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. Last Updated: 07/27/2016

LUKoil on Brand Offensive in U.S.

PHILADELPHIA -- LUKoil, Russia's largest oil company, has launched a marketing offensive to put its name on service stations across the United States and become as well known here as it is at home.

Over the last five years, LUKoil has entered the U.S. market by acquiring about 1,300 Getty service stations and 800 Mobil locations in the Northeast. It is converting them to its brand and recently launched advertising to introduce itself to consumers in 13 states.

The company plans to keep acquiring assets in the United States, the world's biggest consumer of oil.

The Moscow-based conglomerate is the largest oil producer, refiner and distributor in Russia and second in the world in proven oil and natural gas reserves, behind ExxonMobil.

"It is our hope that other major acquisitions will become available as the petroleum sector continues its consolidation," said Vadim Gluzman, president and chief executive of LUKoil Americas Holding, the oil giant's U.S. arm, based in East Meadow, New York.

"There are numerous opportunities to acquire new businesses in a variety of marketing channels, and as a result we are more inclined to acquire existing sites than we are to construct 'new to business' units," Gluzman said. He added that the company was interested in the West Coast and other areas.

Motorists in America's Northeast are increasingly seeing LUKoil's cheery red-and-white service stations pop up. The company is morphing its Mobil stations at the rate of about 10 per week, up to 78 by the end of June.

"They want to establish their brand name. Everyone knows BP. Why not LUKoil?" said John Connor, portfolio manager of the Third Millennium Russia Fund, where LUKoil represents one of its largest holdings.

"They have a lot of pride in getting the Russian name out and about in the world," Connor said. That may explain why President Vladimir Putin attended the ribbon cutting of a LUKoil service station opening in Manhattan two years ago, shaking hands with employees and strolling through its Kwik Farms convenience store.

Ironically, Putin's government is now investigating a subsidiary of LUKoil for evading $1.5 million in taxes. The company is disputing the charges, spokesman Dmitry Dolgov said.

LUKoil's revenue went up by 53 percent to $34 billion in 2004 over the previous year, and net income rose by 15 percent to $4.2 billion thanks to a company restructuring and higher oil prices.

LUKoil has 5,000 service stations in more than 15 countries, about half of them in the United States. The company has interests in New Jersey, Pennsylvania, New York, Connecticut, Massachusetts, Rhode Island, Virginia, Maine, Delaware, West Virginia, Vermont, New Hampshire and Maryland.

LUKoil plunged into the U.S. market with its $70 million purchase of Getty Petroleum Marketing, a marketer of gasoline and petroleum products, and the $270 million acquisition of Mobil stations from ConocoPhillips.

To introduce consumers to the brand, LUKoil hired Arnold Worldwide, the ad agency responsible for Volkswagen's successful "Drivers Wanted" ads, to handle its $30 million marketing budget.

The ad campaign's goal is to make consumers warm up to LUKoil as an oil company, said Fran Kelly, president and chief operating officer of the Boston-based ad agency. "There are only five or six major [gasoline] brands. I don't know if any of them is a particularly likable brand," he said. "LUKoil has a chance to become a likeable retailer."

Realizing that most American consumers do not have any impressions about the LUKoil brand, the company decided to home in on drivers' love of their automobiles, instead of pumping up the qualities of its gasoline, as many oil companies do.

Arnold came up with what it believes is a consumer-friendly slogan for LUKoil: "We [heart] cars." Advertising proclaims that LUKoil has "car people from head to toe. The kind that drive from the garage to the mailbox."

LUKoil has dispatched interns to service stations to talk up the company and pass out application forms for its credit card. It also sponsors sports teams in the Philadelphia area.

But such marketing machinations may not be critical for success, given soaring gasoline prices, said Stephen Kobrin, a professor of multinational management at the University of Pennsylvania's Wharton School.

"Do you look at the brand when you get gas?" Kobrin said. "It's a commodity. They need to have decent service and prices. Period."