By Erin Rigik, Senior Editor
Marathon Petroleum Corp.’s subsidiary, Speedway LLC, is poised to become one of the leading convenience store and petroleum marketers in the U.S. following last month’s blockbuster deal with Hess Corp. to acquire Hess Retail Holdings LLC.
This transaction incorporates all of Hess’ retail locations, transport operations and shipper history on various pipelines, including approximately 40,000 barrels per day (bpd) on the Colonial Pipeline. The total deal, which is expected to receive regulatory approvals by the end of the year, is valued at $2.87 billion.
Hess is the largest operator of convenience stores along the East Coast and the fifth largest in the U.S. by number of company-operated sites with 1,256 stores located in 16 states. Speedway is the nation’s fourth-largest convenience store chain by number of company-owned and -operated sites with approximately 1,480 stores located in nine states.
The addition of Hess’ stores to the Speedway network of sites will broaden Speedway’s geographic footprint and position Speedway as the premier convenience store operator in the eastern U.S. The combined business will have estimated revenues of more than $27 billion, retail 6.2 billion gallons of fuel annually and sell $4.8 billion in in-store merchandise at more than 2,700 retail locations.
“Once the deal is finalized Speedway will start to very quickly convert the Hess locations over to the Speedway brand. Part of the agreement stipulates the conversion needs to take place over three years, so it’s likely they may convert a third of the stores each year, which is a significant undertaking in itself,” said David Bishop, managing partner of marketing firm Balvor LLC.
First, Speedway is likely to change over the banners on Hess stores, and then once the infrastructure has been integrated to support the point-of-sale (POS), Bishop expects Speedway to introduce its Speedy Rewards loyalty card to the newly acquired stores and then aggressively expand its membership.
“One of the game changers of the acquisition is that the scale of the acquisition gives Speedway the opportunity to leverage its Speedy Rewards loyalty program as it integrates that within the Hess network and virtually doubles its subscriber size,” Bishop said. “Based on previous statements, Speedway probably averages about 2,500 loyalty members per store, so if you take that average against the number of Hess locations they’re acquiring they’re going to add more than 3 million more monthly active users to that.”
The implications of that mean not only will Speedway be the largest company-operated set of stores in the country, but it will have an incredibly vast database of information about its customers.
With information coming in through Speedy Rewards about its now mammoth customer base, including flavor and size preferences, Speedway can use that scale to expand into new segments of business—for example, private label.
“Speedway has already been an adept retailer when it comes to where they use private label, so I think, with the doubling of their network, the potential to reach into other categories would most likely follow,” Bishop said. “Combined with the technology of Speedy Rewards, this is a significant asset that can be leveraged.”
Already Speedway is one of the top tobacco retailers in the c-store space, and its added reach through the Hess acquisition is only going to cement that position, making them a more formidable competitor, Bishop predicted.
Foodservice is another segment where Speedway is likely to expand. While Hess currently offers a mixture of foodservice models, many of which are franchise quick-service concepts, Speedway offers a proprietary foodservice program, which Bishop predicts will eventually be rolled out to the newly acquired stores.