The price of survival
A Shell dealer in Yonkers, Dennis Valenti was moved by anger and a business owner”™s survival instinct to drive to Long Island last year to meet with other angry Shell dealers in the Long Island Gas Retailers Association.
The group was considering a class-action lawsuit against the new middleman from Westchester County supplying gasoline to their stations, NY Fuel Distributors. It is a subsidiary of the Thornwood-based company, NY Fuel Holdings L.L.C., that acquired nearly 90 gas-station properties and leases in the metropolitan New York market in 2010 as Shell Oil Co. exited its retail gasoline business. The chief target of the group”™s wrath was Sammy Eljamal, the company partner who managed its day-to-day operations and set the prices paid by dealers.
In Westchester as on Long Island, dealers were struggling to make a profit and stay in business with the higher wholesale prices they were paying. Within a day or two of the closing on the approximately $43 million deal, the tank wagon price paid by Shell dealers shot up 16 cents a gallon, according to one industry source.
The aggressive price increases for dealers drastically reduced gasoline volume at those stations, according to James Weil, one of the partners in the Eljamal-managed company who is seeking to oust him. That put the company below the minimum annual volumes it is required to buy from Shell in its 20-year agreement, subjecting it to large financial penalties, Weil said in a state Supreme Court affidavit.
The prices set by Eljamal varied among Shell locations, however.
At stations owned and operated by Eljamal”™s company rather than leased to franchise dealers, “We were seeing much lower prices than what we were paying,” said Valenti, owner of Executive Central Service Corp., a Shell station and repair shop in the South Westchester Executive Park in Yonkers, who also operates Shell stations in Thornwood and Haverstraw. “Their selling of gas at the pumps was less than the price we were paying for it” from the wholesaler.
Eljamal”™s partners and investors in the Shell venture also noticed those pricing variations.
Retail prices at their company”™s stations “were at or below the cost being charged to normal dealers for their gasoline supplies,” placing those dealers “at a competitive disadvantage and reducing their volume and profits,” Weil said in his affidavit. “Such predatory pricing could have subjected the company to lawsuits.”
Weil claimed Eljamal dodged those lawsuits by striking special deals with dealers that gave them rent abatements and lower fuel prices. Some deals resulted in financial losses for the company, he said.
Eljamal did not return a call for comment.
Complaints of predatory pricing from retail consumers have spurred a state review of the gasoline industry in the metropolitan area this year by the office of state Attorney General Eric T. Schneiderman. Due to be released by the end of this year, the study will examine data throughout the distribution chain to account for the price increases.
In Yonkers, Valenti said state investigators requested his price records for a six-month period. He has heard nothing from the attorney general”™s office since.
Eljamal”™s more recent pricing practices seem to have quieted dealers who explored legal action last year. “In the beginning, our prices were out of whack,” said Valenti. “We were not competitive at all. That was resolved. I”™m competitive with the other stations in the area. I”™m making the margin I need to survive and that”™s it.”
Though prices paid by Long Island dealers had improved, Shell dealer Andrew Harris said they spiked again in recent weeks. Harris, president of the Long Island Gas Retailers Association, said Eljamal”™s company was charging dealers 14 cents to 25 cents a gallon above the rack price paid by the distributor at the Newburgh oil terminal. On Long Island, the dealer tank wagon price usually is 5 cents to 10 cents over rack price, he said.
Harris said the company”™s minimum-volume agreement with Shell might account for the end-of-year increase. “I think they may end up having a problem” reaching that level and have raised wholesale prices to build up money for the penalty payment.
The distributor, though, is offering rebates to Westchester and Long Island dealers who exceed their 2010 gas volume. The rebates range from 2 cents to 5 cents a gallon.
“Rebates are things of the past,” said Harris at Turnpike Service station in Jericho. “Ten, 15 years ago, rebates were very common. Retailers would chase their tails to get the rebate” by lowering prices at the pump. “We used to call it the rebate worm. The rebate worm would eat away at your profits.”
In Yonkers, Valenti said he won”™t chase the rebate that Eljamal”™s company recently offered. He doesn”™t think he can sell the volume of gas needed by year”™s end to collect it.
Valenti said he saw quite the opposite of the price spike reported by the Shell dealer on Long Island.
“Two days ago, they dropped my price 6 to 7 cents a gallon,” he said. “That”™s unheard of. Usually you don”™t get a big drop like that.”
Valenti said Shell might have “sugarcoated stuff,” lowering prices to dealers to increase gas volume in the year before Shell”™s Motiva Enterprises L.L.C. sold its metropolitan stations. Both he and Harris said Eljamal”™s company might have overbid in the 2010 deal.
“It”™s a cutthroat business,” said Valenti. “Is Sammy the bad guy? I don”™t think that”™s the case.
“The bottom line is, he has to stay in business. Who”™s to say what”™s right or wrong anymore? Everybody”™s trying to survive.”