How the major-oil pullout may affect c-store operations, fuel pricing.
The Earth didn’t shake. The planets didn’t collide. Gas prices have showed signs of a turbulent spring this year due to global uncertainty and the annual turnaround time refineries need to go from winter to spring fuel. But still, one would be hard-pressed to have felt the tremors of hundreds of major-oil petroleum retail outlets recently changing hands.
Last year, more than 1,000 stations went from major-oil company control over to jobbers, c-store chains, investment groups or independent operators [CSP—Oct. ’11, p. 58]. Ripples started almost a decade ago, but the past three years have seen significant and deliberate turnover. Today, the bulk of all major-oil outlets have transitioned.
So what now?
For most consumers, the forecourt transition was seamless, with long-term fuel contracts keeping gasoline brands and payment infrastructure in place.
The stores were a varied story. In some markets, retailers such as Jay Ricker changed names in favor of his company’s own brand. For others such as Circle K, which bought about 450 ExxonMobil On the Run franchised sites, have thus far retained the original name.
But potential for the most change lies behind the scenes. Operationally, the departure of the major oils has had effects both subtle and profound:
- Fuel Purchasing: The switch from major to jobber supply may make dealers more susceptible to pricing volatility.
- Fuel Branding: Contract length may be increasing, with the majors wanting to retain their fuel brands as long as possible.
- C-Store Programs: Assortment, plan-o-grams, group-buying, loyalty, operations and merchandising could fluctuate in quality.
- Upgrades: Image, dispenser and technology upgrades for both long-term viability and technical issues such as maintenance and data security come into question.
Arguably, many of the majors continue to provide programs to jobbers and (through them) dealers, but much of the burden falls on these fragmented operations. Many buyers cherry-pick and opt to run the highest-volume locations while turning the rest to dealers, creating a segment of the industry with a disadvantage from the start.
The scenario will escalate as time goes on and branded contracts end. Jobbers going unbranded need to provide technical, marketing and operational support without any major-oil assistance.
But today, the picture is clear. “The key differences from past years is that jobbers must take ownership to market the brand, as major oil has placed the burden of site-level execution and marketing downstream to the jobber channel,” says Bo Bearden, director of retail operations for Mansfield Oil, Gainesville, Ga.
Jobbers accepting the opportunity of major-oil assets already know what they’re getting into, according to Jay Ricker, chairman of Ricker Oil Co., Anderson, Ind. His company purchased 32 BP stores in the Indianapolis market in 2008.
The success of the changeover “depends on the jobber and how he has run his business to begin with,” Ricker says. “Most, I would say, already are run with dealers primarily and don’t run salary [operations]. Or vice versa—they run salary and don’t run dealers.”
The infrastructure necessary to do one, the other or both existed prior to the purchase, he says. Growth with a new acquisition would mean a matter of additional personnel or solving integration and technology issues. In Ricker’s case, he did not need to hire new people for the office, although he did take on a few field people who were working for BP.
Getting the technology to match was a goal that took time. Initially, Ricker ran the stores under BP’s ampm franchise, but after a wrangling period involving the courts, he was able to step out of that arrangement to run the stores under the Ricker’s name. In terms of technology, dropping the ampm franchise allowed him to replace systems so, for instance, the stores all were able to operate under the same pricebook program.
After the initial purchase of 32 stores, Ricker held onto 20; he sold several outlets to dealers. “Most people who handle [dealer networks] are recruiting them all along,” he says.
In the end, Ricker believes the industry is better off. “The major oil companies got out because they were not entrepreneurial,” he says. “They’re used to running a large corporation and making sure the accounting is correct. They’re not as nimble.”
One of the more pronounced effects of the major-oil pullout has been with dealer pricing. A recent CSP Daily News poll revealed this to be a top concern in this new era of retail control (see above).
One source close to the matter says trouble comes when oil prices rise. “If you’re a dealer, and you’re buying direct from a major-oil company, that oil company smooths out the peaks and valleys and allows the dealer to be competitive,” says the source, who requested anonymity. “But this time of year, when changes in RVP [Reid Vapor Pressure] and boutique fuels occur, typically the jobber gets turned upside down and isn’t willing to eat the difference.”
Dealers who bought into recent “flips” from acquiring jobbers will do well if they did not overpay, the source says. And the industry push in recent years to operate on break-even gasoline has helped those who made that a priority. “Those able to make a dent in it are doing better than those dependent on gasoline to be profitable,” the source says.
Major oil’s departure has created a void in other areas of operation. Among them are category management, information exchange and in-store training, says Pamela Romeli, vice president of retail for CBC, a firm specializing in services for independent operators based in Westmont, Ill. “Jobbers and oil companies alike realize that their dealers’ financial viability is critical for stability and increasing market share,” she says.
Retail training has become a key component in bringing on new dealers, and the trend for jobbers has been to host and fund classroom instruction, on-site consulting and training materials for dealers.
Most recently, CBC developed an online resource service called C Square, which lets dealers connect with peers, suppliers and experts to exchange best practices, participate in special offers and resolve issues.
Michael Zielinski, president and CEO of Lisle, Ill.-based Royal Buying Group Inc., says companies such as his exist to aid independents that seek additional profit margin. With merchandising practices, rebates, training and gift-card options, buying groups including his and CBC have been able to assume some of the support previously furnished by the oil companies.
“Now the liability and investment rests on the jobbers’ shoulders,” Zielinski says. “They have the ability to reinvest in their network.”
Despite the scaling back of marketing programs by the majors, a significant “menu” of programs still exists, says Bearden of Mansfield, which supplies product to operators nationwide with ties to seven brands in addition to its own Solo name.
These major-oil initiatives range from credit-card programs (both consumer and fleet) to loyalty programs through alliances with other retail channels and payment-card fuel rewards. The majors also continue to offer IAPs (image allowance programs) and rebate programs to help take the edge off upgrade or rebranding costs.
Other programs include mystery shops to help retailers and jobbers evaluate the level of site execution and best practices in the retail environment. The majors also support branded images with uniform and name-tag programs, co-op buying and advertising programs, Web-page creation and grand-opening support.
All in all, the majors still offer retailers, via the jobber, support to offset branding cost and reduce the out-of-pocket expenditure to set an image standard for a location.
“I will agree that price is king in petroleum retailing,” Bearden says. “But the branded-image concept still remains strong. The only difference is that the majors’ brands are not only competing with street-level pricing but also these big-box discount retailers that have created a branded image of their own.”
Bearden says suppliers, including Mansfield, have to stay competitive with the dealer class of trade. In the past year, the company partnered with Dallas-based Greyhound [CSP—Sept. ’11, p. 80] and also developed a compressed natural gas (CNG) solution for sites.
“While we believe our branded programs are a strong option, we also have worked hard to add value to the location with our own selection of programs,” he says, “including the essentials like foodservice and strong offerings across every category in the store, as well as completely new sources of sales and income like our Greyhound program and our new SkyBlu CNG solution for sites wanting to sell natural gas.”
The technical infrastructure necessary to run a chain of stores presents an issue, especially when branded contracts run out and a retailer decides to debrand, according to Ricker of Ricker Oil.
A marketer going from branded to unbranded has to enlist the services of payment-card processors, says Bill McCollough, executive director of petroleum for Heartland Payment Systems, Plano, Texas. In addition to Heartland, companies best known to the industry include WorldPay U.S. Inc. (formerly RBS WorldPay) and First Data Card Services, both based in Atlanta.
The next step is “connecting everything,” says McCollough, including ATMs, automatic tank gauges and other electronic devices at the store. Many providers and integration firms, he says, are developing solutions to help retailers manage site-level technology, as well as build in the data security necessary in an age of growing identity theft.
“Integration has gotten so cheap and bandwidth so wide that you can do all your connectivity over one broadband connection, whereas five years ago it was six phone lines and hundreds of dollars a month,” he says. “Now it can be in a one-stop shop.”
On a larger front, the major-oil pullout means a blow to legislative, regulatory and quality issues surrounding retail fuel.
Ricker says his concern is with fuel standards. “Because [the majors] were running stations, they were concerned about the kind of fuels that went through the pumps,” he says. “I’m sure they’re still concerned, but they’re probably not putting the amount of research and development into some of the standards.”
He cites E20 formulations as an example, questioning how new fuels will affect pumps and possibly be more corrosive than current fuel products.
“I’m not saying that they’re going to stop,” he says. “But that’s a substantial service they did for the industry.”
Despite the major-oil pullout from retail, a number of programs coming either directly from the oil company or via jobbers still exist:
- Credit-card programs (both consumer and fleet)
- Loyalty programs through alliances with other retail channels and fuel-rewards programs
- IAP (image allowance programs) and rebate programs
- Mystery-shop programs
- Uniform and name-tag programs
- Co-op buying programs
- Web-page creation assistance
- Co-op advertising
- Grand-opening support
Source: Mansfield Oil