SIGMA Reflects New Strategy for Marketers

Major-oil selloffs open more opportunities for dealer operations.

By  Steve Holtz, Online News Director & Beverage Editor

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Attendees of SIGMA’s annual meeting in November in Boston likely walked away with a lot to digest: the state of the economy and how it relates to petroleum retailing, what to expect from health-care reform, and updates on a bevy of other industry- related legislative issues. But perhaps most important was a change in the membership of the association itself—not the people and companies that are members, but rather in the way they are doing business.

“We’re seeing a big change away from the marketers actually operating retail outlets to being suppliers,” SIGMA executive vice president Ken Doyle told CSP, pointing out that the major-oil selloffs of their retail sites are leading the change. “So years ago, the major oil companies provided all the dealer support that went along with the dealer organization. But as they’ve come out of it, we’ve seen SIGMA members going in and starting to put together programs for their dealers.”

How extensive is the change? “The majority of the SIGMA board of direc tors is now primarily wholesalers as opposed to primarily retailers,” Doyle said. As a result, “One of the things SIGMA is trying to do is help our members put together those dealer programs.”

DEALER DEVELOPMENTS

Doyle’s summary of these basic changes at SIGMA was echoed in a survey of its membership jointly conducted by the association and CSP. The first-annual Dealer Business Development survey sought to determine just how gasoline wholesalers are getting their products to market and how strong their relationships are with the dealers actually selling those products to consumers. The results—reflective of what’s happening with 42 gasoline marketers representing 6,100 total retail locations across the United States—show just how much strategies have shifted over the past five years.

The marketers responding to the survey show the number of dealer sites they work with has grown 36% and the number of consignment sites 22% since 2005. Meanwhile, the number of company-owned and -operated sites has dipped 2.5%.

“In the marketplace, there’s a real opportunity for dealers to pick up good stores, so they’re very interested in it,” said Brad Douglass, president of Douglass Distributing, Sherman, Texas. Douglass helped present the survey results during a SIGMA workshop. “As the distributors want to high-grade their stores, they’re taking their lower-performing stores, moving those, leasing them out, selling them to the dealers. So it ends up being a very good partnership.”

But there are challenges. “You’ve lost now some control of that store. Contractually, you can deal with some of that—you can do it with consignment and other things,” he said, “but there is a chance that things may go South in terms of volumes.”

And the survey results show that’s exactly what’s happening. Marketers reports their owned and operated sites have average monthly volumes of 125,000 gallons or more. Consignment and dealer sites, however, see average monthly volumes of 50,000 to 125,000 gallons. (See related chart on p. 102.)

Similarly, a majority of dealer and consignment sites see fuel margins of 5 cents or less per gallon; marketerowned and -operated sites average from 6 to 15 cents per gallon.

“The lower results we saw for the dealers—it’s a combination of things. First it might be a program that they have: Often it’s a way of differentiating their offering, and that’s through a lower street price. Also on the consignment side, the lower [margins] really reflect the revenue sharing between the distributor and the retailer,” said Douglass.

This strategic change opens a door for other advancements for marketers, notably the need to be something beyond just a gasoline supplier.

“The bottom line is [a marketer’s] dealer rep is really becoming the category  captain for the petroleum industry in the marketplace,” said Kay Segal, executive vice president of convenience and petroleum retailing for CSP Information Group, Oak Brook, Ill. Segal worked with Douglass in presenting the survey results. “Marketers need to embrace that,” she said.

The survey results show there’s room for marketers to grow. Only 34% of respondents said they have a website that dealers can access to gain brand information, fuel prices or other services. And nearly 67% of respondents said their dealer representatives function primarily as “image reps” or “problem firefighters.”

Instead, Segal suggested, these reps should get the necessary training to provide in-depth business counseling for dealers.

LOWDOWN ON LEGISLATION

Industry representatives made a number of issues clear during the alwayswell- attended legislative-committee session held during the annual meeting. Among them:

Midterm Elections

SIGMA general counsel Tim Columbus began the legislative session by providing a detailed—and irreverent— review of the recent midterm election but ultimately summed up his expectations for the next two years in Washington in four words: “Not much gets done.”

E15 Waiver

Regarding the E15 waiver—allowing the sale of gasoline that’s 15% ethanol—Columbus cited issues with the blend wall that will make it difficult to transfer E15 through pipelines; educating the consumer (because at this point it’s approved only for vehicles built after 2007); and the related indemnification of retailers who sell it. What happens when someone in an older car uses it and starts to have engine trouble? “We aren’t going to be out there at gunpoint telling Bubba that he or she cannot put this into their car,” Columbus said. While the proposed Prevention of Frivolous Ethanol Lawsuits Act of 2010 is intended to provide the necessary protection petroleum retailers need, Columbus is not optimistic it will pass.

Interchange Fees

SIGMA applauded the amendment to the Wall Street Reform Act that will ensure debit-card swipe fees are “reasonable and proportional” to a bank’s cost of processing the transactions. Legal counsel Elizabeth Glidden said, “The reason we won this is because of you,” referring to many retailers’ petition drives, in which consumers backed the drive to cut interchange fees. However, the recent turnover of the House of Representatives to Republicans could work against further advances on swipe fees, she said. “They were stunned by this,” she said. “That’s not likely to happen again.” 

Commercialization of Rest Stops

Holly Alfano, a lobbyist for NATSO, urged SIGMA members to actively campaign against the commercialization of rest stops, as requested by several states that are looking for new revenue.

“Rather than choose restoring [rest areas] that they can’t maintain, they want to add convenience products with the advantage that they’re on the right of way,” she said. “Ninety percent of our members are within 10 minutes of a highway … but there’s no reason to exit the highway if you can pull over and get gas on the right of way.”

While Alfano was speaking on behalf of the association representing America’s travel plazas and truckstops, Columbus underscored that this issue would affect many more retailers. “Many think of this as only affecting travel centers, but there are infinitely more retail sites this [issue] concerns,” he said.

HEALTH-CARE CONCERNS

In the general session of the annual meeting— attended by nearly 800 SIGMA members—insurance consultant John Owens of the Lewer Agency provided an update on health-care reform. The bad news: Regardless of recent election results, don’t expect a total repeal of the bill anytime soon. Instead, start looking at the realities of what you need to do as a business owner—key among them, deciding if you will completely overhaul your insurance plan or opt for a “grandfathered” policy instead.

Go with the grandfather option if “you want a plan that would stay intact and carry forward without having to meet all the new requirements that are being imposed,” Owens said. “To keep a grandfathered plan, you must fundamentally keep it intact without shifting any costs—either premium costs or any benefit costs.”

ROAD TO RECOVERY

Also during the general session, Bank of America CEO Brian Moynihan provided a firsthand review of the bank bailout and where the economy is headed. The long and short of it: “There will not be a double-dip recession,” he said. “The recovery is under way; it’s coming much slower than we might like.”

In a separate workshop, Mary Burke, an economist with the Federal Reserve Bank of Boston, said the recovery is occurring even slower in the world of commercial real estate.

“According to the Moody’s Index of commercial property prices, prices fell 44% from their peak” when the realestate bubble burst, compared with 32% for residential properties, she said. “It looks like the recovery is just beginning, or maybe we’re not out of the downturn yet for commercial real estate.”

With that in mind, Burke offered this advice for retailers: “I think now is a good time to be positioning yourself for growth, both for an individual and for an investor in commercial real estate of any kind. … A lot of people think we are near the bottom, so you could see a large price appreciation if you bought now, if you’re in it for the long run.”    


STATS

IGMA Annual Meeting

When: Nov. 12–14

Where: Boston

No. of Attendees:About 800

Key Subjects

  • Marketer site transition to dealers
  • Legislative issues
  • Health care
  • The economy 

Look Who’s Talking

This fall, CSP worked with SIGMA to survey gasoline marketers about the locations they own and those they service as suppliers. Citing that dealers who own and operate one to four stores represent a majority of the convenience stores in the United States and that dealer sites “are not typically the cream-ofthe- crop locations,” the survey sought to conclude: Can the dealers be viable long term as credit-card fees erode margin and consumers look for good deals in fuel and in-store purchases? Bottom line for marketers: Are your dealers good business operators and are they viable long term?

42 marketers participated in the survey.

They account for 6,100 total locations.

Of that, 2,500 are dealer sites.

Of those, 750 are consignment dealer locations. 


36%

Percentage by which gasoline marketers estimate the number of dealer sites they service grew from 2005 to 2010. Analysts conclude a majority of those sites came from the numerous major-oil divestitures that have taken place over the past five years. The marketer survey suggests dealer sites will continue to be the main path of growth over the next three years, compared to owned-andoperated sites or consignment sites. Consignment-dealer sites grew 22%, and company-owned and -operated sites decreased 2.5%.

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