Shell's New Ascent
Don't tell Russell Caplan that Shell has lost its edge. In fact, he gets a little agitated at the mere suggestion that Shell has slipped in its standing as a Big Oil powerhouse in the United States. And certainly don't mention the two recent joint ventures that were supposed to "transform the U.S. convenience retailing business."
With good reason, Shell doesn't want to spend too much time looking at the past, especially now, as it lays out more than $500 million to invigorate its U.S. operations.
"We've been quiet over the past few years, but that is not an indication of what our future holds," said Caplan, vice president of Houston-based Shell Oil Products U.S. "We are getting leaner, energized and ready to begin our ascent back to the top of the retailing industry in the United States."
Shell in many ways has been a sleeping giant. And the bad news for the rest of the industry is that naptime is over. Shell has risen refreshed and focused on gaining a dominant share of U.S. convenience store and petroleum sales.
In an exclusive interview with Convenience Store News, Caplan acknowledged the oil behemoth has committed more than its share of marketing blunders in the United States, most recently with its ETD convenience store concept, which failed to catch on nationally, and in its relations with jobbers and dealers.
The oil company now looks to gain at least a 15-percent share of the convenience market through a massive rebranding project. But it won't be easy, and there will be casualties. As part of its rebranding, Shell intends to prune as many as 2,000 stores from its 22,000-store network and sever relations with some of its branded wholesalers, some of whom have been partners for three generations.
But with every ending there is a new opportunity. Shell said it is pursuing new jobbers and dealers as it looks to forge relationships that will guide its retailing strategy for the next three generations.
In May, Shell Oil Products U.S. kicked off a planned conversion of its Texaco-branded c-stores and gas stations to the Shell brand. The conversion began in Oklahoma City with Star Fuels Inc. and is expected to spread market to market until its scheduled completion in June 2004. The Oklahoma City conversion, which included some 20 stores, will wrap up in July.
The rebranding of these service stations represents much more than a physical change. Shell is giving a facelift to the entire service station experience from the inside out.
To oversee its massive shift in retail strategy, Shell tabbed the experience of Caplan, an industry veteran of more than 20 years. He acknowledges changes are in store. "We are moving away from the mindset that we are a Big Oil company and we're going to do things our way," he said. "We are a Big Oil company, but our focus needs to be on driving the retail business to meet the customers' needs."
Transforming the Shell brand and image in the marketplace won't be easy. Beginning with the 1998 deals with Texaco Inc. to create joint-venture companies Equilon Enterprises LLC and Motiva Enterprises LLC, Shell had a vision of increasing fuel volume by combining labor and distribution pools with Texaco to reduce costs and yield greater returns. In the end, the only real victors were the folks that make headache medicine as leaders from both companies clashed on almost every major operating issue.
The Equilon and Motiva alliances came under scrutiny almost from the moment they were announced. Analysts wondered how two companies with dynamically differing views on operations could co-exist. The answer was, not very well. Several sources, speaking on the condition of anonymity, told CSNews at the time that Texaco employees complained of losing their autonomy to be creative, while Shell's leadership struggled to contain its perceived renegade partner.
"If you look at how difficult it was for Shell to regain control of what we started, you would have to conclude the joint ventures were a mistake," Caplan said. "We didn't have the single-minded focus that is required to compete effectively. Moreover, because we had a third shareholder [Saudi Aramco, a one-third partner in Motiva], we had to preserve a geographic organization to satisfy their needs."
The result was a management nightmare. "The costs were too high and the focus was much too fragmented to ever yield the returns the companies anticipated when the deals were first announced," said Caplan, who led similar turnarounds for Shell's retailing business in Australia and Europe.
In the industry, the Shell-Texaco ventures deal became a textbook case of what other merging partners should not do.
Shell's opportunity to right the retail ship came last year after Chevron Corp. made a surprise bid to acquire Texaco. Chevron's announcement opened a window for Shell to leap in and swipe the retail and refining assets of the two joint ventures.
Once Chevron's deal for Texaco was approved, on the condition it divest Texaco's interest in Equilon and Motiva, Shell and Texaco again were forced to the bargaining table to work out a deal. After months of bitter negotiations, in which both sides publicly claimed the other was being unreasonable, Shell emerged with an agreement for Texaco "at the price we wanted, on the conditions we wanted and in the time frame we were looking for," Caplan said.
Retail Focus
The more pressing question facing Shell right now is whether a 100-year-old company firmly established in virtually every major market in the world can reinvent itself? "We're going to have to," Caplan said.
Reinventing itself means operating smarter. In this case, smarter operations have resulted in an evaluation of each store in the 22,000-unit network, and a fresh commitment to areas such as category management and technology.
Oklahoma City serves as the testing ground for Shell's new rebranding strategy, one the company says is the largest of its kind in U.S. history. It was chosen because it is a market where Shell lacked a branded retail offering, said Rick Wirth, manager of marketing and external communications for Shell Oil Products.
Dubbed the retail visual identity (RVI) program, the conversion includes supporting the Shell fuel brand with a consistent coffee, fountain and foodservice offering at each store. (See "A Brighter Future," CSNews, Aug. 27, 2001.)
Four principle ideas guide Shell's new agenda:
Getting the network right. "Stores that are going to continue on with the Shell brand are going to be worthy of the Shell name and are going to be in the right places," Caplan said. "That is not the case for all of our sites today, so there will be some network pruning."
Finding the right offering. "We need to be much more careful in how we go out and present ourselves," Caplan said. "That means before we go rush off again to get into the fast-food or home-meal replacement businesses, which might have a role in a select group of stores, we need to determine its role across the network."
Perfecting execution. Aside from having the right products, the company expects to deliver quick service combined with strong localized management of each store.
Expanding along the right cost base. The company's top priority is to sell more products through fewer outlets. "If you can sell as much through 20,000 stores as you can through 22,000 stores, you have a much more profitable business," Caplan said.
"We have a fantastic network. It's dispersed with a bunch of stuff we don't want. We can shed that. But the core network is powerful, and the Shell brand is a powerful brand even though in the last five years it has been tarnished around the edges. We can bring that back and revive 100 years of history in this country and build it back up again by doing the basic things."
For example, Shell is committed to driving volume in an increasingly competitive market. But over the last few years, store management chainwide slipped to a point where the company's retail offering was fragmented. One Shell operator was committed to fast food, another to the ETD concept, while another refused to upgrade to pay-at-the-pump. That fragmentation caused confusion among consumers and the weaker operators tarnished the company's image.
As Shell began formatting its retail strategy, it opened its doors to suppliers and manufacturers throughout the industry to make their case for becoming Shell partners. The oil company continues its partnership with McLane, but everything else is pretty much up for grabs. "We are reviewing our partnerships with everyone," he said. "And we are reviewing our arrangements in relation to what we carry in our stores so that we can have a clearer set of categories with a more focused number of SKUs."
The rebranding will be an extremely tricky operation for Shell, one that literally takes it street corner to street corner in every market in the country. In areas where Shell and Texaco stores are competing, the company plans to keep only the more profitable store using a formula based on sales, fuel volume, the age of the store and long-term potential.
Caplan said his team is incorporating the strong points of both brands into its retail strategy. For example, Texaco stores on the West Coast, which were under the former Star Enterprises, have a reputation for being extremely well managed at the store level and very good at meeting the local needs of customers. Shell, on the other hand, owns a flourishing credit-card network and has put its deep resources into building rewards programs for customers that offer advantages such as a 5-percent rebate on Shell fuel purchased with the Shell MasterCard.
"We are going to incorporate the best practices and experience of our employees from both companies to develop a strategy that works for each market," Caplan said. "We have the people in place, now we're putting the strategy in place as well."
Mending Fences
During the Equilon and Motiva mess, dealers and jobbers for Shell and Texaco found themselves stuck in the middle of a feud that cast an uncertain shadow over their operations. "There were many times when we just didn't know where we stood or who was calling the shots," said Tom West, who heads the Texaco Wholesale Marketers Association.
Shell's ability to rein in the joint ventures is a good first step toward making peace with franchisees and dealers, according to oil analyst Fadel Gheit, at New York-based Fahnestock and Co. "The name of the game for all oil companies today is fuel volume. Coming up with one retail strategy in the long run is the best first step Shell could take toward improving its relations with wholesalers and ultimately increasing volume," he said.
Achieving a business model that operates leaner is no easy task. Shell is currently under contract to hundreds of branded marketing partners who are unlikely to simply give up the Shell or Texaco brand to satisfy Shell. On the flip side, there are no guarantees that Shell will renew contracts with its marketing partners.
Some marketing partners will be left out, according to West. Many are already finding themselves in a precarious position. "It's an uneasy feeling right now for marketers that are not sure whether their contracts are going to be renewed," West said. However, "this also gives marketers a chance to break away from Shell or Texaco if they decide to go in a different direction."
Retailers may want to opt out, said West, because they fear that as part of Shell's aggressive marketing plan, hard-to-reach volume requirement may be placed on them that would make it difficult to qualify for rebate and assistance programs in the future.
Changes Near
Caplan is very much aware of this uncertainty. "I feel very good about the wholesale business and the relationships we have. But if you talk to the wholesalers and jobbers, they know there is a tidal wave approaching them," he said. "In five years there will be about 50 percent fewer wholesalers than there are today and a whole lot less stations operated by wholesalers then there are today in non-urban areas."
This is not simply a byproduct of Shell's decision to scale back operations. The company says it's also a result of market forces at work, specifically, increased competition from supermarkets and hypermarkets and even an amalgamation of wholesalers and jobbers that are trying to stay competitive with other wholesale companies. "The companies that are standing still and waiting for the light at the end of the tunnel are not recognizing that that's a train coming the other way," Caplan said.
Tom Harvey, president of Alexandria, Va.-based Hollin Hall Co., a single-store Shell-branded operator, is one of the dealers who sees the writing on the wall. "Because of our size and all of the competition around us, we are forced to pay prices higher than what others are selling for at the retail level," he said. "Staying branded and keeping up with market forces is becoming impossible."
Cutting off ties with longtime partners is one of the painful realities coming to fore. There are families who have been in this business for generations — some who aren't mentally prepared to be doing anything else.
"There is nothing wrong with the people in stores that are not making money; it's just that we are engaged in a bad business deal, maybe for them and certainly for us, and we have to do something about that," Caplan said. "If we have a contract that is locking us into a position that we determine is not beneficial for us, we are still obligated to honor that contract. But if we can negotiate out, buy our way out or come to some economic conclusion that makes sense, then we'll do that."
Budding Friends
While some marketers are squeezed out, Shell said it would make a firm commitment to the partners that remain. More than 50 percent of Shell's volume, including pro-rated and projected numbers from Texaco's operations, comes from this segment. Looking forward, much of Shell's business is going to continue to be done through wholesalers.
"We will offer cost incentives and financial packages to wholesalers to make the changes and continue doing business with us, for the rebranding and how much we are going to pay in the form of incentives for them to do business with us," Caplan said. "Although we talk about cutting our underperforming units, we are still committed to growing the business through our branded partners."
These partners face changes. For example, Texaco operators have enjoyed a certain amount of autonomy, in some cases, for three generations. Is Shell prepared to deal with the backlash from marketers as it tries to rein in some, if not all of that autonomy?
"It's a key question that we have to deal with in many of our markets," Caplan said. "A large part of the business has been in the hands of independent operators. There is almost always just one answer to that question. You have to be able to convince them that their business will only get bigger and stronger if they buy into this strategy."
After five years of poor retail performance, Shell has an uphill battle convincing dealers, wholesalers and jobbers to invest in its strategy now.
"The legacy of our company is that we were strong by giving local people a lot of local autonomy," Caplan recalled. "The consequence of that is you see many different things at our stores. That does not fit our purpose anymore. We have to be able to turn that over time to a simpler, standard set of offerings."
"We won't cure all the fragmentation overnight, but we will tighten up operations and quickly become a dominant company in this industry once again."
With good reason, Shell doesn't want to spend too much time looking at the past, especially now, as it lays out more than $500 million to invigorate its U.S. operations.
"We've been quiet over the past few years, but that is not an indication of what our future holds," said Caplan, vice president of Houston-based Shell Oil Products U.S. "We are getting leaner, energized and ready to begin our ascent back to the top of the retailing industry in the United States."
Shell in many ways has been a sleeping giant. And the bad news for the rest of the industry is that naptime is over. Shell has risen refreshed and focused on gaining a dominant share of U.S. convenience store and petroleum sales.
In an exclusive interview with Convenience Store News, Caplan acknowledged the oil behemoth has committed more than its share of marketing blunders in the United States, most recently with its ETD convenience store concept, which failed to catch on nationally, and in its relations with jobbers and dealers.
The oil company now looks to gain at least a 15-percent share of the convenience market through a massive rebranding project. But it won't be easy, and there will be casualties. As part of its rebranding, Shell intends to prune as many as 2,000 stores from its 22,000-store network and sever relations with some of its branded wholesalers, some of whom have been partners for three generations.
But with every ending there is a new opportunity. Shell said it is pursuing new jobbers and dealers as it looks to forge relationships that will guide its retailing strategy for the next three generations.
In May, Shell Oil Products U.S. kicked off a planned conversion of its Texaco-branded c-stores and gas stations to the Shell brand. The conversion began in Oklahoma City with Star Fuels Inc. and is expected to spread market to market until its scheduled completion in June 2004. The Oklahoma City conversion, which included some 20 stores, will wrap up in July.
The rebranding of these service stations represents much more than a physical change. Shell is giving a facelift to the entire service station experience from the inside out.
To oversee its massive shift in retail strategy, Shell tabbed the experience of Caplan, an industry veteran of more than 20 years. He acknowledges changes are in store. "We are moving away from the mindset that we are a Big Oil company and we're going to do things our way," he said. "We are a Big Oil company, but our focus needs to be on driving the retail business to meet the customers' needs."
Transforming the Shell brand and image in the marketplace won't be easy. Beginning with the 1998 deals with Texaco Inc. to create joint-venture companies Equilon Enterprises LLC and Motiva Enterprises LLC, Shell had a vision of increasing fuel volume by combining labor and distribution pools with Texaco to reduce costs and yield greater returns. In the end, the only real victors were the folks that make headache medicine as leaders from both companies clashed on almost every major operating issue.
The Equilon and Motiva alliances came under scrutiny almost from the moment they were announced. Analysts wondered how two companies with dynamically differing views on operations could co-exist. The answer was, not very well. Several sources, speaking on the condition of anonymity, told CSNews at the time that Texaco employees complained of losing their autonomy to be creative, while Shell's leadership struggled to contain its perceived renegade partner.
"If you look at how difficult it was for Shell to regain control of what we started, you would have to conclude the joint ventures were a mistake," Caplan said. "We didn't have the single-minded focus that is required to compete effectively. Moreover, because we had a third shareholder [Saudi Aramco, a one-third partner in Motiva], we had to preserve a geographic organization to satisfy their needs."
The result was a management nightmare. "The costs were too high and the focus was much too fragmented to ever yield the returns the companies anticipated when the deals were first announced," said Caplan, who led similar turnarounds for Shell's retailing business in Australia and Europe.
In the industry, the Shell-Texaco ventures deal became a textbook case of what other merging partners should not do.
Shell's opportunity to right the retail ship came last year after Chevron Corp. made a surprise bid to acquire Texaco. Chevron's announcement opened a window for Shell to leap in and swipe the retail and refining assets of the two joint ventures.
Once Chevron's deal for Texaco was approved, on the condition it divest Texaco's interest in Equilon and Motiva, Shell and Texaco again were forced to the bargaining table to work out a deal. After months of bitter negotiations, in which both sides publicly claimed the other was being unreasonable, Shell emerged with an agreement for Texaco "at the price we wanted, on the conditions we wanted and in the time frame we were looking for," Caplan said.
Retail Focus
The more pressing question facing Shell right now is whether a 100-year-old company firmly established in virtually every major market in the world can reinvent itself? "We're going to have to," Caplan said.
Reinventing itself means operating smarter. In this case, smarter operations have resulted in an evaluation of each store in the 22,000-unit network, and a fresh commitment to areas such as category management and technology.
Oklahoma City serves as the testing ground for Shell's new rebranding strategy, one the company says is the largest of its kind in U.S. history. It was chosen because it is a market where Shell lacked a branded retail offering, said Rick Wirth, manager of marketing and external communications for Shell Oil Products.
Dubbed the retail visual identity (RVI) program, the conversion includes supporting the Shell fuel brand with a consistent coffee, fountain and foodservice offering at each store. (See "A Brighter Future," CSNews, Aug. 27, 2001.)
Four principle ideas guide Shell's new agenda:
Getting the network right. "Stores that are going to continue on with the Shell brand are going to be worthy of the Shell name and are going to be in the right places," Caplan said. "That is not the case for all of our sites today, so there will be some network pruning."
Finding the right offering. "We need to be much more careful in how we go out and present ourselves," Caplan said. "That means before we go rush off again to get into the fast-food or home-meal replacement businesses, which might have a role in a select group of stores, we need to determine its role across the network."
Perfecting execution. Aside from having the right products, the company expects to deliver quick service combined with strong localized management of each store.
Expanding along the right cost base. The company's top priority is to sell more products through fewer outlets. "If you can sell as much through 20,000 stores as you can through 22,000 stores, you have a much more profitable business," Caplan said.
"We have a fantastic network. It's dispersed with a bunch of stuff we don't want. We can shed that. But the core network is powerful, and the Shell brand is a powerful brand even though in the last five years it has been tarnished around the edges. We can bring that back and revive 100 years of history in this country and build it back up again by doing the basic things."
For example, Shell is committed to driving volume in an increasingly competitive market. But over the last few years, store management chainwide slipped to a point where the company's retail offering was fragmented. One Shell operator was committed to fast food, another to the ETD concept, while another refused to upgrade to pay-at-the-pump. That fragmentation caused confusion among consumers and the weaker operators tarnished the company's image.
As Shell began formatting its retail strategy, it opened its doors to suppliers and manufacturers throughout the industry to make their case for becoming Shell partners. The oil company continues its partnership with McLane, but everything else is pretty much up for grabs. "We are reviewing our partnerships with everyone," he said. "And we are reviewing our arrangements in relation to what we carry in our stores so that we can have a clearer set of categories with a more focused number of SKUs."
The rebranding will be an extremely tricky operation for Shell, one that literally takes it street corner to street corner in every market in the country. In areas where Shell and Texaco stores are competing, the company plans to keep only the more profitable store using a formula based on sales, fuel volume, the age of the store and long-term potential.
Caplan said his team is incorporating the strong points of both brands into its retail strategy. For example, Texaco stores on the West Coast, which were under the former Star Enterprises, have a reputation for being extremely well managed at the store level and very good at meeting the local needs of customers. Shell, on the other hand, owns a flourishing credit-card network and has put its deep resources into building rewards programs for customers that offer advantages such as a 5-percent rebate on Shell fuel purchased with the Shell MasterCard.
"We are going to incorporate the best practices and experience of our employees from both companies to develop a strategy that works for each market," Caplan said. "We have the people in place, now we're putting the strategy in place as well."
Mending Fences
During the Equilon and Motiva mess, dealers and jobbers for Shell and Texaco found themselves stuck in the middle of a feud that cast an uncertain shadow over their operations. "There were many times when we just didn't know where we stood or who was calling the shots," said Tom West, who heads the Texaco Wholesale Marketers Association.
Shell's ability to rein in the joint ventures is a good first step toward making peace with franchisees and dealers, according to oil analyst Fadel Gheit, at New York-based Fahnestock and Co. "The name of the game for all oil companies today is fuel volume. Coming up with one retail strategy in the long run is the best first step Shell could take toward improving its relations with wholesalers and ultimately increasing volume," he said.
Achieving a business model that operates leaner is no easy task. Shell is currently under contract to hundreds of branded marketing partners who are unlikely to simply give up the Shell or Texaco brand to satisfy Shell. On the flip side, there are no guarantees that Shell will renew contracts with its marketing partners.
Some marketing partners will be left out, according to West. Many are already finding themselves in a precarious position. "It's an uneasy feeling right now for marketers that are not sure whether their contracts are going to be renewed," West said. However, "this also gives marketers a chance to break away from Shell or Texaco if they decide to go in a different direction."
Retailers may want to opt out, said West, because they fear that as part of Shell's aggressive marketing plan, hard-to-reach volume requirement may be placed on them that would make it difficult to qualify for rebate and assistance programs in the future.
Changes Near
Caplan is very much aware of this uncertainty. "I feel very good about the wholesale business and the relationships we have. But if you talk to the wholesalers and jobbers, they know there is a tidal wave approaching them," he said. "In five years there will be about 50 percent fewer wholesalers than there are today and a whole lot less stations operated by wholesalers then there are today in non-urban areas."
This is not simply a byproduct of Shell's decision to scale back operations. The company says it's also a result of market forces at work, specifically, increased competition from supermarkets and hypermarkets and even an amalgamation of wholesalers and jobbers that are trying to stay competitive with other wholesale companies. "The companies that are standing still and waiting for the light at the end of the tunnel are not recognizing that that's a train coming the other way," Caplan said.
Tom Harvey, president of Alexandria, Va.-based Hollin Hall Co., a single-store Shell-branded operator, is one of the dealers who sees the writing on the wall. "Because of our size and all of the competition around us, we are forced to pay prices higher than what others are selling for at the retail level," he said. "Staying branded and keeping up with market forces is becoming impossible."
Cutting off ties with longtime partners is one of the painful realities coming to fore. There are families who have been in this business for generations — some who aren't mentally prepared to be doing anything else.
"There is nothing wrong with the people in stores that are not making money; it's just that we are engaged in a bad business deal, maybe for them and certainly for us, and we have to do something about that," Caplan said. "If we have a contract that is locking us into a position that we determine is not beneficial for us, we are still obligated to honor that contract. But if we can negotiate out, buy our way out or come to some economic conclusion that makes sense, then we'll do that."
Budding Friends
While some marketers are squeezed out, Shell said it would make a firm commitment to the partners that remain. More than 50 percent of Shell's volume, including pro-rated and projected numbers from Texaco's operations, comes from this segment. Looking forward, much of Shell's business is going to continue to be done through wholesalers.
"We will offer cost incentives and financial packages to wholesalers to make the changes and continue doing business with us, for the rebranding and how much we are going to pay in the form of incentives for them to do business with us," Caplan said. "Although we talk about cutting our underperforming units, we are still committed to growing the business through our branded partners."
These partners face changes. For example, Texaco operators have enjoyed a certain amount of autonomy, in some cases, for three generations. Is Shell prepared to deal with the backlash from marketers as it tries to rein in some, if not all of that autonomy?
"It's a key question that we have to deal with in many of our markets," Caplan said. "A large part of the business has been in the hands of independent operators. There is almost always just one answer to that question. You have to be able to convince them that their business will only get bigger and stronger if they buy into this strategy."
After five years of poor retail performance, Shell has an uphill battle convincing dealers, wholesalers and jobbers to invest in its strategy now.
"The legacy of our company is that we were strong by giving local people a lot of local autonomy," Caplan recalled. "The consequence of that is you see many different things at our stores. That does not fit our purpose anymore. We have to be able to turn that over time to a simpler, standard set of offerings."
"We won't cure all the fragmentation overnight, but we will tighten up operations and quickly become a dominant company in this industry once again."