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EZ Energy USA At a Glance
Headquarters: Mansfield, Ohio Stores: 92 (68 company-operated and 24 dealer-operated sites) Total Estimated Sales: $480 million Markets of Operation: northeast and central Ohio, Pittsburgh Retail Brands: ampm, Easy Trip Fuel Brands: BP, Marathon Fuel Volume: 160 million gallons annually |
While many marketers are struggling to ride out this economic recession, one company is thriving with an acquisition-based growth strategy that has seen the startup marketer grow to nearly 100 stores in two short years.
While that company, Mansfield, Ohio-based EZ Energy USA Inc., is still relatively unknown in industry circles, it has assembled an experience leadership team, aggressive expansion plans and a rock solid balance sheet that has it on the brink of becoming a household name.
“To make your mark you are either growing the business, or waiting for the industry to pass you by,” said EZ Energy President and CEO Gregg Budoi, the former chief financial officer of Dairy Mart Convenience Stores, who is charged with leading the company’s budding c-store and wholesale petroleum business. “Our strategy is relatively simple. We are looking for top quality stores that will help us expand in our markets of operation and present opportunities in new markets that will enhance our scalability.”
The markets of operation currently range from central Ohio east to Pittsburgh. In total, the chain directly operates 68 convenience stores under multiple brands, including ampm and its proprietary Easy Trip banner. Plus, it distributes BP and Marathon fuels to an additional 24 stores in Ohio and Pennsylvania. It sells about 160 million gallons of motor fuel annually with sales estimated at $460 million.
Aggressive Growth
EZ Energy is hardly your typical startup company. It’s a subsidiary of EZ Energy Ltd., a publicly-traded, Israeli-based holding company presided by another polished industry veteran, Dr. Eli Zahavi. In addition, EZ Energy has investors from the U.K., Ronson Corp. (owner of Snax 24 a premier c-store chain operated in the U.K.) and Investec Bank, who both support the company’s growth plans.
Zahavi refined his industry resume at two other Israeli-based companies serving as vice president of operations for Delek Group and as the vice chairman of Alon USA.
EZ Energy burst onto the U.S. scene in June 2007 with the acquisition of Central Ohio Energy Inc. The deal netted the company eight Easy Trip convenience stores and the company’s current headquarters in Mansfield. More importantly, the deal with Tom Petersen sparked the company’s relationship with Marathon.
“Our focus has been to grow retail operations from scratch through acquisitions,” Budoi said. “That means we we’re looking for smaller chains with infrastructure and assets that could serve as a springboard for new growth.”
Timing played an important role in EZ Energy’s growth from there. While not a small chain, EZ Energy got a big boost from BP when the oil major announced its plan to get out of direct-store operations in the U.S. EZ Energy seized this opportunity to make a big splash and did so in Cleveland and Pittsburgh.
EZ Energy acquired 26 units from BP in Pittsburgh, making it the top BP-branded marketer there. Today, 15 of the stores operate under the ampm brand and 11 are branded Easy Trip.
BP and EZ Energy in June completed a second deal, this time for properties in Cleveland, which included 39 c-stores, two dealer supply contracts and three vacant lots for future development.
All of the Cleveland stores will continue to sell motor fuel under the BP brand. EZ Energy will operate 17 of these convenience stores under the ampm brand, 17 will be converted to Easy Trip and five will be operated by third parties under their respective brands. Additionally, EZ Energy will venture into branded foodservice as EZ Energy will be the direct franchisee for Subway within seven of the stores.
Budoi and Zahavi, both of whom have strong finance backgrounds, believe strongly in acquiring the property to all of its c-stores as a strategic means for securing future growth.
“Owning real estate gives you options to execute sale-leaseback deals to raise capital and fund additional acquisitions,” Budoi said. “We intend to keep a balanced ratio of ownership on properties without overleveraging the company. We’ll execute sale-leasebacks with real estate investment trusts (REITs) as necessary when it makes sense to grow the business.”
EZ Energy is targeting markets in states that surround its current operations to the south and the east, with Kentucky, Tennessee and Virginia all on the radar, Budoi said.
C-Store Operations
The next phase in EZ Energy’s growth is leveraging the BP, Marathon, ampm and Easy Trip brands. While Budoi has extensive retail experience, he surrounds himself with industry insiders that have proven track records for getting things done.
While ampm has a pretty consistent offering developed by BP, Budoi wants to see Easy Trip evolve as a premiere industry brand that could grow both for company operated sites and its dealer network. “The job of assisting us build the Easy Trip brand falls into the hands of this man,” said Budoi, with a nod to the colleague sitting to his left, Vice President of Marketing Damon Cranford.
Cranford spent more than two decades honing his retail skills with RaceTrac Petroleum, the Atlanta-based operator of 530 convenience stores, and QuikTrip in Tulsa, Okla. While Cranford solidifies the marketing side of the c-store business, Joe Donas, vice president of operations, and the former president of CoGo’s c-stores in Pittsburgh, is charged with growing its wholesale operations. Charlie Gaddis, a finance guru formerly with Goodyear, Riverside Investments and Hugo Boss, is the chief financial officer.
“Our strength is in real estate and infrastructure, but the downside to the growth-by-acquisition strategy is that we have to define what our convenience stores will look like,” said Cranford. “We have to get these stores running and exceeding customers’ expectations with great service and a good value proposition. There’s too much competition in the market right now to waste any time delivering a return on the (retail) investment.”
As the chain grows, Cranford’s job becomes more challenging. However, those challenges create some unique opportunities to reinvent the existing retail network. For example, after acquiring the eight stores from Central Ohio Energy, EZ Energy was dealing with regional account managers from product suppliers and wholesalers. Now, having some economies of scale to work with, Cranford is looking to deal with national account managers to get more favorable pricing to allow stores to price more competitively and to improve in-store margins.
Store sizes range from 11 kiosks at smaller gas stations to full-service convenience stores as large as 7,000 square feet. Regardless of the size, Cranford wants to develop a consistent brand offering at the 34 Easy Trip stores.
“Our focus now is to introduce quality concepts in clean stores served by employees that understand how to provide outstanding customer service,” Cranford said. “With ampm, we have a lot of assistance from BP and a recognizable brand. That’s a luxury we don’t have with Easy Trip. We are testing foodservice, coffee and frozen beverages to make sure we get the offering right. As we move along, we’ll tweak the offering to accommodate the different neighborhoods we operate in.”
Fare Game
Developing this personalized Easy Trip retail experience is what Cranford views as his biggest challenge. “One thing I have learned is that it’s OK to take outstanding concepts and tailor them to fit your needs,” he said. “This is especially true when it comes to foodservice. Customers already have a preference for what they like and don’t like. We have to get into the market and find out what they want and then do it better than everybody else.”
When it comes to foodservice, Cranford is under no delusions about just whom he is up against. Aside from the traditional QSRs, Easy Trip is facing the likes of Sheetz, Wawa and GetGo.
“Foodservice is a little bit of a double-edged sword,” Cranford said. “The success that Sheetz and GetGo have had benefits all of us in the convenience store industry by elevating the overall foodservice proposition the industry offers in the eyes of customers. They laid the foundation. On the other hand, it’s tough to compete against. But we firmly believe this competition will make us better operators.”
While foodservice is expected to be a big part of the Easy Trip offering, Cranford is also working on creating a relationship with customers. “Marketing begins when the consumer is driving down the street. They must be able to see something appealing, something that makes them want to come to one of our stores,” he said. “If you have the nicest people and the best service, no one will know it if the lot looks dirty from the outside. If you have the cleanest lot in town and the worst service, it won’t matter either. Having a well-rounded convenience value proposition is crucial.”
Looking Forward
While the chain has surged from eight to 92 stores in just 18 months, Budoi wants to add as many as 200 stores during the next few years.
Coming into a crowded market, facing a tough economy that has already swallowed up companies like Flying J and Appalachian Oil makes the road ahead appear even more daunting for EZ Energy. Add to that the industry’s troublesome history of rollup companies collapsing under the weight of their own debt, and the logical question for Budoi and his team is, “why expand in this market now?”
“The answer is there are opportunities in this economy for companies that are smart, selective and have the infrastructure in place to be successful,” Budoi said. “We have built an IT staff, focused on store managers and employees and put a leadership team in place that’s all about the future, not just today. From a capital standpoint, we will not strain ourselves with an acquisition that doesn’t meet our standards for an acceptable ROI or asset quality. Growth is important, but sometimes the best deal is the one you don’t make.” CSD
