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7-Eleven Unleaded?

DALLAS -- Gasoline is big business for 7-Eleven Inc., and the c-store retailer may soon give it the same marketing pizzazz that it does hot dogs (Big Bite) and large cups of soda (Big Gulp), reports the Dallas Morning News.

Chief executive officer Jim Keyes told shareholders that a decision is pending about what brand of gasoline the company's pumps will sell after the chain's 20-year supply agreement with Houston-based Citgo Petroleum Corp. expires in September 2006.

It has talked to all of the major oil companies and has tested co-branding with ChevronTexaco Corp. since 2003 at 20 locations in Texas, Florida and California.

It could sign a new supply agreement with Citgo, Keyes said.

But in an interview with the paper after the shareholder's meeting, Keyes also said that 7-Eleven could create its own brand of gasoline.

"It's safe to say we've talked to everyone -- majors and independents. We can either partner with a major oil company, be an anchor for an independent the way we've been with Citgo or maybe create our own brand," Keyes said.

There are tradeoffs with either strategy, he said. "We can charge higher retail prices for a major oil company brand, but costs are lower for unbranded gasoline."

The company has a track record of branding commodities. After all, the Big Gulp is just a cup with ice and soda in it. With its fresh food effort it could have hooked up with an existing fast food chain or deli, but decided to cook up its own brands and recipes.

"Our preference is to reach for the highest quality no matter what the product," Keyes said. "Our attention on the retail gasoline business has lagged behind the inside of the store."

Gasoline represents one-third of 7-Eleven's revenue. It sells gasoline at about 2,500 of its 5,800 U.S. and Canadian locations, making it a major gasoline seller. By comparison, Exxon Mobil Corp. operates more than 3,000 company-owned stations and supplies about 9,500 independent sellers.

Keyes declined to talk specifically about the ChevronTexaco test started in June 2003 with 11 7-Eleven stores selling Chevron gasoline and nine Chevron convenience stores converted to the 7-Eleven format. A call to ChevronTexaco wasn't returned.

7-Eleven's decision comes as other retailers have moved into the gasoline retail market.

Wal-Mart Stores Inc., which co-brands with Arkansas-based Murphy Oil Co., is beginning to sell its own branded gasoline at some Supercenters.

Supermarkets including Safeway's Tom Thumb and Albertsons Inc. sell unbranded gasoline.

Last year, 7-Eleven's strong gasoline margin of 15.3 cents per gallon beat the industry average of 12.7 cents, according to the National Association of Convenience Stores (NACS). Its gasoline sales last year totaled $4.2 billion. It sold 2.2 billion gallons in 2004, up 6.4 percent from the prior year.

Jeff Lenard, spokesman for NACS, said the industry group's research shows that price is the No. 1 factor for consumers making gasoline purchases. Convenience is second.

"There's been a general erosion for brands in the consumer's mind. It's different from when we grew up and our parents said you must buy this gasoline for the car," Mr. Lenard said.

He said an association survey in 2003 showed consumers would switch brands for a 3-cent differential. "It's probably even less now."
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