CSD: Reshaping the Convenience Landscape
Through a special arrangement, presented here for discussion is an excerpt of a current article from Convenience Store Decisions magazine.
For some, Exxon’s decision to sell its corporate stores presents the chance of a lifetime to acquire the rights to stores for an entire market, maybe more. For others, the announcement caused immediate fear and panic concerning the long-term viability of their operations and, in some cases, several generations of the family business.
In mid-June, Exxon announced its plan to exit direct-store operations and sell 825 company-owned and -operated stations as well as 1,400 stations leased to dealers, following the path forged by Shell and BP. The 2,225 stations make up about one-fifth of the Exxon and Mobil stations in the U.S.
“I am extremely disappointed that I’m not going to be ExxonMobil’s first option to buy the site that has been in my family for 51 years,” said Tommy Todisco, president of Todisco Inc. in Boston, which operates a Mobil station with an annual volume of 1.5 million gallons. “I’ve been working at this store since I was 12 years old. Now the game is changing and I don’t know what to expect. We’ll have a new landlord, new lease requirements and who knows what else?”
A couple hundred miles south, Levent Sertbas, president and CEO of Sertbas Inc., a Paramus, N.J.-based operator of two Exxon On the Run locations, said he has invested six years building brand equity with ExxonMobil and was devastated to learn of the refiner’s decision.
“I don’t think we have any chance now of purchasing our property from Exxon, which was part of my long-term business plan,” Mr. Sertbas said. “Right now margins are down and credit card costs are killing our profitability, and now I have to deal with this uncertainty. It’s frustrating and in all the scenarios I can come up with in my head, my business is on the short end.”
Beth Snyder, a spokeswoman for ExxonMobil’s downstream operations, said the company is sensitive to its dealers’ concerns, but urged patience as the company transitions its assets.
“We are still putting the specifics together,” Ms. Schneider said. “This is a direction strategically that we are determined to go in and as opportunities become available, either for distributors that want to expand in certain markets, or others, we will make them known to the industry.”
But larger regional players have an awful lot to gain. Wallis Cos., in Cuba, Mo., and Boston-based Verc Enterprises Inc., are two companies that expressed a serious interest in vying for ExxonMobil’s divested sites.
“For wealthy, financially qualified jobbers, this is a fantastic opportunity,” said Tom Kelso, managing director of Matrix Capital, an investment group that provides merger and acquisition advisory services to convenience store and petroleum companies. “Since these are company-owned properties, we’re looking at good stores in good markets, and, in most cases, Exxon owns the underlying real estate. It adds up to a once in a lifetime opportunity. Once these units are sold it would be almost impossible to duplicate another sale of this size.”
Discussion Questions: How do you think the move by petroleum companies to shed their retail operations will reshape convenience store retailing? Who benefits and who loses? Do you think the sales will ultimately improve the retail customer experience at gas stations?
It’s a tough time on the “Convenience” side of the “Convenience & Gas.” As someone above noted, many of the petroleum companies have been getting out of the retail business. BP has also been selling off its corporate-owned stores, for example. And it makes sense. These companies exist to sell fuel, not beverages, snack foods, candy, tobacco, etc.
The downside, for retailers and consumers alike, is the possibility that the retail side of this channel will become further fragmented. Where there once was one consistent brand message and experience both at the pump and in the store, it’s becoming more and more common to find, say, BP on the road sign and at the pumps, but another brand entirely (if there’s any brand at all) tied to the c-store.
With no corporate support of store marketing and operations, retailers are suddenly facing a new challenge–how to handle these things themselves. The upside, I suppose, is that these business owners are no longer saddled with franchising agreements and their inherent limitations, marketing contributions, etc. But with consumers cutting back on discretionary spending, and with the fuel side of the business representing no major financial upside, retailers are increasingly left to figure out c-store on their own.
The irony, of course, is that these same retailers, while not making money selling petroleum companies’ fuel and getting no in-store support from those petroleum companies, are critical to ensuring that the petroleum companies succeed with their fuel sales. So, while the petroleum players are pulling out of the retail game and leaving retailers to fend for themselves, they still need the retailers to help them sell more fuel. A delicate balancing act–and many would argue that, with petroleum players exiting the retail game, the balance is no longer there. That’s where strong c-store retail brands like 7-Eleven, Circle K, etc., stand to make some significant gains and impact.
I completely understand the petroleum companies’ logic here. They’re just sticking to their knitting. In theory, that enables them to strengthen their fuel brands, which should improve consumer loyalty to those brands. That, in turn, should generate more site traffic for both them at the pump and for their jobbers inside the store.
As with all things, time will tell.
The proof in the pudding here is if the management and employees of this division of ExxonMobile pony up and buy the business. If you don’t see “insiders” finding a way to own this business then you can conclude that it isn’t a very good business. Remember, these are the guys who know what is going on, they operate the stores and manage the P&L. Watch the insiders!
As to ExxonMobile, they seem to be “cashing in” everything they can. Why keep money invested in the USA when the probability is that it will be highly taxed? Get the capital that is tied up in retail operations and locations and put it to work squeezing oil out of the ground instead of squeezing consumers pockets and “making enemies.”
The definition of retail ‘success’ for oil companies that make gobs of cash at their refineries is completely different than what Private Equity or certainly Ma & Pa retailers would expect who don’t have that black gold option.
It’s an excellent opportunity for someone who knows retail to come in and create value and margins similar to what 7-Eleven has done over the years. 7-Eleven’s notion of fresh, grab & go food and even food prepared on the spot has the entire food service industry standing up and taking notice: good idea! One of many.
This event brings back memories of an interview I once did with the CEO of an oil company that had just bought a convenience chain and was looking to innovate (not XOM). When I asked him, “why did you buy this chain?” he responded with, “it was a good value and, it’s retail, how hard can it be???” Classic. I guess XOM might have an answer for him.
ExxonMobil should have sold their stores years ago. The return on investment isn’t competitive with energy exploration or refining. The optimal owners are either chains like Wawa or family entrepreneurs who want a cash income and don’t mind hiring family members and the undocumented. And let’s see what happens when more and more driving is based on electric batteries charged at home (and/or natural gas supplied from home), and gasoline is only used for trips over 40 miles in each direction.
This is likely a move to filler ‘er up, meaning gas tanks and investors who court big oil companies best and get control of the locations. The convenience store operators now selling Exxon could very well end up getting gassed…but let’s hope not.
I think it is a sensible move by the petroleum companies. Their core business is refining and right now the retail operations are high cost and likely to become less valuable all with lower returns. Let someone else do it and manage the problems of lower consumer spending and all the associated issues that come with recession. The risk of oil alternatives are getting stronger and perhaps the money from the sale can be better used elsewhere. Can someone offer a similar service or even better? Sure.
This has been a trend for years, and it is the logical way for the market to go. For dealer sites, this is merely the majors exiting the landlord business. The reality is that if these one-off gasoline/convenience retail operations were profitable, these family businesses wouldn’t have to worry about a change in their landlord. But the one-offs aren’t profitable. You either need the scale of a “jobber” without the overhead of a major oil company, or you have to be a true retailer like Wawa or QuikTrip.
I don’t think that the change in ownership will greatly impact consumers. The locations will still offer gasoline and a convenience store.
It will be interesting to see which convenience store operators jump into the bidding. As the article points out, this presents opportunities for regional consolidation and growth.