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Anderson gas-station chain sues BP after 32-store deal sours

October 31, 2009

Anderson-based Ricker Oil Co. a year ago bought all 32 of London-based BP’s Indianapolis-area locations, a blockbuster deal that gave Ricker access to the state’s largest market and made it the biggest Indiana-based gas-station chain.

But now that deal has soured, and Ricker is suing BP in federal court over poor performance of the 19 gas stations and mini marts that operate under BP’s franchised am/pm brand.

The Oct. 22 suit claims BP is charging unjustified royalty fees while delivering no boost from its national advertising, its proprietary IT system or its bulk purchase pricing.

The family-owned company claims it is now losing “thousands of dollars per month” as a result of the deal and that problems related to the am/pm stores are “crippling Ricker’s economic stability.”

“BP has continued to hold Ricker at bay from moving forward with this lawsuit by promising to remedy these issues but, to date, BP continues to fail to do so,” the lawsuit reads.

Jay Ricker, a former gasoline tank wagon driver, and his wife, Nancy, launched Ricker Oil in 1979. In addition to its Indianapolis locations, the 700-employee company operates 29 convenience stores along the Interstate 69 corridor in northeastern Indiana, and supplies 25 independent operators. Locally, Ricker Oil this year was the title sponsor of Conner Prairie’s $2.2 million “1859 Balloon Voyage” exhibit, and offered coupons for rides at its stores.

Ricker Oil didn’t disclose terms of its deal when it bought BP’s Indianapolis locations, and they aren’t listed in the lawsuit. Both Jay Ricker and his attorney declined to answer IBJ’s questions. So did a BP spokesman.

However, in court documents, Ricker Oil complains it expected to enjoy special discounted pricing, but soon found BP’s goods cost much more than it had been paying, with far longer delivery times.

Ricker Oil also grumbles about capital expenses it considers unnecessary, such as cigarette display cases it had previously obtained for free from tobacco manufacturers, or red product shelving BP demanded be replaced with white in every store.

And Ricker alleges BP requires it to order bulk quantities of items such as condiments, regardless of a store’s size or average traffic, most of which are wasted, “thereby costing thousands of dollars per month.”

BP’s “Retalix” pricing system also hasn’t worked properly for Ricker Oil, according to the suit. Under its own legacy IT system, Ricker Oil argues, it can quickly change prices across its chain for all its products. BP’s system requires a manager to make every change manually, which “costs Ricker thousands of man hours per year and provides larger error rates.”

The company alleges that system also can’t accurately track inventory. Under a buy-one-get-one-free promotion for candy bars, for example, the suit alleges Retalix counts only one bar, leaving managers to guess whether losses are legitimate or from shoplifting.

And Ricker Oil claims Retalix regularly fails to process credit card transactions, allowing customers to drive away from the pump without paying for their gas.

Businesses operating in less competitive industries might be able to ignore such problems—or at least wait longer to work them out before filing suit. But even before the recession, gasoline stations’ margins were incredibly thin, according to the Indiana Petroleum Marketers and Convenience Store Association.

Executive Director Scott Imus said that last year his members made just 3.9 cents on every gallon of gas they sold, and that’s before the cost of credit and debit card transactions is factored in.

And because drivers are highly price-sensitive, stations wait to increase their gas charges until their competition moves en masse, even if they’re squeezed when the wholesale cost of fuel rises dramatically.

“If the market is below cost, you have to be there,” Imus said. “If not, you might as well send your employees home for the day, because nobody’s going to buy fuel from you.”

Typically, card companies charge 2.5 percent to 3.5 percent off the top line, said Kelly McClure, president of Marion-based McClure Oil Corp., which operates 35 gas stations with 375 employees in northern Indiana. That makes a huge difference when you’re mainly selling magazines, soda pop and gum, all available from nearby competing groceries or drugstores.

“The credit card companies made far more off our business than we ever thought about making off our business last year,” McClure said. “And they didn’t do anything but clear the transaction.”

Even in the face of such challenges, companies with thin profit margins can prosper—a point Wal-Mart has proven—said Richard Feinberg, a consumer sciences and retailing professor at Purdue University

Feinberg expects BP to settle, allowing Ricker Oil to put aside the legal distraction. But if the case goes to trial, Ricker will need to prove BP over-promised and under-delivered under the terms of its franchise agreement, he said.

“Any franchise agreement spells out the contributions of the franchisee and franchisor. That relationship is like a marriage. Sometimes it’s tough,” Feinberg said. “There have been a lot of suits just like this. Usually, they’re settled. Usually, the franchisor says, ‘Let’s kiss and make up and go to bed together.’”•

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