By Barbara Grondin Francella, Linda Lisanti
In June 2003, Convenience Store News reported on an emerging and dynamic trend starting to take hold in the convenience channel. Headlined “A Whole New Game,” the special report stated that major oil companies, faced with a more assertive marketplace, were unloading large chunks of their “financially frail” retail holdings.
At the time, some industry watchers surmised that as many as one-third of the Big Oil-controlled locations in the U.S. were up for sale. What was uncertain back then was how many oil companies would follow the trend and what impact, if any, this shift would render on the convenience and jobber segments.
Many years have passed since then — yet the game is still in play. What once was an emerging trend has grown into an industry-transforming movement. Unlike in 2003, though, the impact of Big Oil’s exit from direct retail is much clearer now.
And as in any game, there are winners and losers.
“Whether or not it’s a positive depends on what part of the distribution channel you’re in,” according to John Sartory, managing director of Petroleum Capital and Real Estate LLC, which has facilitated many of the Big Oil sell off transactions over the years. (Big Oil is the generally accepted industry term for the major international oil companies, including BP plc, Chevron Corp., ConocoPhillips, ExxonMobil and Royal Dutch Shell plc.)
Within the distributor community, Sartory said the winners’ circle includes larger jobbers that are using Big Oil’s transition to further expand their size and economies of scale, as well as mid-sized jobbers that are turning themselves into “mega jobbers” through multiple acquisitions.
As these regional players continue to acquire Big Oil assets, the Petroleum Marketers Association of America (PMAA) is seeing many of its members become “very big, very quickly,” said Dan Gilligan, president of the Arlington, Va.-based association. Traditional petroleum jobbers that were operating 40 stores are buying twice that amount.
“It’s an enormous undertaking for them and definitely changing the nature of the business,” Gilligan said. “It’s an amazing change at the jobber/wholesaler level.”
What’s more, these newly birthed large regional players now have a very different dynamic with Big Oil than in the past. As the major oil companies exit the direct operation of retail outlets, in many markets they are no longer competing head-to-head with their distributors for retail customers or for real estate.
“For people in markets where they competed with oil companies, the playing field will be a lot more level,” said Thomas E. Kelso, managing director and principal of Matrix Capital Markets Group Inc. in Baltimore, Md. “Everyone in a market will be a fuel distributor buying from the refiner or someone who trades refined products. It will be very positive.”
Another plus is that for many branded wholesalers, Big Oil’s departure from direct retail is giving them access for the first time to major metropolitan markets where higher rack retail margins are available. Before, they were prevented from branding or opening sites in these markets.
Shell has gone from having 378 company-operated stores in 2003 to just 23 in 2011.
“Some jobbers who have had to work more in the peripheral end now have the opportunity through their acquisitions to penetrate into the standard metropolitan areas — markets such as San Diego, Los Angeles, Miami, Chicago, New York and Washington, D.C.,” Sartory noted.
Less With More
Not all in the distributor community, however, have found themselves on the winning side. Because it’s been difficult over the last few years to secure financing, particularly for c-stores, few people could put their hands on the kind of money needed to pick up packages of 100 to 200 stores. In many cases, this narrowed the universe of players that could bid on Big Oil’s assets and ultimately put them in the hands of larger operators, said Dennis Ruben, managing director of NRC Realty & Capital Advisors LLC, which helped BP sell the majority of its U.S. units.
As a result, small jobbers are now at a greater disadvantage than ever. As they watch their competition grow larger, it’s becoming harder and harder for them to compete against this new breed of “mega jobbers” — some of whom have emerged practically overnight.
“The small guys are getting squeezed. Up to 100 stores, you don’t have enough critical mass,” Ruben said. “There are exceptions — niche players that have really good reputations in their markets — but by and large, in the 20- to 50-store range, they are struggling to remain competitive.”
The increased consolidation that’s resulted from Big Oil’s selloffs also has created more barriers for new players looking to break into the industry, according to Ruben.
Since acquiring Conoco Philips’ network of stores in 2009, Pacific Convenience & Foods has been working to refresh the majority of the sites.
The various oil companies have employed different strategies when seeking buyers for their sites. ConocoPhillips, Shell and Exxon Mobil put markets or packages together for bidding, resulting in fewer players picking up more locations. BP and Sunoco, on the other hand, conducted sealed bid sales, so its stores wound up in the hands of a variety of different players, he said.
Invariably, the oil companies are entering into long-term supply contracts with their buyers. The mandatory supply contracts most often call for the stores to retain the Big Oil retail brand for the contract’s duration. “So not only do they want to maximize the proceeds of the sale, but they’re also concerned with who is going to protect their brand,” Ruben noted.
With this in mind, petroleum marketers and c-store operators that are aggressively competing for Big Oil’s prime locations are doing their homework, PMAA’s Gilligan said.
While the full impact of these acquisitions on convenience retailing is still playing out, many in the industry believe getting these sites out of the oil companies’ hands can only be a plus.
“I don’t think oil companies were very good at company-operated convenience stores,” said Kelso of Matrix Capital. “On the whole, I think most of the buyers will be better retailers. The new owners may not directly operate stores; they may lease them to dealers. But the dealers will be better operators because of what I p