CSNews Exclusive: ConocoPhillips Aims to Convert Dealer Stations to C-stores

HOUSTON -- Looking to put the enhance the image of its 76 brand and increase gallons sold, ConocoPhillips is presenting West Coast service-bay station operators with a partially financed, modular redesign program that enables them to convert their sites to convenience stores.

Under its West Coast Redevelopment Assistance Program (WRAP), marketers can tap into a remodel option created by Modular Conversions, which consists of architectural services such as a site survey, store layout and design support, and building permits; make-ready services like demolition, removal of repair equipment and site preparation; modular components, including lighting, heating and ventilation equipment, walk-in cooler, cabinetry and merchandisers; and a custom interior and exterior graphics package. This conversion option, designed for 76-branded gasoline marketers and retailers, will be offered in California, Oregon and Washington state through the end of the year.

"As the industry moved away from lube bay operations and toward c-stores, car washes and other profit centers, it was necessary to reconfigure sites to optimize the potential of our locations," Wayne Warmack, ConocoPhillips' director of strategy implementation (West Coast), told CSNews Online. "The WRAP strategy is based on improving the profitability and viability of the site. This program should help enhance the perception of 76 as a top-tier, top-quality brand on the West Coast."

From studies done by the company, it knows the site locations are "as good or better than any other major," said Warmack. "Putting new state-of-the-art facilities on our existing superior locations and combining it with our operators' great customer service and our new 'On the Driver's Side' advertising program will insure the continuing success of the 76 brand."

The advertising program, which kicked off last year in the Pacific Northwest, launches in Southern California this summer with TV, radio and billboard space. The Pacific Northwest will see another round of ads this year and the blitz will hit Northern California at the start of 2011. Plus, the oil company is offering up to $5,000 in support for each grand opening.

Warmack said studies done to justify this program indicated there is the potential for the West Coast 76 stations to generate sales of 200 million more gallons per year and $200 million per year in additional convenience store revenues.

To keep the quality of the conversions -- and prospects for ongoing success -- high, ConocoPhillips negotiated a flat fee with industry consultants MPSI and IMST to generate sales estimates for up to eight potential remodel or rebuild options per site -- from total raze and rebuilds to more modest remodels with or without alternate profit centers, such as a car wash or quick-service restaurant.

With 90 projects approved -- 30 are under construction or have been completed -- and close to 300 more sites in the approval process, ConocoPhillips may potentially upgrade and convert up to 800 of its 1,800 76-branded sites. Some one-fourth to one-third of the approved projects are expected to be raze-and rebuilds.

"Resellers and marketers have told us that due to the recession, contactors have no backlog and are ready to start right away -- and construction costs are at least 25 percent lower than they were a couple years ago," Warmack noted.

For sites being remodeled with the building intact under the Modular Conversions option, a c-store "sleeve" is built in, while the exterior is given a facelift, a process that costs approximately one-third the price of a raze and rebuild. The typical 1,400- to 1,600-square-foot station conversion ranging from $335,000 to $455,000, plus permitting costs that could run up to $80,000, according to Jack Neal, COO of Modular Conversions, which developed the concept and provides the components for the turnkey design package.

ConocoPhillips typically contributes from 25 percent to 33 percent of construction costs, depending on the projected gasoline volume uplift, the cost to supply each site and forecast margins in each market.

Modular Conversions has now developed secondary financing, with a private lender and a mutual fund with private lending criteria, which will approve any ConocoPhillips conversion for up to the 70 percent of the cost left on the table after the oil marketer's contribution, noted John Neuroth, the firms' vice president of sales and marketing.

Once permits are issued for a remodel, total conversion time is close to eight weeks. "We encourage the dealer to do the conversion and begin selling c-store products before the beer and wine permit is granted, because in Southern California, that could take a year or more," Neuroth said.

The process usually goes like this: a team from Anaheim, Calif.-based Modern Conversions removes the bay station's hoists, clarifiers and oil tanks; trenches and prepares the site for in-floor plumbing; and removes the existing store front. A team pours a new concrete pad, upgrades the electrical system, if needed, and installs a new glass storefront. Inside, modular walls, ceiling panels, HVAC, lighting and flooring are installed. Since aluminum skin sandwiches a foam core with all of the electrical work, no dry wall or other time-consuming construction is needed.

"The wall panels have enough cooling potential to be used as walk-in cooler walls, so we don't have to build a cooler inside a new box," Neal noted.

A back room with three-compartment sink and shelving is created; restrooms are updated with new plumbing and fixtures and relocated, if necessary. Dealers may pick from five approved graphics packages, including lighting signage, point-of-purchase hardware and promotional window decals. Metal and wire merchandisers and wood-grain cabinetry complete the package.
Outside, the store gets a new facade, often with an above-the-door cupola, and graphics package.

While Warmack said it is too early to forecast post-construction results, 175 MPSI and IMST site studies completed so far forecast the "best case" average fuel lift from a raze and rebuild to be 70,000 gallons per month and increase in c-store sales of more than $75,000 per month.

Steve Speckman, one of the first operators to convert his gas station to a c-store through a WRAP remodel in late 2008, said the ConocoPhillips program enabled him to get into the c-store business. "I wouldn't have been able to afford to do this without the program," the 76-branded operator said, noting he also had to invest $92,000 in mandated vapor recovery in early 2009.

Speckman has operated at the site, near Loyola Marymount in the West End of Los Angeles, since 1992. Among his competitors: United Oil-, USA- and Arco-branded locations. "Competition in the immediate area is very high," he said, "but there is a lot of business."

In addition to ConocoPhillips' support, Speckman's landlord helped finance the remodel through a loan to be repaid through higher rent payments. Still in the process of getting his beer and wine permit -- which regularly takes more than a year in Southern California -- Speckman said he is comfortable with his site's sales, but is looking forward to increased revenues when alcoholic beverages can be sold. "I dragged my feet on some things, because of a lack of money. I'm still finishing some of the signage. Financially, when the economy gets better, business will be great. I took a leap of faith, but am still pleased to be out of the repair business, which I was in for 30 years. This is a cleaner, nicer, friendly business. It's worked out well, but I'm still waiting to see how it will end up a couple years down the road."

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