Anger Over Oil Spill Spills Over To BP-Branded Fuel Retailers

By Naureen S. Malik Of DOW JONES NEWSWIRES Independent sellers of BP-branded fuel are facing a backlash, one that could have debilitating effects on many small business owners, as the public's outrage grows over the oil company's inability to stop the massive Gulf of Mexico spill. But even as BP PLC (BP, BP.LN) faces a public relations nightmare and billions of dollars in costs related to the oil spill, the protests against BP-branded gas stations, which started in Gulf Coast states but have spread, have little immediate impact on the company. 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 fuel. The actual gasoline sold at any station 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 company, which can also 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 profits for the oil company. However, for the thousands of entrepreneurs who have banked their livelihoods on the BP name, mounting anger over the environmental and economic toll the spill is taking could turn the once highly coveted BP brand into a major liability. These risks rise the longer it takes for BP to halt the oil spill, which has been going on for eight weeks, said independent fuel distributors, gas station owners and industry organizations that represent them. BP stations in Florida immediately saw consumers turning away after the leak began in April. Total sales at BP stations declined 8% to 10% in May compared to last year while competitors benefited from additional traffic, said Jim Smith, president of the Florida Petroleum Marketers and Convenience Stores Association. The magnitude of this sales decline "means that we are going to have a lot of small business owners going out of business," he said. BP representatives didn't comment on the effect of consumer boycotts on BP stations. The roughly 500 BP jobbers, as the independent fuel distributors are referred to in the industry, are worried about the reduced demand for fuel. Gas station owners are concerned that a drop in motorists filling up their tanks will clip purchases 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 last five years in an effort to bank on BP's strong brand name and its push toward an environmentally friendly image, he said. Among the stations owned by Phelps, those in affluent, more liberal neighborhoods around Washington have been hardest-hit. Some stations have had to cut prices to draw traffic. "This is my business; this is my livelihood. It hurts," he said. Independent owners have been relying on deep community ties to keep customers coming. So far the backlash is taking place in isolated instances but it has picked up momentum as attempts to plug the oil gushing out of a well a mile below the surface have failed and oil has affected a wider swath of the coast. BP-branded fuel retailers said there's 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% to 3% so far this month at four BP stations in tourist areas. Hundreds of Facebook pages and Twitter accounts have sprung up dedicated to the spill coverage. Many of them are organizing protests. More BP station owners are hearing complaints from customers about the spill or motorists yelling as they drive. But gas station owners and jobbers said 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's Oil Co., noting that same-store sales across the company's 35 BP stations in Indiana fell 5.4% last week, the first decline seen all year. BP employees are working with local fuel retailers to launch grass-roots marketing campaigns and are visiting sites to talk to outraged consumers, said John Kleine, executive director of the BP Amoco Marketers Association, an independent organization funded through marketers' fees. The company's support for retailers includes a full reimbursement for advertising dollars rather than splitting the costs under normal circumstances. "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," Kleine said. He did not have details of how much financial support BP is providing but said that no request has been denied yet. So far, jobbers and retail stations are largely sticking with BP rather than switching to other brand names, which could include buying out expensive contracts, said Dan Gilligan, president of the Petroleum Marketers Association of America. "They believe with their standing in the community their customers are going to support them," he said. -By Naureen Malik, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com (END) Dow Jones Newswires June 15, 2010 14:40 ET (18:40 GMT)