For this year’s approach to our annual State of the Industry review, we decided to take a different path and broaden the focus. We have typically interviewed a panel of Society of Independent Gasoline Marketers of America members at the SIGMA annual convention, either in a private meeting or as part of an educational session. While we could have followed that format this year with a private panel discussion, we decided to broaden our focus.
Instead, we interviewed the members and/or presidents of the leading trade associations that represent a broad scope of the industry. They provide perspective not only on their own operations, but on the areas where their associations are going to be focusing in the coming year. Our panelists included:
Ramm is the senior executive of Inland Oil Company, a central state petroleum marketer that is involved in direct operation retail with 14 salaried stores, seven open dealers, dealer supply and wholesale to farm and commercial businesses that makes up about 50 percent of its operations. The company has propane and lubricant divisions and a Pacific Pride franchise with seven locations. The retail side the company has QSRs—three Subway and some smaller offers inside the C-store. Although the Inland Oil Co. is not a “large” marketer, an acquisition with another central Washington company has doubled Inland’s size. The company operates in a very rural, agricultural area that sits between Seattle and Spokane.
Ramm is the chairman of the Petroleum Marketers Association of America. The PMAA is a federation of 47 state and regional trade associations representing approximately 8,000 independent petroleum marketers nationwide.
Jay & Nancy Ricker founded Ricker Oil Company, Inc. in 1979 in Middletown, Ind. Jay drove a tank wagon and Nancy managed the book out of their home. Jay had previously worked for Shell Oil Company for seven years.
The first convenience store was purchased in 1989 in Middletown, Ind. As the company grew and expanded, the headquarters relocated to Anderson, Ind. After moving into the new corporate office location in 2003, the company remodeled the office into a laundromat and in the spring of 2004, Ricker's City Laundry opened, followed by a second laundromat in the Ft. Wayne market. The company currently has over 700 employees and 49 convenience stores. The Ricker's marketing department buys for a co-op of 55 locations.
Ricker was named the NACS 2009-10 chairman of the board. NACS was founded August 14, 1961, as the National Association of Convenience Stores. It is an international trade association representing more than 2,200 retail and 1,800 supplier company members. NACS member companies do business in nearly 50 countries worldwide, with the majority of members based in the United States. NACS serves the convenience and petroleum retailing industry by providing industry knowledge, connections and advocacy to ensure the competitive viability of its members' businesses. In 2007, the association shortened its name to NACS and added a tagline that better defines its presence both internationally and at the retail fueling level: The Association for Convenience and Petroleum Retailing.
In 1940 Ira Guinn started a Richfield Oil distributorship in Modesto, Calif. at the corner of 9th St and Kansas Ave. Stan and Carol Boyett purchased this distributorship in 1962. Stan and Carol's son Carl joined the company in 1970 after volunteering for the Army and service in Vietnam. Carl Boyett currently serves as CEO of Boyett Petroleum and as president of the Society of Independent Gasoline Marketers of America in Washington DC.
Boyett Petroleum is a retailer and wholesaler in California and Nevada with 35 company operated stations and with a supply operation for approximately 300 in addition. The company does a little over 250 million gallons per year with what is primarily a retail focus although the company does have some card lock operations.
The Society of Independent Gasoline Marketers of America represents some of the largest independent chain retailers and marketers of motor fuel, both branded and unbranded. Representing about 350 member companies, SIGMA's mission is to benefit its members by ensuring a free and unencumbered economic environment for the fully competitive marketing of motor fuels through association publications, strategic lobbying, legislative reporting and legal interpretations, industry research, political action initiatives and educational opportunities offered in formal programs and informal networking sessions at SIGMA conventions and conferences.
Pat LaVecchia is the owner of Pat’s Auto Service, a traditional four-bay service station with unbranded gasoline. It operates in Rocky River, a somewhat upscale suburb of Cleveland.
LaVecchia is with the Service Station Dealers of America and Allied Trades (SSDA-AT), a national association composed of individual and state affiliate associations representing service station dealers, repair facilities, car washes and convenience stores. For over 58 years, SSDA-AT has worked for the betterment of its members as a voice on Capitol Hill, with federal regulators, with the media, in the courts, and with suppliers.
NPN: How was business in 2009?
Ramm: In the first part of 2009 I believe we were still feeling the effects of over $4 per gallon gasoline and the economy hitting its low. People were being very cautious, even in the agricultural industry as the commodity prices were changing for farmers. But as we've moved through the years we've seen our volume increase on the retail side; our retail store sales have increased during the last half of the year; and our wholesale operation has at least been a breakeven on a volume basis. We did not see a strong rebound on that side, and that part of the economy, at least in our area, is probably still looking to come back. And, trucking was down and so was our card lock business, which impacted our lubricants somewhat. Our propane business has been good and growing. But we have been seeing a general rebound and we're in a tourist area and people are starting to travel more since last half of the year. The drop in gas prices really helps.
Ricker: This was a big year of change for us in that we took on 21 stores going to almost 50 stores. We purchased the BP market in Indianapolis, and they divested themselves of the backcourt AM/PM franchise in many of those stores. So we did a lot of things in the past year. We were integrating about 300 new employees in addition to the operations. Otherwise, we pretty much mirrored the industry in many cases. 2008 was probably the best year we ever had and 2009 will probably wind up being one of the better years we've had from a bottom-line standpoint. We had a lot of challenges simply because we were digesting a lot of locations and we picked up a number of dealers as well so it was a busy year and a little bit different than some people because we increased our size so much, but it was a profitable year.
Our inside sales have held up well. The industry, while not recession proof is at least recession resistant—whether that's us or whether that's the industry, it's pretty much true. We've been in a very difficult gasoline margin market and this year was a little bit better than normal. I'm not saying it was fabulous, but it was better than normal.
Boyett: Overall business was pretty good. Each station probably averaged down a little bit, but we've grown into some new markets and hired some new people and all-in-all we are up a little bit, so we are pretty happy. We've tried to do some acquisitions and we keep making some offers, but for the most part we grow internally with our own people.
Probably 80 percent of the people that work for us we've never run an ad for, they come to us and say, "Gee, we would like to work for you and this is what we can offer,” and we say O.K. I think we have a good reputation and people seem to seek us out…We're opportunistic as far as people go. And we probably do a better job acquiring people compared to acquiring assets. We just looked at our bonuses for the office staff and we have between 40 and 50 people in the office and there was not a single person that left compared to last year and in fact we have three new people.
Lavecchia: It wasn't bad. I would say we were down about 5 percent compared to the previous year with most of that coming from our gasoline sales. On the automotive service side it was a bit different. In the first six months it was kind of flat, but in the second six months we've seen a nice increase and it's probably up 4 percent or 5 percent compared to last year. We're primarily seeing a lot of older cars where people are deciding to put off a new purchase and in some cases they are spending a lot of money without batting an eye to keep them running.
NPN: What were your main challenges in 2009?
Ramm: I think the downturn in cash flow was one of our bigger obstacles especially coming out of high inventories and high receivables. And with the credit problems it was very difficult to increase lines or even hold lines. It was also a challenge making sure the company was correctly staffed given the downturn in the earlier part of the year, yet ready for a recovery. You just don't know quite when to start hiring again.
Ricker: We are very focused on customer service. A lot of people talk about it, but we believe we actually execute more so than some. And when you make a purchase like ours, especially from an oil company, they are very focused on getting people in and out and sales and completing the transaction; they are sometimes a little bit too "bean counter" in their operations and customer service is usually not a primary focus. They are clean and they merchandise well and are fairly as state-of-the-art locations, but the component that was missing in our minds was the interaction with the customer. The transaction speed was very quick at these stores, but they didn’t have much soul. They weren't unfriendly, but they just weren't friendly. We've talked about that and we've done a number of things to try to change the culture. It's kind of like a big ship at sea, even though it's a trite comparison—it is not something you change the course of overnight and it's not a single big thing, but a bunch of little things.
Boyett: The biggest challenge, and it probably goes back to 2008, has been the lack of credit. You just went through your bank lines really fast as gas went from $2 to $3 to $4 and supplier credit. You know, if you had $1 million credit with somebody by the end of the year that was only worth 200,000 gallons. Keeping the banks happy and working with your suppliers to get your credit lines increased was certainly a challenge. This year it's not been as much of a challenge with the suppliers because we got the lines increased last year and we were pretty much in good shape this year because the prices were down. But the banks are still trying to cut back your lines this year, even though we've had pretty good luck with ours.
But the biggest problem over the past two years has been bad debts. I don't know that it's worse in California, but I assume it is because all of the stations have had a lot of things they've had to do with upgrades to new equipment, new pumps, enhanced vapor recovery and most of them just haven't had the money to do it. So, we have a lot of them going out of business and a lot of bad debt and that's been a much bigger challenge.
Lavecchia: Just staying open and making payroll because as an industry none of us could get any money. The federal government was saying we could, the SBA was saying we could, the banks were saying we could, but I don't know of anyone in our association that got a loan when they needed one. And I'm talking about people with good credit and good cash flow that could make the payments and they were just turned down flat. Look, at my bank that I've been with since 1973, they didn't even return my call. The gasoline margin shrank so badly around here in northern Ohio when the cost of gasoline went back up and all you saw was a scramble for volume from the oil companies. All they cared about was volume—whether they were running it or a dealer was running it or a jobber. But it's been like that for years.
NPN: What were your main opportunities?
Ramm: A lot of companies have been acquiring operations during the year, but we got ours under way previously in April of 2008. This was fortunate in that there was still capital out there to make deals and while I think there are going to be a lot of opportunities for mergers and acquisitions, putting the capital together is going to be the challenge. You're going to have to have increased equity and interest rates are going to be higher. The interest rates are great today, but there is no access to capital.
Ricker: In our particular case, the opportunity was to put a local face on a chain of stores in a particular area that already carries a good brand name gasoline. BP/Amoco has been in Indianapolis forever and our challenge was to get the message out that it's not run by big corporations, but are run by someone who lives in your state and participate in the activities of the state whether its charitable activities or sitting on boards or spending money in the local economy. It's not that they really did anything wrong, but people like a local touch. We actually hired a PR firm to help us with that.
Boyett: The biggest opportunity we've had is hiring new people because there are a lot of good people available in this economy, and moving into new markets. What sets you apart as a supplier? We just seem to have a great reputation. The fact that we have good people and we treat them right has an awful lot to do with that.
Lavecchia: To take advantage of opportunities we'd have to be able to get money and we can't. It's a joke.
NPN: What do you believe you executed particularly well in your operations in 2009?
Ramm: I think where we executed well was staying in line with what we were, and not trying to overextend. I think that even in the future there might be opportunities that people will want to stretch out for but not knowing where the economy is going to be in two to three years there is a more risk depending upon what the price of the acquisition. And it's hard to get (realistic property) values today—from a residential house to a commercial building to a petroleum business.
Ricker: We've kept all of the employees that were in the stores. We had to move them around somewhat, but whether its managers or someone at the checkout counter, the vast majority of people are still our employees today. And throughout our operations we've had exceptionally low turnover. We pay better wages and have better benefits than other people who are in our business and I think that reflects on turnover. We tracked this on a weekly basis and we seldom have more than two or three full-time positions open at any time. And we mainly have full-time people working at our stores.
Boyett: In the past seven or eight years, we've had a really good strategic planning program that has helped us out. We include a lot of people in it, perhaps 18 to 20, and I think the thing that we've done best this year is accomplishing what we've set out to do. I believe we had about 60 items we wanted to complete and I believe 94 percent of them were completed and we've been very good at hitting our budgets.
Lavecchia: We kept our overhead under control. We didn't do an awful lot different. I was getting ready to lay somebody off, but then I decided against it. As a small business, we were supposed to be hiring people. But I have a crew of only nine people so I really couldn’t lay anybody off and I couldn't afford to bring another technician on.
NPN: What is your outlook for 2010?
Ramm: I don't think we’re going to see a real robust turnaround in our industry, but I do believe that if we are going to market in a way that attracts customers we are going to be able to continue to grow slowly depending upon the competition. And we are benefiting elsewhere. There are some things on the hypermarket side that we are benefiting from in rural markets—some of the discount programs going away.
As far as our commercial business is concerned, I think we are seeing some of the stimulus dollars hit with the major construction companies. Even though there's been a downturn with new businesses starting, in the counties we service we are seeing a lot of road projects and I think we’re going to continue see that in 2010.
Ricker: I'm cautiously optimistic that we're going to have a good year next year. There's still so much unemployment and that impacts a lot of sales. I don't think we’re done with some of the tough times and the economy, especially when it comes to the employment picture. I'm concerned about the stock market, I was at lunch recently with a number of people from the industry and that came up and somebody said I think we’re going to see another dip. We got the healthcare debate going on in Washington and I think people that run businesses that generate jobs here in the country are concerned about what's going to be the end result and, “Am I going to be able to afford it?” I don't think anybody disagrees with the need for some overhaul, but it has to be realistic as far as the cost to small business. I think they could stall the economy because of people like myself who invest and create jobs.
Boyett: In 2010 I see unemployment, uncertainty and a lack of building and construction. Our card lock business and lot of retailers depend on contractors. And the convenience stores, those people come in at 7 in the morning fill up their ice chests with Gatorade and snacks and jerky and go out and they're just not working—there is no construction. I think our card lock business is probably off 20 percent to 30 percent for the year and not having those small construction companies coming in the morning and buying things makes it hard for both fuel and store sales.
On the positive side, we’ve come out with a new brand that we spent about five years developing with a new logo and everything, and we've been rolling that out. It’s called Cruisers, and in those stores where we've completed renovations we are up about 17 percent to 18 percent. So even with the lack of the contractor business, they were still up considerably.
We started it off 10 years ago and people were doing private-label water and this and that. Our stations have been called Boyett Petroleum so then you've got “Boyett Petroleum Water” – well that will really quench your thirst!
Lavecchia: I'm hoping that our repair work will continue increasing and that we get more margin back on gasoline. Most of us are working at near zero margin or negative margins when you add in the environmental fees and credit card costs. And the maintenance on these dispensers is really starting to get expensive.
NPN: What do your want to improve upon or enhance in your operations in 2010?
Ramm: Unfortunately, PCI has eaten up a lot of our capital. We are just going to be taking it easy and become even more efficient. A lot of people say 2010 is going to be a great year, but after you've gone through some lean years you are cautious.
Ricker: We changed every safe and every piece of software and every point-of-sale in our legacy stores at the end of 2008 and we just doubled our size last year so we’re kind of catching our breath on everything. We're happy with all the changes we've made. We have a store we’re building where we’re looking at ways to make it more energy-efficient than any store we've ever built. So we’re really taking our time and that's a trend I think that's going to run through the industry. It's not going to look so much different, but we’ll put more technology into it and think about things we haven't thought about in the past. So that's something new for us. And then we're looking at retrofitting some existing stores to see if that makes sense from an energy standpoint.
Boyett: We're working hard on our fleet fueling programs and trying to do a better job with that and improving our commercial operations and upgrading our Web site. There's lot of stuff we would like to do with our Web site and our technology in general and we’re almost there, but not quite.
Lavecchia: We really need to get more customers. We will probably improve our solicitation and go more to direct mail than we have been in the past. We are also using the Internet more and when a customer comes, we try to get their e-mail to offer them reminders of what they need on their cars and when their services are due. It’s a lot easier and more effective to do that over the Internet than through the mail. We used to do a lot of phonebook advertising, but the books get so thick and if you're not a big chain you're probably not doing yourself any good being in there.
NPN: More broadly, what were the major issues your association peers faced in 2009?
Ramm: Motor fuels is a very competitive market today. There are pressures on marketers to make sure they're doing their due diligence when it comes to their credit business with dealers. We have to ensure that our customers are healthy and I think that's been a challenge for a lot of marketers. On a regulatory and compliance level, I think we've had some real challenges in 2009 particularly with the PCI compliance portion and getting prepared for the 2010 deadline. The crude oil swings and the volatility in the marketplace have been an incredible challenge. The financial reform in commodities is still a big issue for PMAA members and we continue to be very active on that front.
The change in administration and how that is going to change our business climate is an area where our marketers are very alert. The E10 blend wall issue is a big concern in areas where marketers look to be spending capital wisely for future requirements. The ethanol and Renewable Fuel Standard is going to be a huge issue for our industry. Cap and trade is possibly going to be another huge issue for our industry—what is a price going to be for that fuel and what is going to be the impact on consumers? There are certainly a lot of Americans who are starting to question how much more we need to spend and how much more vulnerable we need to be with the tremendous spending that's already going on in Washington, DC.
Ricker: Probably at the top of the list is an issue we've been working on for a few years—credit card interchange (fees). I feel that as an industry we’ve made great strides in educating lawmakers and the public about the issue. That's an ongoing program. 7-Eleven has jumped out in front and had a great petition drive that they deliver to Congress. And we’re working on an even bigger effort along those lines. Then we have the lawsuits over the fees so I think we've raise the visibility and it's such a huge amount of dollars for industry even though gasoline has gone down. So that is by far the No. 1 issue. The FDA regulation of tobacco has moved through and it's a very difficult one for the industry. NACS took a position that in some cases people weren't happy with, but it was going to happen. So do you get steamrolled or do you try and make yourself part of the process so that the rules are not as onerous as they could be? And that is probably the toughest decision that I've ever seen the board take. And it is still an area where we are helping to work out the details as it moves forwards.
Boyett: With SIGMA we have such a high percentage of family businesses that obviously inheritance exclusions and things like that are obviously a big deal, but we're such a small organization we’re not going to have a big voice in that battle. On petroleum issues I think we have a voice, but for issues like healthcare and things like that, we're whistling in the wind, probably.
Lavecchia: With the drop in profit margin there are a lot of guys getting to the point where they'll either have to stop selling gasoline or they'll have to close up and go out of business because they cannot get the credit to get through these trying times. You need a that credit to help you out in the low times.
NPN: How well positioned are we as an industry to face those issues challenges?
Ramm: I've been in the industry for 32 years and what I've seen is that our industry is very resilient. We face challenges in our everyday businesses and when it comes to the bigger industry challenges we fight the ones that we know we can fight and we embrace the ones that we can't and get on with our businesses. At the end of the day we have to run our businesses. Regulatory and legislative issues often sidetrack us, but today we are also more proactive in our associations. PMAA, NACS and SIGMA are all much more proactive in dealing with these issues as opposed to being reactive. We were perhaps too reactive in the past and becoming more proactive is a great advantage for our class of trade.
Ricker: I think as an industry we can always do better. We can always get more people engaged. I think everyone knows at some level that they have to be engaged. It's difficult for some people to take that first step but if you run a business today I don't think you have a choice. NACS is an advocacy organization. We run a trade show and we run training and a lot of other things we do but when you get down to the core of what NACS is there to do it is to be an advocate of government affairs and everything else supports that. So we have become more than ever focused on activating or individual members in a variety of ways.
We had the biggest turnout in Washington this year that we've ever had and I’m sure will have a bigger turnout next year. The quality of the meetings and the number of meetings that we had with congressional leaders were the best I've ever seen, and I've been going to Capitol Hill for 15 years.
Boyett: For all of the legislative challenges that we face, the good thing is I don't think I've ever seen the industry work together as well as it does today. We get along better, we talk to each other more, we try to support each other and we try to find out what we all can agree on and work on those things. I think everybody is enthused about how well we're operating which is nice because were all lined up against the wall together.
Lavecchia: I think the SSDA and a range of associated groups work well on a variety of issues. On the service side we are working to try and get Right of Repair passed. We reintroduce it almost every year, but then it gets swept aside in Congress. With healthcare, we, as an industry, are almost totally against that bill. There's nothing in there but heartache for us. That's going to stop the hiring of a lot of people this year.
NPN: What will be your main leadership focus as an association leader in 2010?
Ramm: I’ll be focused on bringing a more structured, grassroots effort together for our industry. We need to be able to leverage our great asset, our 8,000 members, and many of them have strong relationships with legislators both state and federally. We need to put a structure together that is more efficient and that works better in time of crisis. Certainly we are all busy, we all have our businesses to run, but a call to action done with marketers contacting their congressmen and senators will make us so much more effective at leveraging the good work our Washington, DC staff does. So that's a big focus of my leadership this year. We have a change in the marketplace were the majors are leaving the retail side, which makes the marketer or class of trade almost the go to class of trade that is going to be regulated. We are going to see more things thrown at us and we have to get better at how we address these issues.
We don't have a lot of money to fight these fights. A perfect example is our market reform efforts where we bring tens of thousands of dollars to the table and we're fighting a Wall Street engine where Goldman Sachs alone has brought $100 million of lobbying against us. It's a David and Goliath type of scenario, we have to realize that, and we have to leverage everything that we can to fight that. Legislators need to hear from more than just a lobbyist, they need to hear from the people in their districts that are employing people and doing business with their constituents.
Ricker: I’ll continue pushing some of the programs we've been working on, such as getting more people involved in government affairs. I’ll continue the job of the previous chairman of overseeing where interchange swiped fees initiatives. As an association we've been out there working this and asking for support and people from the small operators to the largest companies in the industry to step forward and help us with this. It's pretty much a bottom-line driven thing. So my goal is to simply improve what we've done in the past, government affairs primarily. We want to keep the NACS Show healthy—that helps fund a lot of what we do. With all of the impact on trade shows in this economy, I think we just had one of the better shows we've ever had and we want to continue running it at a high level of excellence.
Boyett: We're always concerned about education and membership and those things, but certainly Washington is the prime focus in the coming year. There are so many things coming at us from climate change legislation to UL certification with ethanol—they want to go above E10, but what do you do with dispensers and car warranties and liabilities? Card check legislation is a big concern. Commodities oversight is another big issue. The elimination of LIFO (the last-in first-out accounting method) is a huge issue for many of our members. The commercialization of rest stops—so many things coming at us.
Lavecchia: As an organization, we need to raise more capital so that we can do more things. We need to fund our aftermarket shows and support our legislation. The numbers are dwindling in our industry and we need to work harder. We need legislation that helps us protect our margins, we need to get rid of zone pricing and some of our affiliates have been able to do that at the state level.