Lukoil Replaces Mobil Stations in Philadelphia Area

Jul. 7–Red-and-white gas stations are popping up everywhere, displacing one of America’s most familiar brand names in the Philadelphia area.

For those who travel roads caught in this changeover of signs from Mobil to Lukoil, such as Route 70 in South Jersey, it’s hard to miss.

The Russian company has already converted about 80 Mobil stations in the area and is remodeling nine a week at a cost of up to $50,000 apiece.

“I bet you the average person doesn’t have any clue about Lukoil,” said professor Stephen Hoch, chairman of the marketing department at the University of Pennsylvania’s Wharton School of Business. “It clearly suggests they’re making a commitment to retail.”

Delaware County resident Irma Sitkoff was puzzled at first when she started seeing Lukoil stations, and then shocked to see recently that the Mobil station in Woodlyn where she normally buys gas had changed overnight.

Sitkoff said she was not sure whether she would keep buying gas there, because she liked using her Mobil Speedpass, a small gadget that let her quickly charge gas purchases to a credit card. “But it’s a convenient place to get gas,” she said.

Lukoil’s emergence in gasoline retailing, the low-margin end of the oil business, has a couple of longer-term goals, the company and an industry analyst said.

“You have to invest a lot of money, and you have to have brand recognition,” said Oppenheimer & Co. analyst Fadel Gheit. “They didn’t want to come here for the sake of making money. They came here for the purpose of having a Russian presence.”

Lukoil spokesman Joe Schwirtz said the company wanted to be seen as what it is: a major international oil company. But at the same time, it is not pitching itself in ads as a major energy power. There, the theme “we love cars” is meant to convey the fact that “Lukoil is here to fuel cars,” Schwirtz said.

Lukoil, which is Russia’s largest oil producer, according to the U.S. Department of Energy, ultimately would like to become a more significant supplier of oil to U.S. refiners, he said. Right now, Europe is the main customer for Russia’s oil, but China is also angling for its neighbor’s petroleum.

Lukoil now buys gasoline for its stations here from multiple sources, including U.S and Canadian refiners.

It is entering gasoline retailing at a time when most major oil companies are limiting their exposure to it by keeping only their best sites. Private brands, such as Riggins and Liberty, are growing.

For gasoline consumers, Wharton’s Hoch said, brand loyalty is something that has largely gone out the window with gas cards — once the only form of plastic accepted for a fill-up.

Price and convenience tend to dictate purchases in the largely impersonal gas market, he said.

Such was the case for Roosevelt Lanier on a recent gasoline purchase at the Lukoil station at City and Belmont Avenues in Philadelphia.

“This is the cheapest in the city right now,” the Mount Airy resident said.

Lukoil entered the U.S. market five years ago with its purchase of Getty Petroleum Marketing Corp. and its 1,300 stations on the East Coast. It has not yet begun converting them to the Lukoil brand because it has long-term rights to sell gasoline under the Getty brand; its deal for the Mobil stations did not include similar rights to the Mobil brand.

Last year, Lukoil bought more than 750 Mobil stations in New Jersey and Pennsylvania from ConocoPhillips for $266 million. The stations had been cut loose from Exxon Mobil Corp. in 2000 to satisify antitrust concerns.

Lukoil does not own all the sites. It supplies about 470 under contract with independent dealers.

Ken Morrison, an independent dealer who began operating 25 Mobil stations in the Philadelphia area a year ago, said sales at his converted stations had come back to normal after a couple of weeks.

“We’ve been very happy with the whole change,” said Morrison. He estimated that each of his stations served between 30,000 and 40,000 customers a month.

But changing from Mobil to Lukoil is not an easy move for some station owners.

American Auto Wash Inc., which operates 18 gasoline stations in the Philadelphia area, does not want to convert its five Mobil stations to Lukoil. Kevin S. Kan, president and chief executive officer of the Malvern company, said Lukoil was charging dealers as if it were a major brand, even though it is not.

“Why pay more for a brand that is not well-known?” he asked.

Instead of switching to Lukoil, American Auto Wash is launching its own brand in October, Kan said. American Auto Wash also operates 13 stations under the BP brand.

Hoch said he could understand the reluctance.

“If I was an independent Mobil gas station owner, I would think Mobil has more brand equity than Lukoil,” he said. “I just can’t see how it would help.”

By Mitch Lipka and Harold Brubaker

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