Speedway’s $2.8 billion acquisition of Hess is expected to bring new jobs to Clark County as the company nearly doubles its size, expanding its footprint along the eastern seaboard.
The acquisition will make Speedway one of the largest convenience store chains in the U.S., and experts said the mammoth deal will open up a huge market across the East Coast, putting the Enon-based company in a better position to fight for customers in a rapidly changing industry.
“We are currently evaluating the need for additional support to operate a company that is almost doubling in size as it relates to number of stores,” said Angelia Graves, a company spokeswoman. “We do think there will be additional jobs added in Clark County.”
It employs about 800 people at its Enon headquarters.
Marathon Petroleum Corp., Speedway’s parent company, announced in May that its subsidiary had reached a deal to acquire Hess Retail Holdings.
The deal also could benefit local companies that provide services and products to Speedway, experts and local officials said.
These types of agreements will also likely become more common as the convenience store industry evolves, said Gregg Laskoski, senior petroleum analyst for Gasbuddy, which tracks gas prices in the U.S. and Canada.
“The size of it certainly makes it a very distinctive acquisition,” Laskoski said. “This is something that’s occurring with greater frequency. We are seeing more brands disappearing through acquisition. The large brands gobble up the small ones. It’s an ongoing battle for market share.”
Expanding its footprint
Before the acquisition, Speedway operated about 1,480 stores, mostly across Midwestern states like Ohio, Indiana and Michigan.
Hess, the largest convenience store operator on the East Coast, operated about 1,260 locations.
The deal is expected to close in the third quarter of this year and will make Speedway the largest company-owned and operated convenience store chain in the U.S. based on revenue and the second-largest by the number of stores.
It expands Speedway’s footprint from nine to 23 states.
The combined company will have about 34,000 employees, and projects revenues of more than $27 billion, fuel sales of 6.2 billion gallons and merchandise sales of $4.8 billion, according to information from Speedway. The deal will be paid for through a combination of about $2.4 billion in cash, along with $230 million in working capital and $274 million in capital leases.
Once the deal is finalized, the company will begin re-branding Hess stores to the Speedway identity, Graves said, a process that will take about three years.
The change will present some challenges, such as employee training and integrating information technology at both companies. However, she said company officials expect a smooth transition.
The acquisition was likely made not only to acquire additional locations, Laskoski said, but to enhance the company’s buying power, gain access to pipelines and bring in new customers to its Speedy Rewards loyalty program, which already has about 4 million members.
“The strength of this acquisition is not purely contained to the retail outlets themselves,” Laskoski said. “It’s also in the infrastructure and the distribution.”
In the Midwest, Speedway is often the first to move its gas prices up or down depending on the market, Laskoski said, which determines how its competition reacts. It’s not yet clear whether the company can replicate that influence on the East Coast.
In Clark County, the company has a been one of the area’s most generous corporate citizens, said Mike McDorman, president of the Greater Springfield Chamber of Commerce.
Speedway donated $500,000 toward the development of the Springfield Regional Medical Center, assisted with a remodel of the Caring Kitchen food pantry in Urbana, and helped cover the cost of a new scoreboard for the Champion City Kings baseball team, among other projects.
The company’s growth could also benefit other area businesses like Eby-Brown, which supplies merchandise and food products to Speedway, McDorman said.
“They’ve just been an incredible partner to the community and with these types of acquisitions, that only helps further that partnership in the community and hopefully allows them to continue to retain and grow jobs here,” McDorman said.
Speedway is one of the largest employers in the region, not just Clark County, County Commissioner John Detrick.
“It will be a good fit and hopefully we can look for some future expansion in Clark County as a result of this acquisition,” Detrick said.
Marathon, the Findlay-based parent company, has worked aggressively to grow the Speedway brand, particularly over the past year, according to information in the company’s 2013 annual report.
“In our retail business, we expanded the marketing footprint of our Speedway subsidiary, which derives the majority of its margin from relatively stable merchandise sales,” the report states. “We executed the most aggressive construction program in years, including more than 100 property acquisitions, new builds, rebuilds and remodels in 2013.”
Experts said convenience chains like Speedway face increasing pressure from a number of competitors, including those outside the traditional convenience store model.
The acquisition of Hess will give Speedway an advantage over its competitors, allowing it to negotiate for better prices and offer products its competitors might not be able to match, said Jeff Lenard, a spokesman for the National Association of Convenience Stores.
About $1 of every $25 spent in the U.S. is spent at a convenience store, Lenard said, so competition for those dollars is fierce. Drug stores, dollar stores and even grocers are increasingly fighting for the same customers that Speedway covets.
“It’s not just competition with convenience stores,” Lenard said. “It’s competition with anyone that sells what you sell, which is convenience. There are no inconvenient stores left out there. Everybody kind of looks like a convenience store at the register. They have the same snacks, the same drinks and a lot of other products the convenience stores have.”
Speedway’s 2013 annual report echoes those concerns.
“Several non-traditional retailers such as supermarkets, club stores and mass merchants, are in the retail business,” the report says. “These non-traditional gasoline retailers have obtained a significant share of the transportation fuels market and we expect their market share to grow.”
Other firms, including Alimentation Couche-Tard Inc. have also sought to acquire additional brands in recent years. The Canadian firm purchased the Circle K chain in 2013, and made a bid to purchase Casey’s General Stores, based in Iowa, in 2010. Sunoco also announced earlier this year it would merge with Susser, a Texas chain with about 600 stores.
More of those kinds of deals are likely in the future, Lenard said.
“You often see this in industries that are fairly mature as opposed to those still on their rapid growth phase,” Lenard said of the the acquisition. “Stores have a pretty well-oiled machine and want to enter other areas.”
In Clark County, McDorman said he expects the recent acquisition to provide benefits to the area for the foreseeable future.
“We are working very hard to make sure they have everything they need to stay here and grow here,” McDorman said of Speedway.
The Springfield News-Sun covers the region’s largest employers, including Speedway. For this story, the newspaper spoke to company executives, as well as industry experts and local officials to explain what impact the deal will have on the region’s economy.
By the numbers:
1,478 — Current Speedway stores nationwide
1,256 — Hess Retail locations
23 — States with operations after the acquisition
800 — Current Speedway employees at its Enon headquarters
34,000 — Total employees after the acquisition
Source: Marathon Petroleum Corporation
Charting growth: See where Speedway will expand across the United States once the deal to buy Hess is complete at SpringfieldNewsSun.com.