Arco to Take Control of 260 More Stations

California’s rapidly restructuring gasoline market shifted again Monday when Atlantic Richfield announced plans to take over 260 Thrifty gas stations, most in Southern California, a deal that will enable Arco to reclaim the top spot among the state’s biggest gasoline retailers.

Arco said its absorption of Thrifty’s locations under long-term leases will lift its California market share to more than 20%, up from 18.3% over the first 11 months of last year. Chevron owned a 19.1% share for the first 11 months of 1996, according to the Lundberg Letter market research firm.

Arco had fallen from the No. 1 spot after 1994.

California’s volatile gasoline refining and retailing industry has seen enormous reshuffling in recent months. Because of the state’s strict environmental controls, razor-thin profit margins and cutthroat competition, companies are trying to increase market share to spread out costs--or bail out of the state altogether.

Last October, Unocal announced the sale of all 1,150 of its familiar orange and blue stations to Tosco, owner of the Circle K chain of gas stations and convenience stores. Unocal, which is also selling three refineries, said it could more profitably use the cash to develop oil and gas offshore.

In another deal with major implications for California, oil giants Shell and Texaco announced in October that they will combine all U.S. refining and retail operations, sales and marketing functions. According to Lundberg, although the deal isn’t yet final, Shell and Texaco combined would have a 23% share of the California market, larger than the Arco-Thrifty combination.

And Ultramar, a Greenwich, Conn.-based operator of a refinery in Wilmington and 360 stations in California, merged with Diamond Shamrock of San Antonio, a big regional chain in the Southwest, last year.

Despite fat refining profits in the first half of 1996, “California retailers had it rough last year with the [clean burning fuel] requirements that raised prices and then the gas war in the fourth quarter when companies were selling gas below wholesale cost,” said Adam Sieminski, oil analyst at NatWest Securities in Baltimore.

“So consolidation is certainly on Arco’s agenda, and I suspect on the minds of other companies because of the poor market conditions,” Sieminski added.

Terms of the Arco deal were not disclosed, but Arco said it will lease the operating rights to all Thrifty sites for at least 10 years. Although it did not rule out station closings, Arco said it expects that the 2,500 employees affected at Thrifty to keep their jobs.

Forty-four of the 260 Thrifty-owned stations already sport Arco signs, so the deal will mean the addition of 216 Arco-signed stations, bringing the Arco chain to 1,266 stations. That’s still fewer than Chevron’s 1,407 stations statewide and Shell’s 1,400.

But because the average Arco station pumps far more gasoline than the others, Arco would become the state’s volume leader by virtue of the Thrifty deal.

“Southern California has the highest demand for gasoline, and by adding more retail outlets, Arco is better prepared to serve its customers,” Arco Products President William C. Rusnack said. An Arco spokesman added, “We have been saying for some time we want to grow the downstream business, meaning the retailing and marketing end.”

The deal also spells retirement for Thrifty founder and Chairman Ted Orden, 75, a Romanian immigrant who built the company from a single station in Bellflower in 1960 to a major player in Southern California’s gasoline market.

The Downey-based company is also negotiating to sell its Santa Fe Springs refinery, which it shut down in 1992 and currently uses as a gasoline terminal. The firm will remain in operation as an owner of real estate, including the service stations leased to Arco.

Thrifty grew by major acquisitions, including the purchase of 112 stations from Amoco in 1972 and 250 locations from Gulf in 1980, shortly before it was acquired by Chevron. But in recent years, Thrifty has been slowly shedding its locations to outside firms, a spokesman said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Pumping Up

The addition of Thrifty will make Arco and its high-volume stations the state’s leading seller of gasoline. But even adding all of the soon-to-be-acquired Thrifty stations to its network, Arco will still trail Chevron, Shell and Unocal in number of stations. California’s top service station chains:

Chevron: 1,407

Shell: 1,400

Unocal: 1,150

Arco: 1,050

Mobil: 753

Texaco: 700

Ultramar/Beacon: 370

Circle K: 309

Thrifty: 216

Source: the companies