The Russians Are Coming!

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The Russians Are Coming!

By John Lofstock - 10/12/2003
Paramgit Kumar, general manager of S&J Petroleum Inc., is one of the first Getty licensees to jump onboard with Moscow-based Lukoil's multimillion-dollar campaign to rebrand Getty gas stations. Kumar's eye-catching New York City gas station is in a high-visibility location that attracts a steady stream of taxicabs and out-of-town commuters.

Lukoil, which acquired Jericho, N.Y.-based Getty Petroleum Marketing Inc.'s sites in New York, New Jersey and Pennsylvania in November 2000, has long-term plans to bring the total number of outlets in the United States to 3,000 sites.

"There aren't too many gas stations in New York City that are new and attractive, so we stick out," Kumar said. "Plus, now we have a convenience store as well, which brings in gas customers and customers just walking by on the street."

"This is a major step for Lukoil as it begins to lay the groundwork for all of its future U.S. operations," said Zev Furst, a spokesman for Lukoil USA. "The plan is to target specific demographic marketing areas for the Lukoil brand. As a result, approximately 150 units will be converted over the course of 24 months."

Among the changes at the rebranded Lukoil stations are a new Kwik Farms convenience store concept, new pay-at-the-pump terminals and state-of-the-art lighting and fuel canopies.

New Look, New Brand

Among Kumar's competitors are ExxonMobil, Hess and the New York-based Gaseteria chain. Few of those stores have convenience stores, which he sees as a clear competitive advantage. But he is paying for it.

Kumar said as a licensee leasing the property from Lukoil, he now has to pay a 4-percent commission on sales at the Kwik Farms convenience store, cigarettes excluded. Once he decided to rebrand with Lukoil — he had the chance to get out of the Getty lease, but he would have had to surrender the

rights to his business because Lukoil owns the property — Kumar said the convenience store and commission fees were part of the package.

"I like having the convenience store, but long-term there are no guarantees that this location can sustain strong in-store sales," Kumar said. "Hopefully it will."

Lukoil didn't hang the licensees out to dry when it came to financing the costly upgrades, which Kumar estimated at $60,000. The Russian refiner/marketer helped its retail partners by helping them secure low-cost business loans. It will also give store owners a low introductory price on fuel so it can celebrate a grand opening with competitive pump prices.

However, Kumar said the one area where Lukoil can't help him is with brand recognition. In New York, where Exxon, Hess and Mobil are like old friends to the motoring public, Lukoil is a stranger.

"It's my biggest concern," Kumar said of the oil company's lack of brand recognition. "But with smart marketing and good prices we are hoping to introduce the concept to a new generation of customers."

Kumar is not alone. Lukoil also expressed some apprehension about phasing out the well-known Getty brand. "We are concerned about public acceptance of a new unknown brand in the United States," Furst said. "Our aim is to dispel the apprehension by launching a new marketer with world-class expertise. When we are done, customers will have another choice in a world of ever-shrinking brand consolidation.

"Lukoil hopes to bring the message that they are a reliable, competitive, quality-driven, vertically integrated petroleum company that is growing through acquisition and innovation."

Old Enemies, New Friends

Lukoil's rebranding and overall U.S. supply strategy is still unfolding, Furst said. The oil concern's plan didn't come together until after the Sept. 11 terrorist attacks. Prior to Sept. 11, Lukoil was going to continue operating the Getty brand as a subsidiary while looking to increase fuel volume with oil produced in Russia.

After Sept. 11, while looking for strategies to decrease U.S. dependence on oil from the Middle East, U.S. President George Bush and Russian President Vladimir Putin began engaging in talks for the United States to purchase more oil from Russia. As a result, Russia converted a former military base in Mermansk that could store and ship via tanker more than 1 million barrels per day to the United States.

"There was a lot of mutual interest in the services Russian oil companies like Lukoil could provide the United States in terms of weaning its way off of Middle Eastern oil reserves," Furst said. "President Bush and President Putin basically directed their energy secretaries to sit down and hammer out a deal that would benefit both companies mutually in the short and long term."

As an integrated oil company, Lukoil is engaged in exploration, production refining and marketing of petroleum products. Much of Lukoil's finished products are shipped to other world markets as well. The Lukoil branded outlets in the United States will have approximately one half of the daily oil product produced by Lukoil until additional Russian export facilities are completed. The company is second in reserves only to Exxon Mobil Corp.