Below-Cost Showdown in Florida

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Below-Cost Showdown in Florida

TALLAHASSEE, Fla. -- The feud between convenience store and petroleum marketing rivals in Florida recently took a dramatic turn after the Amerada Hess Corp. was sued by the Florida Department of Agriculture for allegedly selling fuel below cost.

The suit against Hess, operator of some 400 convenience stores in Florida, was precipitated by numerous complaints filed with the state agency by The Pantry Inc., the Sanford, N.C.-based operator of more than 1,300 convenience stores in the Southeast, including 510 stores in Florida.

After examining the complaints, the Florida Agriculture Department, the agency assigned to enforce the state's Motor Fuel Marketing Practices Act (MFMPA), filed a 13-page civil lawsuit in Circuit Court in Clay County July 16, accusing three company-operated Hess locations of violating the state statute for 300 days over a 20-month stretch ending March 2002. The state seeks unspecified compensatory damages for retailers hurt by the company's pricing practices, a permanent injunction against future breaches and penalties of $750,000, according to the suit obtained by CSNews Online.

Rick Lawlor, Hess' vice president of sales and marketing, confirmed the company had received the lawsuit and that three locations specified in the suit, are company-operated. He declined further comment.

The Pantry, which has voiced frustration with major oil companies and big-box retailers reportedly suppressing retail margins, has actively lobbied on behalf of below-cost sales laws. The company said it's vital that Hess and other marketers in Florida operate within the parameters of the Motor Fuels Act to ensure fair competition.

"We were one of the companies to file complaints with the Department of Agriculture that pointed out what we believed to be below-cost violations over a sustained period of time," Pete Sodini, president and CEO of The Pantry, told CSNews Online. "The Florida statute is well defined, with little room for objectivity. We determined our cost and looked at their street price and the difference was substantial."

Sodini declined to comment on actual fuel prices, which according to the Lundberg Survey averaged $1.30 in Florida in July.

The cost of fuel in Florida is based on a formula that takes into account wholesale cost plus transportation. According to the suit, "Hess sold motor fuel to the public at Hess retail outlets in Clay and Duval Counties at retail prices that were below refiner cost."

Hess is among a number of price-aggressive gasoline retailers in the Southeast that include Atlanta-based Racetrac Petroleum Inc. and Bentonville, Ala.-based Wal-Mart Stores Inc., which have been accused of pushing the limits of the law. The suit contends that as a vertically integrated oil company, "Hess can absorb and endure lost profits on fuel at the retail levels by selling at prices which are below refiner cost, because Hess can recoup them at other levels of petroleum marketing such as the wholesale level and the refining level where Hess' retail competitors have no profit centers."

This could become a landmark case for Florida for two reasons: its the first time the below-cost measure is being tested since it was revamped in 2000, and the Agriculture Department commissioner, Republican Charles Bronson, is running for election this fall. Enforcement of the Motor Fuels Act had belonged to the state Attorney General's office until two years ago.

The suit against Hess comes more than a year after Wal-Mart Stores Inc., the world's largest retailer, waged an intensive grassroots campaign to repeal the state's below-cost fuel sales law, regarded by many as the toughest in the country and the model for a similar law recently passed by the New York state legislature.

The Florida Petroleum Marketers & Convenience Store Association (FPMA) successfully held back Wal-Mart's muscle by playing to the local roots of many of its operators. Wal-Mart has faced litigation in several states over its pricing practices, including a stinging defeat in Alabama after its fueling partner, Murphy Oil Corp., was found to deliberately sell below wholesale costs to put competitors out of businesses.