A clear glass wall sets off Sam L. Susser’s office. Behind it, he sits at a sleek, contemporary desk surrounded by an organized explosion of framed mementos and family pictures.
One piece is a mounted 8-inch piranha he caught in a South American river. He points to a tattered fin where other cannibal fish had taken bites.
There’s a set of framed documents marking every billion dollars Susser Holdings has made. There are four. A few others still have yet to be framed.
Behind the desk, a corner doorway leads to a dimly lit, personal restroom also covered in family pictures. He points to a hand-drawn timeline that his now 14-year-old son Sam E. finished as a child. In purple marker, he predicted he’d grow up to be a “CEO and philanthropist.”
It makes Sam L. smile.
Like his shadowboxed workspace, Susser, 51, is transparent, accessible, a voracious collector of things, ideas and people. He’s a man pressured to make sense of chaos and pull success from the jaws of disaster. His family’s business, one of the first in this sector to launch as an IPO, has been under public scrutiny for years. But Susser, his family and his colleagues have managed to keep much of their journey private ... until now.
“Sam’s made a major change in our industry,” says Sam J. Susser, the understandably proud papa of this year’s Retail Leader of the Year. “You just don’t know … but I do.”
And the elder Sam speaks with authority, himself firmly embedded in the leadership history of 7-Eleven and CITGO.
Unleashing the corporate structure of master limited partnerships (MLPs) upon a skeptical and still shell-shocked channel may well mean the Corpus Christi, Texas-based convenience-store retailer will be known as much for what’s now out of his hands as for what those same hands built.
And his 640 sites, recently tucked into the 5,000-store Sunoco chain out East, are in no way dinner mints. Not only were each of Susser’s four major growth spurts “transformative” internally and for the industry at large, but he also solved the Rubik’s Cube of retail foodservice—a challenge still perplexing many c-store operators.
The formula speaks for itself: The Stripes network has delivered on 25 consecutive years of same-store growth, built a history of paying down debt with profit and consistently produced above-average yields for its investors, a run capped off by a 40% return after last April’s $1.8 billion deal with Dallas-based Energy Transfer Partners (ETP) and its parent Energy Transfer Equity (ETE).
CONTINUED: Susser's 'Deal of the Year'
But the lessons leading up to what this magazine dubbed the “Deal of the Year” [CSP—June ’14, p. 46] reveal themselves in their simple telling:
▶ Adept use of financial instruments: MLPs aside, Susser and his advisers, family and executive team opened many eyes to the potential of accessing capital. Amid developing personal relationships with banks and launching its own IPO, the company had the guts to raise millions to build a competitive convenience chain—which is remarkable in its own right.
▶ Foodservice: Before pioneering what the public now recognizes as a Chipotle-style, made-before-your-eyes assembly line, Susser’s Laredo Taco Company concept developed from discovery and hardship, with Susser even pulling the plug on a $6 million commissary project to get it right.
▶ Technology: A commitment to metrics, technology and transparency built the trust that kept financing from collapsing in the days after 9/11 and cemented its allure for major players such as ETP.
▶ Culture of honesty, reputation and diversity: Simple values ooze from the man who led the family business from the precipice of failure when the bottom fell out of the Texas economy 25 years ago. That culture of values kept panic at bay when the first hypermarket threw down the gauntlet on low-margin, high-volume fuel, and allowed its leaders to nurture change among its ranks.
While Susser’s company is not one to revel in the spotlight, its evolution during Sam L.’s tenure reflects a rambunctious era for this industry, surprising to those not privvy to the drastic decisions and hairpin turns made over the past 25 years.
Many of those choices, at least the bolder ones, involved ownership and financing. Scott Garfinkel, managing director of investment banking for Raymond James, Nashville, Tenn., calls Sam L. a “thoughtful” leader who “utilized all of the financial tools available.”
But, as Garfinkel says, “[Sam L.] never took the bait to fall in love with the hot product of the day. Rather, Sam strived to keep a proper balance between debt and equity even when it meant that he would be inviting partners into his company.”
Sam L. owned his company a short two years, most of the time forgoing complete control to court the capital that equity partners or shareholders would bring.
“Over my 20-plus years, ownership changed seven or eight times—going from having a minority interest to [owning] everything,” recalls Rocky Dewbre, executive vice president of channel operations for the new Susser-Sunoco entity. “Anytime you [don’t own the company], there’s risk. You may lose control and the ability to determine the path of your company.”
Dewbre credits the transparency of the chain for keeping Sam L.’s vision intact. “From day one when I joined, we were always run like a public company,” he says. “We’re amazingly open with the information we share among team members, investors, bankers. … It serves everyone’s interest. When everyone knows what’s going on, we tend to make better decisions.”
Lauding the managed growth of the company, Garfinkel describes Susser’s evolution as a company starting with acquisition but growing into new builds. “He recognized the need to modernize his portfolio by building new-to-industry units that are first class,” Garfinkel says. “His early decision to build his company with partners gave him the financial flexibility to balance his growth strategy with both acquisitions and new stores. It also gave him the necessary staying power to build a foodservice program and get it right.”
“Sam Susser has always represented so much of what is right about the convenience-store industry,” says Sonja Hubbard, CEO of E-Z Mart Stores, Texarkana, Texas. “He is a fierce competitor and unyielding strategist who is always thinking well into the future.”
CONTINUED: A Watershed Moment
A Watershed Moment
Susser had a clear hand in unleashing MLPs into the channel. While ETP made pioneering steps by leveraging its MLP status to acquire the Sunoco chain in 2012, it had done so under the auspices of building a petroleum-supply business.
Its purchase of Susser Holdings sent a message that MLPs would play a clear role in c-store consolidation, with the dropdown scenario alluding to the strengths of the Stripes brand in terms of foodservice, operations and being situated in the center of the nation’s energy boom.
Soon to follow was San Antonio-based CST Brands, getting into an $85 million deal with Allentown, Pa.-based Lehigh Gas in a clear move to access the tax advantages of MLPs. With CST’s spinoff from refiner-marketer Valero as strictly retail, the opaque became transparent. MLP status was mandatory going forward.
And while technically not an MLP, Enon, Ohio-based Speedway’s purchase of the New York-based Hess retail chain in the same timeframe continues a common thread: Speedway’s parent, Marathon Petroleum Corp., Findlay, Ohio, has an MLP within its structure.
As many in the industry have come to learn, the somewhat dormant MLP structure is a lethal tool in bidding for assets [CSP—Nov. ’14, p. 52]. Designed to spur investment in the energy sector, it waives corporate tax on income derived from pipelines, wholesale fuel and c-store rent.
Recent M&A activities “support the notion that the MLPs seem to be winning the day in terms of making the highest offers and acquiring the most attractive companies and assets,” says Dennis Ruben, executive managing director of NRC Realty & Capital Advisors, Scottsdale, Ariz., citing how valuations for c-stores recently have gone from single- to double-digit multiples. “The tax advantages and apparent lower cost of capital of the MLPs allow them to stretch further in terms of the prices they are willing to pay, which clearly gives them an edge in the marketplace.
“The M&A activity in the third quarter of 2014 only serves to reinforce the notion of the predominance of the MLPs.”
For Susser, talk of the MLP structure began in the mid-2000s, when Sam L. decided the company “wasn’t getting the right valuation for their wholesale business,” recalls his father, Sam J. “When we decided to create an MLP, it released a lot of value that we’ve been able to take advantage of.”
“There was a tremendous amount of analysis done on the pros and cons of spinning off our fuel distribution [to form an MLP],” says Chip Bonner, former executive vice president and general counsel for Susser. “But when you look at the ability to finance your growth with an MLP and the very low cost of capital, it seemed to us the right move to make.
“It allowed us to be more competitive in acquisitions and allowed us to have a cheaper source of capital to grow and build new, organic sites,” Bonner continues. “It was a watershed moment. It created a tremendous amount of value for shareholders and [Susser Petroleum Partners’] unit holders, and ultimately [created] the interest by ETP in Susser Holdings.”
CONTINUED: From Deli-ish to Delicious
From Deli-ish to Delicious
But before MLPs came tacos. The importance of foodservice started to simmer nearly 15 years ago, when the company closed on a deal in 2001 for a small chain in the Rio Grande Valley called Tex-Mart.
Tex-Mart was selling taquitos wrapped up in foil and put into warmers. “They were selling 15 to 20 a day, and Sam said, ‘Boy, if we could put that in 120 stores, that would be wonderful,’ ” Sam J. says.
The program wasn’t an immediate success, recalls Sam J., and having a Mexican restaurant on every corner in many towns didn’t help. And they stumbled a bit, too, Bonner points out.
Initially, the company started a commissary where food was made centrally and delivered to stores daily. Execs soon realized customers liked to see their tacos made in front of them, something that’s common today in the popular Chipotle chain, among others. Bonner says the company lost $6 million learning that lesson.
“But Sam was willing to pull the plug to move the kitchen out in front of the customer, so they could see the staff making fresh tortillas,” Bonner says. “That’s what makes us different but difficult to replicate. Once you get to a certain size in your supply chain, you can negotiate the raw products.”
Beyond better buying power, Bonner says, a commitment to managing waste, labor costs and even providing enough parking for both customers and employees is critical. Each new store—averaging 7,000 square feet these days—has room for a full kitchen, storage, prep areas, sinks, refrigerators and stoves. “You’ve got to make it fresh and delicious and turn it a lot,” he says.
Susser has also learned how to be flexible, says Sam’s father. “Our flavor profiles match our customer base,” says Sam J., pointing out that the company is fortunate to be able to recruit locals who have a sense for what people in their towns prefer. “If you go for [our] breakfast and have an egg burrito in Laredo, you may say, ‘Boy, that was good,’ but when you go to Brownsville, which is 180 miles away, it won’t taste the same. It’ll be just a little bit different.”
Fuel Roots
The Susser history in fuel goes back to Sam L.’s grandmother, Minna, who lost her parents at an early age and was raised by aunts and uncles. She inherited two gas stations and was able to partially pay her way through college from income the dealers paid in rent, Sam L. recalls.
She married Sam Susser (Sam L.’s grandfather and Sam J.’s father) in the late 1930s, which led to Sam L.’s grandfather taking over the stations and starting a number of different businesses. One was a real-estate business that included a bonded warehouse in Corpus Christi.
“My grandfather would pick me up and we would go down to the warehouse and check if the doors were shut properly,” Sam L. recalls. “I think he almost enjoyed getting mad at my father if the doors were not shut right.”
Some of Sam L.’s earliest memories were of weekend visits to the office with his father, uncle and grandfather.
“We studied our accounts receivable. Now, I am a young child. I’m talking about 8 or 10 years old,” Sam L. says. “And [I remember] the general-ledger paper with the green-and-white bars. … I remember the names of our customers—who was late and who was on time—going back over 40 years ago.”
That warehouse would spur a number of business ventures with Sam L.’s father and Uncle Jerry, but the main business was always fuel supply. That business was the foundation of what Susser Holdings would eventually become.
But in the 1960s, it was Sam L.’s uncle and father who would make their marks on the fledgling c-store industry. Sam L.’s father, Sam J., was college roommates with Jodie Thompson, whose family started the Dallas-based 7-Eleven chain. That relationship would prove pivotal for both Sam J. and Jerry in multiple ways.
Jerry, who would eventually take over the Susser fuel distributorship, first got into the business through his brother’s relationship with the Thompson family, selling a new frozen carbonated drink called the Slurpee. He recalls getting his hands on 25 machines and selling Slurpees in Puerto Rico because of the year-round warm weather.
A local competitor eventually bought him out and, upon his return, that bonded warehouse would come into play again. A failed Ford auto-supply dealer renting space in the warehouse gave Jerry and Sam J. an opportunity to pick up the slack. Sam J. became one of the country’s first telemarketers, according to Jerry, hocking auto parts to dealers throughout the South and becoming one of Ford’s largest distributors.
After selling that business to an Arizona company, Susser’s attention went back to fuel. At the time, cardlocks allowed customers to fill up at unmanned pumps, but when the meters broke, a line of cars would form to fill up for free. According to Jerry, his brother came up with the idea to reach out to IBM engineers in Houston to create some kind of automated device to tie pump authorization to people’s ability to pay. “[Sam J.] told me, ‘I’ll call IBM, and you tell Daddy we lost 10,000 gallons of gasoline,’ ” Jerry says.
The collaboration led to one of the nation’s first pay-at-the-pump systems, Jerry says. Similar systems led to a business of controlling heating, ventilation and air conditioning (HVAC) systems in large office buildings, which for many companies evolved into peak-demand billing.
But the fuel business was always a constant. It was a business that grew from selling fuel to family friends who had truck fleets to, as Jerry says, putting himself, Sam J. and their sisters Harriet and Susan through college.
Sam J. eventually started selling fuel as Susser Petroleum in Dallas, with the Thompson brothers as partners. That arrangement led Sam J. to ties with Cities Service and eventually buying what would become CITGO Petroleum on behalf of the Thompsons’ Southland Corp. It also meant heading CITGO as its first president. Sam J. declines to talk about his days with 7-Eleven, deferring to Sam L.’s accomplishments. But he gives the credit for Susser Petroleum’s growth to his brother Jerry, up until the time Sam L. entered the picture.
CONTINUED: Working Through Hard Times
Hard Times
Leading up to the mid-1980s, Jerry built a strong fuel-supply business, involving everything from retail and barges to tugs and offshore drilling rigs in the Gulf of Mexico. At the time, long-term supply contracts tied to those rigs were “golden tickets,” Jerry recalls. That is, until the bottom fell out of oil—dropping from a high of $30 to $36 a barrel to $10, seemingly tame by today’s $85 per barrel.
With so much of the Susser business tied to credit among folks who could no longer pay, the family faced debt of about $5 million. Sam J. reached out to his son, who had taken a position after college on Wall Street with New York-based Salomon Bros. “I could not come home at that point to help my brother,” says Sam J. “But Sam L., on the other hand, had the financial expertise and business acumen to dig us out of that hole.”
The younger Sam looked at the family’s books and immediately gave notice at Salomon. It was that bad.
One of Sam L.’s first tasks was re-establishing credibility with the banks for the family’s five retail outlets and bleeding wholesale business, says Sam J.
“We had to go about selling assets—trucks, barges—we were doing everything we could to pay down debt,” Sam J. recalls. But by doing so, “We were able to hang on and not go into bankruptcy. For those in the same business who said, ‘I’m not going to sell my assets at that [low of a] price,’ they went bankrupt.”
The younger Sam’s epiphany was c-stores. “What we observed through poring through the financials of the wide variety of businesses we were in was [that any] business that involved credit—the oil patch and real estate—were volatile and highly cyclical,” says Sam L. “But we observed the five c-stores, which were more gasoline outlets than c-stores, were profitable every year, year in and year out, when crude was $10 a barrel or at a high of $36.”
The problem was that they didn’t have enough stores to cover overhead, much less make a contribution to the group’s profitability. At the time, 7-Eleven was going through a leveraged buyout and looking to divest certain markets. So the Sussers decided to go after the Corpus Christi-area stores, 26 of them.
“It was our first leveraged buyout,” Sam L. says. “Citigroup was the primary lender, and we raised equity from 13 or 14 … cousins, family friends, industry-connected professionals. One guy was the one who first interviewed me at Salomon Bros.”
And so it began.
Series of Opportunities
What followed was a series of acquisitions driven by three main forces: a natural need to grow, the drive to succeed and a palpable fear of being crushed by the competition. And intermingled was the real-world question of how to fund each strategic decision.
Among the first acquisitions coming out of that initial 7-Eleven deal was for additional 7-Eleven stores in east Texas and Oklahoma. That happened in 1992, effectively doubling the company for the first time.
Two years later, the company moved from strictly retail to buying Sam L.’s father and uncle out of their petroleum wholesale business, working with a transaction lawyer named Jeff Smisek, who today is CEO of United Airlines.
But the company’s next true test came in 1995, when local grocer H-E-B started installing fuel at its stores. With Susser in the crosshairs of a fuel invasion by the so-called “hypermarkets,” the leadership team had to make a choice.
“We had to decide: Are we going to compete or not?” Dewbre says. “And we chose to invest in our facilities.”
The company found capital to add fuel volume and pumps and improve the facilities overall. In some cases, it tore down stores or bought more land to add fueling capacity. “We made a choice to compete … to maintain and control our volumes,” Dewbre says. “H-E-B was the first high-volume retailer to get into fuel, in Victoria, Texas, and it would spread. So we had to learn early to compete on lower margins and higher volume.”
The second part of that decision was to prepare for “competitors who would choose not to compete,” meaning raising additional capital and preparing balance sheets to execute on any new consolidation opportunity.
“We’d acquire them and basically compete for them,” Dewbre says.
That same year, the company did a 50-50 joint venture with what was then Circle K Corp. and now Laval, Quebec-based Alimentation Couche-Tard.
Enter a third company called Maverick Market. It was a south Texas chain led by industry veteran and former NACS chairman Erich Wendl. At the time, Susser had 26 stores in south Texas, Circle K had 105 and Maverick had 103.
“So we were struggling with what to do,” Sam L. says. “If we didn’t buy the Maverick Markets and Circle K did, they’d have 208 stores in south Texas to our 26. That’s a bad position: Checkmate.”
And taking on the debt necessary to buy Maverick and compete against Circle K—which had a debt-free balance sheet and a stronger gasoline position—would be “unhealthy.”
While initial negotiations with Circle K required a delicate hand, the option to take out the 7-Eleven threat and bring into the fold an aggressive local operator proved too tempting for Circle K.
So both sides agreed to the partnership, which led to a Circle K-Susser bid for the Maverick stores. “Since I was 30 at the time and looked like I was 15, we sent in Circle K’s chairman Bart Brown to do the negotiations,” Sam L. says. “He’d call me late at night and [using a high-pitched, fast-talking Texas accent] and he’d say, ‘Sam? Bart Brown here …’ ”
Negotiations slowed down because of indemnity clauses over the underground storage tanks—and out of the blue, Oscar Wyatt of Coastal States swooped in and bought the stores. The move shocked Sam L. and his team. But by then, the Circle K partnership was a firm deal.
(As an aside, Susser would eventually buy those same Maverick stores.)
CONINUED: More Deals
More Deals
In 1995, Circle K went public and sold to Tosco in 1996, which sold the stores to ConocoPhillips that same year. Also that year, Susser bought back its 50% Circle K partnership in cash and a royalty agreement to use the Circle K name until 2006. Sam L. recalls how the royalties started at several hundred thousand annually and grew to $3 million by 2006. That year, the company failed to reach new terms with Circle K, so Susser started the Stripes brand.
Also in 1996 came the acquisition of the IceBox chain, followed by the Exxon stores in Corpus Christi in 1998. In that time frame, Sam L. bought out his outside investors, his father and his uncle, and for two years he owned the business outright.
In 1999, Susser bought Rusche Distributing, Chevron’s first and largest jobber, for $50 million. Sam L. watched his debt load climb back up.
But in the height of the stock market boom in 2000, Coastal State sold out to a company called El Paso, which was more interested in pipelines than c-stores. The opportunity for Maverick surfaced again.
The deal came together, but the timing couldn’t have been worse: Two weeks prior to closing came the tragedy of 9/11.
“There was a crisis on Wall Street,” Sam L. says. “We raised that money and saw the world come to an end. … But magically, we started closing on those stores—and we didn’t even have the money lined up.”
Thankfully, Sam L. says, they had a three- or four-day rolling close. Before we got to the end of it, “We had to beg the banks to come back. And they did.”
Equally important that year, Susser bought Tex-Mart, the company that inspired Laredo Taco Company with its foil-wrapped-taquito program.
But the financial burden concerned Sam L. “You recall how horrifying the ’80s were, and we took on debt to buy our shares back; and with Maverick, we were close to up to our nose [in debt] and crawling out of a hole,” he says. “But we felt strategically making those moves in south Texas was really important. It would solidify our position and keep somebody else, like a big player or a big refiner, from vaulting over us.”
In 2000-2001, financing came from three private-equity institutions, so the next step was to bring in a larger firm, New York-based Wellspring Capital Management, to recapitalize the business in 2005. The following fall, Susser went public, converted from Circle K to Stripes and established the Laredo Taco concept. And lastly, the company switched fuel brands, from CITGO to Valero as its primary fuel supplier.
In November 2007, Susser closed on a deal that would be transformative: the respected Town & Country chain, an operation of comparable size. The transaction doubled Susser’s portfolio to more than 300 stores.
“We were attracted by the large foodservice kitchens in their stores, where we could easily roll in our Laredo Taco concept,” says Bonner. He says the opportunity arose from Town & Country’s roots with five major partners. “Buying them out one at a time was difficult to finance, so it gave us an opportunity.”
Sam the Man
The road to April’s decision to sell to ETP seems yet another driven not by the need to own but the desire to grow. Sam L. is often quoted as envisioning a “national footprint” with the new Susser-ETP network.
But like some of his other decisions, it comes with risk. As the chairman of the new entity, he’ll have some pull, but how much remains a real question. And it puts the future of what Sam L. and his family built at risk.
What’s not a question is his legacy, which already provides the channel with inspiration and vision. “His business acumen and accomplishments speak for themselves, and yet he remains one of the most humble and truly genuine people I know,” Hubbard of E-Z Mart says. “He has always been open to sharing and supporting our industry, which has benefited us all.”
From being an aspiring golf pro to bean counting—and making a living off black, pinto and garbanzo beans—Sam L. has embraced the potential of c-stores, amassed a litany of brainpower and talent and introduced the industry to the power of risk and quiet confidence.
Sam L. often talks of his core values in terms of golf: “There are no referees or umpires. It is up to you to follow the rules and do the right thing—even when people are not looking.”
CONTINUED: Three Lessons in Leadership
Detail and Deliberation
Retail is detail, a rule not lost on Sam L. Susser and the company he helped build. Here are some thoughts that came from CSP interviews.
▶ On Women in Executive Ranks: Women play several key roles in finance and operations at his company, an evolution that attracts even more female expertise and talent, developing much-needed diversity in the workplace, according to Susser. “It’s not even a thought anymore,” he says.
▶ On Technology: A focus on technology, back office, pricebook and scanning began in the early 1990s and was pivotal in keeping the company “transparent” to investors, providing base metrics to improve upon and advance the company’s profitability year over year, according to Rocky Dewbre.
▶ On Gathering Advisers: Susser is a consensus builder. He makes decisions by surrounding himself with people he views as smarter, wiser and more experienced than he is, according to his wife, Catherine, who says she certainly considers her husband smart and wise in his own right.
On Golf and Business
Young Sam L. Susser achieved high rankings through his teens in golf. He has several musings on how golf and business go together.
“I started playing golf competitively at an early age, so by 9 or 10 it was the only sport I was involved in. Golf pro Tommy Burke really helped mentor me. He made sure I followed the rules in letter and in spirit. He instilled in me a work ethic that really helped me. Competitive golf is a full-time sport. Every day after school, I was there until dark. It was a breathtaking number of hours.
“My third year of college golf, I had the privilege to caddy for Jack Nicklaus. When I finished … I knew that no matter how hard I worked, I would never be able to play golf well enough ...
“When I got off the golf team, I started going to class every day. I learned the importance of showing up. When you show up, things get easier. I went from B’s and C’s to straight A’s my last year at the University of Texas.
“But there are many business lessons you can learn from golf. In golf, there are no referees or umpires. It is up to you to follow the rules and do the right thing—even when people are not looking.”
Right now on CSPTV
Check out the highlight videos from CSP’s Retail Leader of the Year dinner online:
- CSP honors Sam L. Susser: www.cspnet.com/honoringSamL
- A father’s take: www.cspnet.com/SamJ
- A daughter’s lessons learned: www.cspnet.com/Sophie
- Sam says, “Thank you!”: www.cspnet.com/SamTY
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.