SAN ANTONIO -- At the heart of a recently enacted profit-improvement initiative for Valero Energy Corp.'s Corner Store retail division lies a shakeup to rein in overhead costs. The corporate restructuringas exclusively reported by CSP Daily News in Marchrepresents just one piece of an intricate puzzle intended to hone a leaner, more profitable retail network, according to Gary Arthur, Valero's senior vice president of retail marketing.
This is something we've recognized as having been an issue for some time now, Arthur said yesterday. Our long-term goal [image-nocss] is to position ourselves to be even more competitive in the convenience industry and provide an acceptable return on the capital invested in the business. Everything we're doing is aimed at trying to achieve that.
Everything includes trimming its 600-person retail divisionpertaining to everyone above store level, Arthur saidand centralizing operations on the campus in San Antonio to create greater efficiency. In reducing the size of the corporate retail staff, the company offereda voluntary early-retirement program to all eligible employees. Those who don't wish to retire are finding help from Valero in pursuing opportunities elsewhere in the company.
It's a moving target in terms of how many [employees will be pared from the retail division], said Arthur. One of the principal objectives is to make sure everyone has the opportunity to find a job elsewhere within Valero.
Fewer people up the ladder means Valero will have to change some of the ways in which it runs its business. For example, the company intends to give managers of corporate stores more authority in making some decisions, with prescribed guidelines.
I think there are more opportunities for us to grow sales and gross-profit dollars by empowering [managers] to make some decisions about what they sell, how they sell and at what price they sell certain items, Arthur said. In my view, there's nobody closer to the customer than the store manager. We want to give them the ability to be more responsive.
The realignment, which stemmed from a 2006 study showing that Valero exerted little direct control over certain store-support functions related to the business (human resources, information systems, accounting, legal, environmental, etc.), will enable the division to hold greater sway over support functions and their associated costs. Savings stemming from the realignment will be poured back into the network or pushed to the bottom line.
For us, it's the right thing to do, said Arthur. It makes us more efficient, allows us to manage the business and control our overheads, and enables us to drive more of the decision-making to the field. It also drives sales and gross profits, ultimately, and it helps us get closer to the customer.
While some may perceive the announcement as somehow negative or indicative of a corporate scaleback, Arthur suggested the move will only strengthen a company whose company-run stores performed well last year. For the 12 months ended Dec. 31, 2006, Valero's retail network (U.S. and Canada) tallied operating income of $182 million, up from $154 million in 2005, according to a recent earnings release.
This is just one ingredient to what we're trying to do to improve performance, Arthur said. When you look at it, it's important to remember that this initiative is coming on the heels of what was our best year ever in per-store earnings and our third-best year ever [in terms of total earnings]. We recognize the need to improve performance and we're firmly committed to our plan; it's not like the house is on fire.
Other ingredients of the profit-improvement initiative include building more than 100 new stores over the next five years and the development of a larger store format with a much heavier emphasis on high-profit items such as foodservice, according to Arthur. Furthermore, the company continues to strengthen its existing Corner Store network. It is in the process of upgrading stores with new layouts and programs, better lighting and updated store equipment such as display cases and merchandise-racking systems.
[Pictured: The latest look of Valero's Corner Store. Click the Download Now button below for a closer look.]
We reduced our store count by weeding out poor-performing stores, those we didn't think would survive long-term, he said, adding that the company has reduced its corporate store count by one-third to roughly 1,000 stores. We took the proceeds and reinvested in the network that remains. We're a much stronger chain of stores.
Arthur expects the restructuring to be completed by June 1. The restructuring, which will be invisible at store level, according to a Valero spokesperson, applies strictly to corporate stores and will have no bearing on the company's wholesale division.
Valero has approximately 3,500 branded wholesale outlets, giving the company more than 4,500 locations in the United States, Canada and the Caribbean under various brand names, including Valero, Diamond Shamrock, Shamrock, Ultramar and Beacon.
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