Generic Gasoline Makes a Name

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Generic Gasoline Makes a Name

PHILADELPHIA--With all the complaints about high gas prices, station owners say sometimes cutting a few pennies a gallon may be all that matters to consumers. With that in mind, many are breaking their ties to major oil companies and refiners in favor of independent brands, which usually cost less, reported the Philadelphia Enquirer .

Kevin Kan, chief executive officer of a chain of 18 gas station and car wash combos in Philadelphia's suburbs, is among the converts. In October, Kan dropped the Mobil name at two of his stations, started buying fuel from independent distributors and came up with his own brand--Griffin. Now he plans to franchise the brand to other dealers frustrated with the major oil companies' prices, according to the report.

Customers at his station last week were oblivious to the change from Mobil to Griffin, which uses the mythical half-eagle and half-lion as its logo. The sign may not be nearly as familiar as Sunoco, Shell or Exxon, but that does not seem to matter to many buyers, the Philadelphia Enquirer reported.

On Thursday, Kan's price for regular was $2.10 per gallon. The three-day average in southeastern Pennsylvania was $2.16, reported AAA Mid-Atlantic.

Kan told the newspaper that his chain, American Auto Wash Inc., had seen a 35-percent jump in sales since late October, when it started buying gasoline from independent distributors.

The sales gain was propelled by prices that averaged about 6 cents lower per gallon than they would have been if he sold Mobil-branded fuels. Now, he is competitive with a nearby Wawa, and his gross margin is higher, he said in the report.

Such results have convinced Kan and dozens of other dealers in Pennsylvania and New Jersey that it does not always pay to fly the flag of a major brand. Switching to Griffin or other independent brands such as Oceanic, Liberty, Riggins or Garden State Fuels helps them compete with the region's low-price leaders--Wawa and Hess, according to the Philadelphia Enquirer .

Kan said he planned to change the other two Mobil stations American Auto Wash owns to Griffin when their contracts expire. He may also switch some of the company's BP stations. "We are going to brand our locations . . . the brand that will make us the most money," Kan told the newspaper.

In the Philadelphia market, major-oil-branded gasoline typically costs 4 to 6 cents more per gallon than generic gasoline, Ed Ellis, owner of Ocean Petroleum, a Maryland fuel distributor, said in the report.

"That's enough for consumers to notice, to say nothing of the dealers," said Ellis, whose company is about to put up its second Oceanic sign in the Philadelphia area this month.

The higher price for the major brands helps pay for the marketing--such as Sunoco's sponsorship of NASCAR -- that makes them major brands, the newspaper reported.

Sunoco spokesman Gerald Davis told the Philadelphia Enquirer the company priced its products competitively and fairly.

The only difference between branded and generic gasoline is a packet of additives mixed in when the gasoline goes into a tanker truck. The fuel at a Wawa and a Sunoco right across the street from each other could come from the same refinery on the same day, according to the report.

However, there is a potential downside for dealers relying on generic gasoline. Most generic gasoline is traded on the spot market, as opposed to being sold under contract, as is the standard for branded fuel. That means the price advantage of generic gasoline can disappear quickly during supply disruptions.

Liberty Petroleum L.L.C., which has expanded from four stations in the Philadelphia area in June 2004 to 40 now, mitigates that risk by having a supply contract with a refiner, said Wayne Hummel, who manages Liberty in eastern Pennsylvania, New Jersey and Delaware.

"My guys get the lowest price most of the year," Hummel, who previously managed Coastal Corp.'s East Coast operations, told the newspaper.

In the highly competitive business of gasoline retailing, dealers thirst for low wholesale prices.

Bob Brotzman, who owns a BP station in Havertown, decided this fall that he would test the market by posting the lowest retail price in the Delaware County town. The result: Sales tripled over two months.

"That proved right there that people don't have any brand loyalty," Brotzman told the newspaper. This month, Brotzman plans to switch from BP to Oceanic, the brand owned by Ocean Petroleum.

Dumping major brands also gives dealers flexibility in handling credit-card fees, which average about 3 percent. They were a big factor in Norman Zarwin's decision to end contracts with Sunoco at his two Philadelphia stations.

Those stations now use Zarwin's Xpress Gas trade name and charge credit-card customers 5 cents more than cash customers. He could not do that under his Sunoco contract, according to the Philadelphia Enquirer .

Some drivers remain skeptical about the new brands.

One of Kan's Griffin customers last week said he might have passed the station by if he had noticed the change in brands. "Ordinarily, I would have kept going," said Bill Henning of Philadelphia. "I've got this thing where I think I'm buying an inferior product" if it is not a major brand. "It might not be true," he told the newspaper.