When prices at Lukoil service stations in New Jersey shot up more than $8 a gallon yesterday, some thought it was joke. It wasn’t. It was a protest by franchise owners. Sal Risalvato of the New Jersey Gasoline, Convenience, Automotive Association told NJ Today Managing Editor Mike Schneider that small business owners were sending a message about unfair pricing practices by Lukoil North America that is driving customers away and forcing many owners out of business.
Risalvato said Wednesday’s protest may not be a one-time incident if Lukoil continues to turn a deaf ear to the message, saying “before the day was over more than a few dealers said that they would be willing to do it again, were anxious to do it again, they’re angry about the reason they have to do it.”
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According to Risalvato, the problem stems from the origins of Lukoil in New Jersey. Born after the merger of Mobil and Exxon, Lukoil replaced the former Mobil service stations around the state.
“The federal government required the Mobil name to disappear in New Jersey for monopoly reasons and Lukoil, through a series of transactions, wound up becoming the new owners of the properties, the new brand, new franchisor.”
Since then, Risalvato said dealers have experienced uncompetitive pricing and a steep decline in business. “Lukoil’s wholesale price to its dealers is consistently higher than other branded locations,” said Risalvato.
Furthermore, the actual dealer price that Lukoil charges, said Risalvato, is considerably higher than the wholesale price. “In many instances, it is 10 or 15 cents higher but the big problem comes in when Lukoil selects dealers and discriminates certain dealers and actually charges some of its dealers as much as 20 or 25 cents more than it charges the lowest priced dealer that is already higher than other brands,” explained Risalvato.
Risalvato had no explanation for Lukoil’s pricing system and wouldn’t attribute its business practices to any cultural differences related to the fact that Lukoil is Russian-owned.
“I can’t say what the business model is … I can only tell you the actual total volume of Lukoil in the region from the time that these locations were changed from Mobil to Lukoil.”
And that volume, said Risalvato, has been reduced by at least 50 percent, citing the example of one service station.
“When that location was a Mobil location, that dealer, that franchise small business owner pumped about 500,000 gallons a month which is unusually high. However, today — six years later — he pumps about 70,000 gallons a month.”
According to Risalvato, the situation is dire or too late for these franchise owners.
“There are over 30 locations in the past year that have given up their franchise, forfeited their investments and turned their keys back to Lukoil and there are a significant number of others that participate in this protest that are ready to do so very soon.”