OAK BROOK, Ill. -- Consolidation within the petroleum retail and convenience store industry is viewed by many not so much as acquirers buying then paring down store numbers as much as a redistribution of assets. As more oil company stations and other assets come up for sale, jobbers or independent operators have stepped forward to purchase locations altogether, buy simply the right to operate the c-store or just take over the supply of fuel.
For the May issue of CSP magazine, the staff has uncovered the emergence of these arrangements, and more importantly, [image-nocss] the growing importance of the dealer as both an onsite operator as well as potential acquirer.
One of the reasons for this trend is that sometimes a supply contract with the dealer is more financially attractive for a jobber than buying a site and operating it. If you are just buying supply contracts, you're getting it for a lot less than 30 stations, Bob Bassman, partner with Bassman, Mitchell & Alfano, which represents the Petroleum Marketers Association of America (PMAA), told CSP Daily News. This is exactly what Eastern Petroleum, Annapolis, Md., did for 17 BP open-dealer sites it picked up in a recent transaction.
Indeed, Bassman points to a revival among jobbers for using a dealer model, thanks to new economics. He points to the emergence of the new Americans, first-generation citizens who are willing to put in more work and time for a piece of the American dream than a hired employee.
As a result, oil companies appear to be benefiting as well. Tom Kelso, managing director of Matrix Capital Markets Group, Richmond, Va., said that premier locations are always going to bring in the top dollar, but the oil companies are finding lower-volume sites receiving competitive bids from this emerging class of single-site operator. [Oil companies] are discovering that selling doesn't have to be at some type of discount, Kelso told CSP Daily News.
Greasing the wheels are not only continued low interest rates but also a lending community that favors the increasingly structured and secure relationship between jobbers and their suppliers.
When majors sell, they tend to sell the properties in a manner that ties them up for between 10 and 15 years, said Bassman. This happens either by including a deed restriction that says the buyer cannot sell motor fuels or have a c-store on the property for 10 to 15 years, unless said buyer signs up to sell the major's brand; or by requiring buyers to purchase so many gallons over 10 to 15 years and forcing them to pay for any shortfall.
Maybe it's possible the lending community is more willing to give better credit terms when they see [how] these deals [are] structured, and they see the extended supply contracts, suggested PMAA president Dan Gilligan. It probably makes lenders who make loans for these transactions more comfortable.
It seems the majors have kind of learned from different practices of what works best and what doesn'tand it seems like they are going a little further to try to protect some of rights in regards to right of first refusal, said Paul Fiore, executive vice president of the Service Station Dealers of America/National Coalition of Petroleum Retailers & Allied Trades.
Fiore cites two recent selloffsBP's in the Mid-Atlantic and ExxonMobil in western and upper New Yorkas occasions where major oil provided its dealers with first dibs and many of his members were able to take them up on the offer.
There's a new business model for this industry now with regards to multisite operations, and a lot of people are taking advantage of that, said Fiore. Ten to 15 years ago, there were many dealers who made a decent living with one location. That just doesn't happen anymore unless you're in one of these extremely high-income areas and have got a very good location.
He said that in today's model, strict pricing controls set in place by the majors and competition, as well as higher rents, mean one site won't cut it. To make that kind of money, what we would call a good upper middle class incomeyou probably had to own three, four or five sites, or at least operate them.
Ralph Bombardiere, executive director of the New York State Association of Service Stations & Repair Shops, said ExxonMobil's recent selloff allowed around 70 of his members to pick up sites. I've had one company pick up five, and most of the dealers who had the opportunity to buy did, he told CSP Daily News.
An especially receptive financial community is helping fund the growth. We've found a lot of cooperative banks, said Bombardiere. They saw that as a value, and properties were all in pretty good shape and most of the properties were well located, so lot of banks actually competed for [the loans].
So it appears that companies large and small have been leveraging what they have to grow as a natural course of business. Unfortunately for many, however, the kind of growth necessary to compete in the future is simply out of reach.
What's really driving consolidation is the economics for companies that are 15 to 20 stores on the small end and 50 to 100 stores on the high end, said Kelso. Those companies are starting to see the writing on the wall. The deals with fuel and in-store product suppliers are not as good; they don't have nearly the access to capital as the larger businesses. And when you put it all together, it's a much less profitable, more risky venture.
In tomorrow's final installment of CSP Daily News' The Great Consolidation series, we will highlight an emerging acquire: WilcoHess.
To read the first installment in this series, click here.
To read the second installment in this series, click here.
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