Franchisees Sue BP, Say Chain Knew Its Mandated POS Systems Double-Charged Customers And Didn't Fix It

A group of franchise BP gas station owners are suing the petroleum giant, arguing that the POS systems the chain mandated were overpriced, defective, caused inventory errors and double-charged some customers while giving others a free ride. And the lawsuit further suggests that BP management knew the systems—from Retalix—were defective when they insisted they be used.

The legal attack on BP is the latest example of the evolving nature of franchisee IT politics. With BP, it's the franchisees pushing back on a mandated POS system. But another active case—involving Burger King—is the same issue in reverse, with Burger King suing some of its franchisees for having not implemented a mandated POS system. Even Visa late last year reclassified franchises for PCI purposes, bowing to the new realities.

The issue behind almost all of these incidents is the struggle around who gets to decide IT moves within a franchisee operation. The franchisors are called owners for a reason. Ideally, the chain needs to persuade the owners of the wisdom of a suggested IT move, rather than mandating it. This speaks to the very different circumstances within different groups of store owners.

Corporate has an equally powerful case, that POS and CRM data have to be collected in the same way or else analysis and trend-spotting becomes almost impossible. It's in the franchisees' interest to make sure that corporate can spot those trends if they want the products to sell.

In the BP lawsuit, the installations started happening in 2009. "During beta testing of the Retalix POS system prior to the 2009 official installation, [BP and Retalix] knew or should have known of several material defects in the design and architecture of the software," the filing said. "Despite this, [BP] insisted and required the full rollout of the Retalix POS system nationwide to all of its franchisees at ARCO, BP and AM/PM mini-market branded franchises."

The lawsuit quoted a BP executive—William Fry, identified as the President of BP West Coast Products LLC—as saying in March 2011 that the Retalix system was "75 percent effective." Neither the lawsuit nor one of the attorneys who filed it clarified the context of the comment, including whether that reflected Fry's view of the system in March 2011 or at some earlier point.

The filing did, however, get specific as to the POS complaints, referring to "frequent errors, delays and downtime when Retalix is forced to go offline, resulting in a complete shutdown of the franchise location for up to several hours" and the POS system's "inability to track purchases in which it fails to register sales and debit charges for known gasoline sales," clarifying that "POS fails to record a deposit from some customers who purchase gas and other items." Another concern: "inability of Retalix to keep track of inventory, in which it either attributes more or less than actual inventory levels resulting in inability to track sales."

It also accused Retalix software of having a "propensity to double charge certain customers and not others. For example, customer number one will pump gas and his debit card will not be charged but customer number two will pump gas and be charged for his gas and customer number one's gas purchase." (That could be turned into a marketing plus. They could call it the BP Lottery.)The lawsuit also alleged other problems, including tax reporting issues. "As to be expected when rolling out a system that had significant material defects, the Retalix system has and continues to suffer from poor to inaccurate performance resulting in, among other things, lost operation time, lose revenue, loss of customers due to shut down of operations, inability to control inventory, inability to close taxes and increased costs and burdens," the filing said.

The filing claims that the stores had complained about the issues to both BP and Retalix, but nothing was fixed.

"Despite promises by BP Defendants and Defendant Retalix to fix these defects and their continued unsuccessful and futile attempts to fix the defects, the material defects still exist and continue to cause plaintiffs significant damages," the lawsuit said. "Plaintiffs no longer have any confidence in the Retalix POS system and the ability of BP Defendants and Defendant Retalix to repair these defects."

The lawsuit also claimed that BP "refused to implement the older system, which was satisfactorily working and refused to consider other POS solutions used by other national service station brands."

As is tradition in such litigation, BP and Retalix have declined to comment on the lawsuit's specifics. "Although Retalix has not been served yet, we believe this class action is without any merits and we will defend this vigorously," said Brad Prize, Retalix's VP of Global Marketing Communications.

These cases are rarely about what they say they are about. The Burger King case talked about POS, but it was really about control, jurisdiction and trying to get a judge to set limits on contractual obligations. The BP case is clouded by the oil giant's plans to sell ARCO and the possibility that such a lawsuit might be settled quickly to make it go away, so it won't depress the sales negotiations for ARCO.

A report this week in a respected convenience store chain media outlet, CSP Daily News, said that BP offered franchisees a settlement, where BP would pay more of the cost of the Retalix systems "but only if a franchisee continues to use the Retalix system for the next five years and remains a franchisee with BP-ARCO for that period." That BP offer also reportedly insisted that the stores "waive all claims, known and unknown, related to losses that have been sustained concerning the Retalix system and will be prohibited from asserting future claim." Yeah, that's going to go over well with franchisees.