SAN ANTONIO -- Valero Energy Corp. believes it has one of the best corporate cultures in America. Apparently, so does the rest of the industry.
In 2000, Valero and what was then Ultramar Diamond Shamrock were finalists competing for ExxonMobil's Benicia, Calif., refining and marketing assets. Valero ultimately won out, even though its bid was lower, because ExxonMobil thought we would take better care of their employees, said Ken Applegate, Valero's vice president of wholesale marketing, during a recent CSPNetwork CyberConference. Ironically, Valero [image-nocss] acquired UDS a year later. [To view an OnDemand replay of the CyberConference ($49), click here.]
UDS was a key acquisition for us because of its size, said Applegate. It gave the company the scope and size we needed to grow. It also helped Valero realize a goal set by chairman and CEO Bill Greehey just four years earlier: to reach a throughput capacity of 2 million barrels per day (bpd).
Before Greehey changed the company's course in 1997, Valero had a single refinery in Corpus Christi, Texas, and did business primarily in natural gas and liquids. The UDS acquisition, along with other high-capacity, high-conversion buys, such as the 2005 addition of Premcor Inc.'s assets, put Valero on track to become a premier refiner-marketer in North America. Today, it has 17 refineries scattered throughout the country and a blossoming 5,000-store network that have helped Valero achieve $80 million in annual revenues and 10 consecutive quarters of record earnings.
San Antonio-based Valero's much-celebrated corporate culturein January it ranked No. 3 on Fortune's list of Best Companies to Work For in Americahas fueled the company's mercurial rise over the past eight years. The company has come a long way since its strategic shift, but it's not done yet, according to Applegate. With roughly 3,000 wholesale sites spread throughout the country, Valero expects to more than double that network to more than 7,200 stores by 2010. Expansion will come from existing strongholds as well as new markets in the Pacific Northwest and Great Lakes regions.
If projections hold true, the East Coast will experience the most dramatic growth. Last year, Valero had little more than 700 wholesale sites in the East, but that number is expected to rise above the 2,300 mark by the decade's end. In mid-continent, which is Valero's power center, wholesale locations should swell to more than 3,100, up from its 1,465 last year. And along the West Coast, sites are expected nearly double to 1,273. Given such growth, Valero's wholesale volume will have ballooned from 156 million bpd to 456 million bpd in just five years' time.
Certain markets hold greater promise than others. Valero will definitely have a significant presence in Arizona and surrounding states, and over the past 18 to 24 months has been very aggressive in targeting more marketers in Southern California, according to Applegate. Furthermore, last year's acquisition of Premcor's refineries has enabled Valero to expand in other key states or regions, such as Arkansas, Memphis, Tenn., and Pennsylvania. Penetrating key southeastern states like Alabama and Mississippi remains a longer-term goal.
Applegate said the company wants new sites to have a minimum of two multiple-product dispensers equipped with card readers, satellite capability for card processing and remote software upgrades, and a modern convenience store. (Valero will provide incentives to marketers with pumps that do not have CRINDs.) While the company has no firm volume requirements, Applegate set 50,000 gallons a month as a floor, though the average location in the Valero system does approximately double that amount.
Other value-adds likely to attract more marketers to the teal and yellow include a revamped credit-card marketing program (a private-label card program to combat rising processing fees and a cobranded credit card with Chase Bank due in mid-2006), continuous-basis outdoor and TV advertising on a national level (including major-network spots during the 2006 Winter Olympics) and a merchandise buying program.
As a whole, Valero is becoming a more refined, more streamlined network. In June 2005, the company announced it would convert its U.S. retail and Diamond Shamrock network to the Valero brand image. The re-imaging process will enable the company to promote a single premier brand supported by national advertising and sponsorship activities.
So far the company has re-imaged approximately 350 wholesale sites. As long as it continues on its present course of converting 50 locations per month, it should complete the wholesale changeover by year's end. The re-imaging of Valero's company-owned retail sites, meanwhile, should be completed by early 2007.
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