In Greek mythology the griffin has served many purposes including the guardian of treasures and kings. Kevin Kan hopes his Griffin will represent similar riches.
Kan, president and CEO of American Auto Wash Inc., rolled out the Griffin fuel brand to two of the company’s 18 gas stations in Pennsylvania in October. During the next three years, he expects to see the brand come to life at as many as two dozen locations.
“We are looking to get Griffin on the street as quickly and as smartly as possible,” says Kan of the brand which features the mythological half lion half eagle as its logo amid a colorful blue and gold display. “There are a variety of expansion options available to us and we are evaluating all of them all closely.”
In addition to the two Griffin units, American Auto Wash operates 13 BP stations, two Mobil units and one Lukoil. The company owns the property to all but two of the units so it’s not bound by onerous franchise agreements that could be potential obstacles for rebranding any of the properties.
“The plan right now, however, is not to convert our BP and Mobil sites,” Kan admits. “But if we feel the sites can be more profitable, we’ll change. I’ll rebrand any store to the fuel offering that has the most revenue potential.”
Instead, Kan’s goal is to make the Griffin brand available to independent dealersas a franchise. His primary target is fuel station dealers who, as a whole,have expressed more and more frustration with their Big Oil partners.
What Kan has going for him is that the Mid-Atlantic market where he operates already has multiple unbranded fuel chains that dominate the competitive landscape, so customers are already accustomed to shopping at stations that don’t resemble their fathers’ fuel islands. Brands like Sheetz, Wawa, Rutter’s and Royal Farms are already household names in the market.
While the Wayne, Pa.-based marketer operates only a handful of convenience kiosks at its gas stations, its bread and butter is in car washes, which also serve as a profitable destination that distinguishes Kan’s offering from that of his competitors. All 18 gas stations are equipped with car washes. The company also operates two stand-alone units.
“I believe a solid offering and good prices drive business,” says Kan. “But with competition being as tight as it is, it’s extremely challenging to find the right solution to stand out in the market place. Griffin gives us some distinction.”
Dealing With Supply
Before the brand catches on, the biggest question Kan will have to answeris: “What kind of supply does he have access to?” During this period of highgas prices, weak margins and increased consumer frustration, Kan can ill affordto suffer supply disruptions or pass on fuel surcharges from overlifting onhis current supply contractsan all-to-common occurrence for jobbers inthe wake of Hurricane Katrina.
But Kan is putting a lot of emphasis on the company’s history to answer this important question for potential Griffin franchisees. American Auto Wash has a 37-year history in the fuel business as a dealer-operator and a jobber with Mobil and, for the last two years, BP. The company was founded by Kan’s father-in-law, Ron Betts, in 1969.
To meet the unbranded supply demand, Griffin negotiated contracts with five unbranded suppliers. The company has also assembled a team of pricing people that monitor fuel prices on the spot market and advise lifting on contracts that offer the cheapest prices daily.
The benefit for Kan and other unbranded operators in the metro Philadelphiamarket is that their street prices are typically 4¢ to 6¢ cheaperthan their branded counterparts without sacrificing margins. The potential downsideis that, as evidenced during Hurricane Katrina, supply to the spot market canbe tenuous during natural disasters causing shortages and expensive surchargesor supply outages altogether. Kan says he is prepared to deal with such situations.
“As a distributor I can get BP branded and unbranded product,” says Kan. “HavingBP as a backup is an important tool that should be an attractive selling pointto potential Griffin franchisees. The industry saw how quickly unbranded supplycan disappear during Hurricane Katrina, but with BP we never went below 100%allotment of branded or unbranded supply.”
Eye toward expansion
Down the road, as the company continues growing, the pricing team couldventure into price hedging, buying barrels on the NYMEX or securing pipelinespaceall strategies employed by unbranded regional marketers like Sheetz,QuikTrip and Wawa. While these buying strategies give companies significanteconomies of scale when it comes to buying fuel, it requires an enormous financialcommitment that not only ties up vital operating capital, but can have lethalramifications if predictions don’t pan out.
For example, if a company hedges 1 million barrels at $58 and the price falls to $54, they are locked in at the higher price. However, if the price goes above $58, they are insulated from the price increase. “It’s a very technical process that needs to be monitored by financial experts almost on an hourly basis,” Kan says. “If you call it wrong, you can destroy your bottom line.”
If American Auto Wash gets into fuel hedging, it has the right man in charge. Kan, who joined the family-owned business in 1999, developed his business acumen on Wall Street, last serving as a vice president for financial services giant AIG. Since 2003, under his guidance, the firm has grown revenue from $40 million to $60 million by expanding operations and investing in an annual $400,000 marketing campaign to reach new customers.
“We did business one way for nearly 35 years and it was effective until the industry started experiencing serious consolidation,” Kan said. “[Consolidation] caused marketers to operate a lot leaner by shutting down low-volume, underperforming stores and investing in one-stop solutions that meet customers’ needs on a variety of levels. We knew we had to adapt to the changes in the market or become obsolete.”
One of the notable strategies Kan instituted was acommitment to cross-promoting retail opportunities. For example, Kan estimatesthat nearly 40% of his fuel customers are also customers of the company’s-20Gentle Touch car wash centers. This is hardly an accident. Customers that payat the pump with a debit or credit card are offered $1 off a car wash, whichtypically ranges from $6 for the basic wash to $16 for the top full-servicewash. More competitive areas offer discounts up to $3 for the more expensivewashes.
Gentle Wash itself provides a steady stream of fuel customers thanks to its Clean Car Club loyalty program. The company has more than 4,000 club members who pre-pay for washes in six-month or one-year packages. Club members receive discounts on wash purchases, but they often become fuel customers every time they visit the car wash. “We are confident that our pricing strategy of being among the lowest on the street is driving fuel sales at these sites.”
Kan is also optimistic that the Griffin and Gentle Wash brands can come togetherto offer an attractive franchise package for independent operators. “Alone,we are confident that either of these brands can be successful and garner astrong market share,” he says. “But together we can offer a package that fewindependent operators have access to.”