It has been nearly four years since Russian oil major Lukoil (NQB: LUKOY), first arrived on our shores, acquiring Getty Petroleum Marketing and its chain of 1,300 U.S. gas stations. But according to a story published in Wednesday's Washington Times, the new arrival is still having trouble finding its land legs.
Six months ago, Lukoil bulked up its U.S. retail and wholesale gas station chain by helping out old friendConocoPhillips
The Times quoted a representative of Empire Petroleum Marketing, which runs Lukoil's stations in the Washington, D.C., area, as saying that Lukoil wants to make itself known as a "premium brand" in the U.S. But there are a few problems with that. First, it's hard to become known as any kind of brand without branding your gas stations with your name. If Lukoil wants to raise its brand awareness with U.S. motorists, it really needs to jumpstart its renaming campaign. Otherwise, the few stations it has renamed will be considered at best a novelty or, at worst, a tragic spelling error by some third-rate company named "Luck Oil."
Second, the usual reason for an oil production company opening retail outlets -- to become vertically integrated and capture all stages of the profit-making process for itself -- doesn't appear to be working for Lukoil. The company doesn't seem to have mastered the logistics of getting oil, produced in Russia, moved across the ocean to sell in the U.S. According to the Times, Lukoil's U.S. stations are by and large buying and reselling gasoline produced in the U.S. and Canada. If Lukoil is just selling the same gasoline you can get at Amerada Hess
Which contributes to the third problem. According to Empire, few motorists who stop at Lukoil do so primarily because it is a Russian operation. Lukoil has the rare opportunity in the oil retailing world of marketing itself as something different. It should capitalize on that to set itself apart and capture market share. Whether it does so by arguing that Russian oil is better than Texan or Saudi, or by giving away free matryoshkas (those cute nesting dolls) for every tenth fill-up, this is an opportunity that shouldn't be squandered.
But first of all, guys, change the signs.
Fool contributor Rich Smith 's day job is advising companies on doing business in Russia. He has bought gasoline at all of the companies mentioned in this article but owns shares in none of them.
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