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Heavy reliance on a commodity with shrinking margins drove Convenience USA Inc. into Chapter 11 bankruptcy, its top officer said yesterday.
In an exclusive interview with CSNews Online, Chairman and CEO Donald Draughon lamented that the doubling of gasoline prices over the past two years had whittled into the company's core business, retail petroleum, and cut into in-store sales, as well.
"When 60 percent of your business is in a commodity that had been 80 cents in 1999 and doubled to $1.60 in 2001, the margins get squeezed and your inventory starts to go up and your credit line obligations with your gasoline providers go up since the prices are higher," he said. "You wouldn't imagine what an impact this would have. It's tremendous."
Instead of spending more for the same-gallon fill-up, many motorists, said Draughon, were spending the same dollar amount for fewer gallons, leaving the company with excess inventory. "The rural customer in Georgia is on a fixed income and he's buying based on a fixed dollar amount."
Convenience USA, a rollup company with more than 250 stores in the Southeast, filed for Chapter 11 reorganization with bankruptcy court in North Carolina earlier this week, becoming the third major c-store chain to seek protection in the last four months. Paducah, Ky.-based Duke & Long Distributing Co. Inc. filed for bankruptcy and began selling off its assets in February. Last month, Richmond, Va.-based Fas Mart Convenience Stores Inc. also filed due to increasing debt.
Draughon said he expected the chain to close some sites, but he did not expect a massive divestiture. "Our future is to continue to operate the stores in the most profitable manner we can," he said. "We introduced a new management team to make improvements and I think these improvements will take time to be realized."