SAN ANTONIO -- Andeavor, which operates Giant convenience stores in the Southwest, SuperAmerica c-stores in the Minneapolis-St. Paul area and ampm c-stores in Southern California, is evaluating its brand selection and putting together a singular offering across its whole network, Mike Morrison, senior vice president of marketing, said at the company’s 2017 Investor and Analyst Day on Dec. 5.
At the event to preview Andeavor’s strategic plans and financial objectives for 2018 through 2020, Morrison outlined the San Antonio-based company’s marketing strategy following its acquisition of Western Refining Inc., which closed in June.
Andeavor, an integrated marketing, logistics and refining company with 10 refineries in the midcontinent and western United States, changed its name from Tesoro Corp. on Aug. 1. Its retail-marketing system includes about 3,200 gas stations and convenience stores marketing fuel under brands such as Arco, SuperAmerica, Shell, Exxon, Mobil, Tesoro, USA Gasoline and Giant.
“Where our opportunity lies is to be exceptional at both fuel and convenience marketing,” said Morrison. “We’re very excited for the future on the marketing side of the business. We’re on target to achieve $50 million in synergies from the Western business, as well as adding $300 million of profitability growth, and it will achieve $1.2 billion of EBITDA by 2020.”
Here are the five ways the company plans to accomplish those goals …
1. Growing branded fuel sales
“We’re going to grow our branded business. We’re going to increase the number of stores from 3,200 today to 4,000 by 2020, and we’re going to increase the proportion of branded fuel sales to the total from 47% to 52%,” said Morrison.
“We make a lot more money on the branded side,” he said, “more than 10 times the margin we would on unbranded. And it’s a stable sales base for us. We can rely on the business for a long period of time. So our plan is to grow branded sales by 800 million gallons by 2020. That’s going to allow us to increase our proportionate total sales from 47% to 52% for the branded channel. In addition, we’re going to see about $245 million in incremental fuel margin by 2020.”
Andeavor’s strategy has been and continues to be to focus on stable and strong brands such as Arco, Shell and Mobil, Morrison said.
“We’re going to continue to do what we’ve been doing with organic branded jobber and dealer growth as we have over the last several years,” he said. “In addition, with the Western acquisition, we see opportunities in the Southwest and in the Minneapolis-St. Paul area to accelerate that. That’s one of the key synergies that we identified in the Western acquisition.”
2. Expanding c-store business
In late 2014, Tesoro converted all of its company-operated gas stations to a multisite operator (MSO) retail-marketing system, supplying the fuel sold at these locations and retaining the rights to revenues, but no longer operating the c-stores. Now, with the Western acquisition, Andeavor is shifting back to a company-operated store strategy.
“We’re going to expand our convenience business,” Morrison said. “We’re going to increase our margin contribution from convenience stores from about $200 million this year to $450 million by 2020.”
Andeavor is “going to begin to get back into the business of building new convenience stores,” he said. “We really haven’t done many in the last few years. We’re beginning to develop our capabilities and our infrastructure to be able to do that. We’re going to add about 40 to 50 stores in this period of time, and they’ll be ramping up, a few in 2018 and more in 2019 and 2020.”
Western Refining’s legacy retail operations “do a good job on the convenience side of the business,” he said. “So really the largest synergy that we identified with the Western acquisition was to take the capabilities we inherited from the Western retail business and apply it to our West-Coast MSO operations, and we see a lot of opportunities for improvement there."
“Our objective is to be a leading convenience marketer,” he said. The company hopes to increase sales, but also increase the margin that it makes off of those sales. It has a 28% convenience products margin. Its plan is to increase that to 30% by 2020 and to 32% by 2022, according to Morrison.
3. Unifying retail
Andeavor is also evaluating its retail brand selection on the West Coast, Morrison said.
“A key aspect for our business is to have a strong offering," Morrison said. "What we’re putting together right now is a strong, singular offering across our network.
"We have strong regional strengths from each of our brands. SuperAmerica is known for their SuperMom’s baked goods. The Giant business is known for their Southwest Kitchen fresh foods, and both have a strong legacy program. We want to leverage those and add new programs to make a strong program that we can utilize across our business."
A new direction is expected in 2018.
4. Investing in stores
“To be able to be strong on the fuel side, as well as the convenience side, we need to invest in our facilities,” said Morrison. “We’re going to upgrade our current stores.”
“We’ve got very good retail stores that we own, but many of them are in need of updating and modernizing. A good example of that is the SuperAmerica brand that we have in the Twin Cities, a very well-established brand, well-known, very good locations, but in need of modernizing and updating. And part of our plan is to begin that process of doing that,” he said.
“We’ve been on a journey with our fuel-island brand enhancements,” he said. “We’re going to be continuing that. We’re wrapping up the work that we’ve been doing on Arco early next year, and we’re well underway with the work that we’ve been doing around Shell. ExxonMobil just introduced a new image, and we’ll be doing that pretty consistently over the next several years.”
Andeavor is also the master franchisee for ampm c-stores in Southern California. “It has been a very strong franchise for us to be able to operate," said Morrison. “The stores are in need of improvement; ampm has just rolled out a new program, and we’ve introduced that to our dealers. It has been very well-recognized, and we’re again going to be rolling out that program as well all next year, and we’ll be doing that over the next few years.”
5. Developing a fuel network in Mexico
In August, Andeavor opened the first Arco-branded gas station in Mexico, just across the U.S. border in Tijuana. The company now has 11 locations up and running, and it expects to have 20 by the end of the year.
“We’re going to develop a network of 250 to 300 Arco-branded outlets in Northwest Mexico,” said Morrison. “We’re going to do all of this in a financially disciplined manner spending about $150 million annually in capital.”
The opening up of the Mexican fuel market “provides a tremendous opportunity for growth,” he said. “It has been a very exciting time for us and our branded distributor, ProFuels.”
Morrison said the company has also been “very pleased with the response that the Mexican consumer has had to the Arco brand. The volumes from the stores have exceeded our expectation. In every case, store volumes have been significantly greater than what they had done before, and in some cases, it was multiples over what they had done before.”