NEW YORK -- Competitors claim that Hess Corp. is selling gasoline below cost at many of its locations in an attempt to drive its rivals out of business, according to The Boston Globe.
Low prices are good until such time that competition is eliminated, Paul O'Connell, executive director of the New England Service Station & Automotive Repair Association, told the newspaper.
O'Connell said Hess is often able to sell gasoline at its pumps below the wholesale price his members have to pay for their fuel. He said he is trying to [image-nocss] persuade district attorneys to prosecute Hess for violating a state law barring below-cost gasoline sales, but he has not had any success.
Richard Lawlor, vice president of retail marketing for New York City-based Hess, said the company is taking a much smaller profit margin on gasoline to drive people into its convenience stores, where profit margins are higher. We're in the retail business, Lawlor told the paper. We need to drive people into the store. We're relying on the stores to carry the profit.
Hess is a rarity in the oil business, the report said. While most other companies have scaled back their direct involvement in the low-margin retail station business, Hess is expanding rapidly, building company-owned and -operated stations and c-stores up and down the East Coast. Oil exploration and refining still account for 96% of Hess's operating profit, but the company is investing heavily in its retail business. It operates more than 1,400 stations from New Hampshire to Florida.
In Massachusetts, said the Globe, Hess is growing fast even as the overall number of stations is decliningfrom about 4,800 a decade ago to 2,800 today. Hess owned six stations there in 2000, but has 108 today, through new construction and acquisition of Meadville Corp.'s 178 Merit stations in May 2000 and Gibbs Oil Co. LLC's 53 Gas N Shop stations in April 2001.
Lawlor said Hess still has a lot of room to grow in the state. He said that there is no target for the number of Massachusetts stores, but that the state could one day have as many Hess Express stations stores as Florida, which has more than 370.
Lawlor said a typical gas station pumps 90,000 gallons a month, but a Hess Express in Massachusetts pumps more than 225,000 gallons. Hess ranks sixth in Massachusetts in terms of total stations, but it ranks third in gasoline sales volume, trailing only Cumberland Farms/Gulf Oil and Exxon Mobil, both of which operate far more stations, sais the report.
O'Connell said Hess is able to undercut the gasoline prices of his members because it finds and refines the oil products it sells and doesn't have to pay middlemen. Because they're a refiner, they can pretty much say the cost is whatever they say it is, he said.
He said his members believe that Hess is using its market power to drive them out of business. Once the competition is gone, O'Connell said, Hess will be able to raise prices at will.
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