From shelves on wheels to vaulted ceilings and polyurethane signs on sliding tracks, everything in CITGO’s new concept store exudes motion—the sense that nothing’s set in stone, that everything from floor plan to merchandise mix is influx.
That’s the lab mentality folks with the Houston-based refiner and fuel supplier want its newly opened ,4,500-square-foot facility to have, a vibe of testing and ideation. Touch screen surveys rate customer service. A happy-face scale device puts all aspects of the store up for benchmarking and analysis, from bathroom cleanliness to espresso barista and hot-dog condiments.
“Some of our competitors are stepping away from retail while we’re still focusing on the independent store operator. … They have to differentiate themselves, and we want to help,” says Alan Flagg, general manager of light oils marketing for CITGO. “This store creates sizzle and excitement around the brand.”
CSP magazine took an exclusive, firsthand look at the oil company’s Retail Concept Center just three months after the store’s opening, wanting a better understanding of its intent and ultimately its potential while reconnecting with a company experiencing what some are calling a brand rebirth.
The past three years for CITGO have been exceptional. For example, fuel volume through May of this years up 2.4% compared with the same time last year even as the industry experienced falling demand, Flagg says
With the capacity to produce 17 million gallons of gasoline per day through three U.S. refineries, CITGO, supplier of about 6,000 sites East of the Rockies, posted a record quarterly dividend of $461 million to its parent, Petróleos de Venezuela S.A.(PDVSA), in the first quarter of 2013.
“We keep innovating to fuel our growth smartly,” Flagg says. For CITGO, that means a 27-state distribution footprint, charting southeast Texas, moving north through Chicago and into Wisconsin, jumping to New England and then South again with densities in the Carolinas, Georgia and Florida. Amid that broad landscape, he sees growth with new-to-the-market customers, current marketers seeking to expand, operators ready to switch brands and former customers returning to CITGO.
The Retail Concept Center is a step toward that larger promise. It’s a nod tithe networks of independent retailers that CITGO’s lineup of wholesale marketers must keep vital. It’s an acknowledgment that the c-store channel is changing quickly, leaving no room for the idle or uninspired. It’s an exclamation that for a company leashed exclusively to fuel marketers, this major oil must focus not only on forecourt and marketing programs, but also on backcourt concepts and solutions.
“In the last two to three years, a big part of our message to marketers to take to retailers is that we have to elevate outperformance,” Flagg says. “The industry has done a great job of raising consumer expectations. If we’re going to play, we have to elevate [our locations].”
Sparking Ideas
If elevating an entire network is the goal, CITGO’s hands-off, supply-only model creates a challenge. The oil company can’t force one definitive path, or even push best practices down through the chain. It has to convince distributors who in turn must inspire retailers one, two or three stores at a time.
Put simply, this impressive store in Houston is a true one of a kind, unlikely to be replicated. Unlike ExxonMobil’s On the Run or Chevron’s ExtraMile retail concepts, this store will not be stamped across CITGO’s markets. CITGO is emphatic it will not dictate to its fuel marketers the cloning of its groundbreaking concept.
Rather, the Concept Center is CITGO’s path of least resistance: an unbiased, in-the-trenches laboratory for new and emerging products, concepts and tactics. And that is because, unlike its Big Oil brethren, CITGO has no interest in owning or operating stores, or giving orders to its field of fuel marketers and dealer son how they should run their sites.
With that premise in mind, CITGO project developers, including Jim Cox, manager of retail development and operations, and Jonathan Watson, manager of business services and payment cards, set an agenda of specific concepts to test in the store’s initial incarnation and another set of near-term projects. Here’s a quick rundown based on three store-level functions:
Operations. These include product gondolas on wheels, store tablets for employee applications, Web-based training and Web-hosted time cards.
Merchandising. Finding optimal pricing spreads for retail fuel postings, two-tiered pricing, commissary deli items and white wine sales from the beer and wine cave.
Marketing. A recycle center, hightech upselling and electronic signage setup to drive sales.
Future projects include mobile cash registers, day-part fuel pricing, product vending at the pump, mobile apps and social media.
“We don’t have all the answers,” Watson says. “But we’ve created a forum, a catalyst for discussion and the sharing of lessons learned.”
More than a dozen marketers have toured the facility since its opening in the spring, Watson and Cox say, with the format sparking valuable insights.
Cox freely admits that some of their better ideas were unintentional. For instance, the wheels on all the shelving gondolas were fitted so CITGO could easily move displays—partly to test new merchandising strategies, but also for the simple logistics of easily switching things around. A marketer offered Cox the revelation that the wheels would make cleaning tile floors easier, potentially saving the marketer hundreds in quarterly maintenance. (Indeed, on the day of our visit, CSP editors changed the positioning of the store’s healthy snacks to give the area a stronger facing from the checkout queue.)
The store is also an opportunity for marketers and retailers to test things they couldn’t afford to pilot otherwise. For example, the technology for upselling at the site can cost $2,500 per register.“Here,” Watson says, “we can test it in an unbiased way and offer our opinion, without a retailer having to pay.”
Store Tour
There’s something to be said about having a hands-on environment in which to watch and learn. As ordinary customers casually walk about the store, visiting marketers and retailers can observe behavior, see state-of-the-art technology in action, listen to concept designers and bounce around ideas.
And unlike the myriad retail formats major oil companies, CITGO has no incentive to push anything a CITGO brandedmarketer or retailer would resist.
In its current iteration, the store tour starts with a “superhero wall” for recycling, visually and literally designed to praise and encourage everyone to put paper and plastic refuse into specified slots. The design is elegant and seamlessly ties to a white-sheen counter where customers can eat, chill and/or recharge their smart phones or laptops.
Opposite that wall is another graphically thought-out wall featuring CITGO’s
“Fueling Good” campaign. Companies today have to stand for something meaningful, says Jennifer Moos, general manager of brand development for CITGO. As an oil company that works with independent marketers and retailers, focusing on serving local communities is a natural fit. In its fifth year, the Fueling Good campaign promotes local heroes and how they are doing good in their neighborhoods through events, social media and commercials.“Fueling Good is more than our tagline,” Moos says. “It’s the philosophy at the heart of our brand.”
Past the Fueling Good seating area are the restrooms, which feature touch-free sinks and hand dryers. Fixtures are bolted to the wall and raised so staff can easily clean floors. Cox says initial customer surveys averaged cleanliness ratings in the high 70s, which wasn’t good enough. Using reports from Happy or Not SurveyInc.’s devices, CITGO identified day-parts and specific c employees to target for additional training. The effort led to today’s ratings of more than 90%.
Back to the front of the store, point of-sale (POS) registers have LIFT technology from VeriFone, San Jose, Calif., that features customer-facing touch screens as well as screens for cashiers. As cashiers scan items, a promotion or upsell opportunity appears on the customer screens. At the same time, a scripted message appears before the cashier. If a customer agrees, the up sell gets added to the transaction. The solution also asks customers to rate the service, allowing for feedback on employees.
Past the snacks-and-candy set on modular racks are more than a dozen cooler doors showcased with LED lighting. Watson says people ask him how they “get their bottles to shine,” which he attributes to that technology.
Above the coolers, 4-foot-by-5-foot polyurethane panels set on movable tracks in the ceiling call attention to various-store categories, alongside blank colored panels that add visual appeal. The idea is to eventually sell the blank spaces to vendors.
Many categories feature a mix of both value-priced and higher-end options, from ice cream in the coolers to chips and a special modular gondola for gourmet grab-and-go sandwiches. The trick, depending on the category, is to provide the right local brand, whether that product is on the higher or lowered, Cox says.
Even its popular roller-grill station offers high-end Ball Park sausages alongside regular hot-dog selection, with a special condiment presentation on par with dine-in restaurants. The condiments, says Cox, reflect a Southwestern flavor profile, determined through local consumer studies.
The tour ends with a “gold” standard coffee offer from vendor Distant Lands, which features both richer and lighter blends but at a price point much lower than that of high-end coffee shops; it is backed by a story via flat-screen TV of how the beans were picked, roasted and distributed. Again, the idea is to raise the quality of the c-store offer and engage the consumer, while not alienating the regular coffee drinker.
That brings the tour back to the register, where a trained barista mans the store’s espresso area. Cox readily admits that its separation from the coffee bar created a communication gap, because some customers don’t know the espresso option exists until they walk up to it. But for logistical purposes, the barista is also cashier. Cox insists the format can eventually work, because espresso customers are not necessarily coffee-bar patrons.“The overlap is very small,” he says.
Real World?
For all the study and effort, findings from the Concept Center still represent one store, in one demographic in Houston—specifically, a mixed, middle-income area with commuters from more affluent suburbs driving to the Energy Corridor’s corporate complexes.
Other factors question how the Concept transfers to real life. For instance, the Fort Myers, Fla.-based distributor of the store’s fresh Gourmet Classics packaged sandwiches could probably reach stores in CITGO’s Southern region, but not farther out. Who solves the problem beyond that perimeter?
Nor do concrete details exist on how marketers and eventually independent retailers access specific programs; there are only generalities about the potential discounts they may receive by choosing a Concept Center vendor. So exactly how CITGO’s influence or potential buying power would affect retailers is still in development.
Flagg agrees that retailers must consider the many steps necessary for taking ideas from concept to reality, but he believes that the larger message of facilitating change is critical. “There’s going to be winners and losers, survivors and those who don’t survive as consolidation continues and demands and expectations rise,” he says.
“The challenge if you’re in a growing area or a depressed area is that you become one of the winners. What do you have to dote put yourself in that category?”
For Mark Maddox, vice president of branded marketing for distributor Cary Oil Co., Cary, N.C., the Concept Center is a message of partnership, that a fuel supplier is willing to put the time and resources into developing a full-blown learning facility. CITGO declined to discuss how much it invested, but creating a research and showroom facility meant the final price tag was more than what a typical store of that size would cost, officials say.
Maddox says it means Cary, a multibranded distributor supplying about 500 branded stores, is ready to invest in its retailers, hinting at potential financial support and having created an in-house consultant position to facilitate retail improvement and change.
Any facility sitting on the right real-estate, having the right ingress and egress, square footage and other minimal features can be successful, Maddox believes. “We’re willing to bet on retailers who want to invest the time, energy and capital,” he says. Lending has freed up since the tightfisted days of the late 2000s, and new faces are coming into the retail ranks with capital, be it bank-borrowed, family-backed or independently financed, Maddox says.“If you can identify people who are willing and able, many of them just want a trusted adviser,” he says. “If you have a fuel supplier saying, ‘We’ll build a concept store and we’ll help you,’ that’s a powerful message.”
Building Trust
There’s no doubt that CITGO has spent many years, even decades, building trust among its distributors. So much so that CITGO repeatedly has captured PMAA’sSupplier Cup, in large part because it did not run direct operations, funneling nearly every gallon sold through its jobber/wholesaler network.
“From 1995 to about 2005, suppliers were hands-on with their plans for c-stores and how they should be set up and run,” says Dan Gilligan, president of Arlington, Va.-based PMAA. Opting not to single out any particular supplier, he says oil companies in general are changing the character of their assistance, moving from command-and-control to advisory positions.
But CITGO from the get-go, as it were, was always focused on partnership and supply, going to great lengths to emphasize how the Concept Center is only a single test and in no way a step toward building its own chain. Over the years, it also developed a reputation of varying its contracts to better support marketers in the field. “We want to avoid being cookie-cutter,” says Flagg.“A lot of majors dropped their lines in the sand [with volume minimums], but we’ve built our success on being flexible with customers, understanding markets and, yes, recognizing higher quality standards but knowing they’re not the same in every market.”
Maintaining trust over the years has been a focus for the company. “Trust is a big deal in our business,” Flagg says. “We want to offer good business, business that we can sustain going forward.” In 2006, CITGO made the decision to pull out of 10 Midwest states, deciding it was better-off basing its supply around its three refineries (one each in Illinois, Louisiana and Texas) and network of company owned terminals.
In the years since, the U.S.-run CITGO had fl own under the radar, becoming one of Venezuela’s greatest assets, according to Tom Kloza, chief oil analyst for GasBuddyand OPIS, Gaithersburg, Md. It has done so by staying independent.
“The tendency is to believe that PDVSA just wanted to force-feed its crude [to CITGO]. That’s not the case,”Kloza says. CITGO is “diversified in what they run, taking advantage of North Dakota [supply] … Eagle Ford shale. …They’re the beneficiaries of some of the cheapest sweet crude.”
Its supply-chain flexibility is an important tool, especially as pressures build for fuel brands to retain and grow their distributor base. One such pressure comes from renewable identification numbers (RINs),or what refiners have to pay for if they don’t sell the proper amount of environmentally regulated product. For many, that means selling as much branded product as possible, Kloza says.
It’s a pressure all refiners feel, with many creating new fuel related programs such as gas-for-groceries loyalty offers, all in an effort to differentiate themselves and grow a distributor base. CITGO also has a loyalty strategy, offering the choice of four providers and up to $2,000 in startup assistance.
Flagg agrees that CITGO is positioned to remain competitive in the current market environment, including RINs, and that competing fuel suppliers are doing all they can to build their businesses. He still believes in the company’s current strategies—even the retention of its network of owned and operated terminals.
Kloza says the company is an anomaly in that competitors have sold off those assets. Again, Flagg says the company believes in its current go-to-market tactics and has the profit its to prove it.
Fuel suppliers “need loyal marketers,” Kloza says. “They have to do things to help them pump up the volume and help them prosper. Everyone is recognizing that now.”
Brand Rebirth
For CITGO, the introspection occurred back in 2006 with its market retrenchment, a jettisoning that initially cast some doubts on CITGO’s long-term viability as a prominent brand but ultimately fine-tuned the company’s current market strategy.“That’s when we realized what we could do best, what we were good at,” Flagg says.
Discussions from that time on focused on the future and how to re-energize the brand. As a result, its Centennial Image debuted three years ago, bringing to market a cleaner, bolder look. “We’ve heard of 3% to 5% to 7% lifts in volume [for marketers],depending on who you talk to,” Flagg says.
That momentum led to the building of the Concept Center, the result of brainstorming sessions during its marketer council meetings. Participants deemed the idea “brilliant,” with corporate eventually giving it the green light. Building began last year, and the facility opened in March.
With many oil companies having completed their retail exits, efforts to help but not command retailers are going to keep coming, predicts Gilligan of PMAA.“Branded fuel suppliers are doing everything they can to make retail outlets more efficient and attractive,” he says. “So if they can come up with designs implemented in an affordable way that helps the c-store owner and independent retailer, they’ll do it in a heartbeat.”
CITGO by the Numbers
1 vs. 6,000
The number of concept stores planned vs. the number of stores it supplies.
0 vs. 48
The number of terminals most oil companies own today vs. how many CITGO retains.
2,500 vs. 4,500
The amount of square footage a typical CITGO retailer store has vs. the Concept Center.
16; 102 feet by 30 feet
The number of fueling positions at the Concept Center and the dimensions of its canopy.
2 acres
The amount of land the Concept Center is built on, enough to expand with concepts such as car washes, officials say.
$461 million
The record dividend CITGO paid to its parent company in the first quarter of 2013.
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