Gulf Oil L.P. announced on Oct. 1 that Ron Sabia was promoted to president in addition to his role as chief operating officer. He has assembled a leadership team with whom the company will further its brand as a premier New England energy distributor. Sabia has more than 20 years of experience in commercial and operating roles in the energy and chemical industries. He holds a degree in chemical engineering from the University of Pennsylvania and an MBA in finance and marketing from the University of Chicago.
“Ron’s highly skilled background and industry connections make him the ideal leader to bring Gulf Oil to the next level, as we build a leading downstream retailing and energy distribution company,” said Gulf Oil and Cumberland Farms CEO Joseph Petrowski. “Ron has been integral to Gulf Oil’s success since joining the company in 2005, and he has assembled the finest team in the business to execute our vision.”
It has also been announced that Cumberland Farms and its subsidiary Gulf Oil L.P will move out of their respective locations in May and share a common headquarters at new offices in Framingham, Mass.
Sabia takes over the leadership reigns at a time when the industry faces both challenge and opportunity, and the headquarters move is a reflection of that realization.
“Now, in the environment we are in, being a low-cost provider is very important,” Sabia said. “You have combined activities, such as IT and HR, where we both have staffs doing the same type of activities, but activities that were not coordinated. There are marketing channels where we are both involved in similar geographies and the customer base. So it made some sense from the corporate function to combine some of those activities and for us to look for some cost savings across some of the shared activities.”
Sabia noted that in today’s market, it pays to be a low-cost provider and to have low transaction costs and do significant volume on very slim margins. “You have to conduct your transactions quickly, efficiently and accurately—in essence, clip the coupons—and if you can do that you will be successful,” he said. “We've spent a lot of time over the past several years investing in systems, we've revamped our entire back office system, and we also invested in the facilities, which our previous management had not. So we're now in a position between the systems, the infrastructure and the people there—we are poised for growth and can grow without adding a lot of additional cost.”
Sabia noted that Gulf is positioned for organic growth in a market where overall demand is shrinking and believes that Gulf will acquire more than its share of new sites. The company is in acquisition mode, and the combined headquarters will play into that goal.
“The important thing going forward is that in this environment there are a lot of opportunities for acquisitions, joint ventures and the like, and we are fortunate that we are well-capitalized and low leveraged in this environment so we're well positioned to take advantage of those opportunities,”
Sabia said. Having the two companies (Gulf and Cumberland Farms) coordinate their activities together will provide some advantages, he noted, because most of the potential acquisitions have some complexity, issues and downsides “We think we'll be able to get some advantages by doing some transactions that when we weren’t working as closely together, we probably couldn't have done as well,” he said.
In the past, Gulf had undertaken many initiatives, from the Sunrise image to the revamping of the company’s back office infrastructure. A new initiative for 2009 is the introduction of the Wave brand of service stations, a newly created value brand in the Gulf Oil family that provides an alternate route for businesses to gain access to the company’s infrastructure, systems and people.
“Gulf is positioned as a premium brand, with our advertising and promotional activities and bringing better stations into our portfolio,” said Sabia. “We've made some huge strides there, but it became obvious that there were going to be stations that would not meet our specifications, but they could still take advantage of the network of products and services that we put together. We've developed Wave for that. I believe we have seven of them up and running right now, and there are plenty more on the drawing board.”
The standard Wave site tends to be smaller in size and volume. It might not have a canopy or the number of MPDs Gulf would be looking for to serve its core brand. The Wave option is also in place where conflicts exist, such as a nearby Gulf station. This is particularly the case as Gulf continues the process of sun-setting the Exxon brand. While many of the Exxon sites are excellent and many will be moved to Gulf, there are conflicts on some corners where rebranding Wave is the solution.
In general, Gulf has been please with its retail growth and the Exxon conversions. “We’ve done better than we performed as far as converting sites to Gulf,” Sabia said. “We expected, of course, that in some cases folks would opt to go elsewhere – we can't understand why – but we've been very happy with how many we've retained.”
In a world of tradeoffs, the current economic challenges reinforce some of the traditional advantages of having a brand partner. For a true independent, capital can be hard to come by for needed upgrades. With a brand relationship, this is not necessarily the case, though, as always there can be strings attached.
“For the vast majority of the sites, we are performing the upgrade and amortizing that over time,” Sabia said. “I think that in tough times, being part of a network that you can leverage and having a good partnership is more important than ever. If you have scale as an independent, that can be wonderful, but most of the folks we deal with – the distributors and independent dealers – it's a difficult environment with banking and cash flow issues and being with a network provides some leverage for purchasing and maybe some flexibility as far as investing in your business.”
Gulf is currently looking to expand its network value proposition by developing the Gulf Express franchise concept, which will provide some leverage on c-store purchasing. “For our group of distributors and dealers, we’re working to keep adding to the products and services we offer to provide them with some value beyond just the sign and some gasoline,” Sabia said.
On the marketing side, Gulf Oil L.P. operates as a large regional wholesaler and not an integrated oil company or marketer refiner. In spite of the enormous price volatility experienced in 2008 Gulf has managed to maintain stable operations.
“Things are going well,” Sabia said. “We had this historic rise last year in prices through the spring until July, which provided some craziness in the summertime, and then we had a fall in the market like I haven't seen during my years where you drop $100 per barrel in crude oil. You plan for the reasonably expected and then occasionally something like this happens. So it's been a challenging year on the supply side, but we’ve come through it very well. We're very conservative with our positions, and we're well hedged. We have contango markets now where there are huge cash/carry opportunities and having nearly six million barrels of storage capacity to utilize during these times – it's been terrific for us.”
While the integrated oil companies have enjoyed tremendous profits on crude in recent years, they have virtually abandoned downstream marketing in a formal, direct manner. While this has been disruptive, it has created many opportunities for industry marketers, not to mention the large refiner/marketer and wholesale/marketer operations. Gulf is prepared for that opportunity.
“While I would love to have Exxon's balance sheet, what we can do is bring a small company feel to things,” Sabia said. “We are focused on the downstream. We do not have upstream and refining. We're working with our customers all the time to help try to solve their issues and problems. So we should be able to provide quick answers to any questions they may have. We can get decisions made in a timely manner so we have a quick response to issues and problems.
“We also believe that our independent business people, distributors and dealers should have multiple revenue streams coming out of their properties,” he added. “We’re working to help them develop those other revenue streams, whether it's a car wash or quick-serve restaurant or any of those formats that will ensure the long-term survival.”