NPN took part in a media availability at Chevron headquarters in San Ramon, Calif, Aug. 8-10, and enjoyed the opportunity to speak with a range of senior staff. A private meeting with Colin Parfitt, vice president of Americas Products, West, and Adam Sparks, general manager of Chevron’s company-owned company-operated (COCO) stores in the United States allowed for a more detailed question and answer session.
NPN: You got new CAFE fuel standards out there, biofuel mandates, alternative fuels and alternative fueled vehicles—what do you see happening in the United States with gasoline demand in the relatively near future?
Parfitt: We think we are about at peak gasoline demand in the United States. So could it go up post recession – it could. If fuel prices go down, yes, it could. So we're not sure we're exactly at the peak, but we believe as we go forward that there are sufficient alternatives coming in—hybrids and natural gas and plug-in electrics—that they will all start to take some gasoline demand. It's not clear to us that any one of those is going to be a winning technology, but what we think is that they will all generally erode gasoline demand. However, we do think we see an increasing trend in distillate demand—diesel, jet fuel—relative to agriculture, trucking, industrial and even station forecourts. It’s another one of those growth wedges that is not huge, but is in that mix of things. And at Chevron, we are fairly well-positioned because of our diesel to gasoline ratios so we're looking at that and working on growth strategies.
NPN: With the Texaco pullback, how are the two brands (Chevron and Texaco) working in your network strategy?
Parfitt: In parts of the Southeast, Texaco has a very strong brand as well as in a few other areas. But were not working aggressively to expand the Texaco brand and we pulled out of 14 states in the Northeast. We really see Chevron as our growth brand.
NPN: As a brand partner, how are you working with marketers and retailers to enhance the value of that relationship in current economic times?
Parfitt: We have a number of different things and one of the most significant is our Extra Mile (retail offering). We have 270 company-run stores doing Extra Mile and we have our franchise proposition. We feel this gives our partners a professional way to run the store with merchandising and procurement at a scale they could not get individually and a back-office system that's beneficial not only to the single site retailer, but to chain retailers. Our goal is to help them with that profit center and make better economics out of that plot of land.
NPN: What are you looking for from a marketer or retailer partner?
Parfitt: From a dealer you're probably getting to classes—individual dealers with the single-site and chain dealers – both work. Some of it gets back to the quality of dealer and, of course, the quality of the corner and the quality of the sites. There are some units you would love to see Chevron branded; there are some that you would not. So, if you really distilled it down, the quality of the sites they are bringing in is probably first criterion. Location is king. And of course, we have a range of incentives to help with the rebranding new sites.
NPN: Compared to most of the majors, Chevron still operates an impressive network of company operated sites. What is the philosophy behind that?
Parfitt: We think we’re different from the competition. We have a large network, and we want to grow because we want to create that value chain from crude through to customer and to monetize our refinery barrels through our retail network. So we have a different message – we're staying and we're growing. And we see the company-owned network as actually being quite an important part of that.
Sparks: It comes back to the question you asked earlier, “What can we add for our partners?” Still being in the company operated business lets us add value on two fronts. First, we actually are in the retail business, so we can empathize with retailers over what it takes to run those sites. Whether it's dealing with tax changes or credit card fees or changes in the marketplace from a supplier standpoint, and we can take that into things to help them run their business better. Second, it also gives us a touch point with the consumer. We have our hands on that consumer, and we understand the changing currents and what they are looking for as customers.
NPN: One challenge with company-operated stores is the ability to get the entrepreneurial drive down the site level. How do you address that challenge?
Sparks: That can be difficult. But, there are areas where you want entrepreneurialship and areas where you do not. When you're running a big network, and that's the case really with any big c-store network, it does become harder and harder to instill an entrepreneurial spirit whether you are part of a major oil company or a large independent. As you get bigger,you are going to develop more programs and processes and centralize things. But what we've tried to do is be very clear with store managers and district sales managers on what they can be entrepreneurial around. What are the things that we want centralized across the network, what are the things we want them to experiment with, but also make sure that when they experiment we have a good feedback loop. If it's something that works, we want to feed that across the whole system, otherwise don't do it.
One thing we've been very focused on is letting data drive those decisions. So it's great to be entrepreneurial and whether it's a one-store pilot or 30-day pilot we always want to get that information and evaluate it to see if it is something good for the whole network.
NPN: One question dating back through the history of this industry among marketers and retailers is the value of the brand. From the Chevron perspective what you see as being the core value of being major oil branded versus independent?
Parfitt: Speaking for the Chevron brand, we have a big quality message and it resonates with the customer according to our research. And that translates into where we have a dealer relationship, they can command a higher price or be at the same price point and attract more volume. Both of those manage revenue for them and there is a balance depending upon where you are and who your competition is with to exactly how that works. But essentially, that is what we see out there.
NPN: Do you think our current trend of extreme price volatility is something we're all going to have to get used to?
Parfitt: Our long-term corporate view is that we expect volatility to stay in the market. Supply and demand have gotten reasonably tight and that shocks or perceptions – the current one for example about the debt crisis – send things spiraling in a way that they didn't before. So the volatility, the ups and downs, seem to have become much more embedded in our business. Is that a good thing? I don't necessarily think it is, but unfortunately I think it's here to stay. I would caveat that anyone who's been around this business long enough knows we’re really bad about forecasting prices.
As a company, when we get into long-range investment projects, we think that energy fundamentals – supply and demand – will play out so you can do some planning that is safe. Short-term, what's the price going to be tomorrow or next week? That's the piece that gets completely detached from supply and demand.
NPN: What should marketers and retailers be aware of as far as the Extra Mile value proposition compared to doing it in-house?
Sparks: First and foremost, it's the supply chain. I think we feel like our supply chain is superior and when you look at the entire basket of goods, between the cost of goods sold and rebates, that we’re able to negotiate driving gross profit dollars we've taken the cost of goods as sold, down. Advertising is also key, whether it's billboard media, radio, some TV – that is something that the individual retailer might not be able to do. I think our store layout plan-o-gram system is certainly something that an individual could do, but it gets much more difficult as you get more stores not only to execute, but to maintain control.
And our ability to use data to drive those plan-o-gram decisions is key. Whether it's Nielsen data or our own sales data, we tend to be very data-driven with those decisions. So if we get the mix store right, we can evaluate new products quickly to see if they sell or don't sell. So you don’t get the situation where product is hanging around forever. And I think the overall consumer offering, when you look at that as a package, is pretty solid in how we put together our destination categories tied in with the overall look and feel of a quality, clean c-store environment is a package we offer that is great.