By Joe Petrowski
Major Oil, after spending the last decade shedding retail convenience assets, is now regretting those divestitures and looking to re enter the downstream distribution with a slightly different twist. This has been exemplified by the recent Thorntons Inc. acquisition by a joint venture created between affiliates of ArcLight Capital Partners and BP to grow in the downstream refined products segment. Thorntons operates 191 stores in 6 states and a distribution operation. [Disclosure: Joe Petrowski has previous business dealings with ArcLight].
Originally the decision for the major oil companies to substantially exit retail convenience was driven not entirely by fee driven investment banks (the cynics view), but was based on five fundamentals:
- Managing real estate from London, New York, Houston, San Antonio or Findlay, Ohio, was never optimal.
- Retail is detail and again it is tough to manage thousands of miles away from the local market.
- Major oil was especially bad at food service which is critical to modern convenience retailing and that was made worse by linking food and convenience with their fuel brands (raise your hand if you want “gas-station coffee”).
- Managing retail talent or using independent business operators was increasingly difficult for major oil.
- ROI’s on retail lagged returns on upstream investments.
Now, what major oil misses is the guaranteed and rateable off-take from a convenience chain, so the hunt is on for large chains with significant fuel volume (Thornton’s is 320 million gallons annually) and most importantly a fully developed and skilled management team with a well-respected, non-petroleum brand.
Private equity has capital to burn, and while it is hard to believe BP, Shell, Conoco-Phillips or any of the majors need capital a partnership with PE can bring not only incremental capital but another set of eyes that know the space.
I would expect the BP-Arclight-Thornton’s deal is just the first of several to come. There are five major oil companies and six private equity firms in search of the next Thorntons.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. He currently serves as Director of Fuels for Yesway, where he oversees all operations of the fuels team, including pricing, procurement, and management of the firm’s fleet services program. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October of 2008, he was named CEO of the now combined Gulf Oil and Cumberland Farms, whose annual revenues exceed $11 billion and that now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is Managing Director of Mercantor Partners, a private equity firm investing in convenience