Name-Calling at the Pump

Where have all the lessee dealers gone?

Getting into the gas business used to be a simple proposition. A prospective dealer would hook up with a brand, go to training school, buy out another dealer or maybe even be given a vacant station by the company, and start pumping. Most were lessee dealers, who rented stations from their gas supplier but operated them independently and kept the profits. Lessee dealers, the focus of this feature article, are a dying breed. Their precise numbers aren't known, because the major oil companies stopped reporting the information in the mid- and late 1990s, but the trend is still clear.

So what's replacing them? Thousands of older, outmoded facilities have been razed, and many of the dealers have retired or gotten out of the business. But lessee dealers aren't the only kind of station operators, and now the majority of the nation's gas stations are being run by a different type of animal.

Lessee dealers who have lost their stations often see them reopened as company-ops. Major oil companies or convenience-store chains often build and run their own stations and hire salaried employees to manage them. Years ago the companies tried to operate their own repair shops but proved incompetent and lost money. Today the only company operations are convenience stores.

A more recent innovation in gas retailing is the commission operator or contractor, who manages a station in exchange for a penny or two per gallon, all or part of the convenience-store revenue or a monthly stipend, out of which the operator must pay all expenses. Most significant, the company provides and pays for all the gas -- and gets to set the retail price. Lately, Shell has been furiously converting stations abandoned by dealers into commission-ops. Companies like to call the commission operators "dealers," though dealer organizations have another name: "serfs."

Given their vulnerability, most lessee dealers would prefer to become open dealers, who own the property (or lease it directly from a third party) as well as the business. Open dealers can "brand" with any company they choose, subject to contractual terms, which gives them more leverage when their brander starts acting up. Under the federal Petroleum Marketing Practices Act, companies wishing to sell or shutter their lessee-dealer stations first must offer them to the dealers, who buy if they can afford the facility. Chevron in particular has sold hundreds of stations to dealers since announcing it wanted out of the lessee-dealer business.

While most lessee dealers and open dealers are supplied directly by their brands, some are supplied by jobbers, wholesale distributors who often own their own stations as well. Jobbers tend to serve outlying markets that the majors find inefficient to supply, though recently several refiners have turned over entire metro areas to big jobbers, who absorb a few cents a gallon and the management headaches.

 
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