MERIDIAN, Idaho -- What follows is part one in a series examining major oil’s retail comeback, beginning with the only oil company that never left: Chevron Corp. Recognizing the benefits of owning the entire supply chain from oil rig to c-store, the refiner held onto its stores and reinvented its operational model to flex with the times. And Chevron’s new joint venture with Jacksons Food Stores is its latest strategy to polish what was always thought of as a hidden gem.
Chevron's Retail Bet
Make no mistake: Chevron is a giant.
With a North American portfolio that includes four refineries, crude capacity of approximately 920,000 barrels per day and upstream assets across the United States, Canada and in the Gulf of Mexico, Chevron took in $134 billion in sales and other operating revenue across all of its global businesses in 2017.
Comparatively, Alimentation Couche-Tard, Laval, Quebec, and its global chain of 15,000 c-stores, including Circle K, amassed a modest $37 billion in its fiscal 2017.
As the creature of a high-risk, high-stakes reality, San Ramon, Calif.-based Chevron moves in “thorough, careful” steps to ensure its multibillion-dollar existence. With the bulk of its investments and income coming from upstream endeavors, it would have been easy for Chevron to join BP, ExxonMobil and Shell in selling off its retail arm. But it consciously chose not to follow its fellow major oils in exiting the fast-paced, ever-changing retail business a few decades ago, regardless of the challenges.
“Managing the entire supply chain from crude oil to consumer is an advantage,” said Brant Fish, vice president of Americas Products for Chevron’s West and Chemicals businesses, to about 2,000 Chevron marketers and retailers in October 2018 at the company’s convention in Phoenix. “We are committed to strengthening our brand position to enable your businesses to grow.”
The advantage Fish described may be what’s fueling today’s major-oil retail resurgence. When the majors decided to spin off their locations, they “lost some of the control they had enjoyed as owner-operators,” says Steve Montgomery, president of b2b Solutions, Lake Forest, Ill. “Buying, owning and operating the sites, the majors can better control their fuel’s retail price on the street.”
This control also extends to brand perception in the marketplace. For Chevron, which promotes a “premium” branded fuel in Chevron with its Techron additive, this was a real concern, says Lorne Chambers, general manager for Retail West, Chevron. The company wanted the stores to match the premium quality touted in its fuel. But keeping this commitment hasn’t been easy as oil production and exploration’s value has risen over the years. Chevron’s c-stores had to compete for budget dollars against massive, risk-reward endeavors such as exploration and extraction projects worth billions on the turnaround. By the 2010s, the result was retail inertia.
“Whenever we needed assets, be it money or people, the question would be: Does it go to the oil company or to the c-stores?” says Paul Casadont, formerly Chevron’s ExtraMile merchandising manager and now the president of the new joint-venture company with Jacksons, ExtraMile Convenience Stores, which is based in Pleasanton, Calif. In most cases, “the jump ball went to the core [oil-production] business,” he says.
“If you’re going to be in retail, you have to have skin in the game.”
As a result, growth of the ExtraMile brand had been underoptimized—about 30 stores a year—since its inception in 2005, even with the national potential of thousands of stores. It was clear that the current model could be better. And by 2014, the chaotic oil market began testing Chevron’s commitment to retail even more.
Earlier that year, the price of oil had hit a high of $100-$125 per barrel, driven by rampant global demand. Then suddenly, the once-booming Chinese economy stumbled and, along with it, its consumption streak. Meanwhile, the fracking revolution triggered a supply renaissance in the U.S., which further depressed prices. Saudi Arabia, at that point the top oil producer, chose to maintain production to preserve its market share instead of cutting it to sustain the price of crude.
Oil prices plummeted into the $30s. As an oil producer, Chevron had to seriously evaluate its operating-cost structure, review its portfolio and get its balance sheet in order.
Chambers was in the boardroom when key decision-makers were hashing out the options. He describes those talks in San Ramon in 2014 as wide-ranging with a focus on the long-term strength of the company’s balance sheet.
“We had to look at our assets and decide what may be worth more in someone else’s hands as potential candidates for divestment,” Chambers says. “We could have said, ‘We have 300 some-odd retail [sites] on some of the country’s highest-priced corners. I can do the quick math and see highly saleable, candidate assets.’ However, we feel that an ownership presence in retail has huge strategic value … and not once did we say, ‘Sell the COCO (company-owned, company-operated) sites.’ ”
But for Chevron, the future had to be something other than continuing the sluggish buildup of the retail foundation it had laid two decades earlier. It needed a muse, a new energy to help vault ExtraMile up to its certain potential.
In September 2017, Chevron announced the creation of ExtraMile Convenience Stores LLC, a joint venture with Meridian, Idaho-based Jacksons Food Stores. Jacksons would convert its 65 Chevron-branded stores to ExtraMile and help Chevron grow the brand in its footprint of Idaho, Nevada, Utah, Arizona and Oregon, as well as four more Western states. Its goal: to double the number of ExtraMile sites by 2027.
The deal was rare for the industry, one that put a major oil company essentially on par with one of its own marketers. It’s a David and Goliath story, but one in which brute force gave way to trust and collaboration.
From a cultural perspective, Chevron could not have picked a more different partner in making its retail plans a reality than Jacksons.
“Our heritage is one of rapid growth,” says John Jackson, owner and CEO of Jackson Oil, which runs Jacksons Food Stores. “We shoot first and aim later.”
The joint venture itself originated from Chevron almost two years ago, with Chevron bringing the Jacksons team in for brainstorming. “Their [convenience-store group] needed to be cut loose,” Jackson says.
As Chevron executives explained to Jackson, the company’s own corporate policies and budget constructs restrained ExtraMile’s growth, and it had to get out from under that culture, he says. “I have to give them credit in recognizing that limitation,” he says. “We could bring our culture with regards to growth.”
To Chevron, the Jacksons’ entrepreneurial spirit was the antidote for Big Oil morass. Soon after, the structure and logistics of the deal quickly fell into place, Jackson says.
“They provided the royalty stream and financial model,” he says. “We determined the value of the new organization and we gave half the cash to co-own it.”
For Jackson, entering a deal of such magnitude with a major oil company was an unforeseen milestone. He never would have seen it coming in 1975, when, through the help of his father, Dale B. Jackson, he was able to take over a full-service gas station in Caldwell, Idaho.
“Managing the entire supply chain from crude oil to consumer is an advantage.”
But right place, right time was only part of the equation. Despite his gas-station roots, Jackson got into c-stores early. In the early 1980s, he started seeing the emergence of convenience stores as fuel retailers. With five locations at the time, Jackson also fretted about manning his service bays with skilled mechanics. So where others lingered under the old gas-only paradigm, Jackson switched.
The c-store chain grew in fits and starts, doubling in 1999 with the purchase of 47 Circle K sites. Jackson’s company grew in other ways. Besides c-stores, Texaco had turned over its wholesale business to him and, with the rise of his convenience business, he would ultimately get into grocery and tobacco wholesale.
Today, the company has 241 locations under the Jacksons Food Stores brand; 65 that are now flying the Chevron flag will become ExtraMile. The remaining are under a Shell-branded contract and will remain Jacksons stores—a business structure that the Jacksons appear intent on keeping while they watch the ExtraMile opportunity unfold. Cory Jackson, John’s son and president of Jacksons Food Stores, describes how the Jacksons stores inform ExtraMile. “As we see designs or elements that work [in Jacksons or ExtraMile stores], we increase our arsenal of programs,” he says. “We evolve faster.”
In picking the Jacksons, Chambers says Chevron executives considered the size of Jacksons Food Stores, the company’s capabilities and its relationship with customers. Everything Chevron saw with Jacksons, from its entrepreneurial spirit to its organizational structure, hit all the right notes.
“We saw alignment right away, straight up to treating people well and being a valued member of the community,” Chambers says. “We’d attend their [new store] launches over the years and saw their culture firsthand.”
And the Jacksons had history with Chevron. After buying into the Chevron brand in 2003 with the acquisition of its local marketer, Jacksons has been growing in gallons ever since, says Jackson (who declined to discuss fuel volumes).
A Rare Partnership
The deal, which was highly unique in its structure, was met with a flurry of questions. As a franchise model, was this like 7-Eleven? Did Chevron still own it? What was Jacksons’ role? What did this mean for the c-store industry?
In terms of its franchisee model, the ExtraMile royalty structure appears looser than historic paradigms such as 7-Eleven and McDonald’s. Qualified Chevron- and Texaco-branded retailers can apply for a three-year franchisee package in which ExtraMile contributes up to $150,000 to transition to the c-store brand, Casadont says.
Franchisees typically pay a royalty of 4% of c-store sales, as well as a 2% marketing fee, for a maximum of $72,000 annually (with a monthly maximum of $6,000). In return, they participate in vendor contracts, pricing advantages and merchandising expertise emerging from the Chevron-Jacksons partnership.
The latest program springing from the partnership involves private label. The Jacksons had spent six years developing a proprietary Jacksons-branded program involving more than 200 items across multiple categories.
ExtraMile used Jacksons’ experience to develop an ExtraGood branded program that customers have embraced, including a line of chocolate bars, four flavors of beef jerky, four bottled-water brands and a new proprietary coffee brand coming in 2019. In 2018, the private-label line had been a strong contributor to ExtraMile, exceeding industry levels of same-store sales increases of about 8%.
Foodservice is another example—and in this case, Jacksons is the beneficiary. Chris Murray, senior vice president of merchandising and marketing for Jacksons Food Stores, says Jacksons’ focus on foodservice will benefit from the Chevron-ExtraMile platform. “We’ll push more product through a single supply chain,” he says. “In that way, we’ll improve the frequency of delivery that supports a fresh offer.”
The ExtraMile advantage extends into other areas, including advertising dollars, a “proven” supply chain, improved costs of goods and transportation, and rebate dollars that flow back to franchisees, Casadont says.
For Chevron, the benefit comes with an improved backcourt offer across its Chevron-Texaco network. The oil company invested heavily in research, development and marketing dollars on its Techron gasoline additive and premium-fuel image. “We’ve spent time branding the frontcourt with fuel, and [ExtraMile] is an opportunity to brand the backcourt” with a similar premium offer, Chambers says.
Throughout the Chevron-Texaco chain, high operational standards start at the forecourt, says Casadont, who attributes Extra-Mile’s success in winning the CSP/Service Intelligence Mystery Shop in 2007 and 2008 to its focus on cleanliness and detail.
Ultimately, Chevron will keep one hand on the wheel. While its COCO units are now ExtraMile franchisees, Chevron still retains ownership of those stores. In addition, three Chevron executives will serve on the joint venture’s six-member board, with the remainder coming from the Jacksons team.
To that extent, ExtraMile remains closely tethered to the mother ship. (And as such, Casadont says it’s a well-funded, well-capitalized company.)
While c-store and merchandising support staff for the COCO sites rolls into the new ExtraMile entity, they will be one of its largest franchisees, says Ian Noble, district sales manager for Chevron’s Retail West division and one of ExtraMile’s original architects.
Though Chevron’s own company-operated stores will become part of this grand experiment, Noble described the change as part of that same ongoing major-oil commitment—a “philosophy” that is unwavering.
“This has been a laboratory [where Chevron] developed what a branded c-store looks like,” Nobel says. “If you’re going to be in retail, you have to have skin in the game, talk the language and know what’s driving the business.”
ExtraMile will expand beyond California, Oregon and Washington into new markets, Casadont says. In 2019, that may include Boise, Idaho; Salt Lake City; and Reno, Nev.
Demand from dealers and marketers within the Chevron-Texaco network is strong, Casadont says, as reflected in buzz from existing franchisees. Marylou Mendez, a franchisee who operates Plaza Chevron Service Center in Costa Mesa, Calif., says she enjoys the buying power of more than 800 locations, as well as the benefit of ExtraMile’s skilled category management team.
Mendez’s father, Lou Bacca, worked for Chevron for 25 years and owned his own stations for three decades. As a second-generation retailer, Mendez appreciates ExtraMile’s promotions, advertising and plan-o-grams. She also is on a franchisee advisory council that provides input three times a year. “I have been around long enough to see other concepts come and go, but this concept has been backed by Chevron,” she says. “And now with the joint venture of ExtraMile Convenience Stores, we are looking for big things to come.”
Franchisee Sal Hassan, president of Hassan and Sons, a chain of more than 100 locations based in Orange, Calif., also expects to benefit from the new joint venture. “I believe that ExtraMile has gained a good reputation, and now customers align ExtraMile with Chevron-branded stores,” he says.
Being a franchisee also relieves his corporate team from advertising, design and store-layout concerns and, most important, adds consistency throughout his operations and where Chevron has ExtraMile locations.
The joint venture’s establishment on a base of mutual respect should benefit the Chevron brand as the playing field gets more crowded with major-oil competition. “We recognize the two companies as partners,” Casadont says. “Jacksons is growing the Chevron brand and we both have strengths that, if combined, are more formidable.”
Pictured above (left to right):
- Chris Murray, senior vice president of merchandising and marketing, Jacksons Food Stores
- Paul Casadont, president, ExtraMile Convenience Stores
- Cory Jackson, president, Jacksons Food Stores
- John Jackson, owner and CEO, Jackson Oil
- Lorne Chambers, general manager for Retail West, Chevron Corp.
- Ian Noble, district sales manager for Retail West, Chevron Corp.
Breaking Down the Joint Venture
What ExtraMile is today will be vastly different from what it intends to be in the future. Here’s where the chain stands and where it hopes to be.
No. of ExtraMile stores: 826
No. of Jacksons Food Stores: 241
No. of Chevron- and Texaco-branded locations in North America: 8,000
Growth goal for stores by 2028: 1,600
Chevron’s revenue in 2017: $134 billion