"On a barrel-equivalent basis, they are a larger refiner-marketer than producer," said Mark Gilman, an energy analyst with New York City-based The Benchmark [image-nocss] Co. "Marathon does represent a bit of an exception in that regardinvesting considerably more heavily in downstream and refining in particular than all of its competitors are." He cited ConocoPhillips as the best comparable major oil.
While other majors may have sold off their retail holdingsConocoPhillips among themMarathon has shown no signs of jettisoning SSA. It is indicative, Gilman said, of the company's total embrace of an integration strategy as a means to cushion short-falls in refining margins.
While he does not agree with the strategy from a long-term perspective, Gilman separately acknowledged SSA's strengths. "Speedway might very well have the best-run retail operations I've seen under the umbrella of a major over the course of my years in the business," said Gilman. "But it's a comparatively small part of Marathon as a whole. And it's not a business segment that's receiving a whole heck of a lot of growth-oriented emphasis."
While Marathon does not release separate revenue or profit figures for SSA, Gilman estimated its contribution to operating profits in the low single digits.
But from SSA's perspective, its role within Marathon's downstream is not all about profits; rather, it's an expression of synergy.
"If you look at Speedway SuperAmerica's footprint and then look at Marathon's refining and terminal distribution network, we overlap very nicely with their logistical system," Tony Kenney, president of Speedway SuperAmerica LLC, told CSP Daily News in an exclusive interview. "The ability for Marathon to move products into the markets, having a customer the size of Speedway SuperAmerica in terms of the rateability we provide, the sales at their different terminals throughout the Midwest, provides some synergistic benefits."
In 2009, SSA sold 3.2 billion gallons of fuel, and saw a 1.1% bump in same-store gasoline sales.
Marathon's downstream assets include seven refineries that churn out approximately 1.2 million barrels per day of refined products, making it the fifth-largest refiner in the United States. It has nearly 100 owned and leased terminals scattered throughout the Midwest and Southeast. And it owns, operates, leases or has an interest in approximately 10,000 miles of pipeline. With this overlap of retail, refining and distribution systems, there are opportunities for all players in the downstream.
(Click here to view an exclusive CSPTV interview with SSA's Tony Kenney.)
Besides SSA's considerable retail network, there are approximately 4,600 Marathon branded sites across 18 states, with the heaviest concentration in Ohio, Michigan, Indiana, Illinois and Kentucky. SSA has a strong presence in eight of these 18 markets, and often finds itself competing with the major oil's branded jobbers and dealers.
Here, SSA considers the consistency of its backcourt and forecourt offer a competitive strength. "One of our advantages is we can drive consistency in products and customer experience, vs. the guy across the street," Plumby said.
For Marathon Oil, SSA sites require a much greater upfront investment than branded locations. That being said, they also provide a much greater potential profit. "If you go through jobbers, you don't typically own the store," said Kenney. "With Speedway SuperAmerica, we own everythingbuilding, real estate, the equipment. It takes a lot more investment, but you earn a lot more money."
On the street, "aggressive but fair" is how competitors commonly describe SSA's fuel-pricing strategy.
"They're very rational, so you can understand what they're going to do," said Rob Razowsky, CEO of Rmarts LLC, Deerfield, Ill., which has six stores in Illinois and indirectly competes with SSA through Shell sites it manages. "You get to know what Speedway's going to do, or how they're going to react; they're not going to let you get below them on price."
"Day in and day out, they are the leader up and down in [fuel] pricing," said Todd Jenney, CEO of Martin & Bayley Inc. dba Huck's Food & Fuel, Carmi, Ill., which has 104 stores in Illinois, Indiana, Kentucky, Missouri and Tennessee, and competes with SSA around Indianapolis. "Some retailers just tend to leap down, but [SSA] will go both ways with it. They've got enough market share to take it whatever direction they want."
SSA's execs consider their approach to fuel just as carefully as that to in-store merchandiseall decisions are based on careful evaluation of "the math."
The retailer's five-person-strong pricing department evaluates historical sales data and determines reactions based on street reports. The pricing group and Kenney have live New York Mercantile screens to keep their eye on price swings.
Yet despite SSA's traditional forecourt focus, it sees perhaps greater promise in delivering a consistent, quality experience inside the backcourt.
"The Speedway brand, that's where all of the emphasis has been the last 10 years," said Plumby. "It was a gas brand. Fast-forward to 2010, and I think you will get a different perception of what that Speedway brand is."
For more on SSA's attempts at redefining its brand through in-store consistency, see the March issue of CSP magazine.
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