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    7-Eleven Unveiling Proprietary Fuel Program

    Some franchisees applaud decision; others taking wait-and-see approach.

    By Linda Lisanti

    DALLAS -- 7-Eleven Inc. is rolling out its own brand of gasoline in anticipation of the expiration next month of its 20-year contract with CITGO Petroleum Corp. CITGO recently announced that it is cutting 14 percent of its 13,000 service-station network across 10 states, including Texas where the c-store giant is headquartered, and selectively in four other states.

    Tower Energy Group of Torrance, Calif., an independent petroleum wholesaler that distributes unbranded gasoline and diesel to stations in the Western United States, is currently supplying 25,000 barrels a day to about 800 7-Eleven stores -- both company-owned and franchised -- according to Tim Rogers, Tower's president and CEO.

    Come September, that supply will increase by 95,000 barrels a day to approximately 2,500 7-Eleven stores. Forty-two percent, or 2,497 of 7-Eleven's 5,879 U.S. locations sell fuel, according to the 2006 Directory of Convenience Stores compiled by TradeDimensions.

    "The agreement is very similar to what CITGO is supplying them. But rather than sell the CITGO brand, it will be the 7-Eleven brand, which is as strong a brand as any other," Rogers told Convenience Store News, adding that Tower has been 7-Eleven's supplier since 1992 in the U.S. Rocky Mountain West region.

    Rogers declined to say what other c-store chains Tower currently supplies, but noted that the company is a 76 distributor in five Western states, the Exxon distributor for Arizona, and parent company of Tower Mart, a chain of 40 neighborhood grocery stores in Northern California.

    Former 7-Eleven CEO Jim Keyes reported to shareholders in April 2005 that the chain was considering creating its own fuel brand. At that time, Keyes also told The Dallas Morning News that the company had been talking to independents and all the major oil companies, including ChevronTexaco Corp. 7-Eleven began a co-branding test with ChevronTexaco in June 2003 in Texas, California and Florida, with 11 7-Eleven stores selling Chevron gasoline and nine Chevron stores converting to the 7-Eleven format.

    7-Eleven spokeswoman Margaret Chabris told Convenience Store News that the retailer is not ready to talk in-depth about its gas branding program until after the CITGO deal expires.

    The main advantage of buying unbranded fuel is price. A company's ongoing costs will be lower with unbranded versus branded, said Tower's Rogers, in addition to the benefits of better service and the ability to control its own destiny.

    For the most part, 7-Eleven's plans are being met with optimism among its licensees and franchisees. About 3,300 of the chain's more than 5,800 stores in North America are operated by franchisees, and approximately 430 are operated by licensees.

    "I think it's a good decision. CITGO is a good brand, but it wasn't the best," said Ed Denario, a franchisee and U.S. senior vice president for 7-Eleven Franchisees in Long Island. "We (7-Eleven) have such a strong brand and a strong logo. We have the strongest brand in the convenience store industry. I think customers will accept it with no problem."

    Also, since they'll no longer have to pay to fly the big oil banner, franchisees are hopeful this move will enable them to be more price competitive in today's volatile gasoline market, said Tariq Khan, president of the National Coalition of Associations of 7-Eleven Franchisees. "We want to pass that savings onto the consumer," he said.

    There is one concern, however, Khan noted. Franchisees are worried about losing customers who are CITGO credit-card holders. Khan fears that the customer who would always stop at the 7-Eleven for CITGO gas will now go down the street to another CITGO station. "There are many more CITGO locations than there are 7-Eleven stores," he said.

    "That's going to impact us, unless we can replace that business," Khan added.

    Gibsonia, Penn.-based Handee Marts Inc., a 7-Eleven licensee with 66 stores, said it is too early and there are too few details at this time to say for sure whether it will sell the 7-Eleven fuel brand. The chain also has contracts with its branded suppliers to consider. The company now has 16 CITGO locations, 17 Exxon, 10 BP and one unbranded.

    Ed Szalankiewicz, the chain's director of gasoline, said he expects 7-Eleven to offer an attractive package and is awaiting the proposal. Since the strength of the 7-Eleven brand varies among the areas that Handee Marts serves, Szalankiewicz said he'd like to sell the 7-Eleven gasoline brand at some locations, but not all of them.

    "We would have to look at the marketplace and determine where it would give us the most bang for the buck. We are in a highly competitive gas market," he said.

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