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Not long after Americans were cleaning up the confetti from their Year 2000 celebrations, market forces in the c-store/petroleum industry began working against Crown Central Petroleum Corp., then a Baltimore-based operator of two refineries, 10 terminals and a mixed bag of more than 300 convenience stores.
Crack spreads on refining margins were at subpar levels as Crown Central purchased crude oil and sold gasoline and other refined products into an increasingly competitive market. At the same time, Crown's refineries needed significant capital upgrades to meet environmental regulations.
"It was difficult for a relatively small company to make those kinds of investments into underperforming assets, while paying down existing debt," explained Robert Fritz, general manager of Crown Central LLC, the company's latest incarnation. "We had a bond issue due the following year in excess of $100 million and were dealing with volatile crude supply costs."
The decision was made by 2002 to sell the refineries and pare down the c-store operation -- which then consisted of a mixed bag of older kiosks and newer stores, measuring from 800 to more than 4,000 square feet. At its height, the chain included 750 Crown, Fast Fare, Zippy Mart and ExpressMart stores in nine states.
Executives wanted to create a stronger core of sites in Maryland, Virginia and the Carolinas, and then reinvest in the smaller chain.
"Our stores were doing well, but it became apparent that the refineries would takemore timeto sell than we had available, and that it would be necessary to sell all of the retail sites to paythe bondholders," Fritz said. "We could have refinanced, but that would mean taking on even more risk."
In January 2003, while some industry observers were betting the company would file Chapter 11 protection, Crown Central put all its assets on the block. At the time, the marketing division included 233 company-operated locations and 91 dealer-operated sites. (The dealer locations were in Maryland, where state law prevents refiners from directly operating retail locations.)
Annual in-store sales totaled $103 million and all of the company stores were equipped with scanning. Gas sales were almost 329 million gallons, reaching $412.5 million at company locations, with the average customer buying 6.2 gallons.
Single-buyer bids for the entire chain were unacceptable so Crown Central executives decided to sell the retail sites in market blocks and separate the stores from the refinery and terminal sales. As those sales were made, Crown Central offered licenses of varying lengths to the new owners. "The buyers with their own brands or major-brand financingtook the Crown brand down fairly quickly, but the others asked to keep using the brand," Fritz recalled. "We also had some Crown jobbers with traditional supply deals we wanted to accommodate."
The result: Crown Central signed license agreements with some of these marketers and began to slowly expand and redevelop its brand infrastructure. Now, with more than 80 locations branded Crown in the South and Midatlantic, and another 50 or so in development, Crown Central is looking to expand quickly to more than 500 licensed Crown locations in the next several years, Fritz said.
"The more stores we have, the more value we can derive for our operators and our vendors," he added.
Fees to be a Crown branded licensee run from a per-store low of $1,575 to $7,500 per store annually, depending on the store's location. Financing for reimaging is available through an alliance with Butler Capital Corp., based in Hunt Valley, Md.
The program, offered to independents, dealers and jobbers looking for a change, is modeled on jobber feedback -- taking into consideration their complaints about Big Oil contracts, low retail margins and exorbitant credit-card fees, as well as their desire to run c-store/gas businesses with a recognizable brand and marketing support on their terms.
"We asked our base what they wanted from us," Fritz said. "We have a very loose confederation of operators and try to offer them programs that make sense."
No. 1 on the jobber's list -- better customer service.
"They felt they were being ignored by the major oil companies," Fritz said. "We're getting inquiries from as far away as California, a market we've never been in, from single-store operators and from large jobbers who have lost brands due to market withdrawal by Big Oil or who are otherwise unhappy with their existing relationships," Fritz said.
The Crown program includes no per-gallon fees or minimum gallon requirements. "We don't get into the licensee's business," Fritz said.
Crown also offers flexible contract terms with nocontract buyout charges. "If they get tired of us, they can walk away," Fritz said, noting no one who has signed up since the relaunch of the program has done so. "There is no pressure. If they want to, they can take down the Crown logo and image, and be done."
The marketers may buy their fuels from any supplier, as long as it meets Crown's quality standards. This includes E-85, biodiesel, compressed natural gas (CNG) or any other alternative fuel a retailer may wish to sell under the Crown brand.
Basic expenses to rebrand a site to Crown average approximately $14,700. "If they need to do deferred maintenance it will cost more, but they'd need to do that anyway," Fritz said. "Rebranding to Crown is about a third of what it costs to rebrand to a major brand because of the expensive proprietary parts they require."
Most Big Oil branded operators are required to have a card reader in the gas dispensers, he noted. "We say, 'It's your business.' If you don't want to invest in pump card readers, all we require is you have the ability to accept all of our cards. Let's say the store is pumping just 50,000 gallons a month, but it's doing $100,000 in merchandise sales in a little country store -- some locations don't justify the capital investment. Other retailers in urban sites don't want them for security reasons."
With all of its licensees in the c-store business, Crown is seeing a rebirth of the Fast Fare, Zippy Mart and ExpressMart banners. "We aren't planning any direct operations, but we license the store banners to selected c-store operators," Fritz said. "The Fast Fare and Zippy Mart banners may be used with non-Crown branded facilities. The ExpressMart c-store brand is an optional part of the Crown imaging. Licensees may use our store brand or theirs."
While c-store support is limited, Crown Central recently entered into a relationship with Westmont, Ill.-based Consolidated Buying Co. -- the country's largest buying group, with more than 14,000 petroleum and c-store operator members. With C-Buying for Crown, licensees and their dealers have access to rebates, discounts and incentives, as well as retail training sessions taught by dealers and others with real-world experience. The purpose is to help Crown-branded retailers identify common operating issues, such as vendor and employee theft. The program also offers human resources and other business services.
Members may choose from more than 200 suppliers, including leading grocery wholesalers such as Eby-Brown Co. and H.T. Hackney Co., and leading product manufacturers. ATM, car wash, automotive products and other programs are also available. On average, participating members earn from $3,000 to $7,000 in annual savings, rebates and incentives, Fritz noted.
"We will encourage our licensees to participate in our buying program, but we don't get directly involved in their c-store business, other than maintaining standards of operation," he said. "We don't want dirty stores or anyone selling those roses in a vial that turn into crack pipes and that kind of stuff. We want our stores to be family-friendly."
Like the rest of the petroleum/c-store industry, Crown Central's licensees have credit-card fees on their mind. Crown's network is "competitively priced" and allows the retailer to use the network in all parts of its business, even unbranded locations. Crown also allows retailers to use the network for a limited time. "We have a licensee who is in a dispute with a major oil company. He was unbranded for a time and needed a credit-card network. He didn't have to buy into our program for three years."
The Crown Central credit-card program may not be the cheapest upfront, but it "is priced very competitively and contains no surprises or hidden fees," Fritz said. "It's a very simple program with good reporting to help prevent and identify fraud. There are no extra charges and licensees know exactly what it will cost them on a per-transaction basis."
The settlement for some independent credit-card programs takes as long as 30 days. "We will settle all cards within 48 hours," Fritz noted.
If the Crown Central team has learned one thing from its bumpy history, Fritz said, it is "Listen to your customers. Our customers are now our licensees, and we need to give them what they need in a simple and understandable program at a competitive price."
For Haddon Clark, of Clinton, N.C.-based Sampson-Bladen Oil Co., operator of Handee Hugo's stores, a relationship with Crown Central has been "a nice balance" to longer-term contracts with majors such as BP and Exxon. Thirty of the petroleum marketer's 75 stores are branded Crown Central, a relationship that started when the company purchased Crown branded sites more than three years ago.
"The Crown name has strong recognition in the Raleigh area," Clark noted. "We feel being both [Crown branded] and major-branded is a good alternative for us. Not all of our eggs are in one basket. There are advantages of being with a [Big Oil] brand, but with Crown, we have no fuel purchase obligations.
"Major oil has good promotions and credit-card programs, but you pay for them. On the Crown side, we can usually purchase gasoline cheaper at the rack. And while consumers value a major brand, they are more cost-conscious than they have ever been before."