Shell to Eliminate Texaco Brand

Shell Oil Co. intends to drop the Texaco marketing brand from gas stations and convenience stores beginning early next year after completing a buyout of Texaco Inc.'s interest in two U.S. refining and gasoline joint venture companies.

Shell confirmed its plans to Conven-ience Store News only after reaching an 11th hour, $3.8-billion agreement to acquire Texaco's interest in Equilon Enterprises LLC and Equiva Enterprises LLC.

"The $500 million that we have set aside for rebranding [Texaco stores] will be dependent on a thorough network planning exercise, and on how many existing Texaco wholesalers elect to continue their supply relationship with Equilon/Motiva," said Gail Schutz, spokesperson for the Shell and Texaco brands.

Schutz said Shell expects to rebrand the approximately 13,000 stores operated by the Houston-based joint venture companies by 2004.

Shell's announcement was met with disappointment by independent Texaco marketers, who had been hesitant to expand their businesses as rumors of this move swirled throughout the industry following San Francisco-based Chevron's bid to acquire Texaco.

"Certainly we have concerns," said Bill Kent, president of Midland, Texas-based Kent Oil Inc. "Anytime you rebrand, it's a costly process. Along with changing the appearance of the facilities, there are operational challenges. It can be disruptive to team members, and you have to convince customers to convert to the new brand.

"Our experience has been that there's a loyalty to the Texaco brand," he said. "As strong as they have been throughout their history, and as strongly as they rate in terms of their credit-card program, we're greatly disappointed that it's not going to be in existence in a few years."

Aiming to limit ChevronTexaco's combined market share, the U.S. Federal Trade Commission ordered Texaco to sell its stake in Equilon/Motiva as a condition of approval for the October merger. Shell, the only viable buyer for the assets, will become the largest gasoline retailer in the United States, and hopes to capitalize on its 15-percent share of the market to increase U.S. business net earnings to $1 billion from a current $450 million.

Rebranding will unquestionably increase Shell's visibility in the United States, but some analysts questioned the move.

"They're discarding a brand that has a certain following, and they're going to have to handle this very delicately to avoid alienating the people who are Texaco loyalists," said Fadel Gheit, senior energy analyst for New York-based Fahnestock & Co. "Even if you only lose 5 percent of those customers, that can still be significant in terms of local market share."

Other analysts agreed, but noted that Royal Dutch Shell, as an international company, has bigger corporate fish to fry. "It is fair to say that in the United States, Texaco is a stronger brand name, but Shell's perspective is a global one, and they're looking to enhance and bolster that global image," said Michael Young, senior oil analyst at New York-based Gerard Klauer Mattison. "Clearly this process will do that, simply by the sheer number of locations that will now be branded Shell."

Texaco marketers, particularly those who operate in areas already dominated by Shell, should proceed with caution as the impact of the transition unfolds. Virtually all incentive- to-fund contracts require marketers to return unadvertised monies if their brand is changed for any reason, explained Bob Bassman, legal counsel to the Petroleum Marketers Association of America (PMAA). It is unclear whether Shell will waive the right to those fees as the buyer of Texaco or whether Chevron will be required by the FTC to indemnify any marketer approached by Shell for those fees.

Bassman advised retailers to have a backup plan in place if they are offered the option to keep the Texaco brand through the duration of these and similar contracts. "Shell is interested in selling gasoline — that's how they make money," he said. "They will most likely leverage their exclusive right to the Texaco brand [through 2004] to maintain those marketers in areas where there might be conflict by holding them to their Texaco contracts. After 2004, those marketers who have not been converted to Shell will probably be terminated under the PMPA [Petroleum Marketing Practices Act] for loss of right to grant the trademark."

Analysts have also predicted that Shell may trim a sizable number of marketers from its rosters during the transition. "Although obviously there is strength in volume, it is profitability that counts," said Gheit. "Ultimately, Shell will most likely seek to trade that volume for profitability by upgrading its assets and reducing the number of outlets."

Still, with downstream consolidation becoming the industry norm, operators are trying to take the changes in stride. "I do have confidence that they want to make the Shell brand as strong as they can make it," said Kent. "There is going to be a tremendous Shell presence in the U.S. after this, and I'm looking forward to hearing what their plans are going forward."
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