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Gasoline Marketers Call Big-Box Tactics "Un-American"

Big-box merchandisers such as Wal-Mart and Costco may be waving the flag, but their gasoline practices are un-American, say a growing number of petroleum marketers.

Stunned by zero-margin street prices, some gasoline operators are wrapping their political pitch around patriotic language as they fight to win state and national legislation that would bar retailers from selling gasoline below wholesale costs.

The strategy comes as a more and more high-volume gasoline retailers (HVRs) sell product for as much as 15 cents a gallon below street price, and others engage in outlandish battles that temporarily submerged prices below 20 cents a gallon.

"I think we can a put a big mirror on this and let the people across the country know that what these big boxes are doing is un-American," said Roger Dreyer, president of the Ohio Petroleum Marketers Association.

Dreyer, who dedicated the group's final publication of 2001 to rail against these "predatory" hypermarkets, suggests that below-market prices could spur increased consumption, which, in turn, is heightening America's reliance on Middle Eastern exports.

The comments are striking a chord with fellow jobbers ravaged by aggressive pricing strategies from these new gasoline players.

From Minnesota to Maryland, Florida to Virginia, petroleum marketers and mega-retailers are locked in a legislative battle over whether states should impose pricing restrictions on gasoline. Already, the Petroleum Marketers Association of America (PMAA) is seeking national legislation that would outlaw below-cost fuel sales.

But what is new is the rhetoric. Until recently, advocates of the legislation have framed the debate in terms of fairness, contending that hypermarkets threaten to put scores of small and mid-size operators out of business by deliberately undercutting gasoline prices. HVRs counter that their actions are an example of the free market system and that lower prices are borne out of fierce competition.

By recasting the debate in populist images, Dreyer looks to garner broader support.

"That's a brilliant pitch," said energy analyst Phil Verleger, who is among a number of experts exhorting President Bush to adopt an energy policy that is, in part, based on conservation and curbs America's dependence on overseas exports. "I'd like to see bumper stickers that read: 'I cut my oil use by a third, how about you?'" (See "Petro View," Page 22.)

In the November/December issue of the Ohio Petroleum Marketer, Dreyer suggested that pricing gasoline as a loss leader ultimately helps fuel funds to terrorists. He noted that these HVRs believe it's okay to sell gasoline "which can only come from crude oil and which we have fought six wars over and is a finite product — below cost so it can be used to sell grocery items. Boy, is that dumb!

"The big-box stores who fly American flags all over the place [are] showing their raw greed by using a finite natural resource product as a sales tactic to build traffic," Dreyer said. "Doesn't the Kroger supermarket know there is a war going on and Americans are in harm's way? You would have to be blind and dumb not to realize this is all about oil."

High-volume retailers contacted for this story declined to comment publicly or did not return phone calls. One supermarket representative scoffed at Dreyer's assertions, contending that some c-stores also are known for undercutting competition and that the price differential between HVRs and traditional dealers was not enough to affect exports.

Embarking on a stealth campaign to win below-cost protection in his state, Michael O'Connor, president of the Virginia Petroleum Marketers Association, underscored fairness as the cornerstone issue, but acknowledged that his organization could embrace Dreyer's tactics. "It's something we may be looking at," he said. "Our message right now is we want to join the 22 other states that regulate below-cost selling and to demonstrate that those who sell below cost are doing it with one objective in mind — and that is to put the Virginia petroleum merchants out of business."

Pursuing national protective legislation, PMAA President Dan Gilligan endorses both arguments, emphasizing that continued below-cost pricing would force out numerous independent marketers and ultimately result in diminished competition. "I believe the whole notion of using gasoline as a loss leader does undercut our nation's energy policy, which is to reduce consumption and dependence on Middle Eastern exports," he said. "We're already meeting with lawmakers and raising both arguments."
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