By the numbers:
$2.8 billion — Cost of Hess acquisition
1,478 — Speedway stores before acquisition
1,256 — Number of Hess stores purchased
23 — Number of states where Speedway will now have a presence
34,000 — Total employees after acquisition
Staying with the story
The Springfield News-Sun provides unmatched coverage of Speedway and its affect on Clark and Champaign counties. The paper has produced several stories on Speedway’s $2.8 billion acquisition of Hess Retail last year, and its affect on the region’s economy. For this story, the paper spoke to experts in the convenience store industry to discuss several major transactions in the industry and how that might affect local businesses.
More online
Check out an interactive map to see where Speedway and Hess stores are located across the U.S.
Speedway’s $2.8 billion acquisition of Hess nearly doubled the size of the Enon-based gas station and convenience store chain, but it was only one of several major deals in the industry in the past two years.
Experts have seen a shift as several of the biggest companies have grown larger, one of several trends changing the face of the industry. Speedway’s growth has meant a boost in jobs and investment in Clark County, and analysts expect the mergers to continue.
“The landscape has definitely changed,” said Jeff Erb, president of the Ohio Association of Convenience Stores. “There are fewer and fewer players now.”
At the same time, the convenience store business is still mostly made up of small chains and single-store owners. Nearly two-thirds of convenience stores in the U.S. were operated by single owners last year, according to the National Association of Convenience Stores.
So it’s the mid-sized chains feeling squeezed, experts said.
Stores of all sizes, including Speedway, face higher expectations from customers and pressure from dollar stores, grocery stores and other non-traditional competitors.
“Gasoline is always going to be a volatile type of business to be in,” said Patrick DeHaan, a senior petroleum analyst at Gasbuddy.com. “The trend is becoming more cutthroat.”
An improving economy also has spurred more mergers, Erb said.
“You had real estate prices that were depressed, which makes it a buyer’s market,” Erb said. “Right now things are better and it looks like, at least for the short-term future here, things are going to be pretty decent. Investing in more stores should create more revenue.”
Big companies get bigger
Speedway already operated about 1,500 stores in nine states, but the Hess acquisition expanded the company’s reach to 23 states and more than 2,700 stores throughout the Midwest and East Coast.
The deal, which closed a year ago this month, made Speedway the largest company-owned convenience store chain in the U.S. by revenue. The economy has likely played a role in consolidation in the industry, but Anthony Kenney, Speedway’s president, said the increase in acquisitions may be a coincidence.
The deal provided a significant boost in jobs in Clark County, where Speedway already employed about 800 workers and pledged to add 350 more positions at its corporate headquarters over three years. The company also spent $9.1 million to renovate its offices in Enon and purchase a building at the NextEdge Applied Research and Technology Park to house additional employees.
Speedway was looking to grow, Kenney said, and the opportunity to acquire Hess appeared at the right time. That deal has had several benefits, he said.
“One of the most important ones is the supply logistics around our parent company Marathon Petroleum Corporation,” Kenney said. “There’s big benefits as they are a big refiner and marketer and pipeline terminal company to be able to have additional outlets for their product in the stores we are acquiring.”
There is often increasing pressure to grow as companies succeed, Kenney said.
“As companies do better, their shareholders have higher demands on them to invest and share growing returns with them,” he said. “Your business is growing and your shareholders expect for their returns to grow as well, so that puts the burden back on you to find ways to grow the business. Certainly acquisitions is one way to do that.”
Along with Speedway, several other major players in the industry grew since last year, including:
• Alimentation Couche-Tard, a Canadian chain that operates Circle K stores, 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 stores in Texas, Oklahoma and New Mexico. ETP owns the Sunoco network, which includes about 5,000 retail stores on the East Coast.
• Global Partners purchased independent petroleum marketer Warren Equities Inc., including 147 Xtra Mart convenience stores. Based in Providence, R.I., Warren also sold about 500 million gallons of fuel a year through about 520 retail locations.
• CST Brands, Based in San Antonio, Texas, acquired Lehigh Gas, based in Allentown, Pa., in 2014. Lehigh distributes fuel to more than 1,050 locations and owns or leases more than 625 stores in 16 states.
• In August 7-Eleven closed on the acquisition of about 180 Tedeschi Food Shops, based in Rockland, Mass.
In Northwest Ohio, where Erb owns 14 Main Stop stores, he noted smaller chains also have bought up competitors. Stop and Go purchased 11 In & Out stores last year.
Speedway’s recent success was built in part on smaller acquisitions that made sense over several years, Kenney said.
Part of the reason its corporate headquarters is in Enon is due to its history with Bonded Oil, which was based in Clark County, Kenney said. That company —run by local philanthropist Dick Kuss — was acquired by Marathon in 1979. It was then named Emro Marketing, but later became Speedway.
The acquisitions will continue, Erb said.
“The convenience store industry is in flux right now and there’s a lot of opportunity for growth,” he said.
Increasing pressure
The number of larger chains and single-store owners has risen for some time, experts said, while medium-sized and smaller chains have faced increasing pressure. That trend appears to be accelerating.
“Those in the middle have seen the biggest losses,” said Jeff Lenard, vice president for strategic industry initiatives at the National Association of Convenience Stores.
About 50 percent of convenience stores in the industry were owned by single-store operators in 2001, but that figure has slowly risen to about 63 percent by the end of last year, according to the association. Part of the reason, Lenard said, is national chains like Speedway don’t necessarily compete head-to-head with the smallest stores, which can react more quickly to customer demand and don’t have expenses associated with corporate offices.
In addition, some of the largest chains operate with individual franchisees, similar to the fast food industry.
Larger companies also have an advantage over mid-sized chains because their size allows them to better withstand fluctuating oil prices, DeHaan said.
“If prices are more volatile, it’s harder for smaller stations to stomach that volatility,” he said.
Several factors are driving the recent acquisitions, said John Sartory, managing director for Petroleum Capital and Real Estate. Many longtime owners of smaller chains have neared retirement age at a time when the economy is improving, he said, and some of the biggest operators want to grow.
“If you put cheap credit, willing sellers and the desire among the bigger players to get larger, that’s a perfect storm for consolidation to occur in the industry,” Sartory said.
Unlike fast food, where a few companies dominate, that’s not the case in the convenience store industry, he said. Although Speedway is one of the largest, it still only competes in 23 states.
“I don’t know if we’re ever going to have a McDonald’s in our industry,” Sartory said. “There’s a long way to go. But as some of the bigger regional players get larger, they just have greater economies of scale so it’s going to be tough to compete with Speedway that owns thousands of gas stations, and maybe you own 50 in Cleveland.”
But smaller and mid-sized chains might also have some advantages over their larger competitors because they can typically react more quickly to customer demand, said Tim Powell, a principal at Think Marketing, a strategic marketing firm with offices in Columbus and Chicago.
“As you get bigger and try to get more consistent, you have to start to realize that not one size fits all,” he said. “I would fear more for the bigger guys that are making these mergers because culturally there’s going to be some growing pains. You might see some benefit from smaller independents that can fill in that gap. It will be interesting to see how well Speedway and Hess come together.”
Food a driver
Customers often believe the price at the pump is the main competition between stores. But quick food items like sandwiches, drinks and pizza are increasingly key, Powell said.
Profits from lottery tickets, cigarettes and gasoline remain important, he said. But many stores now see some of their best profits from food.
“Obviously they’re very driven by fuel, too, but you have to look at where the growth is coming from and the growth in convenience stores right now is food service,” Powell said.
Along with Speedway, chains like Sheetz, QuikTrip and 7-Eleven have remodeled stores and added more services, said Nick Lacaillade, vice president of retail and corporate development for Certified Oil. He’s the grandson of the company’s founder. The chain, started in Piqua, has about 650 employees and operates roughly 75 stores, including two in Springfield. Both will be remodeled by the end of next year, he said.
“No longer are you just getting your pack of cigarettes and a Coke,” Lacaillade said. “(Customers) want more and if you don’t have that, they’ll just go down the road to somewhere that does have that.”
Welcoming competition
Certified surveys its competition several times a day to check gas prices, and Lacaillade estimated Speedway is a competitor in about 80 percent of its locations. But Speedway’s growth will likely benefit consumers, he said, because it will force other stores to improve to remain competitive.
“Speedway has got a lot of good dirt and they’re building a lot of great facilities,” Lacaillade said. “They’re raising the bar for the entire industry to keep up with them or let them win.”
In South Charleston, Patty Nibert has owned the Country Mini-Mart since 1999. She started working in the industry and decided she wanted to own her own business. She’s had offers to buy her store but plans to turn it over to her daughter when she retires.
She has the freedom to set her own prices, she said, and run the business as she sees fit. That wasn’t always the case working at other locations.
Nibert doesn’t necessarily see Speedway as a competitor because most of her customers are longtime regulars. She has more competition from retailers like Dollar General that now offer the same convenience store staples.
“When the Dollar General went in here maybe five to seven years ago, it did do a little bit of crunching on us but we bounced back,” Nibert said.
Despite the additional competition, both Kenney and Lacaillade said opportunity exists for convenience store chains of various sizes to be successful as long as they are in the right location and provide the services customers want.
“We’re all trying to fight for the same gallons and sales with different strategies,” Lacaillade said. “Some of them overlap and some of them are unique. You’ve got to work hard every day and do what’s right for the customer.”
Despite the spike in acquisitions, Erb can’t foresee a day when independent owners and smaller chains don’t exist.
“Much of the convenience store industry is still local people serving their local market,” he said. “That might be trending away from that right now but I still think independents and small chains are always going to be around.”
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