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. Last Updated: 07/27/2016

Tyumen Kicks Off Franchise Scheme

Tyumen Oil Co. this week inaugurated the first of hundreds of franchised gasoline stations it plans to open in Central Russia in a bid to diversify its business beyond crude oil sales.

Cutting the ribbon on two blue-and-white gas stations near the city of Ryazan, 400 kilometers east of Moscow, Tyumen President Simon Kukes said the company will offer high-quality gasoline, low prices and reliable service as it angles to dominate regional petrol sales.

"We will work with franchises who know how to work with customers," Kukes said. "We want to make our customers happy with good service and quality gasoline."

Tyumen plans to open 100 new gasoline stations by the end of the year, 10 of which the company will own outright while franchising the rest. Franchisees will pay for construction of the new stations and will own 100 percent of sales. Tyumen hopes to gain reliable buyers of its refined oil products.

As world oil prices hover at levels 40 percent below last year's high of $21 per barrel, Russian oil majors can no longer rely on profitable crude oil exports to pad their bottom lines. Many are turning more attention to the domestic gasoline market, which offers the most readily available source of cash within Russia.

Kukes, who worked for Amoco Corp. in the U.S. and Russia before joining Tyumen, said the company is hoping to build its brand name to compete with well-known retailers such as LUKoil and British Petroleum.

Tyumen, Russia's sixth biggest company by production, has for years run a chain of 200 gas stations in Central Russia under the highly forgettable moniker Ryazannefteprodukt, all of which will now be converted to the simpler TNK, for Tyumenskaya Neftenaya Kompaniya.

Supplying Tyumen's growing retail network is the company's giant Ryazan refinery, which has been repaired and coaxed into working at 75 percent capacity from 30 percent last year.

Kukes said the company is boosting the quality of its petrol by lacing it with oxygen additives and removing all lead content. Tyumen has also slashed prices at the pump by up to 40 percent to win new market share.

In regions east of Moscow, Tyumen faces stiff competition from Yukos, which runs 900 gas stations in Russia and is aiming to increase refined oil product sales from 10 percent of total sales to 15 percent to 18 percent.

To achieve this goal and cut labor costs, Yukos earlier this year began renting management rights of its stations to entrepreneurs, who buy gasoline from Yukos and pay rent to the company. Almost half of Yukos' stations are run under rental agreements today.

Tyumen, seeking to build its retail network during a period of low profitability, has selected the lowest cost path: it will give its brand name and regular gas supplies to independent owners, who are responsible for building or renovating their gas stations to a certain design.