I’ve devoted several articles over the past few years to the necessity of implementing a network rationalization strategy whereby marginal retail sites are divested and proceeds redeployed to improve chain quality. Heeding the call, several marketers have enlisted our support to find optimal solutions for their unique retail circumstances including both direct store operations and dealer lease scenarios.
Based upon this experience, the divestiture of sites leased to dealers clearly poses the greatest challenges for some of the following reasons:
• The leases significantly reduce buyer options as removal of the existing dealers is generally not quick or straightforward. Marketability is further reduced if the seller desires to retain the fuel supply into the future. Potential buyers are thereby limited to passive real estate investors seeking a fixed rate of return on their money from rent generated by the existing dealer. Depending upon the desired price, a site sale with the dealer may be at a disadvantage if the rent capitalization returns are on par with a site offered by a publicly traded c-store operator that garners a "credit tenant" rating.
• The site clearly has the highest value to the existing dealer, making him the prime purchase candidate. He has an historical vested interest in the site and has consistently enjoyed the inside sales revenues, which are a mystery to most marketer owners. This, combined with the potential to earn enhanced profits from a revised fuel supply arrangement, should help offset a higher mortgage payment versus existing rent.
Thus, marketer facilitation of the dealer purchase may yield greater sales proceeds and enable the divestiture to be better programmed into the overall network rationalization strategy.
Exclusively targeting the existing dealers in the beginning by creating and implementing a structured divestiture program will make the site sales process more straightforward and successful. The benefits of having a formal program are compounded when the goal is to divest a block of sites to time with an acquisition or other growth related activity. Fueled by marketer financing support, successful program deployment will have the following steps and elements:
• Program organization and implementation preparation. Targeted sites are defined, customized sales materials are created, the venues for one-on-one dealer meetings are reserved and meeting invitations are disseminated.
• Lender recruitment and secondary financing. Participating mortgage and equipment lenders are enlisted. The parameters of the first mortgage program are defined and site-specific equipment requirements needing financed are determined. Minimum dealer equity contributions are established to make the purchase decision as easy as possible. Marketer-backed secondary financing support criteria are established to overcome primary lender leverage shortfalls or to facilitate equipment needs.
• Program presentation and dealer purchase enlistment. One-on-one dealer meetings are held to overview program and enlist participation. Using customized presentation kits, the program is presented as a limited one time purchase opportunity.
• Facilitation of loan documents and lender requests. Lender requirements will vary for each dealer and site circumstance, which will dictate the level of marketer support in terms of the scope of second mortgage financing. Primary lenders generally view seller financing as buyer equity. Thus the amount to be financed by the marketer usually represents the enhanced sales proceeds to be garnered by selling to the dealer. • Ongoing coordination through closing. Close coordination is provided between buyer, lenders and other entities to keep the purchase process on track and on schedule. Modified fuel supply procedures are established to correspond with the closings.
A comprehensive dealer purchase program enables marketers to better deploy a fundamental network rationalization strategy. Greasing the skids by offering tangible financial assistance in the form of second mortgages and equipment loan guarantees helps unlock equity in marginal sites, maintain optimal chain quality and insure long term profitability.