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Franchise Law Update Commentary on Business and Legal Issues of Franchising

BP Sets Plan in Motion to Assist Boycotted and Frustrated Franchisees

Posted in Business Updates

It is not unusual in the franchise world for the reputation of a brand to hit high points and low points. But the worst oil spill in U.S. history undoubtedly reminds us how the bad press suffered by a franchisor sooner or later takes a toll on its franchisees. BP’s mishandling of the oil spill certainly continues to plague the reputation of its brand but just as BP local station owner frustration appears to have reached a breaking point, the British franchisor set in motion a plan to help its distributors, jobbers, and franchisees.

The Associated Press reported on Tuesday that BP will be offering cash, a reduction in credit card fees and advertising assistance to its outlets. According to the article, the total package BP is offering to franchisees and distributors is approximately $50 to $70 million. While BP franchisees are contractually bound to continue to purchase BP gas and pay certain fees under its franchise business arrangement, is in BP’s best interest for its franchisees to feel supported and be successful.

The company-owned BP stations are few and far between. The majority of gas and convenient stations displaying the BP name are independent business owners operating as BP franchisees. The business owners enter into franchise agreements (typically 20 years) and separate fuel supply agreements in exchange for the right to use the BP name and take advantage of BP negotiated fuel rates. Franchisees usually pay an upfront franchise fee and continuing royalties to BP during the term of the franchise and fuel supply agreements.

It was in November of 2007 that BP all but exited the retailed market and sold off most of its company-owned stores (approximately 700). This means that many BP station owners are only 3 years into a 20 year agreement to purchase BP fuel. As the Internet continues to be flooded with information encouraging local customers to boycott BP, disgruntled franchisees are likely second-guessing their decision to enter into a long-term business arrangement with the shamed oil producer. The Facebook BP boycott page has nearly 750,000 fans despite the daily public pleas from BP franchisees explaining that the boycott does more to hurt local small business owners than the British oil corporation. Now BP is trying to do its part to help. We will watch in the coming weeks to see if BP’s response helps quell franchisee dissatisfaction and whether BP’s reaction to this brand crisis is a strategy do or don’t for other franchisors.