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Wednesday, June 16, 2010

BP Protests Threaten Independent Dealers

The Wall Street Journal

Protests and boycotts of the BP brand generated by the Gulf spill aren't likely to have a big immediate impact on BP PLC, but could threaten the thousands of entrepreneurs who have staked their livelihoods on the company's name.

Nearly all the 10,000 service stations around the U.S. flying the BP flag are owned by independent dealers that are obligated under long-term contracts to sell BP-branded fuel. Some worry that mounting anger over the spill's environmental and economic toll could turn the once-highly coveted brand into a liability.

But the actual gasoline the stations sell is a mixture of fuel from multiple refiners or importers, so the direct impact of any slowdown at BP-branded stations is minimal for the oil giant, which can sell excess supplies as private-label fuels to other retailers. Maintaining a brand presence is important to BP, but the marketing segment only represents a sliver of profit for the company.

BP stations in Florida immediately saw consumers turning away after the leak began in late April. Total sales at BP stations there declined 8%-10% in May compared with last year, while competitors benefited from additional traffic, said Jim Smith, president of the Florida Petroleum Marketers and Convenience Stores Association. The magnitude of the sales declines "means that we are going to have a lot of small business owners going out of business," he said.

Hundreds of Facebook pages and Twitter accounts have sprung up dedicated to the spill coverage, and some have organized protests. Some BP station owners are hearing complaints from customers about the spill or motorists yelling as they drive by. But station owners and independent distributors, who bring fuel to the stations, say it is more difficult to quantify the silent protesters who simply drive to other stations to fill up.

"People are kind of melting away," said Jay Ricker, chairman of Ricker Oil, noting that same-store sales across the company's 35 BP stations in Indiana fell 5.4% last week, the first decline seen this year.

Independent fuel distributors, known in the industry as jobbers, are worried about the reduced demand for BP-branded fuel. Station owners are concerned that a drop in motorists filling up their tanks will clip purchases for items such as chips and sodas at attached convenience stores, which account for less than a third of sales but two-thirds of profits.

"The distributor and retailer communities have really become the lightning rod of the consumer backlash, easy targets," said John Phelps, president of Carroll Independent Fuel Co., which supplies 110 BP stores in the Baltimore area. Carroll acquired most of them in the past five years in an effort to bank on BP's strong brand name and its push toward an environmentally friendly image, he said.

Some BP-branded fuel retailers say there has been a noticeable change in consumers' attitudes since the start of June, when images of oil-blackened wildlife and tar balls on beaches heightened the public's anger about the spill.

"It really coincided with the oil coming ashore," said Jeff Miller, president of Miller Oil Co., a family-owned distributor based in Virginia Beach, Va., that supplies about 50 million gallons of BP gasoline annually and owns 16 stations. He has seen gasoline sales fall 2%-3% this month at four BP stations in tourist areas.

BP employees are working with local fuel retailers to launch grass-roots marketing campaigns and are visiting sites to talk to concerned consumers, said John Kleine, executive director of the BP Amoco Marketers Association, an independent organization representing independent distributors. The company's support includes full reimbursement for advertising costs normally split with jobbers. The money frequently goes to on-site promotions at service stations.

"BP looks at what they are doing now as a long-term investment for the brand and knowing that investment will play out over time if you are doing the right thing," Mr. Kleine said.

So far, jobbers and retail stations are largely sticking with BP rather than switching to other brand names, which could require buying out expensive contracts, said Dan Gilligan, president of the Petroleum Marketers Association of America, an industry group.