The Breakdown | Explaining Southern California's economy
Business & Economy

Say goodbye to Arco in Southern California

An Arco gas station in Pasadena. It won't be around for much longer.
An Arco gas station in Pasadena. It won't be around for much longer.
David McNew/Getty Images

This just in — really! BP has informed operators of its Arco stations in Southern California that it won't be renewing leases with Thrifty Oil, which owns the current Arco sites, according to the OC Register. Arco has been in SoCal for 46 years and currently occupies 257 locations, so this is no small deal. USA Gasoline will take their place.

USA Gasoline is owned by Tesoro, which is more of a refiner that sells its gas at its own locations, along the lines of Valero. BP of course is a vast multinational energy company whose core business is oil extraction.

There's another wrinkle to the story, in this period of steep gas prices in our region. From the OC Register:

The move by BP has set off a firestorm of protest among the 106 Arco franchisees, many of whom own multiple stations and stand to lose their entire investment. About 2,000 Arco workers also will lose their jobs

It also raises questions about what will happen to gasoline prices when Arco, known as the low-price leader, is no longer in the market.

The move is scheduled for April, so the answer to that question is that (1) a low-price competitor will move into the market or (2) other operators will lower their prices to occupy that segment. Neither of these things will necessarily happen in a hurry, so gas could on the whole be more expensive in Southern California this summer. 

Why is BP making this decision? It's owned Arco since 2000, and it's also safe to assume that the SoCal business is fairly profitable — BP has been solidly profitable of late, even in the aftermath of the Gulf disaster. Completely speculative on my part (and I'll try to gather some more info), but it's possible that BP and Thrifty are having a spat and can't come to terms. 

It's also possible that BP wants out of the lower end of the market, or that it's executing a more general pullback from retail and wants to focus on its international brands, feeling that competition in the U.S. West is too intense.

In any case, BP is telling soon-to-be former Arco franchisees to deal with Thrifty Oil and Tesoro about moving forward.

Follow Matthew DeBord and the DeBord Report on Twitter.