, so that works to their favor." Additionally, because of the high concentration of businesses and residences in the downtown area, De Leon said, driver roundtrips typically are less than a mile and a half.

Road Rate 

* For every 10 cents gas prices go up, drivers pay more to do their job. For example:
   A driver logging 40,000 miles per year, and whose car gets 20 miles per gallon, will pay out $200 more dollars per year.
   A driver logging 30,000 miles per year will see an increase of $150 more per year.
   A driver logging 20,000 miles a year will pay $100 more per year.

Michael from Knoxville said his average roundtrip is five miles, and for that he's paid 75 cents per run. Still, he said compensating for trip distance alone doesn't fully address the wear and tear on a car, whether delivering in the city or in the suburbs or in a rural area.

The cycle of replacing brakes, tires and oil changes is constant for full-time drivers, he said, and sub-$1 reimbursement rates do little to ease the grind.

"I probably spend $1,000 a year on repairs and maintenance for my car," said Michael, who drives a 1993 Toyota Corolla with 274,000 miles. "I replace the tires every nine months and the brakes, too. And since I drive at least 3,000 miles a month, I change the oil at least once a month."

But is a gas price increase alone enough to warrant an auto-use reimbursement increase? The financial impact is measurable, but debatably significant.

A full-time delivery driver who drives 40,000 miles per year, for example, and whose car gets 20 miles per gallon, will shell out $200 more dollars per year (40,000 miles ÷ 20 mpg = 2000 gallons of fuel. 2,000 gallons x 10 (cents) = $200) for every 10 cents-per-gallon increase in the price of gas. Drivers logging 20,000 miles per year see an increase of $100 for every 10-cent jump, and those driving 30,000 miles annually see their fuel costs jump $150.

Long-term drivers who've not had reimbursement rate increases, however, stress that history is on the side of operators when it comes to price increases. Michael, for instance, has watched gas prices nearly double since becoming a delivery driver six years ago.

"Gas was 80 cents a gallon back then, and now I'm paying around $1.50," he said. "That's a real difference. ... But the reimbursement hasn't gone up any."

Clay Thornton, a five-year pizza delivery veteran who now delivers for Norcross, Ga.-based Steak-Out, said his current employer pays $1 per delivery from 10:30 a.m. to 3 p.m., before cutting the rate back to 85 cents per run after that.

The delivery radius around the Steak-Out where he works in Jackson, Miss., he added, is 14 miles, much further than the three-to-five-mile rings around the pizza store where he once worked. A fair per-run reimbursement rate, he said, would be $1.20, mostly to help offset wear and tear on his Mazda B3000 truck.

"I go through a set of tires every nine months and have to get a brake job every four to six months," Thornton said. "The shortest delivery I have is 11 miles one way."

But complaints are few

Julian Angelone, owner of 16-store Ronzio Pizza in Lincoln, R.I., said he's surprised he's heard so few complaints about gas prices from the chain's drivers.

"It's around $1.65 right now, but it's been up over $1.80, too," he said. "Still, I'm surprised there's not been a lot of backlash over it."

Angelone said everyone, including the vendors he buys from, seems to be taking the gas price increases in stride. He said that in the past, surcharges were assessed on some goods he purchased from vendors who passed along their increased fuel costs. And while talk of charging for delivery surfaces occasionally, no pizzeria operator he knows of wants to pioneer the effort.

"Not even the major chains in our area have moved to do that," Angelone said.

Even Callahan, who monitors the APDD's chat room and message boards regularly said he's seen only "a little griping and complaining, but nothing terribly outrageous except for places where (gas) is $2 a gallon."

Count the Cost of Driving

According to the American Automobile Association, driving a personal vehicle for an employer's purposes can be costly.

* Driving a four cylinder 2002 Chevrolet Cavalier LS 10,000 miles a year costs its owner 53.4 cents per mile in wear and tear. Fifteen thousand miles annually costs 43.1 cents, and 20,000 miles costs 39 cents.

* For a six-cylinder Ford Taurus SLE Deluxe:
    10,000 = 60 cents/mile
    15,000 = 49.8 cents/mile
    20,000 = 44.9 cents/mile

* For an eight-cylinder Mercury Grand Marquis:
    10,000 = 73.6 cents/mile
    15,000 = 57.7 cents/mile
    20,000 = 51.4 cents/mile

One such place is Santa Maria, Calif., home to the 50-store Straw Hat Pizza cooperative. There, according to its president, Josh Richman, a gallon of regular unleaded costs $2.15. But Straw Hat driver compensation ranges between $1 and $1.50 per run.

"Between that, their hourly rate and tips, I believe (the drivers) are more than adequately compensated," Richman said. "You know the pizza business, there are no real secrets; everybody else knows what everybody's doing. So pretty much everybody falls in line with the standard compensation."

Former operator and delivery driver Jim Moran doesn't believe that a compensation increase is the key to making drivers happy. He admits, though, that he empathizes with them.

"I've seen both perspectives, and when gas prices went up, it was like getting a pay cut. It hurt," said Moran, now a consultant and speaker with Restaurant Trainers, Inc. "But from a manager's perspective, if they gave a raise when prices went up, would the drivers be willing to take a cut when it went down? I'm not sure I'd want to try that. ... Dealing with gas prices is just part of the job."

The solution, Moran said, is for operators to lead and direct drivers to generate more sales through contests and other business builders. The increased sales activity and tips that follow will remove concerns over gas prices.

"Tell them you're going to have an upsell contest or door hanging contest -- things every operator should be doing anyway," said Moran, a former Domino's Pizza manager. "Pay them 15 cents for every six pack of Coke they sell. Give them door hangers or coupons that everybody can put their own symbol on and then put on the doors nearby where they're delivering. With every one of those that comes back with somebody's symbol on it, give them a dollar."

The point, Moran stressed, is to manage beyond the current crisis, be it high fuel prices, the recession, whatever, and help drivers adopt a long-term view. Strong leaders who energize their staffs and engender loyalty and team spirit weather those challenges -- and they make a lot of money at the same time.

"If they're doing those kind so of things, then an increase in gas prices will have zero effect," said Moran. "If you like working for that kind of manager, you'll understand that gas prices fluctuate. And if you like working in that kind of atmosphere, you'll not consider quitting. You just work together to get through it."

Topics: Independent Operation , Marketing , Operations Management

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