FTC to Give Fuel Retailer Mergers Extra Scrutiny

The White House has raised concerns about the rising cost of gasoline and competition among big players.

August 31, 2021

Mergers and Acquisitions

ALEXANDRIA, Va.—The Federal Trade Commission (FTC) signaled plans to challenge acquisition deals in the fuel retailing industry, particularly when the largest fuel retailers acquire family-run businesses, and said it will more closely scrutinize franchise agreements, citing concerns raised by the White House about rising fuel prices and potential anticompetitive practices.

In a letter last week to Brian Deese, director, National Economic Council, FTC Chair Lina M. Khan shared her concerns about consolidation in the oil and gas industry, especially in terms of retail fuel outlets. She noted that the FTC in the past has required merging firms to divest gas stations in overlapping markets as part of the deal review process.

“While we undoubtedly face significant limitations under current law, this policy overall may have enabled increased consolidation at the national level, creating conditions ripe for price coordination and other collusive practices, Khan states in her letter to Deese. The National Economic Council is part of the Executive Office of the President.

Deese had pointed to “divergences between oil prices and the cost of gasoline at the pump,” in his letter to the FTC, saying that President Biden “wants to ensure that consumers are not paying more for gas because of anti-competitive or other illegal practices,” the Hill reports.

Khan said she is directing FTC staff to identify ways to field legal challenges of “retail fuel station mergers where dominant players are buying up family-run businesses.”

She intends to examine the divesture process as part of mergers and acquisition deals “to ensure that our approach to merger remedies is not encouraging further consolidation or enabling dominant firms to exercise market power. I am especially interested in ways that large national chains may ‘restore’ higher prices through collusive practices, and I will direct our staff to investigate any signs of this type of conduct,” Khan said.

The FTC also plans to examine the franchise market for evidence of abuse, including the possibility that large national chains are pressuring their franchisees to sell gasoline at higher prices, the letter states.

Of the more than 121,000 convenience stores that sell gasoline, about 24,900 of them, or 20.5%, are owned by a company with 500-plus stores. Meanwhile, 69,342 of c-stores that sell fuel are one-store operators.

“The fuels retailing businesses is incredibly diverse and competitive,” Jeff Lenard, NACS vice president of strategic initiatives, told NACS Daily. “There are more than 121,000 convenience stores that sell fuel, and these stores are collectively owned by 70,000-plus businesses. If there were actual wrongdoing in any corner of the industry, that should be investigated, and the law should be enforced.”

The FTC’s move comes amid questions raised about rising gasoline prices. Earlier this month, the Biden Administration called on OPEC to lift oil output. As COVID-19 raged last year, OPEC and its allies sharply curbed production by 10 million barrels a day due to a slump in demand and the resulting oil glut, but it has since raised production levels to erase about 5.8 million barrels a day of the cutback, Reuters reports.

What’s more, there is a perception among consumers that the White House controls fuel prices. However, as Lenard explained in the February 2021 NACS Convenience Corner blog post “Does the President Control Gas Prices?”, the Oval Office has far less ability to affect prices at the pump than most consumers believe.