Marathon Strikes a Balance, Part 2

Heminger highlights downstream portfolio, hints at increased retail investment

Samantha Oller, Senior Editor/Fuels, CSP

MIAMI -- "Beyond the balance of our refining slate, we have, we believe, the top logistics business in the country, as well as one of the top retail convenience store businesses through our Speedway chain," Marathon Petroleum Corp. (MPC) president and CEO Gary Heminger told investors in a preview of the company's 2012 strategy at the Bank of America Merrill Lynch 2011 Global Energy Conference in Miami earlier this week.

More than four months after completing its spinoff from parent company Marathon Oil Corp., the downstream entity MPC has found its balance.

Heminger discussed how the company has struck this balance between its upstream and downstream businesses. In this first of two reports, CSP Daily News yesterday looked at crude oil and refining. Today's report focuses on the retail segment

He said that Speedway is the fourth largest U.S.-owned and -operated c-store chain with 1,375 stores in seven states, despite the divestiture in 2010 of the 166-site SuperAmerica portion of its network. More than two million customers per day enter Speedway stores.

Other notable figures:

  • MPC will move more than 3 million barrels per day through Speedway in 2011 (as of the first nine months of the year, same-store volume sales are off 1.4%, compared to a 3.7% increase in 2010).
  • Year-to-date, Speedway is seeing 12.77 CPG in light-product gross margin (compared to 12.07 CPG in 2010, 10.3 cents per gallon [CPG] in 2009 and 13.5 CPG in 2008).
  • Merchandise gross margin has totaled $536 million in the first nine months of 2011, up 2% by same-store measures.
  • Two-thirds of Speedway's gross margin is generated inside the store, with gross-margin dollars up 2% in the first nine months of 2011 (compared to a 4.4% increase in 2010, 8.4% rise in 2009, and 0.9% bump in 2008).

In addition, MPC has 5,100 Marathon branded locations in 18 states, operated by jobbers and dealers. Between Speedway, the Marathon brand and a few long-term wholesale customers, MPC directly sells about 63% of the gasoline it creates each day.

"We think that's a competitive advantage for us versus others," said Heminger. "If you don't have an extensive network to sell this product and know who the end consumer is every day, you have only one thing to sell, and that's price. With the rateable supply we have, this gives us efficiency of transportation, and the efficiency all the way to the consumer."

Heminger also highlighted how favorably Speedway compares to public c-store chains, noting that by several metrics--fuel volume, merchandise sales, earnings before interest, taxes, depreciation and amortization (EBITDA) and operating income per store per month--it lands at the top or within the top quartile.

It was performance that he attributed partly to the Speedy Rewards loyalty program, with its 3.8 million active members. "This system runs just like some of the big-box retailers who have a loyalty program," he said, "but this was designed in-house and continues to give us a competitive advantage of bringing that customer back to us every day."

In 2011, because MPC's refining and marketing business has performed so well, Speedway's contribution to operating income has measured only 5%, with MPC's pipeline business supplying 4%.

During a question-and-answer session, Heminger said that the company may consider a refinery acquisition if the right property became available at the right price, but "we still want to expand our retail," he said. "And we will continue to invest in the retail space."