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It's tempting to dismiss Big Oil companies' retail operations as overlooked stepchildren to their more lucrative refining business when you read about how more and more of them are shifting from corporate-owned stores to dealer or franchise networks.
As our exclusive Convenience Store News Top 100 (page 39) points out, the percentage of corporately owned stores has declined in each of the past three years, from 55 percent in 2005 to 49 percent in 2006 and 48 percent this year. In total, the Top 100 c-store chains now operate 29,587 franchised or licensed stores, an increase from 27,880 last year.
It is generally believed that Shell Oil started this trend when it "dealerized" most of its store network. Soon other oil companies also wanted to get rid of the overhead, labor problems and operational headaches of their stores. Indeed, nine out of the top 10 operators of franchised or licensed stores are oil companies. Ninety-nine percent of Shell's 4,720 stores are franchised or licensed. ExxonMobil is at 83 percent franchised/licensed, BP at 79 percent, and Chevron at 90 percent. All 2,070 Citgo stores are franchised/licensed and 94 percent of ConocoPhillips.' And the trend is probably going to continue as long as refining and distributing motor fuels remains so profitable.
The major downside to giving up corporate ownership is losing control of the stores, which some observers fear leads to lax standards and inconsistencies in brand messaging, customer service, product mix and quality. However, one shouldn't assume these oil companies are not serious about the retail business. If anything, they seek the best of both worlds: the rich margins of the oil industry along with the distribution network, brand positioning and retail experience provided by the stores (without some of the headaches and overhead of the retail business).
Most of the Big Oil companies are aggressively expanding their c-store networks and testing new formats and programs to build their in-store business -- just like non-oil company-owned c-store chains. BP, which has 3,853 franchised/licensed stores, is launching am/pm franchises east of the Mississippi and spreading its BP Connect with Wild Bean Cafe nationally. Last month, I had the opportunity to visit BP's West Coast operations and was very impressed with its flagship am/pm store format.
Among other oil companies, ExxonMobil, with 3,870 franchised/licensed units, is putting a big push behind its On the Run franchise. Internationally, On the Run is an even stronger player than it is in the U.S. -- and it's a top-notch foodservice retailer in many countries. And, Chevron (3,595 franchised/dealer units) has been perfecting its Extra Mile concept on the West Coast, as previously reported by CSNews (see Checking In with Chevron, May 7, 2007), in preparation for a wider rollout.
So, you see, Big Oil is hardly getting out of the retail business. Our cover story (page 28) is proof of this. With 964 company-owned stores, Valero is probably more invested in the retail side than any other Big Oil company. Only 35 percent of Valero's units are operated by franchisees or licensed dealers. Like the others, Valero knows the bulk of its corporate income comes from refining and that is where the bulk of capital investment will go. But, the Texas-based company also knows that its retail division can be a meaningful contributor to the company's image, a successful and competitive leader in the c-store industry and a valuable contributor to the bottom line.
For comments, please contact Don Longo, Editor-in-Chief, at (646) 654-7489 or email@example.com.