The continued consolidation across the petroleum marketing industry is certainly not new news. When I joined the industry with Exxon some 22 years ago there were over 14,000 distributors and marketers in the industry.
Despite that large number of distributors one of my earliest jobs was to go find new distributors for Exxon and to sign them up to market and distribute our brands in new markets. As crazy as it sounds today we were still creating new distributors even in the face of thousands that were already in business.
We had a good reason for that, competition. Competition that was much fiercer than what we see today. With many more refiners fighting for share distributors who could secure a local base of customers in their town were important outlets of ratable sales. Exxon was competing with Mobil, Conoco was competing with Phillips, Chevron was competing with Texaco, and Shell was…well you get my point.
Today not only are there far fewer major refiners who need distributors, but those that do have been proactively reducing the number of distributors they use to move their products. In addition many independent refiners, who for the most part are running assets that were divested from major oil, have not created new competing demand for dedicated distribution. The independents seem content to trade out much of their output at the refinery gate and sell the rest on an unbranded basis to hypermarkets and large wholesalers.
While reported numbers vary a lot we have by my estimates about 3,500 distributors left, meaning we have been losing about one distributor per day for the past 22 years. Think about that, one every day. The majority of these deals have been one local player buying or merging with another local player across town or across their part of their state. It was, in a word, Local. What we are seeing now is, in a word, National.
As we look in every sector of the petroleum marketing industry we see a trend towards national consolidation. In retail we have the large strategic buyers like Couche’ Tard and 7-Eleven buying consistently and constantly in nearly every region of the country. In lubricants we have large public companies like Brenntag working to build a national lubricants platform to complement their national chemicals franchise. They are competing for lubricants deals with private equity backed consolidators Reladyne and Petrochoice who are progressing beyond the East and Midwest into much broader geographies. None of these players is national yet, but their intent is clear and their pace is aggressive.
The commercial side of the fuels business is rapidly changing along with retail gasoline and lubricants. The mobile fueling niche of the diesel business is growing overall but is increasingly dominated by super-regional players. Quick Fuel, Diesel Direct, and OnSite Fueling Services all cover between 30-40 cities and reach over a dozen of states each.
Last but not least in the commercial fueling sector we have perhaps the biggest consolidator of them all, World Fuel Services. To quote WFS’s last quarter’s earnings call transcript, “we continue the build out of our national commercial and industrial platform.”
The growth of these nationally oriented consolidation efforts presents a different challenge to the family owned businesses who have always made up the vast majority of companies in the distribution and marketing sector of our industry. Having worked personally with the owners and extended management of these family owned enterprises for decades it has been impressive to see many who have done very well through the past wave of consolidation.
Those that could manage the generational transitions and whom continued to invest in their business were presented with growing opportunities as other families exited the business. With larger more efficient operations, better buying power, and a more diverse market that was less susceptible to the downturn of one sector or one town these family enterprises and the second generation of leaders who guided them have thrived.
Many of these companies that moved to buyout their cross town rivals found they were much larger than the other local competitors who remained. They were more attractive to major oil companies who wanted fewer distributors to manage. They continued to grow through both acquisitions activity and more sophisticated organic sales strategies in an industry that had started to shrink overall.
Now these successful regional companies face a rapidly changing landscape and in talking with many of the largest and most successful players they are recognizing that this time is different. Buying that next competitor means digesting and financing a much larger deal. The systems, management organization, and operational capabilities needed to run dozens of facilities scattered across several states are distinctly different than those needed to run a large regional operation where most everyone still knows each other.
The challenge for those companies who remain is not a linear one of simply taking the next step but a geometric one of taking the next leap. You don’t often fall to your death taking it one step at a time, but not all leaps across the chasm are successful. I am excited for the companies and families that take the leap despite the challenges. There are many more generations of opportunity available in this industry. The risk is greater but so is the reward.
As Published in Fuel Marketer News Winter 2017 Issue