Speedway adds jobs, moves forward one year after $2.8B Hess deal

One year after Speedway spent $2.8 billion to buy Hess, the Enon-based company has hired more than 100 new workers, refurbished a little-used building at a Springfield business park and gained a crucial footprint along one of the most populated areas of the U.S.

The deal also solidified Speedway’s presence in Clark County, and reflects an emerging trend as technology increasingly allows convenience store chains to expand across larger geographic areas, local officials and analysts said.

Speedway has taken over more than 1,200 Hess locations, roughly doubling its size and making it one of the largest convenience store chains in the nation. It has also provided the region with a needed boost as Clark County tries to attract better jobs and encourage local firms to stay in the county, local officials said.

“Psychologically their announcement and their growth has put wind in the sails of the community a bit,” said Horton Hobbs, vice president of economic development for the Chamber of Greater Springfield. “You take that announcement coupled with some others we’ve seen this year and it’s bringing new life back into the market. It’s really important for the psyche of people.”

The deal has boosted sales and income taxes locally, and could have a significant ripple effect on Clark County’s economy in the long term. Speedway already employed about 80o workers at its Enon headquarters before the acquisition, but promised to add an additional 350 corporate jobs over three years.

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The company also spent about $9.1 million to renovate its Enon corporate offices and purchase a building at the NextEdge Applied Research and Technology Park in Springfield to house its additional employees after the merger.

Speedway’s footprint expands

Speedway has moved quickly to convert Hess stores and renovate local facilities since the acquisition.

“They are drinking out of a fire hose when it comes to getting Hess acquired and integrated,” said Tom Franzen, assistant city manager and director of economic development for Springfield. “Their organic growth was robust up to that point as well so the acquisition just added to it.”

It has already re-branded more than 520 Hess stores, said Patrick DeHaan, a senior petroleum analyst at GasBuddy, which tracks gas prices in the U.S. and Canada. About 20 more stores are under renovation now.

About 40 percent of the Hess stores that were acquired still need to be converted, company officials said in a written response to questions. It’s re-branded nearly all of the stores in Florida, Pennsylvania, Delaware, New York City and Long Island. Stores in New Jersey are under renovation now, and Rhode Island and Massachusetts are up next.

As the re-branding effort continues, Speedway will expand its reach along the East Coast, one of the most heavily populated areas of the U.S., DeHaan said. And aside from the Hess deal, it’s also becoming more active in Tennessee and Western Pennsylvania.

Those expansions means the company will add users to its Speedy Rewards customer loyalty program, which already had more than 4 million members around the time of the acquisition.

“What it means for Speedway customers is that now they’re able to access the Speedway Rewards program at far more outlets than before,” DeHaan said.

The rewards program was one of the keys to the acquisition, Speedway officials said in a statement.

“Hess had done an outstanding job of driving light product volume, while Speedway has been slightly better on performance inside the store,” company officials said in their written response. “Speedy Rewards is fundamental to our business model. Being able to leverage Speedy Rewards to drive some of that gasoline traffic to the inside of the store to capture additional marketing opportunities is certainly one of the keys to delivering shareholder value from this acquisition.”

Chains like Speedway have focused more on in-store sales like tobacco, food and beverages. Even though the industry sold more gallons of fuel in 2014 than the previous year, the total value of those sales fell 1.8 percent because of lower gas prices last year, according to the National Association of Convenience Stores.

Across the industry, gasoline still provides about 70 percent of total sales, but most of the profits come from food and merchandise purchases, according to the industry trade group.

In an interview last year, Speedway CEO Anthony Kenney told the Springfield News-Sun the chain is increasingly competing with fast food restaurants, dollar stores and drug stores that sell similar items.

Local impact

Work has been completed at the NextEdge property, company officials said, and renovations are going on now at its Enon facility. That includes adding parking and remodeling offices.

So far Speedway has added 106 jobs at NextEdge, company officials said, for a total of 220 workers at that site.

The new payroll will boost income taxes, Franzen said, as well as benefit other businesses. Renovations to NextEdge will also likely boost property values in the area. Those additional taxes will benefit area school districts and Springfield Twp., which receives a portion of the city income taxes from that area, he said.

“It increases the traffic count on the East End (of Springfield),” Franzen said. “It helps pick up retail sales on that end of town as those employees buy lunch and other things that 300-plus employees will bring to that area.”

Speedway is also refurbishing its existing stations and stores in Clark County to make them more attractive to customers.

The chain recently rebuilt a heavily used location in Springfield at 1147 N. Limestone St. That new location includes a full-service convenience store and Speedy Cafe that allows customers to order food from a self-serve kiosk. The store had about 2,200 square feet; the rebuilt version is now closer to 3,900 square feet.

It also has proposed building a 4,000-square-foot, updated convenience store on North Main Street in New Carlisle.

“We’re all competing for the same customer,” Kenney said. “It is a changing competitive market out there and you’ve really got to be sharp. You’ve really got to be good, you’ve got to have a focus on taking care of the customer because that customer has a lot of choices.”

Additional clout

Having a company of Speedway’s stature headquartered in Clark County helps the chamber market the area, Hobbs said.

Most of the jobs created by the deal are corporate positions that offer better pay, he said. One of the challenges Clark County has faced for several years is developing its workforce and attracting higher-paying jobs.

Companies like Eby-Brown, a Springfield company that supplies sandwiches and other products to Speedway and other chains, has seen an uptick in business, Hobbs said.

“Certainly Speedway has played a part in increasing the employment opportunities here and therefore that’s having a ripple effect on the community,” he said.

Speedway’s decision to expand here is often cited when promoting Clark County to outside employers, Hobbs said. Often outside companies aren’t aware of smaller firms in Clark County. But companies like Speedway and Dole Fresh Vegetables draw attention to the area.

Last year Dole announced plans to add 138 jobs over three years as part of a $9 million expansion.

“That changes the conversation immediately,” Hobbs said. “They see a major company like (Speedway) growing the way they are in our community, and it sends a signal about our workforce, about our location and our talent here and that’s very important.”

An emerging trend

Speedway’s acquisition was one of the biggest deals in a year that saw an unprecedented number of mergers and acquisitions in the convenience store industry, analysts said.

“It still goes down as one of the largest acquisitions in the convenience store business, especially with Hess and the thousands of stores at stake,” said DeHaan, of GasBuddy.

Other major deals last year included:

• Alimentation Couche-Tard, a Canadian chain that operates Circle K stores and bought out U.S. rival Pantry Inc. and its 1,500 stores for $1.7 billion.

• Energy Transfer Partners, based in Texas, acquired Susser Holdings Corp. in a deal valued at about $1.8 billion. That deal included Susser’s retail operations, which consisted of 630 convenience stores in Texas, Oklahoma and New Mexico. ETP owns the Sunoco network, which includes about 5,000 retail stores on the East Coast.

“Last year definitely was unprecedented in terms of mergers and acquisitions,” said Jeff Lenard, a spokesman for the convenience store association.

Several of the most prominent companies got larger, which may make it more difficult for smaller and medium-sized chains to compete. As much as 63 percent of stores in the industry are still owned by franchisees and people who only operate one or a handful of stores, Lenard said.

But improving technology is likely a major driver as it allows chains like Speedway to grow rapidly.

“We have two extremes in the industry and I think one of the things that’s driving the growth of some of these bigger companies is you usually wanted to stay regional so you didn’t outstrip your distribution,” Lenard said. “As technology advances things just get more doable. You’re seeing that stores can continue to expand their market area.”

Typically, acquisitions like Speedway’s are made with the long-term future in mind, he said.

“They are looking five years out, how do they complete this acquisition and how does this acquisition make us better and the customer experience better,” Lenard said. “And if they can’t, you’ll see them spin them off.”

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