LUKOIL Franchisees Double Prices in Zone Protest

57 stations in N.J., Pa., raise retail price to between $8 and $10 per gallon

Sal Risalvato

SPRINGFIELD, N.J. -- More than 50 LUKOIL gas station operators in New Jersey and Pennsylvania raised their street prices above $8 per gallon on Wednesday, protesting what they characterize as "profit-sapping tactics" and a "lack of responsiveness" on the part of LUKOIL North America LLC. They claim that LUKOIL's high prices have hurt station lessees and their customers, forcing many to close their doors, and they said that they are seeking to inform the public about the brand's "poor, anti-patron practices."

"Today, a group of LUKOIL franchisees stood together to defend their small businesses and motorists in order to vocally oppose the anti-competitive treatment they and their customers receive at the hands of LUKOIL North America. Their grievances have gone unanswered and unheeded for too long now, leaving them with little recourse," Sal Risalvato, executive director of the New Jersey Gasoline, Convenience, Automotive Association (NJGCA), said in a statement.

LUKOIL lessee retailers say they are defending their businesses from the "less-than ethical" practices employed by LUKOIL North America. Among their grievances, retailers are protesting the cost at which their stations are being supplied with gasoline. They claim that rather than selling these franchisees gasoline at competitive market prices, LUKOIL employs various methods to ensure they are among the highest-priced fuel. It does this through tactics such as zone pricing, which hurts both retailers and consumers through higher pump prices, they said.

"Zone pricing is an old, but dangerous scheme used by distributors and major oil companies to raise revenues and squeeze small business owners. They essentially sell the very same gasoline to stations in close proximity of each other at different prices in order to game the market and compete with other gasoline brands. In doing so, the price may differ by as much as 25 cents a gallon, and place one retailer and the retailer's customers at an enormous disadvantage over another station," said Risalvato.

"Yet zone pricing is only a small piece of the story," he added. "For reasons we simply cannot comprehend, LUKOIL continually sell gasoline to lessee retailers at higher-than-justifiable prices. No matter what the market conditions are on a particular day, LUKOIL's prices are higher than just about every retail competitor. In fact, it hasn't been uncommon for the average LUKOIL dealers to gaze across the street and see a competitor selling gas to the public for considerably less than what they're paying LUKOIL for their latest delivery. The effects this has had on entrepreneurs has been devastating."

As a result, 57 LUKOIL lessee retailers--30 from New Jersey and 27 from Pennsylvania--decided to jointly protest by raising their prices. To better inform the patrons and the public about why they are protesting LUKOIL's practices, they are distributing flyers to explain the details.

"We just can't take it anymore. It's unfortunate that this is what it's come to, but what other alternative did they leave us? You can only take so many hollow promises and empty actions," said Roger Verma, a LUKOIL franchisee.

"The decision to protest by raising their prices and educating their customers was not an easy one for these retailers to reach. But when they weighed that decision against their obligations to families, employees, creditors and their communities, it was obvious what they needed to do," said Risalvato.

The group has been working with New Jersey state legislators in trying to find a solution. Assemblyman Patrick Diegnan, has introduced A-2729, which eliminates the practice of zone pricing.

"I'm very concerned about what we're doing today. I don't want my loyal customers to think that I'm trying to hurt them by hiking my price above $8 a gallon," said LUKOIL franchisee Ameer Haroun. "That's not why I'm doing this, and in fact, I don't expect to sell much fuel at all. Rather, I'm trying to make a point: If LUKOIL is going to overcharge me to the point that I can't make a profit and hurt my customers, then I'm going to adopt their thinking and charge a price that I know will get their attention. It's not the solution I wanted, but it is the one they've handed me."

A spokesperson for LUKOIL North America provided a statement to ABC News, saying the company values its "network of independent dealers. We deeply regret that the NJGCA, a trade lobbyist, has apparently encouraged public misstatements and ill-conceived actions which harm consumers, rather than engage in constructive dialogue. The NJGCA's efforts appear aimed at zone pricing, a commercially reasonable practice used by gasoline marketers for many years, which is fully compliant with New Jersey statutes governing the sale of motor fuel."

See File Attachments below for more comments from LUKOIL franchisees and for a list of participating locations.