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    Change They Can Believe In

    Under new management, a rejuvenated Certified Oil charts future growth path as a modern c-store chain.

    By Don Longo

    Most companies would face a leadership challenge when its revered founder dies suddenly after spending almost 60 years building the business from a single gas station in Piqua, Ohio, into a nearly 500-store chain that became a household name throughout Ohio, Kentucky, West Virginia, Indiana and Pennsylvania. Add in the fact that the company was a closely held family business with no obvious heir-apparent executive in the firm, and many of its stations were too small and outdated in design and product mix, and you'd probably agree the future didn't look all that bright for 70-year-old, Columbus, Ohio-based Certified Oil.

    Into that dicey situation stepped Peter Lacaillade, the son-in-law of Certified founder Carlyle Baker. Lacaillade, who was then 50 and a senior vice president with Paine Webber's fixed income division in Boston when Baker died, left a 25-year career in the financial industry to move to Ohio and take the reins of the company in 1998.

    His first order of business was to promise change.

    "There were many things about Certified that were running fine," said Lacaillade in an exclusive interview with Convenience Store News. "But there were other areas where change was absolutely necessary for the company to move forward. My mission was to keep what was good about the company, but bring change to the areas that needed improvement."

    Lacaillade described his task when he took over as "a delicate balancing act." The company clearly needed to change to survive. It had already shrunk from its height of 486 stores to 130 by the time Lacaillade took over -- having exited the Indiana and Pennsylvania markets a few years earlier. "The changes probably seemed radical to some of the employees who had been with the company for a long time. But for the most part, our people understood these changes were better for us in the long term," he said.

    Lacaillade set about immediately to remake Certified Oil over the next 12 years -- making significant investments in operations and physical improvements to prepare the company for future success. First, Certified spent roughly $30 million retooling existing stations with card readers, upgrading and expanding fuel storage and dispensing capabilities, opening new convenience stores in place of outmoded kiosks, installing a sophisticated technology infrastructure to track inventory and process invoices, and brought a level of accountability to the operation that it had been sorely lacking. Lacaillade also trimmed Certified’s store count further, eliminating less profitable stores and bringing the total down to its current 86.

    And last month, Certified completed the first phase of a rebranding campaign that better communicates the retailer’s changes to consumers with the launch of 10 remodeled stores in the Columbus market and a new shopper loyalty program.

    Lacaillade, however, is quick to downplay the boldness of the changes. "We're not doing anything unique or innovative. A lot of convenience store chains started moving toward a more customer-friendly, food-oriented concept before us. But we had to get our basic blocking and tackling in order," said the former financial executive. "It's all about having good store managers, keeping the stores clean, hiring polite sales clerks and giving the customers a reason to come back."

    The idea, according to Lacaillade, was to be competitive with the many c-stores in Certified's core markets, including such chains as Speedway SuperAmerica, BP, Marathon, Shell and ExxonMobil.

    None of this should suggest the company Lacaillade took over was in shambles -- far from it. He pointed out that his father-in-law, Baker, was a shrewd entrepreneur. "He was a fixture in the convenience store industry and a major character at SIGMA (Society of Independent Gasoline Marketers of America)," said Lacaillade, who married Baker's daughter Connie in 1976. "He wanted me to go work for him for many years."

    Baker started building convenience stores in the 1980s, and even branded some of his locations with Sunoco and CITGO fuel. But Certified was so well-known in Ohio the brand became stronger than many of the major brands.

    Under the direction of Baker and his partner, Dean Walcutt, who died in 1995, the company saw many prosperous years, even if the company could never be described as a leading-edge retailer. However, Baker's sudden death from an aneurism in 1998 left a management gap that needed to be plugged quickly. While ownership of the company was never in doubt -- Baker's will transferred it seamlessly to his daughter and grandchildren -- the question of who would take the top management job required a speedy, yet reasoned, response.

    IN THE FAMILY
    With no experience in the gasoline or convenience store industry, Lacaillade might have seemed a risky choice to take over the family business. But his breadth of business experience proved to be a solid foundation for the challenge.

    "I had been on Wall Street for 25 years watching over some of the sharpest guys in the business," he noted. "Did I know everything I needed to know about gas pumps or merchandising or fuel tankers? No. But managing is managing. I knew I could learn the rest."

    At the beginning of the transition, Lacaillade spent a few weeks each month in the company's Columbus headquarters, learning the ropes from Certified's seasoned managers. He asked Dave Hogan, a Certified employee of 30 years, to be his COO and CFO. Tom McManmon, CFO of Alliance Group, was brought in as a consultant, and he brought with him management experience running 350 stations. Greg Ehrlich, a Boston-based businessman, was also added in a consulting role and subsequently became the company's COO.

    Keith Cheney and Gregg Edwards were vital additions to the convenience store operation, while Wayne Wills took over as merchandising manager and Tom Bell the IT functions. Lacaillade's first directive? Get back to basics.

    "About 10 years prior to Baker's death, the company was essentially on autopilot," he said. "The company was doing all right, but there was no real concerted effort to push it ahead."

    When it comes to convenience and petroleum retailing, the basics -- or the blocking and tackling -- comes down to one simple concept, according to Lacaillade -- giving the customers a clean, well-organized store and a convenient, fairly priced gas station. Satisfy the customers and give them a reason to return, he added.

    Luckily, the changes didn't require starting from scratch. "I didn't want to lose what we had," said Lacaillade. "As much as possible, we wanted to work with what we already had."

    He credits a relatively small management team for allowing the company to make quick decisions and eliminate the red tape that often accompanies layers of management. "And when we make a mistake, we could change very quickly," he added.

    Internally, Lacaillade worked at knocking down silos within the company that hampered communication and teamwork.

    "We tried to break down the fiefdoms that existed in the company," he said. "Some people were running their departments like their own personal business. We had to make sure everyone was working together toward common goals and objectives rather than undermining each other."

    Outside headquarters, Lacaillade restructured field operations, upgrading the responsibilities of district managers. In the past, district managers, who are each responsible for approximately 10 stores, were primarily driven by their paperwork tasks. "We upgraded the position to ensure we had people who could lead and motivate our individual store managers to improve merchandising and customer service in order to grow sales," he said.

    Another major move was to outsource maintenance, legal and environmental functions. On an even broader scale, Certified instituted a dealer program that has grown to 65 dealers, all of whom brand Certified Oil, as well as Sunoco, Marathon and Valero.

    A great concern for any medium-sized company in today's convenience and petroleum marketplace -- with its volatile gasoline prices, declining land values and slowing customer spending -- has to be its balance sheet. Bigger companies than Certified have fallen prey to serious financial difficulties in recent months.

    But Lacaillade assured CSNews Certified's fiscal health is strong, in large part due to the fact it carried no debt on its books.

    "Carlyle was big on avoiding debt," he said. "When we made our $30 million in improvements, that money came totally from internal cash flow."

    PHYSICAL IMPROVEMENTS
    In addition to new pumps, card readers and anti-theft cameras, Certified also recently implemented a complete re-imaging at 10 of its company-operated stores as part of a larger plan to re-image all existing and rebuilt Certified-branded units over the next two years. Also under development is a prototype design for brand-new Certified Oil stores.

    The first new Certified image in 25 years is designed to present a more cohesive image to consumers, creating a consistent look immediately recognizable from one location to the next. In addition, the new design aims to create a more inviting, upscale image that will make the stores more appealing to females -- a consumer group that many of Certified's competitors have also been targeting in the past few years.

    The re-imaging affects both the exteriors and interiors of the stores. Exterior upgrades include a change in identification signage, new canopy graphics, updated building colors and a redesigned company logo. The interior features new modern "lifestyle" photography. The new design elements will also be incorporated into the company’s letterhead, uniforms and marketing material.

    The two new prototype convenience stores Lacaillade plans to unveil later this year will incorporate a larger footprint (from 2,800 to 3,200 square feet), expanded fast-food areas, and better-defined coffee and soda fountain areas.

    "Without question, it was time to refresh our brand and in the process, make a stronger connection with our customers," said Ehrlich, who took over as COO early in 2008. "We think we've come up with a look that takes advantage of our rich heritage and combines it with an attractive modern accent."

    CREATING LOYALTY
    Certified also created a new, three-level customer loyalty program called "Certified Savings." The goal of the program is to develop and maintain loyalty among current and future customers, while rewarding them for their continued patronage. All Certified Savings cardholders are provided with a slew of benefits at the three levels of the program, including free merchandise and points towards gas discounts.

    Although Certified supplies fuel to more than 140 stations, its 86 company-operated convenience stores are critical to its future.

    "We supply about 130 million gallons a year through our company ops and dealer network," said Lacaillade. "It's nowhere near what the major brands do, but it’s a decent number for us. "Ultimately though, there is more money inside the stores than at the pump. Right now, we're probably at about a 50-50 split in terms of inside and outside revenue. But the stores really represent our future. That's why we’re putting so much emphasis on the re-imaging efforts and the loyalty program."

    The CEO pointed out Certified is doing the same amount of profits with 86 convenience stores today as it was doing with 130 in 1998. "Part of that can be attributed to better management as well as dropping our underperforming stations and keeping a tighter rein over our expenses. But the big difference is the stores."

    All the changes, combined with Lacaillade's no-nonsense management approach, resulted in a company poised to experience solid growth in the years ahead. It also produced happier, more motivated employees who are excited by the new image, according to Lacaillade.

    "It may sound trite, but the biggest reason for Certified's success is unquestionably our employees," he said. "I walked into a great group of people; they were almost like a family. Most of the people were ready for positive change and were willing to do what was needed to take Certified to the next level.

    "If you have that, along with a strong management team, your chances for success are greatly enhanced," he said.

    As Lacaillade pointed out, that’s the way to create change the entire organization can believe in.

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