Sunday, July 29, 2001

BP vs. Speedway: a battle for turf

By James Pilcher
The Cincinnati Enquirer

        When it comes to setting daily gasoline prices, local dealers say it's a game of follow the leader.

        And if you have a company-owned BP or Speedway in your Greater Cincinnati neighborhood, be prepared to struggle to keep up, independent dealers say.

        “They appear to have a different, more aggressive business model,” says Jeff Lykins, who operates 15 convenience stores in the Tristate and is chairman of the Ohio Petroleum Marketers Association. “They don't just drop a penny anymore. They go down or up a nickel or more. And they're always the first to move.

        “These guys are taking a natural resource that is scarce and are using it as a loss leader to drive traffic.”

        Many local dealers, such as Mr. Lykins, and outside experts say an apparent turf war between BP and Speedway/SuperAmerica, a joint venture of Ashland Oil and Marathon Oil, is driving the price wars in Greater Cincinnati, one of the nation's most competitive retail gas markets.

        “If you are willing to forgo profit, the only reason you would do that is if you were in a war for market share,” says Peter Beutel, oil analyst with the Connecticut energy risk consulting firm Cameron Hanover Inc.

        Major oil companies own about 20 percent of the nation's gas stations, according to the American Petroleum Institute.

        BP owns the most nationally with 17,500, including 52 sites throughout the Tristate, according to National Petroleum News, a Chicago-based publication.

        Marathon Ashland LLC, the joint venture between Marathon Oil and Ashland Oil, owns about 2,284 Speedway/SuperAmerica sites nationwide, making that brand the 16th largest nationally. More than 50 Greater Cincinnati stores will soon bear the Speedway name exclusively.

        The two are the top sellers in Greater Cincinnati and Dayton, with each selling 19 percent of all gas sold, according to a June survey conducted by the Tulsa, Olka., marketing research firm MPSI Systems Inc.

        Officials from both companies deny they have targeted each other, or that they're price leaders.

        “There could be times when we're the price leader, but more often than not, we're the price follower,” says BP spokeswoman Linda McCrae. “We're not in the business of losing money on gas.”

        Marathon Ashland spokeswoman Linda Casey acknowledges that Speedway stores may set retail prices below their wholesale costs in the short term.

        “We'll stay competitive, but for the most part we are reactionary and we're not going to be the price leader to lose money,” Ms. Casey says. “Frankly, BP is one of our biggest competitors, but we have others to worry about, too.”

        Still, oil industry expert Tom Kloza says that the two oil companies may have picked this area to slug it out.

        “It's less about the cost of fuel and more about local competition,” says Mr. Kloza, publisher of the Oil Price Information Service's daily newsletter. “They're going to match each other in every market, and grab as much market share as they can. They're probably hoping that in three years, they own the market and can set their own prices, but in the meantime, it's quite” a battle.

        Neither Ms. McCrae nor Ms. Casey would disclose what kinds of profit margins are set or achieved at their stores nationwide or in the Tristate.

        “But the only time you see margins razor thin in any business is when one company is trying to put another one out of business,” Mr. Beutel says. “We'll probably never know for sure whether that is what is going on in Cincinnati, but the gloves are off for everyone in that market.”

Price wars fierce at the pump

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