Eating Up the Competition

The five largest oil companies doing business in Phoenix sell more than 90 percent of the gas in town

In the 1980s, Phoenix motorists had plenty of choices when it was time to fill up the tank. ARCO, Union 76, Mobil and the other giants were around, but so were such discounters as Circle K, U-Totem and Pasco. In 1981, the six biggest oil companies in Phoenix had only 30 percent of the retail gas market.

Then the feeding frenzy began. Mobil swallowed Pasco, and Circle K gobbled U-Totem. Connecticut-based Tosco, which has been scooping up both refineries and gas stations nationwide, gorged itself on three huge purchases in the 1990s: As an appetizer, the company bought the Exxon stations in Phoenix and Tucson in 1994, then polished off Circle K a year later. By the time Tosco ate Unocal for dessert in 1997, it had become the biggest player in the city. Today the five largest companies doing business in Phoenix -- Tosco, ExxonMobil, Texaco, Arco and Chevron -- sell more than 90 percent of the gas in town.

Those who suggest that the real objective of eliminating service station dealers is part of a bigger plan to gain control of the retail market point to Phoenix as a test case. "When you have five major oil companies controlling 90 percent of the product coming into Phoenix, they can pretty much do whatever they want," says Debra Margraf, executive director of the Arizona Automobile Trade Organization.

The Tosco purchases created instant havoc for the Union 76 and Exxon dealers, who suddenly found themselves competing with their own companies. And Tosco did in fact undercut Tosco, but it was usually the Circle Ks that had the low street price, often about two cents above the dealers' cost, sometimes even below cost. The Union 76 dealers had to pay more for their gas, even though it was delivered by the same tank trucks supplying Circle K stations.

A group of dealers threatened with immediate extinction organized and beefed to Tosco, which backed off. "It's kind of strange for an oil company to listen to its dealers," Margraf says.

If the objective was to get rid of the dealers, though, a lot of the damage already had been done by then. According to figures Margraf compiled from various industry sources and surveys, the number of lessee dealers in Phoenix shrank from 213 to 162 between 1991 and 1996 and has been in steady decline since. Meanwhile, the number of company-ops has mushroomed to almost 60 percent of the total. An Arizona attorney general's report in January 1998 concluded that "the market concentration in Maricopa County . . . has reduced the likelihood of strong price competition in the future."

Drawing any dramatic conclusions by tracking gas prices in Phoenix is difficult, because the prices can vary wildly from one market to another (for reasons that remain a mystery to most analysts; "market conditions" is the usual answer from the companies), but Margraf believes trends can be identified. For one, the practice of zone pricing has become more firmly entrenched in the metro area. Scottsdale Mobil dealers pay as much as 15 cents per gallon more than ARCO dealers in Mesa, though commuting patterns suggest that many potential customers have access to both markets. But Scottsdale is more affluent, and the wealthiest communities around the country are usually in the highest-priced zones.

There's a bigger price picture as well: In the late 1980s, Arizona had one of the lowest average gas prices in the country after adjusting for taxes. "Now," Margraf says, "we're among the highest."

 
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