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BoycottBP has more than 800,000 members on Facebook. The opening statement of its mission? “Boycott BP stations.” Unless the group’s goal is to bankrupt small business owners, this is a terrible idea.
Virtually every BP gas station –- including the one on Capitol Hill, at 823 Pennsylvania Ave SE –- is independently owned and operated. Of the 10,000 or so BP stations in the United States, only about 200 are owned by BP. The company exited the retail gasoline business in 2008, and today makes most of its money by drilling for oil.
John Distad, who owns the Capitol Hill BP station, feels very fortunate –- he hasn’t seen a decline in business. He credits the intelligence of Hill residents. “Our consumers are educated. They know us, and they know that they’re not buying gas from BP – they’re buying it from a local station,” he explained.
Elsewhere in the country, though, many stations have witnessed a dramatic decline in sales. Some reports indicate that gasoline sales at BP stations in the south are down 20-40 percent.
Capitol Hill’s BP station has an interesting history. It’s the site of the original Tunnicliff’s Tavern, and has been a gas station since 1923. (Who knew there were fill stations so long ago?) The Distads have owned and managed the location since 1959 -– and aside from the logo (it was an Amoco station for decades), not much has changed.
Yes, but aren’t the business owners still buying their gas and paying franchise fees to BP?
I generally didn’t shop for gas here before the spill either, but I would recommend Distad’s for service and will continue to use as needed. Unfortunately their prices are not competitive with other area retailers for petrol.
BP is all about project management and doesn’t own anything, but they clearly have a stake in their partners’ performance and ultimately their brand. If BP has no stake in its branding, it would make obvious sense for Distad’s to switch to another affiliation.
@Hill resident, no. In fact, not even close.
Gas franchising doesn’t work like other franchises.
In the vast majority of cases, BP has almost nothing to do with running them — they’re mostly serving as advertising. All BP gets from the deal is that the franchise must buy some predetermined amount of gas in a given period (e.g., 8 truckloads a month). So basically, Distad’s on the Hill (in this example) accepted money from BP at some point in the past to allow BP to put up its signs, colors, etc. They get that money up front for upgrades/renovations to their stores and stations, and then they are obligated for a determined amt of time to buy that minimum amount of gas from BP – they signed a contract for a certain number of years in exchange for that upfront money, and thus, can’t just break that agreement b/c suddenly everyone realizes that BP wasn’t as green and friendly as people deluded themselves into thinking.
The additional reasons why boycotting BP stations is utterly useless and absurd – if they need more than the amt of gas that they contracted w/ BP, they can buy from whomever they like. Further, that gas they’re buying from BP might also not even be BP gas. At the rack, BP might not have any gas that day or even stock gas there at all – meaning that the gas “from BP” is really another company’s (Exxon, Shell, whoever) that BP acquired in a swap, or bought outright. Even if it is BP’s, they might have bought it or swapped gas somewhere else for it on an exchange – and never actually drilled for it or refined it or whatever themselves. In addition, if you’re buying gas at all – at any station – it’s very likely you’re buying BP gas that the station acquired in the way described above. BP is not in the retail gas business anymore, and makes next to nothing on retail gas sales – they make all their money in drilling, refining and rack sales.
The only person being punished is the local business owner who has to buy that gas or pay a penalty if she doesn’t have room to take it – and who can’t just get out of a contract b/c they feel like it.
BP can sell it’s fuel to any gas station. It’s only “BP Gas” at BP stations because of additives and the logo. So if you boycott BP stations, there’s still a very good chance you’ll end up with BP gas — especially if you go to a no-name gas station.
As my post explained, BP makes its money by drilling for oil and then selling it — this is much bigger than gasoline for your car. As Kait Rayner at WJBF in Augusta explained, “BP does more than just sell gas. their petroleum is used to make tires, sunglasses, and cleaning supplies. It’s in your lipstick, your shampoo…and even in your toothpaste.”
While it’s true that these small-business owners to have franchise fees and fuel purchase agreements with BP, those are binding contracts. And some owners likely chose BP because of its alleged corporate responsibility (remember the “Beyond Petroleum” campaigns?).
@b, what contract are you aware of where one party can just get out of it b/c they feel like it? It’s a binding agreement – Distad’s can’t just decide to switch affiliations b/c people finally realized BP isn’t as warm and fluffy as they’ve been greenwashed to believe.
Nichole and David, I couldn’t have said it better. I think it’s especially important to remember that gas at other stations may also be “BP gas.”
As I recall, Distad’s was an Amoco not that long ago, so changing brands can be done, albeit for a price. I still go to them to fix my car, but not for gas. That’s how I split the difference between supporting local business but not BP. And anyway, I’ll bet Distad’s income (not talking revenue) from gas sales is a pittance compared to their income from mechanic service.
BP bought Amoco in 1998. So Distad didn’t change brands.
2 important points that haven’t been covered:
1.) If a station does not meet their obligated contractual volume from BP (e.g., they don’t sell enough from previous shipments to have space for more volume), they pay what’s basically a fine to BP. Amounts vary by contract. But, if your local BP station isn’t selling because you aren’t buying there anymore, BP is still getting paid something, and your local businessman is getting stuck with the tab.
2.) BP’s business model is based around speculation (as in actual speculation, not the catch-all “speculation” that was blamed for… well, just about everything lately). That means that even if their wholesale fuel sales to retail outlets are down, if nothing else, that data is valuable for them to hedge in the various markets and exchanges. Most likely, they hedged against lost sales weeks ago, and are now moving swimmingly along toward their usual profitability (in that area; $20B is obviously bit of a bump in the road). But, chances are that their big wholesale customers — their lifeblood — aren’t exactly jumping ship. You can thank the likes of your Federal government — BP’s largest wholesale customer — for keeping them afloat, so to speak.
But, the big story is what happens to that gas BP stations aren’t buying on the wholesale market. It’s just going to some other station (unbranded BP customer, or another company’s station or customer). To understand, here’s how the hamburger industry would work if it operated like petroleum:
In the current system (as a very basic generalization), McDonalds acquires their own hamburgers from a producer, provides them to McDonalds franchises, who then prepare them and sell the burgers to you, the customer, wrapped up in McDonalds packaging.
If it worked like petroleum does, here’s how that burger would get to you: Wendy’s would contract with a small farmer to buy the beef, and it would then send it via 3rd party carrier to Burger King to process the beef into hamburgers. Those burgers would then be picked up by Checkers, who then eventually sent them to Five Guys. Five Guys couldn’t sell them to their retail outlets, so they contracted with McDonalds to take delivery of them up from a warehouse owned by White Castle. White Castle is out of drivers that day, so they’re picked up and delivered to a McDonalds franchisee by Hardee’s driver. Once there, the burgers are prepped and packaged in McDonalds wrappers by Jack in the Box before they’re handed to the McDonalds franchise employee at the counter, who takes the hand-off and gives the McDonalds-branded burger to you, the customer.
The key here is that, although they were eventually sold as “McDonalds hamburgers,” McDonalds really had nothing to do with producing the burger until immediately before the finished product was handed to you by the franchisee, but you got basically the exact same product you would have if they’d done it all — it’s seamless to your eyes. And, if McDonalds couldn’t sell it to their franchisee, they’d just dump it to someone else somewhere along the way, and that party’s end customers would notice no difference, McDonalds would still be paid for it (if a little less), and McDonalds as a corporation is basically in the same economic position whether or not you buy from its franchisee.
Just wanted to add that I also use Distads to service my car and I love them. I know very little about cars and they have always been fair and honest with me. I had an issue with an improperly installed windshield (work was done by a garage in Silver Spring) that led to rain leakage in my car and Distads not only fixed my car, but helped me deal with an insurance company that didn’t want to pay. I’m pretty sure Andre from Distads was dreading my frequent calls, but he was very patient with me. I would hate to see Distads suffer from BP boycotts because they seem like great guys.
@Nichole Remmert
what you describe is that BP DOES have a stake in it’s retail affiliations and would not allow them retail outlets to reneg on contracts. BP would only enforce their contracts if it stood to gain something financially from this agreement, and thus BP does gain by its retail affiliation. Just because the local retailer gets hurt doesn’t change that dynamic.
But how else am I going to show my impotent rage!!!
@b it’s sunk costs. BP gave the money up front in exchange for being able to market/advertise on the corner of 9th and Penn. It would be like if I took money from one of my clients up front, and then failed to execute my part of the agreement. All BP is getting is advertising/marketing (and an obligation to buy x amt of gas from “BP” – which has been explained here multiple times, they make very little money from).
Maybe this article in the NYT will explain it in a way you can understand: http://www.nytimes.com/2010/06/12/your-money/12money.html?_r=1
@b – BP gets paid either way in exchange for that earlier investment. Either the station takes the contracted volume (and pays their contracted rate — usually a derivative of rack price — for it), or the station pays a penalty for not taking the volume (and BP keeps and sells that volume to someone else). Or, the station can breach and then pay BP for that under the terms of their franchise agreement.
It’s not that BP has no stake in their franchises’ retail sales. That’s obviously their ideal situation because that’s machinery already in motion. Clearly, that’s a gain. However, what you’re missing is that the franchisee disproportionately loses due to lost sales. BP can replace the majority of that income through the workings of the wholesale fuel market. The retailer has no such option to replace customers so readily.
BP is losing some percentage of its margins; the retailer is losing all of its margin on fuel and also a penalty for not selling it (which further offsets BP’s lost margin).
Retail fuel franchises do not operate like “normal” franchises because they’re still selling a commodity product to the retail customer. Unlike fast-food hamburgers, their suppliers (here, BP’s) can just turn around and sell that product to any other wholesale customer (supplier or retailer) that’s in the same business of selling fuel because they’re all selling the exact same thing with some different signage at the point of purchase.
As a side note, this is why you should look in your car’s owner’s manual to find out what octane of gas it needs, then buy that octane from the retailer with the lowest price you can find. Except at the very extreme margins (if at all — studies vary), additives are just marketing and have little to no effect on the operation of your vehicle. Gas is gas is gas.
It’s always been Distad’s to me. Friendly; lots of brand new pumps. There’s always water in the windshield cleaning gizmos. Great place.
Dan
I think it’s a reasonable argument to make that a boycott now could result in a future decrease in BP franchise demand, which would hurt BP financially. It might be a minor way, but we ‘d need some actual equilibrium models to sort out the impact. I think the mechanics are that consumers boycott now and local franchise owners suffer. Prospective franchise owners look at what happened to the local owners who suffered financially and either choose a different franchise, or at least value the BP franchise less.
The immediate impact would be on local business owners. The long term impact would be on the corporation. It’s not an uncommon consequence of a boycott. The short-term impact is often felt by someone (or some thing, like a corporation) other than the primary target.
MJ, I doubt they’d care in the long run. They’ve been getting out of the retail business anyway:
http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7038464
So even if a boycott was effective (and they almost never are), you’d be going after a business model BP has already written off.
BP took a $20 billion hit in stride, they wouldn’t even notice this. BP makes money by exploring for oil and getting it out of the ground. This is a line item in their marketing budget.
You might as well write them a sternly worded letter for all the good it would do.
I rarely bought before the spill and wouldn’t start paying that extra $.20/gal now. Have been using Distads for minor service for over a decade and that won’t change. Gas stations get hurt when cigarette taxes get hiked but I’ve never taken up smoking to help them out either.
BP is starting to provide cash and support to its branded stations (hopefully not Distad’s if they’ve seen no drop off as claimed). BP is burning through massive piles of cash right now, but there’s still a cost to them. They also get the continuing negative PR implications.
http://www.nytimes.com/2010/06/30/us/30latest.html?_r=1&scp=1&sq=bp%20spill%20boycott&st=cse
I’m willing to accept that retail sales may not account for any meaningful portion of BP’s revenue, and therefore could be written off with little consequence. Even those facts, if true, aren’t prescriptive about whether to boycott. For some people, the consequences would matter. But others might also understand that BP would suffer very little, the owners quite a bit, and boycott nonetheless. For some, it’s the expressive value of the act; for others, incrementalism is sufficient.
The expressive value of the act is incrementalism.
Deep.
The absurdity of this blog entry is exceeded only by the comments left under it.
Moral of the story kids, use less gas. Purchase fewer products containing petroleum by-products.
Hey, @Less is Less – you typed that on computer that is comprised of a number of petroleum products. Show me an alternative and I’ll listen – otherwise, I’m good without the self righteous hypocrisy, thanks.