Recent interest from major oil companies in direct retail fuel ownership hints at a potentially changing competitive landscape in the industry. Or does it?

 

By Joe O’Brien

According to “The History of Fuel Retailing” on convenience.org, ExxonMobil, ConocoPhillips and BP all mostly exited the retail side of fueling in 2007 and 2008. At the time of their departure, the primary model for retail fuel was a basic, no-frills operation where customers bought “smokes, Cokes and gas.” Environmental compliance demands and costs were on the rise. Independent marketers and hypermarkets created an increasingly competitive atmosphere. Although a few major oil direct retail sites remained, the paradigm had shifted by the end of the decade.

NACS reports that today less than 0.2% of all convenience stores that sell gasoline are owned by a major oil company, and about 4% are owned by a refining company.

Although most convenience stores (95%) are owned by independent companies, whether one-store operators or regional chains, there are indications that Big Oil is again pursuing direct retail ownership in the United States:

  • Through an acquisition of Brewer Oil Company’s retail division, Shell is acquiring 45 fuel and convenience sites in New Mexico. The acquisition, which also includes cardlocks for fleets, joins Shell’s directly owned footprint of almost 200 retail sites.
  • BP acquired Thorntons and TravelCenters of America Inc.
  • Chevron and BP are expanding their portfolios to include commercial cardlock sites.

So, what’s changed? Why are major oil companies getting back into direct retail fuel, and how much of a threat do they pose to the current competitive landscape? Here are a few thoughts for consideration.

1. The major oil companies have recognized an opportunity to fully capitalize on the current c-store value offering.

During the major oil companies’ retreat from retail fuel, independent marketers largely wrote the playbook for c-store growth. They elevated gas stations from a place where customers primarily came to refuel to a destination that encourages them to go inside and shop. Providing exceptional customer experiences became a cornerstone for success.

And although major oil companies exited direct retail operations, much of their branding did not. Independent retailers licensed to represent oil or refinery brands have kept those brand identities in front of end users. To a large extent, the brand legacy of the major oil companies has benefited from a transformation cemented through a period of entrepreneurship in which they had a minimal contributing role.

 

2. Lucrative sales inside c-stores are also now bolstered by attractive profit margins for fuel.

The majors see an opportunity at the gas pump. After hitting an all-time high of $5.02 in June of 2022, average U.S. retail fuel prices stabilized through 2023 and in the early part of 2024, when prices were averaging $3.36.

While many factors affect the supply-and-demand dynamics of fuel in the U.S., which in turn affects fuel prices, traditionally, when supply is high, prices are low. To that end, it’s worth noting:

The U.S., the world’s largest producer of oil, pumped a record amount of oil in 2023.

In 2019, total annual U.S. energy production exceeded U.S. energy consumption for the first time since 1957.

If oil companies are able to bring their products to the pumps at their direct retail sites at a lower production cost than their competitors, they could theoretically pass along those savings to the end user. Since fuel retailers typically see fuel profits rise when fuel prices fall, these companies could position themselves to capture more sales volume through an incredibly competitive pricing strategy.

 

3. Amid the shift toward new forms of transportation energy, major oil companies are seeking ways to diversify their operations.

Getting back into direct retail fuel not only expands the scope of their operations beyond oil, but it also establishes a footprint where they can swiftly bring new products to market.

For example, with about 80 company-operated fuel sites, Chevron maintained a presence in direct retail fuel when the other major oil companies left. This descendant of Standard Oil has also developed a line of fleet-focused lower carbon fuels. It makes sense that it is expanding to include cardlock sites in its operations.

 

4. Conditions are favorable for the majors to buy property.

With more extensive cash holdings than other buyers, high interest rates aren’t much of a deterrent for major oil companies. Their financial position affords them a wider assortment of properties to choose from with fewer buyers to compete against.

 

5. Once “retired” business strategies are often reborn as “new” initiatives when corporations seek to enhance financial performance.

The cyclical nature of management goals has an uncanny way of finding “new” objectives in pursuit of bottom-line growth. Downstream control may be the latest area of focus.

That notwithstanding, the major oils have ceded their presence in direct retail fuel for about 15 years. It will take at least as long as that for them to reach the level of prominence they once enjoyed.

 

Joe O’Brien is vice president of marketing at Source North America Corporation. He has more than 25 years of experience in the petroleum equipment fuel industry. Contact him at [email protected] or visit sourcena.com to learn more.