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    K-VA-T Food Stores, Pilot Team Up to Warehouse Gasoline

    Grocer aims to gain more control over gasoline pricing and supply for gas outlets.

    By D. Gail Fleenor

    ABINGDON, Va. -- Supermarket chain K-VA-T Food Stores Inc., operator of Food City stores, is teaming up with Pilot Corp., the nation's largest operator of travel centers, to build a $10 million state-of-the-art fuel terminal in Knoxville, Tenn.

    The idea for a fuel terminal germinated over the past year, according to Steve Smith, Food City president and CEO. Owning a fuel terminal would allow his company to gain more control over fuel supply and gasoline prices at the chain's 63 Gas 'N Go units.

    But, K-VA-T faced one huge obstacle -- volume. To make the numbers work, the terminal would need to handle significantly more volume than Food City Gas 'N Go units sell. "A fuel terminal is like a warehouse," Smith said. "The more volume you do, the more efficient you are and the better the price advantage for our customers, which is the whole reason behind this investment."

    The partnership with Pilot, headquartered in Knoxville, Tenn., provided the volume needed to make the fuel terminal a viable option. The new facility will distribute gasoline, diesel, ethanol and aviation fuel.

    Recognizing the benefits of directly controlling its own supply, Food City brings most of its fuel up from the Gulf Coast, Smith noted. Terminal outages due to hurricanes and spiking fuel prices convinced Smith that working closer with refineries to bring product to its own terminal could bring greater control over inventory and prices.

    In addition to the Food City Gas 'N Go centers, the planned facility will procure and distribute fuel to Pilot Convenience Stores and Pilot Travel Centers throughout the region surrounding Knoxville. Pilot, which began operations with one gas station in 1958, owns and operates more than 300 travel centers in 41 states across the country. Pilot, the largest seller of over-the-road diesel fuel, expects to sell more than 5 billion gallons of petroleum in 2009.

    Pilot's CEO Jimmy Haslam, said his company and Food City have a lot in common. "We're family-owned businesses with deep roots in the Knoxville area. By collaborating on this project, we can better service the fuel needs of our customers while creating jobs and supporting the local economy."

    Not many supermarket chains have taken the route Smith has chosen. "Most large supermarket chains don't have the density that we do in our markets," he noted. Food City's Gas 'N Go units sell three grades of fuel: regular, mid-grade and premium. Mid-grade is blended at the pump. The supermarket chain received recognition recently for offering E-10.

    The new terminal is expected to create 10 to 15 new jobs.
    "We still have a lot to learn but the more vertically integrated we can be, the more control we have over our destiny," Smith said, noting doors are open to additional partnerships in the terminal in the future.

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