Enon-based Speedway — one of the largest convenience store chains in the U.S. — is poised for additional growth in the next few years after its parent company rejected a proposal to spin off the retailer earlier this fall.
In an exclusive interview with the Springfield News-Sun, the company’s CEO said the most immediate challenges facing the chain include a lack of available workers in a tight labor market and regulations, including taxes on sugary drinks that make some of Speedway’s best-selling products more expensive for customers.
Speedway, with more than 2,700 stores, is the country’s second-largest company owned-and-operated convenience store chains. The board of directors of its parent company, Findlay-based Marathon, considered making Speedway a separate business earlier this year but voted to keep the chain.
Anthony Kenney, Speedway’s CEO, downplayed the impact of the spin-off proposal and said the retail chain will now look to add additional stores either through internal growth or through acquisition. That could also mean additional work at its headquarters in Enon and Springfield.
“Our objective is growth,” Kenney said. “That was one of the important aspects of the decision that was made. The evaluation of the spin-off was Speedway was going to continue to be an important part of Marathon and a growth part of Marathon. We’re looking for additional growth opportunities, both working organizationally and through acquisition opportunities. That’s going to be an important part of our strategy going forward.”
Speedway is one of Clark County’s largest employers with about 1,350 workers locally and about 33,820 nationally.
Marathon executives have regularly credited the convenience store chain in conference calls with investors with providing reliable revenue for the company.
“Speedway continues to deliver top-tier operational and financial performance, and has significant opportunities for growth over the long term,” Marathon CEO Gary Heminger told investors in an October call. “This performance, and its contribution to (Marathon), is further validation of Speedway’s importance to our integrated model and its ability to generate substantial returns for our shareholders. We will continue to focus resources and capital to Speedway to derive additional value over the long term.”
Room for growth
Marathon created a special committee in January to review the Speedway chain with the help of an independent financial adviser. The company had been under pressure to consider a spin-off after hedge fund Elliot Management Corp., one of the company’s largest shareholders, argued that Marathon’s stock was undervalued.
But after a review that spanned most of this year, Marathon’s board unanimously voted to keep Speedway under Marathon’s umbrella. Kenney credited employees with staying focused during the nine months the review took place.
“We feel real good on where we are now,” Kenney said. “Speedway is going to continue to be an important part of Marathon and very integral part in growing a stable cash flow for the company. We’ve moved on from that. We’ve made that decision and we’ve made the commitment to our shareholders to study that and believe we’ve made the right decision here.”
It’s not clear how or if the proposed spin-off might have affected Springfield, said Horton Hobbs, vice president of economic development for the Chamber of Greater Springfield. But he said the company’s presence in Enon and Springfield is important beyond the jobs they provide locally.
“They’ve been a very strong company in our community, not just from a corporate perspective but from a philanthropic one as well,” Hobbs said. “When you have a headquarters in your community, it sends a message to other companies that it’s a great place to do business. The fact they’ve continued to grow here is a testament, not only to our community and our workforce, but it’s also a testament to the company’s willingness to be all in in Clark County.”
In a recent analysis, Morningstar analyst Allen Good said spinning off the Speedway brand could have been attractive for shareholders. But it would also have also made Marathon’s finances less predictable.
“Furthermore, the absence of Speedway would make (Marathon) more of a pure-play refiner with greater volatility in earnings and cash flow, potentially jeopardizing steady growth in shareholder returns over time. Activist investor Elliott Management, which previously pushed for the spin-off, has approved the decision,” Good said.
Now the company will focus on expanding to more locations, Kenney said. Speedway completed a $2.8 billion acquisition of Hess Retail Holdings, an East Coast chain, in 2014. Before that deal, Speedway operated about 1,500 stores across the U.S., mostly in Midwestern states like Ohio, Indiana and Michigan.
The acquisition added 1,260 Hess locations, making Speedway one of the largest convenience store chains in the country. The company has since converted all of the Hess locations to the Speedway brand, giving it a new presence along much of the East Coast, particularly in states like Georgia, Florida and the Carolinas.
That deal has already payed off, Kenney said, and the company is looking at more options to grow. Along with establishing new markets for the chain, Marathon supplies about 97 percent of the gasoline and diesel fuel sold at Speedway locations, adding more outlets where the parent company could supply its products.
Speedway will likely look at other opportunities to expand within that footprint, he said.
“We have 21 states where we have our stores and there are a lot of great metro areas throughout all of those states that still provide opportunities,” Kenney said.
An insulated industry
One reason to keep the Speedway chain under Marathon’s umbrella, Kenney said, is that plenty of potential value exists in operating a convenience store chain. The industry has to keep an eye out for new trends, but he argued convenience stores don’t necessarily face the same upheaval as other industries.
Amazon’s recent acquisition of Whole Foods has the potential to disrupt the future of numerous businesses, including grocery stores, retailers and potentially restaurants. But Kenney said for now, convenience stores don’t necessarily face the same challenges as those industries.
“We think the convenience store model is somewhat insulated from some of those things right now because of the nature of our business model,” Kenney said. “The consumer shops convenience for immediate consumption. Generally what they purchase, they’re going to consume immediately, so a cup of coffee in the morning or a snack or a single-serve soft drink or fountain drink. That sort of fill-in or shopping need is a little different than what might affect grocery or drug (stores) or some other channels that really are being disrupted by innovators coming in and looking at their business models and doing things differently.”
Grocery chains are facing potential disruption from online shopping, at least for items that don’t expire quickly, said Jeff Lenard, a spokesman for the National Association of Convenience Stores. But the items sold at most convenience stores include snacks and drinks that shoppers want right away
“Where convenience stores fit in is a little bit more immediate,” Lenard said. “It’s more impulse. It’s difficult to predict that 20 minutes from now you’re going to be thirsty.”
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The chain is keeping an eye on emerging technologies like electric vehicles. Earlier this month, GM announced plans to launch two new electric vehicles over the next 18 months and offer at least 20 electric vehicles by 2023. Other automakers have announced similar plans.
But Kenney said Speedway’s research indicates the threat that could have on gasoline sales at the chain is still a long way off.
Analysts at Speedway have predicted the costs for consumers of owning an all-electric vehicle compared to cars with an internal combustion engine. They found that owning a gas-powered car likely will remain less expensive overall for years to come. Consumers speak with their wallets, Kenney said, so he doesn’t expect the electric vehicle market to take off unless their cost falls sharply.
“While it’s here and it’s here to stay, it’s going to be a while before we see meaningful penetration in market share for (electric vehicles) but its definitely something that’s going to have an impact on our business as our commodity we primarily sell is transportation fuel, gasoline and diesel,” Kenney said.
Speedway does have some challenges in the more immediate future, Kenney said. Customers have more options than ever to shop so the chain has placed more emphasis on offering better, fresh food, he said, and finding more ways to get people to visit the stores.
“I tell people all the time we’ve got to respond to how that consumer chooses to shop, so if they like using their mobile device or order online and pick up or order and home delivery, those are things we’ve got to respond to because ultimately whether they’re shopping at big box outlets or convenience outlets, you’ve got to meet the needs of the consumer,” Kenney said. “We’re paying a lot of attention and continuing to invest in technology, which I think is the key.”
The business also has emphasized its Speedy Rewards loyalty program.
As the economy has improved, Kenney said it’s also become challenging to find and train qualified workers for its growing number of stores. It’s a constant challenge, he said, to recruit, train and staff workers who might then leave for another job.
“What that has done is put pressure on the available good quality pool of employees we would tend to draw from and staff our stores in those level positions,” Kenney said.
And he pointed to a relatively recent trend in some municipalities to increase taxes on sugary drinks like soda and other products that could raise costs for consumers on many popular convenience store products. The industry is often targeted for taxes and regulations, he said.
“Regulation and taxation continue to be challenges we’ll face in the future,” Kenney said. “All I ask for is a level playing field. We’ll compete, but don’t unfairly tax convenience stores or the products we sell versus other channels of trade.”