TravelCenters Taps Food Offerings & Services to Draw Customers

WESTLAKE, Ohio — TravelCenters of America LLC (TA) is working through its near- and long-term strategies to boost business with a two-prong goal: offer more to existing customers and attract new, non-traditional customers.

Speaking during the company's third-quarter earnings call on Nov. 7, President and CEO Tom O'Brien laid out the numbers for both non-fuel and fuel sales, and detailed initiatives the company is undertaking to not only address slightly decreased fuel numbers due to overall fuel efficiency, but also to draw local consumers to its sites.

"The story on non-fuel sales and margin is that they both increased slightly overall due to the continued ramp-up attributable to sites recently acquired, but declined modestly on a same-site basis," he said.

O'Brien noted that the same-site non-fuel revenue decline could be attributed primarily to a number of full-service restaurants TA closed for conversion to quick-service restaurants. Excluding that impact, non-fuel revenue would have grown modestly over 2016, he explained.

"What you are now seeing are growing pains associated with repricing our tires as competitively as possible and the buildout of longer-term strategies to expand TA's addressable market opportunities," O'Brien said.

In the near term — including the third quarter of 2017 — these growing pains were "largely alleviated by demonstrated cost control," he added.

"We have a non-fuel strategy that we think works in the short term and in the long term," O'Brien said.

Calling the longer-term strategy more interesting, he explained that over the past 24 months, the company has converted the food branding in more than 15 percent of its travel centers.

"We believe the brands we've added not only increase the variety of food options available to our trucking customers, but also have greater potential to draw local customers," he said.

"Meanwhile, changes in consumer preferences — particularly those related to fresh foods — are reshaping the c-store business," O'Brien continued. "We think our experience and our abilities with restaurants provides us with advantages in that regard, while the redress of our truck stop travel stores as Minit Marts will also provide opportunity for additional customer draw."

Also looking longer term, an undertaking that TA views as "much more significant" in terms of effort and potential for improved results is the company's commercial strategy, the CEO said.

In 2017, TA quietly restreamed its business groups into two: retail and commercial, which is a combination of fuel and truck services.

Truck services includes TA's tire business, onsite mobile maintenance business, and RoadSquad emergency breakdown business. All three are examples of internal growth initiatives, according to O'Brien, but they are also "pieces of a larger strategic transformation taking place in our business and our approach. I think they will lead not only to longer-term growth, but may also be the answer to fuel efficiency headwinds that we've been talking about for quite some time."

The initiatives, he added, position TA to address a larger potential market going forward.

"Our growth plan is one [where] we think that the customers we serve today are but a small percentage of the market that we have the ability to address," O'Brien explained. "We believe we can expand that percentage with a combination of increases and investments in sales efforts and the expansion of the ways in which customers can do business with us — all of which are underway."

TA also thinks its customers have historically purchased a narrow set of maintenance products from the company, and its expanded abilities — through its call center, commercial tire delivery, and onsite offer — should provide opportunities to capture more of existing customers' spending in a way that is beneficial to them and to TA. 

"The undertaking isn't easy,"  the chief executive said. "Our traditional customers know who we are. With non-traditional customers, sometimes we have to explain who we are and why we are qualified. Those new customers simply don't know us as well as long-haul truckers and the introduction can be time-consuming, but I believe it will be worth it."

Reporting some metrics, O'Brien highlighted that tire unit sales in the third quarter were up 7 percent; call volume in the national call center was up 17 percent; and onsite work order count was up 16 percent in the quarter.

"It's up to us now to overcome the growing pains and to have these positives impact our bottom line in a positive way. I believe we are going to be able to do that," he said.

Q3 By The Numbers

As O'Brien pointed out, TA's third-quarter results included three unusual items that made up most of the company's $62.4-million net income result and were not reflected in the same period in 2016:

1. A one-time, non-cash tax benefit of $58.6 million related to the resolution of previous uncertain tax positions that were resolved during the third quarter.
2. A reversal of $4.6 million of site-level operating expense related to excess transaction fees withheld by Comdata, a fuel card transaction processor, for a period prior to the third quarter due to a favorable ruling by the Delaware Court of Chancery.
3. A non-cash impairment charge of $4 million included in EBITDA and related to a few convenience store locations that were negatively impacted by increased competition in their local markets subsequent to TA's acquisition.
    

Third-quarter EBITDA was $44.3 million, or 6 percent below that of the third quarter of 2016, according to O'Brien, due primarily to a $5-million decline in fuel gross margin.

Net income was $62.3 million vs. $10.9 million in comparable income in 2016.

"I do believe our EBITDA and our net income results reflect many positives from our continued efforts from fuel and non-fuel programs," he added.

Fuel Sales Up Close

On the fuel side, sales volume decreased by 12 million gallons, or 2.1 percent, while same-site fuel sales volume decreased by 14.5 million gallons, or 2.6 percent, for the 2017 third quarter compared to the 2016 third quarter.

According to the chief executive, TA believes continued fuel efficiency gains were primary drivers of the decrease, especially by TA's commercial diesel fuel customers.

Fuel revenue increased by $108 million, or 11.4 percent, in the quarter compared to the 2016 third quarter, primarily due to higher market prices for fuel during the 2017 time period.

Fuel gross margin decreased by $5 million to $105 million primarily as a result of the federal biodiesel fuel tax credit program that was in place in 2016 but has not been in place this year, and the increasing diesel fuel cost trend during the 2017 third quarter vs. a declining to flat fuel cost trend during the 2016 third quarter. This was partially offset by the positive impact of TA's fuel purchasing and sales strategies, according to O'Brien.

Westlake-based TA's business includes travel centers located in 43 U.S. states and Canada, standalone convenience stores in 11 states, and standalone restaurants in 14 states. TA's travel centers operate under the TravelCenters of America, TA, Petro Stopping Centers and Petro brand names. TA's convenience stores operate principally under the Minit Mart brand name. Its standalone restaurants operate principally under the Quaker Steak & Lube brand name.