Last week a bankrupt Jiffy Lube franchisee went public with its complaints against Shells Jiffy Lube International and SOPUS Products (Pennzoil), claiming the high price of Pennzoil motor oils was a large contributing factor in its bankruptcy.
Tri-Cities Fast Lubes, owner of 16 Jiffy Lube franchises in Washington and Oregon, entered Chapter 11 bankruptcy proceedings in January and is currently attempting to restructure its obligations. Last week the company issued a press release announcing that it had reached an impasse in its negotiations with Jiffy Lube and Pennzoil, and had rejected its oil supply contract.
Our franchisor and oil supplier continue to place overly burdensome demands upon us that will continue to cripple our business for decades to come, Tri-Cities CEO Sean Porcher said. Today [June 7] the company takes its first step in separation from Pennzoil by announcing plans to reject their oil supply contract dating back to 2008.
The high price installers pay for the Pennzoil brand, the Tri-Cities press release continued, erodes their bottom line cash flow. Pennzoil often provides upfront capital to fund business start-up in return for long-term purchase agreements. Once under purchase agreement, companies like [Tri-Cities] are obligated to purchase exclusively from Pennzoil regardless of price increases or competitive fluctuations.
In 2008, Porcher told Lube Report,he and a partneracquiredTri-Cities and “signed a seven-year supply agreement with SOPUS in return for investment in the business. We contracted to purchase exclusively their products. Under Chapter 11, we are able to restructure debts and assume or reject existing supply agreements and leases.
Porcher declined to specify the difference between his price for Pennzoil motor oils and competitive products. I cant say a number, but its large, he told Lube Report. Paying a premium for motor oil was a cost we couldnt overcome. Tri-Cities has been buying motor oil from a different supplier since January.
SOPUS pricing contributed to the bankruptcy, Porcher said. It was not the only factor, but a large contributing factor, an obstacle.
Asked to comment, Shell Lubricants provided the following statement: Jiffy Lube International and SOPUS Products (Pennzoil) are aware of the news release issued by Tri-Cities Fast Lubes, Inc. stating it continues proceedings for the purpose of restructuring its financial affairs under Chapter 11 of the U.S. Bankruptcy Code. … Minimizing any service interruptions for customers is the highest priority for Jiffy Lube International and Pennzoil. JLI and Pennzoil will continue to work with the appropriate parties throughout the process.
Despite their differences, Porcher told Lube Report, Our ultimate goal is to work out these issues. They want a win-win, and we want a win-win. Our first choice is to work out a long-term plan with Jiffy Lube and SOPUS that allows us to be viable, long-term.And for Tri-Cities, said Porcher, that means lower prices and lower volume commitments on Pennzoil products.