After walking away from direct retail in the U.S. in the early 2000s, some oil companies are re-exploring the opportunities.
By Keith Reid
A trend began to emerge in the early 2000s that changed the face of the fuel retailing industry in the U.S. market—the major oil companies began stepping back from direct company-operated retail sites and direct supply. It started in late 2003, with ConocoPhilips divesting itself of 2,000 Circle K stores, followed in 2004 by an additional 1,000. The process spread throughout the major oil companies, and by the end of the decade the exodus was largely, but not entirely, complete.
The rationale was straightforward. The traditional center-island marketer and other more basic sites typically operated in the majors’ networks were becoming increasingly noncompetitive. Further, regulations continued to add headaches for companies that derived the majority of their revenue from crude exploration and production. What’s more, large, centralized national or regional operations found it hard to compete with the entrepreneurial drive of independent, local operators.
In the divestitures, brand and supply relationships were largely retained (at least for some initial period) with the new site owners, and the existing brand relationships with independent marketers and retailers carrying the brand flag remained strong. In fact, it was a boom period for independent marketers and retailers to acquire some excellent new sites and supply customers.
Now, some of the major oil companies have started to re-explore the concept of direct retail operations.
BP Acquires Thorntons
bp began its withdrawal from retail in late 2007. Fiona MacLeod, then president of bp U.S. convenience retail, explained the rationale at the time: “By tapping into the entrepreneurial experience and knowledge of local station owners, we will build a strong franchise network that will help us grow our business. This business and the people in it have created a culture of excellence that will be the backbone of our organization going forward.”
What a difference 12 years makes.
ArcLight Capital Partners and bp acquired Thorntons in early 2019. On August 31, 2021, bp fully acquired Thorntons operations. The company noted that this transaction would position bp as a leading convenience operator in the Midwest, with 208 owned and operated locations across six states, including Florida, Illinois, Indiana, Kentucky, Ohio and Tennessee. Bp plans to retain and build on the Thorntons brand.
“We have a proud history of high-quality retail brands across the country. Incorporating Thorntons into our business combines their customer-first culture with our existing U.S. retail network and will help us deliver our convenience strategy of offering customers what they want, where and when they want it,” said David Lawler, chairman and president, bp America.
“We are committed to putting the customer at the heart of what we do to help accelerate the mobility revolution and redefine the convenience experience at service stations,” said Greg Franks, bp senior vice president, mobility and convenience, Americas. “Thorntons has generated long-term customer loyalty over the last 50 years because of its best-in-class operations. We are excited to welcome them into our family.”
This was also seen as promoting bp’s strategy for its convenience and mobility business, with a goal of nearly doubling global earnings by 2030 and delivering 15-20% returns.
There are currently 20,500 bp retail sites worldwide, and the company’s U.S. retail presence consists of roughly 7,200 bp and ARCO-branded sites, along with more than 1,000 ampm convenience stores in Arizona, California, Nevada, Oregon and Washington. Further, bp aims to increase the number of strategic convenience sites (foodservice, etc.) in its global network from about 2,000 today to more than 3,000 by 2030.
Shell Acquires Landmark
Shell began its exit from direct retail by launching the multisite operator (MSO) model in 2005, where Shell still owned the site and handled the forecourt fueling operations but leased the store operations and other profit centers to independent operators. Two years later, Shell began dissolving the MSO model and selling off sites like its peers.
Now, that has changed. In October 2021, Shell Retail and Convenience Operations LLC acquired the Landmark fuel and convenience network. This consists of 248 company-owned fuel and convenience retail sites whose convenience stores operate in Texas under the Timewise brand. The agreement also includes supply agreements with an additional 117 independently operated fuel and convenience sites.
“Today’s announcement increases our presence in a core market and shows our growth strategy in action,” Huibert Vigeveno, Shell’s downstream director, said in announcing the move. “It brings us closer to more customers and strengthens our ability to meet their rapidly changing needs. The deal also allows us to work hand-in-hand with customers to help shape demand for low-carbon energy products and services while profitably decarbonizing alongside them.”
The company noted that the acquisition advances Shell’s Powering Progress strategy in three ways: by growing its retail footprint in one of its core markets, by providing opportunities to offer customers expanded fueling options (including electric vehicle charging, hydrogen, biofuels and lower-carbon premium fuels) and by allowing for the growth of non-fuel sales through an enhanced convenience offering.
Shell stated that it remains committed to collaborating with wholesalers and dealers to serve customers, drive business value and thrive through the energy transition. There are more than 13,000 Shell-branded sites across the United States. Globally, the company expects to service 40 million customers daily at its retail service stations, have 55,000 Shell-branded retail service stations and 15,000 convenience stores.
Re-entering or Not?
So far, the bp and Shell announcements, while notable, don’t signal a full return to the previous company-operated retail models. Both have stated goals to expand their retail operations, but that does not appear to be exclusively through company-operated locations. Nor have other major oil companies given any notable indication of making such moves (though that could change at any time).
It is interesting to note that the two deals rose in different fueling landscapes.
The bp deal was inked at a time when the Trump Administration was far more favorable to liquid fuels, prices were low and oil production outstripped demand.
The Shell deal takes place at a time when supply is tight, prices are high and there is a push for zero-net carbon—sooner rather than later—and a rapid expansion of EVs.
Both majors stated a similar rationale for the acquisitions, seemingly more focused on the store side of the equation. However, there is another rationale that might be in play that is not cited in the public statements.
As industry expert Joe Petrwoski noted in FMN Magazine at the time of the initial ArcLight deal (Petrowski was also advising ArcLight), “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,” he said.
Petrowski also expected further deals, and although bp has not announced an expansion, the Shell Landmark deal did come to pass.
While not popular to promote in the current environment, even if the current political push against conventional fuels continues unabated there will be liquid fuels composed fully, or at least partially, of fossil sources for decades to come.
Would a return really matter to current players if the majors re-engage with direct retail? If the majors don’t work to destroy the current independent retailer and jobber model or insert unfair competitive advantages (which would not be received well and would certainly see legal action) it would just signify a return to the landscape 10-15 years ago.
Even before the divestitures, company-operated retail in the U.S. market, while notable, was relatively minor compared to their retail partner operations. Any return to even those levels involves reacquiring existing sites (likely from premium operators and certainly at good terms). The independents and branded franchise operations did not unique trouble competing previously.
Endbar: Chevron Never Left
Chevron bucked the exit trend and never abandoned company-operated sites. It has more than 8,000 U.S. Chevron and Texaco sites, of which about 800 are company operated. We spoke with Mike Vomund, Chevron vice president of Fuels, Americas Fuel & Lubricants, to explore Chevron’s operational experience.
What was the rationale for keeping a direct retail network?
We have had a consistency of strategy and consistency of purpose since the start. Some 95% of our business is through our retailers and marketers. We do it so that we can be the best supplier possible to those retailers and marketers.
If you’re going to be in the branded retail business, there’s nothing like walking in the steps of our customers and having a company-operated network where people like myself can get experience with the business. People who come up through the Chevron chain get opportunity to actually work in a station and be a station manager. That experience is tough to simulate in a classroom. I worked in the company operating stores. You learn a heck of a lot about what the business really requires. So, a big part of it is just the development of our people and development of our business.
What are some of the operational areas you test in the company operations?
Electric vehicle charging is an example. We’ve built them ourselves, contracted them, bought the electricity, gone through third-party suppliers, etc. And then we meet with our retailers and say, here is our experience. We’ve actually done both models, and we’ve got the data and the information to share, and you can make your own decision. The retailers appreciate that we have actual real-world experience from our own stations that can help them be a better retailer-marketer out there.
Then there are the operational challenges—things like labor shortages and product supply chain challenges. We can give things a try and then inform our retail customers on what’s worked.
I assume the operations are not run only as an educational cost center.
The company operations certainly need to pay their way. You need your return on capital and all the usual financial metrics. It’s a relatively small network that’s focused on the West Coast, where we can have enough scale and market knowledge and not be out of touch. We don’t try and spread it across the U.S. We operate where we think we can be competitive. How we balance [our company operations with our partner operations] is to make sure that it’s a win-win, so both us and our retailers and marketers benefit from it equally.