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NEW YORK -- Hess' rival stations are accusing the New York City-based company of selling fuels below cost in an effort to drive out competition.
"Low prices are good until such time that competition is eliminated," Paul O'Connell, executive director of the New England Service Station and Automotive Repair Association, said in a report by The Boston Globe.
O'Connell told the newspaper that Hess finds and refines its own oil products, therefore cutting out the middleman. "Because they're a refiner, they can pretty much say the cost is whatever they say it is." Once the low prices drive the competition out of business, he believes Hess will raise the prices of gas at will, the report stated.
Because O'Connell believes Hess is selling fuel at prices below the wholesale price that his members must pay, he is seeking out district attorneys to prosecute Hess for violating a Massachusetts state law that bans retailers from selling gasoline below cost.
In Hess' defense, the company's vice president of retail marketing Richard Lawlor told The Boston Globe, "We need to drive people into the store. We're relying on the stores to carry the profit." The company is taking a small profit margin on the gasoline to bring people into their stores, where the margins are higher, he noted.
Lawlor also told the newspaper that a typical gas station pumps 90,000 gallons a month, but his Massachusetts stations pump more than 225,000 gallons a month.
According to The Boston Globe report, when gas prices broke $3 a gallon in the state, a Hess Express station in Dorchester, Mass. was selling for $2.95 a gallon. Throughout the state, Hess stations were below the $3 mark.
Although 96 percent of Hess' profit comes from oil exploration and refining, it's investing in service stations. It currently operates 1,400 stores on the East Coast. Since 2000, Hess has opened more than 100 stores in Massachusetts alone, the report said.