Pride & Perseverance

At a Glance: NOCO Express

With 32 locations in Western New York and Rochester, NOCO Express is among the most recognized fuel brands in Western New York. The oil company has a 77-year history of providing fuel, lubricants and home heating oil to the market.

Founded: 1933
Convenience Store and Fuel Brand: NOCO Express
Jobber Brands: Valero and Gulf
Foodservice Brands: Nickel City Market Café, Charlie the Butcher, Tim Hortons, Just Pizza and Mighty Taco
First Retail Gas Station: 1964
First Convenience Store: 1984

Leadership Team:
• Jim Newman, President
• Michael Newman, Executive Vice President
• Henry Bays, General Manager
• Jeff O’Field, Senior Operations Manager
• Terry Messmer, Director of Merchandising

In business for more than 75 years, NOCO is a household brand in Western New York that is heavily vested in the fuel business in and outside the convenience store industry. It operates a growing jobber network delivering the Gulf and Valero brands; owns a one-million barrel fuel terminal in Tonawanda, N.Y.; provides residential fuel delivery of natural gas and home heating oil, not to mention electricity; and manages a fleet fueling business that guarantees on-site fill-ups of large and small fleets by 4 a.m.

To many, this may seem like a lot to offer for a 32-store chain. For NOCO it’s just another day at the office, just as it has been for the past 77 years.

“If you ask a customer in Western New York about NOCO they think of us as a major brand because we have established ourselves as a chain that provides a consistent offering with the same quality gasoline they can get from any of the oil majors,” said Henry Bays, general manager of the Tonawanda-based chain. “We have done a great job as an organization of growing our other businesses, but at the end of the day it’s all tied into the NOCO image and that’s how our customers see us.”

NOCO was founded in 1933 by Reginald Newman and was incorporated as R.B. Newman Fuel Co. in 1948. Reginald’s two sons, Donald Newman and Reginald Newman II joined the company in 1954 and 1960, respectively. The brothers broadened NOCO’s product lines and firmly established NOCO’s tradition of strategic, customer-focused growth.

Today, the transition of leadership continues with the third generation of Newmans. In October 2001, Jim Newman was named president, and Mike Newman was appointed executive vice president.

While NOCO started as a home heating company it moved into retail in the1960’s with full-service gas stations. It opened its first convenience store in 1984 and had its biggest growth spurt to date with the acquisition of 35 stores from Cumberland Farms in 1992.

“Over time we found some of those stores to be nonproductive so we went through a period of four years of looking at all our stores—and not just at our store count, but a serious evaluation of identifying the units that would be strong and viable for the long term,” said Mike Newman. “We are left with 32 stores that are all in good locations and profitable.”

Competitive Issues
NOCO Express stores are upscale, modern and feature a host of amenities the appeal to today’s convenience store customers—multiple fresh food brands, free wireless internet service, state-of-the art lighting and attractive restrooms.

“Inside any NOCO Express you will find a friendly, inviting store that has good perceived value with an emphasis on great service,” Bays said. “Speed and convenience are what we’re all about.”

While the chain has the leadership and vision to keep pace with even the best marketers, it has some “reservations” about the future—a lot of them.

Native American tribes skirt the boundaries of state and federal laws requiring them to collect taxes on sales of tobacco and fuel to non-Native American customers. Every effort to collect these taxes or even reach a compromise to collect a portion of the taxes with tribal leaders has proved futile.

“It is a real frustration for us and for all legitimate retailers of tobacco and fuel in New York,” Newman said. “The state is starring down the barrel of a $9 billion deficit and there is clearly $1 billion in unclaimed taxes on sales from Native Americans. Roughly half of that is in Western New York.”

Emphasizing Loyalty

To help compete against Native Americans and other large chain stores, NOCO Express last year launched the NOCO Friends & Family Club Card, a loyalty program aimed at saving customers both time and money. The program features special reward points for frequent customers and eliminates the hassle of prepay at the pump. NOCO has partnered with POSA Tech Inc., a provider of point-of-sale technology and transaction processing, to introduce the Friends & Family Club Card. “As a local and family-owned company dedicated to our community and our loyal customers, we wanted to offer a program that would reward them,” said Henry Bays, general manager of NOCO Energy Corp. Using the card, NOCO customers can go to any of the 32 NOCO Express locations and present a valid state ID to receive their card. There are two ways to use the card: for loyalty rewards and as a method of payment, EZ Pay. All card members are able to earn 20 reward points for every dollar spent inside a NOCO Express Store and 10 reward points for every gallon of fuel purchased. Accumulated reward points are redeemable for valuable NOCO gift cards. In addition to the loyalty rewards, customers who sign up for EZ Pay will receive 3 cents off of every gallon of fuel purchased.

The U.S. Supreme Court ruled it was up to the states to collect taxes on sales to non-native Americans. New York passed a bill requiring taxes to be collected, yet lawmakers refuse to enforce the law. “Those of us that sell legal tobacco products to adult smokers are paying the taxes for those that disregard the law,” Newman said.

The inaction of the state to collect taxes is at the heart of 15-year battle between the New York Association of Convenience Stores (NYACS) and state lawmakers. Jim Calvin, president of NYACS, said the real reason for the state’s inaction is known only to the governors who refused to take action. “But all of their supposed justifications for inaction have been exposed as mere excuses,” Calvin added. “Our instinct is to be hopeful, but experience has taught us to be skeptical.”

By at least one estimate, half the cigarettes consumed in New York State are purchased from Native Americans, and with good reason. The price difference is a huge incentive for smokers. “Customers can buy a major brand carton of cigarettes on a reservation for about $50 less than what we retail it for,” Bays said, “and that is basically all from state and local taxes.”

Every time the state has raised its tax on cigarettes, non-Native American convenience stores felt an “immediate and dramatic impact, with sales of their cigarettes tumbling 25%-40%”, according to Calvin. “If the tax rate has increased five-fold, I think it’s reasonable to assume that the tax evasion has increased five-fold,” he said.

Maintaining Sales
Despite the competitive advantage Native Americans have on tobacco, NOCO Express still manages to maintain close to the industry average on cigarettes—about 35% of overall sales. “It’s our carton sales per week that has really suffered,” Bays said. “In Western New York overall, the carton business at traditional outlets is probably 40%-50% less than the rest of the country.”

In fact, about 65% of all cigarettes sold in Western New York are from Native Americans. To make matters worse, it’s only a handful of individuals that are profiting from these sales. “If you look at the reservations, the money is not being redistributed,” Newman said. “It’s ending up in the pockets of a handful of smart businessmen that learned how to beat the system and continue to profit from the state’s inability to enforce the law.”

Tobacco is still viable, but because of the tax evasion epidemic, it’s not the perennial No. 1 category New York c-stores used to rely upon. “To have any measure of success, you need to have realistic expectations, carefully manage inventory, and commit to a well thought out pricing strategy,” Calvin said. “And then the state will come along and raise the excise tax another dollar a pack.”

Another issue to consider is regulation. With all the emphasis on keeping tobacco out of the hands of minors, reservations skate free of state and local compliance checks.

“Youth smoking is supposed to be a big issue for our politicians, yet they are not monitoring the stores that sell 65% of the tobacco in our market,” Newman said. “That leaves you wondering just what their true motivation is. If it really is stopping kids from getting tobacco then they are missing an important piece of the puzzle.”

Fueling the Fire
In addition to their price advantage on tobacco, Native Americans have a thriving fuel business that allows them to make an estimated 40-50-cent margin on fuel, while other operators are struggling to squeeze out a dime. But the Native Americans’ fuel business doesn’t get the same kind of attention as tobacco.

Depending on tribe and region, the pump price differential between Indian and non-Indian retailers ranges from eight cents a gallon to 30 cents or more because they don’t pay sales or state taxes on gasoline.

Consider that NOCO pays 59.6 cents per gallon in New York State taxes (which includes the 18.4-cent federal excise tax) plus an 8.75% sales tax on all fuel transactions. Native Americans pay just the federal excise tax.

“As every motor fuel marketer knows, it only takes a couple of cents to change purchasing behavior, so the impact on competing non-Indian retailers is severe,” Calvin said. “Motor fuel tax evasion has received less public attention because it represents a somewhat smaller overall tax-loss value than cigarette tax avoidance. But the law requires taxes to be collected on both products, and NYACS is equally concerned about both.”

When you consider the wholesale price Native Americans are paying for fuel it’s clear their advantage is enormous. The fledgling economy has only exacerbated matters. People have a limited amount of disposable income for food and fuel. With a reservation about 30 minutes away from pretty much all of its stores, NOCO is working overtime to maintain its fuel volume.

“Tribes are getting a 50-cent wholesale gallon advantage over us, but they are not selling at 50 cents less, they are selling at about 20 cents less, which is a good deal for the public, but think about the profit that leaves them,” Bays said. “They are making a margin of more than 30 cents per gallon when we are struggling to get 8-9 cents on a good day, especially after you factor in credit card fees.”

Moving Forward
If there is any possible upside to the unfair competition it is that traditional convenience store operators have learned to be leaner, more resourceful and make better operating decisions.

“It’s Darwinism in its purest, cruelest form—only the strongest survive,” Calvin said. “The lesson is that just when you think you can’t cut expenses any further, or squeeze out any more margin dollars, circumstances beyond your control may force you to do exactly that, so don’t get too comfortable.”

Complacency is certainly not issue for the folks at NOCO. The chain has an aggressive long-term plan to grow the convenience store business by focusing on attractive stores, fresh foods and outstanding customer service. In five years it expects to have 50 stores and more than double its fuel volume from 47 million gallons annually to 100 million.

New stores will average about 5,500 square feet and feature multiple foodservice brands, the NOCO Friends & Family loyalty program, an extended seating area, free WiFi service and up to eight dispensers that offer both self- and full-service operations

NOCO’s fresh food program is as unique as it is diverse. The chain partnered with a local Buffalo, N.Y. chef to roll out the Charlie the Butcher concept in 2003. The menu, available at four stores, features a succulent array of fresh meats such as beef tenderloin, roast turkey and prime rib, all of which are seasoned and tenderized for a minimum of 24 hours.

“Charlie has a great program with a loyal following,” Newman said. “It’s been a great addition to our stores.”

In 2005, NOCO Express launched its grab-and-go Nickel City Market Cafè brand that’s now available in all of its stores. Nickel City, aptly named after the iconic buffalo nickels that were minted from 1913-1938, covers the coffee program, sandwiches and other prepared foods, and the soda fountain. NOCO uses a centralized commissary to prepare the subs, salads and wraps and displays them in cold cases just inside the front door.

“The cold case gives customers an option to try our different varieties of wraps, salads and sandwiches that are made fresh in the stores and serves as a great complement for customers looking to bring food home or to the office, or after hours when the cafè is closed,” Bays said.

NOCO also operates a handful of Tim Hortons and Mighty Taco franchises and is in the process of rolling out its first pizza program called Just Pizza.

“It’s extremely important to develop programs to serve your core customers, but you have to constantly be evolvi
ng to attract your customers of tomorrow,” Newman said. “Despite the competition we face from Native Americans we are focused on serving the market with great service, convenience and value.”

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