United El Segundo Inc.
Retail arm: United Oil Co.
Primary areas of operation: Owns and operates convenience stores in Southern California in addition to maintaining a vast dealer-operated network and a chain of car washes.
Long-range plans: Increasing market share while growing store count through new-to-market stores and acquisitions.
Net sales (2006): $1.27 billion
Number of stores: 120 (104 are operated by United Oil; 16 properties are under long-term leases).
New store forecast: Five in 2008
On the business end of things, United Oil Co. of Gardena, Calif. has a singular motto for staying competitive in an increasingly challenging and evolving Southern California retail and gasoline market.
“Our goal is to stay in the marketplace with low margins and high volumes,” said General Manager Sunny Singh.
But on the face of it, it is all about walkways covered with French tiles, pink windowpanes and copper accents, futuristic driveways that evoke The Jetsons, towers covered in German glass and colorful murals on interior walls and ceiling.
While the packaging for the family-owned company with 104 convenience stores, 63 gas stations and 13 car washes, is indeed appealing (and getting more attractive over time), it is the substance that lures customers.
Prices for the several different brands of gasoline sold by United–ConocoPhilips 76, Chevron, ExxonMobil, Arco, Shell, and the United proprietary brand–are often several cents cheaper than competitors’ per gallon price. The stations are located in prime locations to attract the most number of customers as possible. And prices are usually lower than competitors for most brand name products sold within the convenience store.
In addition, all promotions are developed with the “low margin, high volume” philosophy in mind. But this does not mean that quality decreases with quantity. In fact, it is often quite the opposite, according to Singh.
For instance, any customer who buys gasoline and purchases a car wash, gets a 10-cent per gallon discount on fuel, Singh said. While this promotion doubled car wash volume, customers wound up paying even less for gas than they would have at competitors’ stations.
In the convenience sector, similar approaches to achieving the highest volumes also paid off. This summer, while many other retailers were losing sales from their carbonated beverage business to energy drinks, bottled water and other healthier alternatives, United Oil made astounding gains, Singh said.
Carbonated beverage sales spiked went up 12% after the company started charging 99 cents for Pepsi during its, “100 Days of Summer” campaign.
“Our goal in marketing is to sell everything at a very competitive price,” Singh said.
But it doesn’t stop there.
United Oil’s stations are among the most distinct in Southern California. Architect magazine described the stations as “the most eye-catching stations in town.” The 90 or more stations redesigned by Jeff Appel, whose family has owned the business since 1945, were reviewed not on the business pages of the New York Times, but in its style section. Founded in 1948 by Jeff Appel’s grandfather, John Appel and father, Ronald, the “amateur architect” heir apparent came on board in 1982 and began redesigning stores across the chain within the decade.
One of the most profitable stations, in La Palma, Calif., which sells 1 million gallons a month, has Mediterranean columns and a tile roof. The decorative elements might seem ostentatious. The company itself has been unable to gauge if in fact its style attracts new customers.
“I think people appreciate it, but I don’t know,” Appel told The Times. “But does it make much financial sense to go beyond what we’ve been doing? Probably not.”
However, it does fit into the company’s philosophy of making sure customers not only get a premium product at a competitive price, but that they get a great experience at the same time. Besides, the extra features do not seem to hurt United.
Consider a recent report in the Los Angeles Business Journal, which listed United Oil as the 17th fastest growing, privately held company in Los Angeles County with revenues from 2006 of more than $1.27 billion.
“Gas is very expensive and people have no choice but to pay for it, but on the other hand we want to make their buying experience as pleasant as possible,” Singh said.
Gas sales are especially important for United Oil as the retail landscape in Southern California changes. Tesco, the UK big-box food and general merchandise store chain, opened its U.S. headquarters in El Segundo, Calif., right in the middle of United Oil territory.
The move for Tesco, one of the top five largest retailers in the world, is to compete with Wal-Mart in the U.S. and other general merchandise retailers such as Costco. Tesco’s first settlement in the states was a subsidiary called, Fresh & Easy, strategically named to compete with the likes of Whole Foods and Trader Joe’s. The first Fresh & Easy stores opened up this year in Riverside County, just outside of Los Angeles.
In addition, the British behemoth has a substantial fuel business overseas and is one of the largest retailers of biofuels in the UK raising speculation that the chain will add fuel to its list of retail operations in the U.S.
“They can be very competitive,” Singh said. “They opened up two stores and were immediately very successful. But we are in the heart of LA and we know how to be competitive too.”
Despite the optimism, fuel retailers are likely anxious to see if Tesco will enter the fuel market just as it plans on entering the U.S. market with 50 stores from Southern California to Arizona by Feb. 2008.
Other fluctuations in the industry–based more on the overall economic health of the area–have affected growth, Singh said. “We are very conservative right now.”
The company covers approximately 100 square miles in and around Southern California and intends on staying in its current terrain. But business is growing, albeit slower than in previous years, by about five to seven stations a year, Singh said.
The additional growth comes with its headaches, including employee retention and turnover, which is a major challenge throughout the state, Singh said. That challenge is abated, however, with competitive pay, free health insurance to all of the company’s 600 employees and profit sharing in addition to 401k plans.
A big incentive to stay with United is its proven growth opportunities. According Singh, each of his 14 supervisors was a cashier at some point. In his 13 years with the company, every supervisor was once a cashier. Perhaps the biggest testament to the company rewarding loyalty is Singh himself who started with the company in 1994 becoming general manager within a year.
United’s comfort with Southern California is one of the reasons why the company intends to brace itself for upcoming changes while sticking to its core principals. “We feel so comfortable here,” Singh said. “We are located in the middle of everywhere. The maximum we have to drive is 90 minutes and I meet our employees and customers everyday.”
As the industry braces for a change, Singh said United Oil plans to continue doing what people have come to appreciate about its stores. That means not running on a large debt, using state-of-the-art equipment, keeping interiors spotless and gas stations well-lighted and “super clean.” Other innovations include Gas Station TV, which is being implemented throughout the various United c-store locations.
Singh never turns away a new product that premier brands pitch. He said he would try everything to see if it sticks and if it does, the product would likely continue to be carried in stores. But above all else, Singh said it comes down to getting high volumes while providing good customer that is always improving, especially with area supervisors visiting stations four times a week.
“We have to be competitive,” Singh said. “We try to be very competitive in the gas business. We believe in lower margins and volume.”