A lock on fueling
In just nine short years, PetroCard has created a multifaceted company that boasts annual volumes of 250 million gallons
By Mark Ward, sr

In 1997, when Thomas Farr retired at age 55, after 30 years in the banking business, “I realized that being fully retired wasn’t the lifestyle for me.” At the time, Farr was helping a longtime bank client negotiate a deal so that the client could sell his own company and retire. But when the deal fell through, the client asked Farr, “Tom, why don’t you buy my company?”

That company was PetroCard Systems Inc., which is based today in Kent, Wash. And though Farr was seeking a new opportunity and looking to purchase a business, “I had no experience in the petroleum industry,” he recalled. In addition, PetroCard was an operator of commercial cardlock fueling sites. Nine years ago unattended fueling was in its infancy, Internet technology and connectivity were primitive by current standards, and the cardlock industry was fragmented into small independent operators.

“I saw the fragmentation of the cardlock business as an opportunity,” Farr explained. “What you had in 1997 was a lot of small companies that didn’t do much marketing. They were basically just order-takers. Even so, there seemed to be a fairly consistent demand, and cardlock customers tended to be loyal. So I thought if PetroCard could field a strong sales force, then the company would have a good chance to grow.”

Farr also noted that PetroCard had built a strong executive team since its 1985 founding. “Because I knew very little about the industry, the willingness of the employees to stick with me was a huge consideration,” he said. So he contacted a former banking client, Bristol Bay Native Corporation, to join him in financing the purchase of PetroCard.

Since 1997 Farr has served as PetroCard’s president, chief executive officer and minority owner. The majority owner, Bristol Bay Native Corporation of Anchorage, was formed under the Alaska Native Claims Settlement Act of 1971 and has some 7,600 shareholders who are Eskimo, Indian and Aleut. BBNC owns nine companies and its chief financial officer, Steve Tolton, is chairman of PetroCard’s board.

Over the course of nine years, Farr has not only developed a cardlock business that encompasses 30 sites in Washington, Oregon and Idaho. PetroCard has leveraged its cardlock fueling experience to build a multifaceted company that also offers mobile fueling, wholesaling and transportation to a network of 110 retail dealers, and a full line of lubricants and motor oils. From a volume of perhaps 25 million gallons in 1997, PetroCard now boasts an annual volume of 250 million gallons and yearly revenues of up to $600 million.

On the Grow
When Farr took over the company, PetroCard was solely a franchisee of the Pacific Pride cardlock fueling network. “But I’ve always felt that we needed to be big in order to be a survivor,” he said. In 1998, a year after taking the helm at PetroCard, he acquired another — and larger — oil company whose owner desired to sell and retire. In the process of buying a Tacoma, Wash.-based marketer, PetroCard became a CFN cardlock franchisee, and today, participates in both the CFN and Pacific Pride fueling networks.

With a viable base of unattended commercial fueling sites assured, Farr and his team began to assess the future of PetroCard. “We felt that getting into mobile fueling would be a profitable and necessary complement to our unattended fueling,” he recalled. “We didn’t want our cardlock customers who needed mobile fueling to go elsewhere. And if we offered mobile fueling, we wanted those customers to use PetroCard when they needed a cardlock program.”

Though South Center Oil had a small mobile fueling service, in 2000 Farr acquired a company “that was purely in the mobile fueling business and really got us started in offering that service to our customers.” Over the years, PetroCard has leveraged its information technology expertise and now provides mobile fueling customers with accurate fuel reporting, online account management, volume discount pricing and enhanced security.

A turning point for PetroCard occurred in May 2005 when Farr closed a deal to acquire Thunderbird Lubrications of Spokane, Wash., a subsidiary of Gull Industries whose owners were ready to retire from the petroleum business. Thunderbird’s general manager, Larry Hitchcock, was serving as an outside member of PetroCard’s board and, facilitated by that personal connection, an approach was made and a deal struck.

Much like his original purchase of PetroCard in 1997, Farr inherited from Thunderbird a strong and experienced employee group. Thunderbird retains its name, brand identity and employees, though it will operate as a division of PetroCard. Farr manages the new entity and Hitchcock remains as a consultant to PetroCard and a member of the board of directors.

As a result of the Thunderbird merger, PetroCard acquired jobberships for Shell, ConocoPhilips and ExxonMobil; provides wholesale fuel supply with its own transportation fleet to 110 dealers; and enjoys a thriving business in bulk and packaged motor oils and lubricants. Thunderbird is one of the nation’s largest distributors of Pennzoil and Quaker State automotive lubricants, as well as the largest Gumout distributor and one of the largest RainX distributors.

“There is tremendous synergy between our businesses,” said Farr, “and the combination will allow us to increase operational efficiencies and benefit our customers. It’s a win-win situation.” In exploring these synergies, for example, PetroCard recently installed a cardlock site at one of its dealer’s locations. “Working with dealers whose sites have the right size and location for a cardlock could be a plus for us,” he said.

Cardlock is the core
Yet through it all, Farr pointed out, “cardlock fueling has been a stalwart business for us.” His original concept has worked well: To differentiate PetroCard from competitors by being more than just an order-taker, building a strong sales force that now totals eight representatives, leveraging his company’s in-house information technology expertise and providing superior customer service.

PetroCard customers have access through the Pacific Pride and CFN networks to hundreds of fueling locations nationwide. Farr and his team ensure their own PetroCard sites are clean, well lit, and open 24/7. The company has developed its own custom software to provide fleet owners with detailed reporting, itemized billing, tax calculations, volume discount pricing, and other services needed for effective fleet management. Customers can easily access their accounts online to review and download fueling information, and track expenses.

Many options are in place to help customers reduce unauthorized purchases, as fleet owners can set authorization controls for allowable fueling locations, and the types and quantities of fuels to be purchased. Security is also enhanced by PetroCard’s 24-hour emergency response capability.

As a result, PetroCard has become “nearly the largest Pacific Pride franchisee in the country,” reported Farr. He believed his company’s growth has occurred by “giving commercial customers what they want — a cardlock service that’s dependable, economical, provides drivers with easy ingress and egress, and puts control in the hands of the fleet owner.” In time, he anticipated that PetroCard’s winning formula will allow the company to expand its unattended fueling services to Montana, Nevada and Utah.

Petrocard sells its own private brand fuel at unattended sites, which the company buys from six suppliers. “I know there’s been a lot of concern from some people about consolidation among refiners and having fewer suppliers to choose from,” Farr acknowledged, “but I think the opposite, and believe consolidation has made our fuel suppliers even stronger.”

Farr has no plans to enter retail fueling and contrasts the consistency of the cardlock business with the “way that retailing has fundamentally changed, especially with the emergence of the hypermarketers. They’ve had a big impact on traditional fuel retailers, but I don’t see the hypermarketers getting into commercial fueling. It would be too much of a problem to have the big rigs and consumers’ cars running around the same real estate.”

Though retailing is not in PetroCard’s future, Farr noted that cardlock operators face the same problem of how to cope with low margins on diesel (about 80 percent of PetroCard sales) and gasoline. “Our margins aren’t too dissimilar from retailers’ margins,” he pointed out, “and even though cardlocks don’t post their prices, street prices for retail have a strong influence on our pricing model in the cardlock world.”
Where retailers make up for low margins by boosting convenience-store sales, Farr observed that cardlock operators compensate for low margins by running unattended sites that lower their labor costs. “And by being private-branded,” he added, “we do save a little bit on margins, though only just a little bit.” The idea that cardlock operators can justify above-market fuel prices by selling themselves primarily as a fuel management service, he said, is unworkable today when fleet owners’ fuel budgets are already pinched by high prices.

Farr admitted his own company can be pinched by the “boutique fuels” required under federal clean-air regulations. “The fuel we sell in the winter in Spokane, for example, we can’t sell in Seattle,” he explained. Last year PetroCard opened the first Seattle fuel stop to offer B20 bio-diesel, which the company sells primarily to municipal governments. Yet Farr is worried that B20 doesn’t mix well with ultra-low sulfur diesel.

Looking to the future, Farr said that PetroCard does strategic planning for a five-year period, “and we’re betting that our combination of services is the right combination.” His company’s future also depends, he acknowledged, on the health of CFN’s and Pacific Pride’s unattended fueling networks. “But they’re always working on new products, offerings and innovations,” he noted, “which is important for us.”

Yet there is one issue Farr is watching closely. Pacific Pride, he said, has opened its network to third-party cards; CFN has declined that strategy, though the company has released a Fleetwide card that also permits users to access the Fuelman network. Farr favors the latter approach because, he stated, “at PetroCard we want to be card issuers and not card acceptors. Being a card issuer is critical to the proprietary nature of the cardlock business.”