Mergers and acquisitions in the fuel and convenience-store industry show no signs of slowing. But reshaping the competitive landscape is about much more than signing a deal. After the lawyers are done, the real work begins.
Merging two fuel retailing organizations is a daunting task. Strategic, tactical, technical, cultural and operational decisions need to be made, often at breakneck speed. For example, when two North American brands merged, they created a network with more than 1,000 sites and more than 20% of national market share. Kalibrate had been working with the acquiring brand for about 15 years, advising on location planning for new sites. Suddenly the stakes for them were much higher. The scope, scale and consequences of every decision were magnified.
This new level of complexity is typical in the first phase after a merger-acquisition. As competitors, the two brands had sites located near each other and even across the street. As a single entity, which sites should be retained and which torn down? Which brand should be retained? What does the future look like for this network under a set of unified goals?
Kalibrate examined these questions through the framework of its 7 Elements for Fuel Retail Success: market, location, facilities, operations, merchandising, pricing and brand. Analyzing each element generates a 7E Score, which is our method for evaluating fuel retailers’ strengths and weaknesses based on an assessment of their sites and network [CSP—Aug. ’15, p. 106].
Following the Map
The 7E Score also provides a benchmark and road map for continuous improvement. For this newly merged North American retailer, we focused first on brand, location and facilities—the three elements most crucial in a merger. The decision about which brand to fly is fraught with risk; many brands have such a legacy that individuals identify with them on many levels. Our strategy for rebranding, investment and site decommissioning was bold but proved worthwhile.
Brand: Which brand has the strength to carry the new organization forward, and which has more equity with consumers and more potential for the future? There are infamous examples of fuel retailers getting that critical decision wrong, with regrettable results.
For our North American retailer, each brand had its supporters and recognition among key demographics. But Kalibrate’s data-driven analysis indicated that the brand being acquired was regarded more favorably than the acquiring brand. That recognition and value was not consistent in all geographies, but our analysis was clear about its potential in the long run. The client accepted our recommendation.
Location: Through site-density analysis, we identified and rationalized the selection of sites that should be retained and which could be razed. At first glance, it may seem that losing sites means losing volume and revenue, but we knew from experience that a significant percentage of the lost volume from those locations would be mopped up by the remaining sites.
Facilities: Finally, Kalibrate’s market analysis pointed out sites where investment in facilities would reap rewards. Each site’s location is unique and, to maximize return from that site, the investment profile needs to be unique. The best retailers balance the requirements of the brand with the need to make each location a unique profit center. In other words, a store should be identified with a specific brand, but it should also be tailored to the needs of its specific customers.
To create a consistent level of quality and services across the network, we recommended some tear-downs and rebuilds to the latest footprint.
The results were, and continue to be, very impressive for this operator. On average, the client has grown market share by 13%. In some regions where the new brand and facility investment has been especially well received, the client has grown fuel sales by an amazing 65%. And monthly sales in the c-store have increased by more than $60,000 on average.
The catalyst for this strategic plan was an acquisition and merger of two distinct retail organizations, a process that raises critical questions that echo long into the future: How can every site operate most effectively? How can a brand build recognition, value and loyalty? How can facilities fully represent a company’s new era of streamlined performance and competitive advantage?
Through our analysis and expert assessment, the client was able to derive significant value from their retail assets. Many, if not all, retailers are not maximizing the return from their locations. For some, there are significant returns to be had from relatively small investments.
7E Score: Before and After
Kalibrate helped a large acquirer boost its fuel retail performance post-merger in seven crucial measures.
Source: Kalibrate Technologies