EL DORADO, Ark. -- Wal-Mart Stores Inc.’s decision to halt the development of new Supercenter gas stations with Murphy USA Inc. to focus on its existing proprietary fuel offering has put Murphy on a path it calls “Plan B,” Andrew Clyde, president and CEO, said during a conference call to offer details on the strategy shift.
Earlier this week, Murphy USA announced the decision and said that while it will continue to work closely with Wal-Mart on established locations and even anticipates further collaboration, the change provides it with greater flexibility to develop sites independently.
Wal-Mart had to make the decision “about whether or not they wanted to partner with us in building out a fuel offer at the rest of their supercenter locations,” said Clyde. “They have made that decision. They have opted not to proceed with our offer, but have chosen to undertake this investment themselves. Consequently, we have begun to execute … our Independent Growth Plan,” which it calls Plan B.
“We have seen this fork in the road coming for some time,” he said. “This decision, while surprising to many people for different reasons, has not taken us by surprise. We've been preparing for this and we are ready to execute our plan.”
Clyde declined to characterize Wal-Mart’s decision as resulting from a “breakdown” of negotiations over extending the companies’ relationship.
Murphy USA’s new offer “was graciously received and described as compelling, and they explained that they are looking at their own program and plan. And ultimately, through their pilots and plans, [Wal-Mart] decided they want to pursue this on their own and it is really just as simple as that.”
He continued, “The Walmart leadership team has been very forthright and transparent from the beginning in saying regardless of where they ultimately decided to go with this decision, we're going to have to work together and grow and enhance the customer offer to our joint customers where the existing stores are.”
He emphasized that Murphy USA and Wal-Mart need to remain united against their “common competitors” such as grocery store chains with fuel. “There's a lot we can do together to enhance that offer, and we'll have to work together on that,” he said.
As for its own plans, Murphy USA has between 60 and 80 new-build convenience stores slated for both 2016 and 2017. Its growth and development plan continues “at that same trajectory,” and more than 50% of new openings will be locations acquired from third parties.
He continued, “Most of those are already in the land bank, whether they were remaining from the Walmart 2012 deal or land-bank sites that we acquired and closed on in 2015 or are set to close on in 2016 and others are identified.”
Clyde said the company’s business model allows it “to compete with anyone, and we do.” He named QuikTrip, Sheetz and Wawa as familiar competitors. If one opens within “a block or a mile, we continue to compete,” he said. “And so that's the whole essence behind our low-cost strategy, improving our fuel breakeven margin, maintaining our resiliency, [so] we can go head to head with any competitor with our model. But our model makes sense in certain locations that are high-traffic locations where we can aggregate price-sensitive customers. So we're going to continue to compete and compete responsibly with anyone. And that's the basis of our model.”
He said Murphy USA will also not shy away from competing directly with Wal-Mart.
“Our strategy is going to be to go to the markets where we can get the best returns and highest traffic. We don't know where Walmart is going to put a location and, sooner or later, we are going to bump into them.”
The Murphy USA board of directors also authorized a strategic allocation of capital for the company to pursue new additional independent growth opportunities and to undertake a share repurchase program of the company’s common stock.
The board has authorized up to $500 million in total for the two capital programs through Dec. 31, 2017. The company said it expects to use its balance sheet flexibility, operating cash flow and proceeds from the sale of non-core assets to fund the repurchase program.
El Dorado, Ark.-based Murphy USA has 1,335 gas stations in 24 states.
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