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It’s early December, and Parkland Fuel Corp. President and CEO Bob Espey has reason to celebrate. His company’s latest five-year expansion strategy, dubbed the Parkland Penny Plan, will wrap in 2015, well ahead of schedule.
This swift and ambitious growth has meant hard work, and Alberta-based Parkland is running flat out. The country’s largest independent fuel and lubricant distributor and marketer oversees retail, commercial and wholesale fuel trading operations that will soon total 1,100 gas stations from coast to coast. Besides owning the Fas Gas Plus and Race Trac brands, Parkland is the No. 1 Esso-branded fuel distributor in Canada and a Chevron Corp. distributor in British Columbia. The company also supplies fuel products to industrial customers and home-heating fuel to consumers nationwide.
The next five-year plan is developing as employees catch their collective breath from exceeding the current one’s demands. Reflecting on the Penny Plan’s success, Espey says it galvanized Parkland’s investors, as well as other internal and external stakeholders. Launched in May 2012, the strategy called for the corporation to double annual fuel sales to seven billion litres while creating internal operational savings equivalent to one cent per litre. Saving $70-million through improved efficiencies and economies of scale, it would double annual earnings to $250-million.
Parkland is in the midst of purchasing Pioneer Energy, a top Ontario gas station chain. Closing the $378-million transaction in early 2015 will realize the earnings goals of the Penny Plan one year early. For the 12 months ended September 30, 2014, Parkland’s annual fuel sales hit 8.4 billion litres, not including sales from Pioneer.
“The Penny Plan was a great way to unify people around a common vision for the business,” says Espey, who took over as CEO in 2011 after serving in top management positions at Parkland since November 2008. “As a leader, you want to have one vision, one plan. It needs to feel right.”
Espey ascribes the inspiration for the corporation’s growth-centric five-year plan to the inherently low profit margin at the pump and the business acuity of Parkland founder Jack Donald, who launched its fuel operations by opening the first Fas Gas station in Red Deer, Alberta, in 1977.
Donald snipped away one-eighth of a penny in a pie slice-shaped wedge. “He used to show it to people and say, ‘Of every penny you spend at the pump, that’s how much we end up with,’” explains Espey, who holds an MBA from Western University’s Ivey Business School. Far from gouging consumers, gasoline and diesel retailers retain less than 10 cents per litre of the pump price. “Similar to consumers, we don’t like high fuel costs as it puts a lot of pressure on our business,” Espey says. “Credit card fees and working capital go up. Lower prices are good for our retail business.”
Parkland moves fuels between the refinery gate and the end consumer, a mature and fragmented marketplace that totals about 75 to 80 billion litres annually in Canada. Parkland aims to be the marketing partner of choice for refiners to move refined product into the market. It does this through a combination of branded and unbranded channels that let refiners keep branded offers but not have capital tied up in the assets.
Canada’s vast geography is another challenge-turned-opportunity that allows Parkland to provide the best possible service to customers, Espey says. “We’re marketing a commodity, so the base price is much the same, no matter who you buy it from,” he notes. “The differentiator is our people and our service. We differentiate through good loyalty programs and good customer service.”
The corporation tracks and acts upon this all-important satisfaction level by employing the Net Promoter Score, an index favoured by Fortune 500 companies. Surveying a representative subset of customers each month, business unit managers then interview dissatisfied respondents. Acting on their feedback, Parkland has earned an industry-leading customer satisfaction rate.
Parkland chooses new acquisitions for their ability to lend supply and operational leverage to the parent corporation. With the 2013 purchase of Calgary-based Elbow River Marketing Ltd., a fuel transport, marketing and trading business, for $85-million, it gained new transport capabilities. Elbow River’s fleet of 1,900 rail cars gives it the ability to move commodities throughout North America. The acquisition of Pioneer increases the scale of Parkland’s existing retail business and enables strong synergies in supply, operations and systems.
Growing rapidly, Parkland has aggressively positioned itself as a marketplace consolidator. Noting that the fuel marketing industry expands at just 1 to 2 per cent annually, Espey says the company has maintained financial growth and investor interest on the increased supply strength that comes with well-priced acquisitions. Targeting areas where it has a supply advantage, it has purchased other independent operators such as Minot, North Dakota-based SPF Energy, Inc., which it acquired in a January 2014 deal worth $98-million. Parkland has also bought assets from oil giants, including Chevron gas bars and Imperial Oil Ltd. Esso gas stations.
Building supply volume and boosting operational scale has strengthened Parkland’s hold on two central orbits: its Edmonton-centred Western Canadian operations and its Eastern Canadian business, whose core is the corridor from Sarnia, Ontario, to Montreal. Reaching into the northern U.S. with SPF and its 16 Superpumper, Inc. gas stations also makes geographic and logistic sense. It’s an example of how Parkland has made acquisitions that give it supply leverage rather than, say, being tempted into the California market, where it has none.
Parkland’s corporate and single-site acquisitions will continue. “We’re really positioned to grow,” Espey says. “We recently issued $400-million in high-yield bonds, which has given us a lot of strength on our balance sheet to continue to acquire businesses. We have roughly half a billion dollars of capacity. It’s great when our business development team can sit down with prospective vendors and say, ‘We can do this, and we don’t have to check with anybody to make sure we can afford it.’”
Espey and his team will step back and evaluate the company’s direction, but he says there’s no reason Parkland can’t double in size yet again when its next five-year plan launches this year.