CORPUS CHRISTI, Texas -- Valero's gain is CITGO's loss. In awarding Valero a virtual supply exclusive on its 320-plus company-operated stores, Susser Holdings Corp., Corpus Christi, Texas, is radically downsizing its 18-year relationship with CITGO, a company that is undergoing a significant realignment of its own.
The move also marks the second significant retailer to end ties with the Venezuela-owned, Houston-headquartered oil giant. 7-Eleven recently announced it was pursuing a private-brand strategy, severing its 20-year supply agreement with CITGO.[image-nocss]
CITGO spokesperson Fernando Garay said the company's recent market realignmentpulling out of 10 states and halting outsource contracts to satisfy about 15% of its retail networkcontributed to Susser's decision to enter into an 11-year deal with San Antonio-based Valero Energy Corp. Sources told CSP Daily News, however, that the number of Susser locations affected by CITGO's market realignment, announced in July, represents less than 10% of the company-run portfolio.
Still, for CITGO, strategic changes internally played a role in its negotiations with Susser. A number of SSP locations in Texas and Oklahoma were impacted by [our] market realignment, Garay told CSP Daily News in an email interview, explaining that CITGO would no longer have been able to supply Susser's entire company-operated network.
Additionally, with the unpredictability and volatility in today's petroleum market place, CITGO made a business decision to not offer a contract of the term length that SSP was requesting. This decision gives CITGO the opportunity to now take those barrels to alternative, higher value markets.
Garay said CITGO and SSP agreed to explore various alternatives after extensive negotiations.
CITGO, recognizing the supply length in the Gulf Coast markets and in concert with our market realignment initiative to operate a balanced system, reached a decision to position our barrels to serve the distributor class of trade in those higher value markets that are distanced from the Gulf Coast markets, he said. In today's volatile marketing environment, CITGO's and SSP's needs differed; however, both companies benefited from the prior 18-year relationship, and will continue to benefit as CITGO will still supply some SSP locations. We at CITGO wish SSP success as a company going forward.
Garay said the loss represents less than 3% of CITGO's roughly 13,100 CITGO-branded locations, and that the company would continue to supply a sizeable percent of Susser's 360-unit dealer network.
Susser Holdings has filed for an initial public offering (IPO) of stock and is unable to comment on issues while the U.S. Securities Exchange Commission (SEC) reviews its application.
The deal for Valero's marketing division is its biggest in terms of both store count and volume with a retailer and makes it the largest rack fuel marketer in Texas.
[For the latest on CITGO's market realignment and Susser Holdings Corp.'s IPO pursuit watch for the October issue of CSP Magazine.]
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