Adding It Up

Cumberland Farms-Gulf Oil aims to speed growth, improve its retailing

Steve Holtz, Editor in Chief, CSP Daily News

NEWTON, Mass. -- Earlier this year, Gulf Oil LP and its sister company Cumberland Farms reached a crossroads. Cumberland Farms CEO Lily Bentas was looking to step away day-to-day duties, both companies were looking to grow and both companies were facing the uphill struggles posed by record-high gasoline prices. The result is a restructuring of the two companies that has leader Joseph Petrowski optimistic that the new whole will be worth more than the sum of its parts.

"This is an industry under assault. And what's our response to it?" Petrowski told CSP Daily News. "One of them is: Maybe [image-nocss] it would be a lot better if we came together as an organization where it will become one plus one equals three rather than two."

The change, as previously reported in CSP Daily News, will consolidate and streamline the management teams of both companies to increase operational efficiency. Petrowski, now Gulf Oil chief executive officer, will become Group CEO of Cumberland Farms-Gulf Oil.He will report to a nine-person board made up of five independent members and four Haseotes family members, with Bentas as chairperson. Ari Haseotes, currently vice president of marketing for Cumberland Farms, will become president of Cumberland Farms Retail. Ron Sabia, currently chief operating officer at Gulf Oil, will become president of Gulf Oil.The changes will be effective October 1, 2008.

"The change is being made for myriad of reasons," Petrowski said, outlining concerns about the growth opportunities, economic concerns and front-office synergies and efficiencies that will save capital. "It's because of conditions in the marketplace—we seem to be in a time of consolidation, a lot of M&A activity—and volatile, historically high prices, and the fact that we think the organizations can work better together than they can apart. We're going to still run both businesses as distinct business enterprises. They will have separate income statements, and they will have separate P&Ls."

One hoped for result is smoother growth, which Petrowski said will be led by working as a single company when appropriate.

"Today when something comes up for sale, it's never particularly clean," he said. "Every sale seems to have a little bit of company-ops at a few properties, a little bit of contract or open dealers, a few assured dealers, sometimes heating-oil companies, sometimes with terminals, sometimes without.… Everything had a little bit of hair on it. So every time we'd look at something, half the project was looked at by our Cumberland side and the other half looked at by Gulf, and the coordination wasn't there for the entire acquisition."

Petrowski also is aiming for a higher-profile retail operation.

"Ultimately if we do this right, what we'll have is an organization that can really develop itself as a first-class retailer, which is what we're going to attempt on the Cumberland Farms side," he said. "We think we've got very good locations today, but we think we can really improve the retailing, which is really important today. If you do it really well, you have the ability to deliver that value across the chain, maybe in the form of a franchise."

But don't expect a franchise effort to begin right away.

"I'm not ready to announce any franchising operation," Petrowski said, "but maybe in the short run, we could leverage some of our wholesale buying capabilities, our equipment buying capabilities to leverage some of our distributors and dealers to perform better."

Newton, Mass.-based Gulf Oil—owned by the Haseotes family, which also owns the Cumberland Farms chain, one of Gulf's biggest customers—is a totally downstream company that distributes motor fuels through a network of more than 2,400 branded stations, 12 proprietary oil terminals and a network of more than 50 other supply terminals.

Canton, Mass.-based Cumberland Farms operates a network of approximately 900 retail stores, gas stations and a support system including petroleum, dairy and grocery distribution operations.

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
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