Arturo Zizold speaks of his chain’s newly acquired Miami locations with the awe and deference of an outsider fi nally let in. “There was no better portfolio in my market than ExxonMobil’s,” he says of the 38 company-operated and dealer sites that in a single purchase doubled Victory Petroleum Inc.’s fuel volume. “And we’re not just acquiring the sites; we’re acquiring an excellent network of dealers, so there’s [defi nitely] future growth opportunities in this market.”
Victory’s expansion—with special adherence to a dealer-based retailing model—represents the rise of the so-called “superjobber,” a class of middlemen absorbing the vast corporate, dealer and consignee networks left as the majors make good on longtouted plans to exit retail.
The pace has quickened exponentially, with Fairfax, Va.-based ExxonMobil shedding hundreds of locations in recent months. These transactions include Global Partners LP, Waltham, Mass., with 148 in the Northeast; Capital Petroleum Group, Springfi eld, Va., taking 72 in the New York area; and Alliance Energy, Branford, Conn., with 89. Additionally, Mid Atlantic Convenience Stores (MACS), an entity formed by an investment group and based in Richmond, Va., bought 170.
The changeover has the potential to drastically alter street prices, in-store strategies and all manner of competitive elements within convenience retail. But the degree of change is contingent on:
- Managing internal growth. As seen with Victory, companies can double, or sometimes triple, in size overnight. In the extreme, some may have come from nothing to becoming 100-, 200- or even 300-store chains in a matter of months. Many of these young companies based their successful bids on projections, essentially guessing what they’d need to survive regarding infrastructure, sales and volumes. Any mis-calculation could cause serious bumps in the road.
- Dealer skill level. Experienced dealers are innovative and can deliver a consistent presentation to the public. Inexperienced ones need guidance and training. The makeup of a newly acquired set of dealer sites will vary, directly affecting the potential success of the newborn chain.
- Jobber expertise and support. Just how well a jobber can execute at the store level with its own company- ops and its dealer network is also pivotal. The level of marketing, operational and strategic expertise will determine success. Fundamentally, the departure of the majors leaves a gap, one that jobbers, investment firms and other retailing successors are now supposed to fill. That hole is formidable. While once the majors provided entire departments to help their networks maintain operational quality, store sets, technology and human-resources standards, much of that now falls on the new owners.
“I remember when [one oil company] had a mystery-shopper program, reps at the locations every couple of weeks and controlled maintenance to make sure the lights worked,” says Bruce Butler, a partner with consultancy Retail Optimization, Trumbull, Conn. “I saw a big difference when [the company] got out of direct operations. A lot of stores suffered. You’d drive by at night and half the lights were out on the canopy and were not repaired for six months.”
Major Challenges
For these new superjobbers, the ability to handle growth will be a telling sign. In a CSP Daily News poll conducted earlier this year, industry respondents believed “managing a larger business” to be one of two top challenges facing these growthminded companies. (See next page.)
“What we’ve seen [is] … many go in undercapitalized and don’t realize the full extent of what it’s going to take to run a large operation,” says Rick Cosmer, vice president of retail sales and operations for Mansfield Oil, Gainesville, Ga. Successful jobbers don’t overburden themselves, he says, but scale the business in a way that each individual site purchased adds a “greater-than-one” return.
“But that’s not always the case,” he says. “We’ve seen many take on these assets and two years later are having trouble.”
Once a traditional jobbership and c-store chain (the 125-store Kangaroo chain that The Pantry acquired and adopted as its c-store brand), Mansfield has evolved into a national energy “partner”—a term it feels best describes its fuel logistics and delivery service—with 600 carrier ties and relationships with 900 terminals. Having recently extended its reach into Canada, the company supplies a large network of dealers, but a significant part of its business is in commercial and government supply contracts. It also expanded its product range last year with the purchase of an ethanol marketing company. Almost in tandem, an operationally adept company may falter competitively if jobbers fail to provide support in the areas of product assortment, plan-o-grams and site-level marketing. In that same poll, respondents name “developing marketing, promotional and category programs” as another big concern. Jobbers will simply have to step up, says Mike Evans, executive vice president of Atlas Oil Co., Taylor, Mich., which after sizable acquisitions from London-based BP now supplies 360 sites and operates about 15 of them.
“As the oil companies move out of the space, dealers feel a void as far as training, nonfuel sales, food and car washes,” Evans says. His company is developing an “Atlas University” option for its dealer network. “If we don’t provide that, it means a weaker consumer experience.”
In the Daily News poll, respondents also identified “ongoing education of dealers” as a relevant concern for jobbers, along with “aligning technology” and “managing culture change.” Technology is a legitimate concern, especially for jobbers having to transition dealers from their major-oil credit-card systems, says Cathy Duncan, executive director of marketing solutions for Telvent DTN, Omaha, Neb. Now, instead of dealers settling transactions directly with the major, the jobber steps into that link, settling with the oil company and passing the transaction back to the dealer.
“They’ll have to get those transactions formatted just like Exxon [did],” she says. “So the superjobber has to act like a smaller supplier with the technological savvy to pass on that information electronically.”
For the most part, recent acquisitions involving superjobbers have been well-researched, sophisticated transactions, says Joel Hershey, director of compliance services for ECS Eclipse, Agawam, Mass., which consults on underground-storage-tank compliance issues. His concerns are with the dealer population. Almost in a domino effect, he says, jobbers are reviewing acquisitions and turning pieces over to dealers—many of whom may be less inclined to spend money on duediligence measures.
“A dealer with two to three sites looking to grow has got to be very careful: What are the environmental concerns?” Hershey says. “You don’t want to buy a gas station and three years down the road realize it needs a $300,000 upgrade.”
Dealer Dealings
Beyond the challenges in technology and marketing strategies, there is something more fundamental: relationships. Specifically, how will dealers get along with the jobbers who now succeed their Big Oil predecessors? And for jobbers, how will they respond to dealers accustomed to more elaborate support from their branded partners?
Media reports from Boston recently told of an estimated 60 dealers banding together to halt fuel sales for several days in protest of their jobber’s pricing strategy.
“It’s like getting divorced from one [supplier] and getting married to another,” Cosmer says. “And the person you’re marrying, you know nothing about.”
Statistics appear to capture the dealer trend. In an exclusive study completed by CSP and Fairfax, Va.- based SIGMA, the 42 participating jobber-retailers (or “marketers”) estimated their dealer ranks have swelled by 36% since 2005. The percentage is significant because the number of estimated company-ops grew by a mere 2.5%, representing an increasing embrace of the dealer model [CSP— Dec. 2010, p. 97].
The figures may also document a successful transfer of reins, according to Butler of Retail Optimization. Part of major oil’s tactical goals “was to go from working with 17,000 people to 150, but still sell the same amount of fuel,” he says.
As jobbers assume the majors’ role, the relationship with the dealer is fast becoming the area of greatest contention. Of course, the biggest complaints will come from pricing adjustments, both with supply price and rent.
Kenneth Shriber, managing director of Petroleum Equity Group, Chappaqua, N.Y., says jobbers’ approach to pricing “will be highly dependent on the financial structure which drove the acquisition.”
If the distributor is a big, highly capitalized company such as Cumberland Farms, Framingham, Mass., the changes may be subtle. “However, if the company is more local, and has pieced together a substantial chain to include a major oil company acquisition, they have likely done so in a highly leveraged fashion,” he says.
Highly leveraged companies may seek to raise the overall market, he says, “now that they have major-brand exposure at the street level, in order to fund their debt, which could include private-equity-type returns.”
Bottom line, Shriber says, is that the consumer might see entire markets or pockets within markets become more or less competitive depending upon the financial model of the new superjobber. For the dealer, Shriber predicts that jobbers will try to maximize wholesale margins as well as optimize rents once original contracts set by the majors expire. “It will also hinge on what the new jobber’s market plan is for each site,” he says. “Some may want to sell the site to the dealer or developer.”
Transitions to new business models will smooth out over time. In the long term, Butler says jobbers will eventually have to move past price and credit terms if they are to hold onto dealers once contracts come up: “The jobber who’s going to win long term has got to position themselves to be so much better than the rest of the group.”
Market Makeovers?
Industry experts agree: The shift from major oil to superjobber will bring visible changes to the street. But what will that mean? With threats of gas prices spiking to $4 a gallon, for example, will this transition tame prices or accelerate them?
One-fourth of respondents to a CSP Daily News poll conducted earlier this year believe as a result of the emergence of superjobbers, gas-price postings will become more competitive, and another 25% think in-store sets will be more aligned with local tastes. (See p. 43.)
Just how heated each individual market becomes may depend on the number of business models in play. Though one industry, there are multiple paradigms within the convenience channel—a fact that some find comforting.
“We’re going to continue to have different operating models,” says Jay Ricker, chairman of Ricker Oil Co., Anderson, Ind., a chain that expanded in a similar way as Victory but in Indianapolis. “It’s healthy for the industry.”
His viewpoint is palpable enough, considering profitability in this channel has different meanings and multiple value equations. A lowvolume, 1,500-square-foot c-store and fueling site may never stand toe-to-toe with a 5,000-square-foot location run by a regional c-store stalwart that’s heavily into foodservice. But if operating several miles away, that same low-volume site may prove profitable to a dealer with a three-site network.
Similarly, a jobber with the contractual and physical setup to best deliver that fuel will view c-stores with less focus than a Wawa or a Sheetz. Yet both models remain viable. (See breakdown of industry business models, above.)
What seems to be keeping these varied paradigms alive is the retail “house” the majors built.
Most jobbers, retailers and industry experts interviewed for this article believe that, at retail, the majors were far from sparing. Downstream, these corporations operated with higher administrative overhead and retail budgets subsidized with profits from drilling and production. And as a result, the network of sites forged by Big Oil over three decades of handson c-store competition now stand as the backbone of the nation’s fueling infrastructure.
For better or worse, the network built by one business model, namely major oil, is now shifting to another model, that of the jobber. What does this mean? The majors could afford to invest $1 million in upgrades to a low-volume site, Butler of Retail Optimization says. “A jobber would never do that,” he says, “because he’s much closer to the transactions and doesn’t have millions to spend.”
But for a jobber such as Ricker, the opportunity to own and operate a site built with major-oil funds was “golden.” “The oil companies were very good at picking real estate,” Ricker says. “That real estate would be impossible to find today in a lot of markets for the price and to get a [petroleum-retail site] built.”
That sentiment is shared by others. “High-quality commercial real estate is precious in New England,” says Eric Slifka, president and CEO of Global Partners L.P., a Waltham, Mass.-based wholesale distributor of gasoline, distillates and residual oil that took on 148 ExxonMobil sites in its marketing area. “These … stations are in prime, high-traffic-count locations that would be difficult, if not impossible, to replicate.”
Up for the Challenge
Though early in this handover of literally thousands of sites, signs are positive that many of these ascendant jobbers are prepared for the new reality, albeit with differing models for addressing dealer needs.
A recent significant example has been the growth of Global Partners. Keeping its supplier focus, the company outsourced the day-to-day management and operations of a total of 190 of its locations to Alliance Energy LLC, Branford, Conn., a company that on its own recently snagged 89 Exxon- Mobil locations in Connecticut.
“From a business perspective, our primary reason for acquiring these locations is the income stream we are generating from the wholesale supply of transportation fuel to the stations,” says Slifka of Global Partners.
To further its mission, he says, the company had two other significant initiatives in 2010: an ethanol terminal and rail expansion project in Albany, N.Y., with Canadian Pacific Railway; and the acquisition of three primarily transportation-fuel terminals in Newburgh, N.Y., that added 950,000 barrels of storage capacity to its terminal network. While Global Partners draws the line at supply, companies such as Ricker nurture a model that balances supply with company operations. Feeling a pressure to either grow or sell, the company reviewed its succession strategy, took advantage of the timing of the majors’ divestment and opted to grow. In the two years since acquiring 35 BP properties, Ricker has switched things around, selling some to dealers and operating some itself. Companyrun stores grew from 30 to 50, essen- tially adding only field personnel to support the additional stores. As a “forward thinking” company, Ricker says his chain prides itself on staying educated about trends, hiring the kind of people for human resources and information technology (IT) needed to remain state-of-the-art. Again, the pressure to grow comes from how it takes the same number of people to run 30 stores as it does to run 50. In the end, he says, “We are primarily c-store operators.”
Branded Future
Still, as industry historians write the retailing epitaph for the major-oil companies, Dan Gilligan, president of PMAA, Arlington, Va., cautions to be careful with the eulogy. “I see no [wavering] of commitment to brand,” he says. “That’s the one area where the companies will continue to devote significant resources—to maintaining brand and brand quality.”
Even though younger generations may not be as connected to brand as baby boomers are, its value lies in its connection to consistent supply. “As long as there’s connection between brand and supply, brand will have significant value,” Gilligan says. “When supplies are disrupted, people relying on unbranded are in big trouble.”
Looking ahead, Gilligan says the crystal ball is fuzzy. Consolidation will certainly continue. Those who took advantage of the major-oil divestment will be in a position to grow further, while others not so fortunate will have to consider the longterm viability of their businesses.
PMAA’s membership has gone from 21,000 companies in 1983 to less than 5,000 today. But those 5,000 are larger, more significant entities.
“Florida is down to 180 wholesalerjobber companies,” dropping from more than 400 in 1992, Gilligan says. “That’s astounding, when you stop to think about it. One hundred seventy companies are supplying 80% of the fuel in the whole state of Florida.
The More Things Change …
Despite the fact that most of major oil is taking itself out of the retail business, certain elements of petroleum retail will undoubtedly remain the same:
Major brands. In addition to locking extended contracts with jobbers, the majors seem committed to maintaining name recognition and the perception of value among consumers, experts say.
The dealer model. Federal laws secure numerous rights to the dealer class, but financially, not all sites are viable as corporate-run stores. Dealers still make up a vibrant part of the fuel-delivery system.
The network. Lot sizes, store square footage, equipment quality and age are what they are. While specs may not match what would be considered a state-of-theart c-store, for the most part, locations are strong and both buildings and equipment are robust.
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