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    Sunoco Divesting Midwestern Units

    Refiner to turn over Michigan and southern Ohio sites to jobbers.

    By Mitch Morrison

    Sunoco Inc.'s heavy thrust into the southeastern market was countered last month with a scale-back of company-owned operations in part of the Midwest.

    Ambivalence? Hardly.

    The Philadelphia-based refiner/marketer knows its markets and understands that it can maximize profits in the Midwest without assuming payroll and operating costs.

    "It's not a market withdrawal, it's a channel shift," company spokesman Jerry Davis said, referring to Sunoco's decision to divest some 190 stations from Michigan and the Ohio cities of Dayton, Cincinnati and Columbus. "It comes down to profitability. This approach works here. In this case you can make the same by lowering your capital expenses."

    The operator of Aplus stores plans to sell the assets over the next 12 to 18 months, while maintaining a long-term supply agreement at the sites. The objective is to turn the assets into jobber locations — not a surprising move considering jobbers supply roughly two-thirds of Sunoco's 569 locations. "This is not going to be a fire sale," Davis emphasized. "We're looking at growing the distributor channel."

    The move comes on the heels of Sunoco's acquisition of nearly 200 Speedway SuperAmerica convenience stores from Marathon Ashland Petroleum for $140 million. The purchase, which covers Florida, Georgia and the Carolinas, reinvigorates the Sunoco brand on the Eastern seaboard. "We see this as an opportunity to put the Sunoco brand back there, where it used to be," Davis said of the MAP deal. "We're not necessarily going to use the same approach in every market. Each market has to be looked at on its own."



    Shifting Focus

    In recent years, Sunoco, one of the few remaining independents not acquired by a major oil company, has exerted an increased desire to be a major player in the southeastern tier. Last July, Sunoco acquired supply contracts with 75 Coastal distributors for 460 sites in the eastern United States and the Gulf Coast. And in two separate deals in 2001, the company bought 473 Coastal retail gasoline outlets and related working capital from El Paso Corp. for $59 million.

    In an April conference call with investors and analysts, Sunoco's chairman and CEO John Drosdick said all Sunoco c-stores and gas stations will be reviewed to assess their long-term viability. "These steps are being taken as part of a continuing review of the Sunoco branded retail outlets, with the intent on maximizing the return on capital employed and cash flow from our assets," he said. "As we grow our Sunoco branded business, we will continue to redeploy our investments into the markets and channels of supply that offer the best potential returns to Sunoco."

    In another move, Sunoco said it was eliminating its 86 octane offering in the Midwest, concentrating on a more traditional four-grade offer of 87, 89, 93 and Ultra 94. This change is to be completed by the end of 2003 and affects all of the nearly 1,100 Sunoco-branded retail outlets in Ohio, Michigan, Indiana, Kentucky and West Virginia. This slate of blends is consistent with Sunoco's offering in its Northeast markets.

    By Mitch Morrison
    • About Mitch Morrison

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