With a branded program to differentiate small chains and its new Winner’s Circle Banner for its c-store partners, VP Racing Fuels’ aggressive growth makes it a 2015 Chain to Watch.
By Erin Rigik, Senior Editor
Three years into its branded program, VP Racing Fuels is offering smaller chains a way to compete with major regional players. Its branded program offers retailers a recognizable brand with a strong following among racing fans, a branded racing fuel product line and a way to save on costs.
What’s more, the chain is launching its “Winner’s Circle” banner, allowing its best retail partners the chance to fly the banner across their c-stores.
All of this combined with other initiatives makes VP Racing Fuels a unique CSD 2015 Chain to Watch.
THEN AND NOW
VP Racing Fuels was founded in 1975 by Steve Burns, a race car driver from San Antonio. Burns taught himself chemistry and physics and began experimenting with exotic blends of fuel, later offering it to racers who liked the way it powered their vehicles. Today, VP Racing Fuels, headquartered in San Antonio, is celebrating its 40th year as a provider of fuel to the racing industry.
In 2011, Alan Cerwick, a former Valero Energy executive and petroleum industry veteran acquired Burns’ interest in the company and took over operations as president, with Burns remaining active in the company as director of research and development. One year later, Cerwick launched VP’s branded program for gas stations, having conceived the idea while he was working for Valero.
“I came across someone who wanted to get VP 100 at a Valero station, and that’s how I learned about the VP brand and what led to me later acquiring the company” Cerwick said.
Currently, VP doesn’t operate stations, but offers a license agreement for retailers to use the VP Racing Fuels brand, sell VP-branded products and benefit from the marketing support and programs that VP provides in return for a low-royalty fee based on gallons sold.
VP works with retailers to assist them in procuring fuel from other distributors. Distributors who have partnered with VP service more than 3,000 retailers in more than 40 states, with many planning aggressive use of the VP brand to help them grow.
“Like many of our retail partners, VP is inherently an entrepreneurial company and unlike major brands, this leads us to put the interests of retailers first,” said Cerwick.
Today, many small chains struggle to stand out and compete with major brands, especially with the large regional c-store players and grocery chains that can often score better priced fuel on the open market or better absorb higher costs.
“Station owners see both of those groups as fierce competition that is stealing business from them. We hear a lot of retailers say, ‘I want to be something different. I want to stand out from the competition,’” said Bryan Noonen, VP’s regional manager who oversees branded wholesale development.”The VP brand sets them apart, makes them unique and a destination, allowing them to leverage this ‘cult’ following that we have with racers and performance enthusiasts all over the country.”
MAXIMIZING FUEL MARGINS
One of the biggest concerns to station owners today is staying competitive on pump prices while still making a decent margin on fuel in the face of this steep regional competition. In addressing the high cost of fuel, VP allows its customers to purchase fuel on the open market, thereby getting the best possible price.
Whereas a major oil company would require its chains to buy a specific fuel from a specific terminal at a non-negotiable price, a c-store owner with a VP-branded location gives his or her distributor the ability to look at rack prices and select the best price available, allowing for better margins for the retailer and distributor and the best price in the market for the customer.
Neal Do is president of Excel Fuels, a large independent distributor based in Oklahoma City, Okla., which also operates its own c-stores. Do, who will mark his first anniversary as a distributor for VP and VP-branded station owner in October, said the VP stations he currently operates are “in the double digits” and plans to convert 100% of his company-owned locations to VP.
“The most attractive thing I found with VP Racing Fuels is it allows us to buy the fuels on the open market. In the fuel business it’s crucial to be able to shop for the cheapest fuel on any given day, and with the volatile market, sometimes that could be a matter of hours.”
Buying fuel on the open market saves Excel Fuels 8-10 cents per gallon, and across all its VP-branded stations, Excel Fuels has seen a 30% increase in gallons sold, thanks to its ability to post a competitive pump price. “Not only are we making more money per gallon, we’re selling more gallons,” Do said.
However, it’s not all about gallons sold. “There are numerous other factors that have contributed to our selection of the VP brand. It allows us to offer the higher octane fuel, the racing fuel, and on top of that now they have a wide selection of consumer additives, so it’s going to differentiate our brand—the VP brand—from all the other major brands,” Do said.
INTERCHANGE RELIEF
Another ongoing concern for retailers is the cost of credit card swipe fees.
“Major oil and most of the licensed brand programs out there use credit card processing as a profit center,” said Noonen. “By contrast, VP has negotiated our cost of credit card processing at a very similar cost to what the major oil companies have, but instead of holding onto the profit, we pass that back to the VP station owners, allowing them to leverage the savings that were created by the Durbin Amendment.”
The typical effective rate—the fees for credit card processing divided by the total amount of sales—for major oil companies is about 2.25-3%, according to Noonen. “With VP, because we’re not marking it up, our range is 1.75-1.9%,” Noonen said. “I and others at VP come from the credit card processing world, so we have in-depth knowledge about credit card processing and how it relates to our customers’ business compared to our competition.”
Do said that VP’s low credit card fees were another big factor in Excel Fuels’ decision to convert to the VP brand. The low interchange-processing fees “saved one of our stations more than $2,000 per month.”
“We take a lot of credit cards,” Do continued. “Under VP, our swipe fee (per transaction) is about one-and-a-half cents. When you add in all the stores, the savings are substantial for us.”
BRAND RECOGNITION
The process of becoming a VP branded station is first and foremost designed to be simple.
“We will work direct through the dealers or we will work through a wholesale distributor where the station owner can buy fuel direct from the wholesale distributor. We want to be an easy, transparent company to work with. We look for nice stations that are comfortable and safe for the end user, the customer,” Noonen said. “But we also want stations that represent the premium brand, which goes with our reputation of creating some of the best performing race fuels worldwide.”
VP doesn’t have a requirement that retailers sell a certain number of gallons or have a set amount of dispensers. It’s not a problem if a store has only two dispensers and only sells 40,000 gallons or is a bay site with a garage, as long as it’s a high quality site.
“We also protect our distributors. Since we are new we have the opportunity to not just offer the brand to anyone. For instance, we have two distributors covering Oklahoma City, Okla., so we will not likely allow another distributor to enter that market. We believe our brand is strong enough for dealers to shift distributors if they don’t have the brand,” Cerwick said.
VP has a full image program that includes a reimaging of the forecourt, including canopy, dispensers and price signs. While c-store retailers put up the capital for the reimaging, Noonen noted the ROI on image cost turns positive within 1.5-2 years, whereas some major brands pay for the image and mark up the fuel for 10 years.
VP’s image program is designed for stations that sell at least 50,000 gallons, but a modified version is available to those that sell less. “It allows us to offer an economical solution for the smaller station,” Noonen said.
To assist retailers in reimaging stores to the VP brand, VP created and later spun off a specialty equipment finance company called Allied Brand Services (ABS), in which VP still holds a minority interest. ABS can assist, not only with image costs, but anything related to the store, from point-of-sale systems to coolers. VP also recently rolled out a Website called EMVSolved.com to assist retailers with the migration to accept chip and pin cards.
The company also offers a broad line of consumer performance products, including power boosters, fuel system cleaners, stabilizers and more, which give VP-branded stores additional revenue streams.
“We don’t require that you sell race fuel at the store, however, customers usually demand it and most of our retail partners have found it to be a high margin product. We do require station owners to carry our consumer products package, and while we don’t require that they carry our apparel, we heavily recommend it because it drives traffic with race fans and performance enthusiasts,” Noonen said.
As the VP image goes up, VP helps facilitate grand opening events by partnering with local car clubs for a car show in the parking lot, providing prizes, radio advertising and more. “People come out of the woodwork that love the brand, whether they be sports car racers or car collectors,” Cerwick said. “We go the extra mile to help retailers carry off that event.”
WINNER’S CIRCLE
VP is in the process of soft launching a c-store brand called the Winner’s Circle.
“This is available for free to VP dealers, provided they meet the standards we have set,” Cerwick said. “This concept is to create a level of service and offering customers can depend on the same way that Sheetz and Wawa have done. Obviously we can’t offer the same consistency, but we can give dealers offering a premium service a brand that conveys premium across a broad network.”
Stores that qualify, based on the cleanliness and premium offerings they provide, will be able to fly the Winner’s Circle banner as their c-store banner. Going forward, VP aims to provide additional offerings to Winner’s Circle stores, such as a coffee program, internal graphics, special end caps with VP products, etc.
Recently the first Winner’s Circle opened in New York, and dealer requests are now rolling in for consideration. “We’re going to reach out to coffee and food vendors and look at those programs over the next six months. We’ll probably roll out those options in 9-12 months,” Cerwick said.
RACING FORWARD
“We’re a small company with lots of breadth,” said Cerwick. “When I took over the company three-and- half years ago, we were strictly a racing fuel company. Now we are broadly diversified with many divisions contributing to the bottom line.” VP has three main businesses: racing, the consumer products and the branding business, which are strategically symbiotic.
VP also has three blending facilities—in Delaware, Indiana and San Antonio, with major expansions currently at each—along with sales and distribution centers in Georgia and California.
In addition to its business in the U.S., VP is expanding internationally, with stores set to open in Canada, and has its eye on additional opportunities in the UK and Dubai.
As the company expands, quality is a key consideration. “We’re not just bringing on any site or distributor. Doing it right is more important than doing it quickly,” Cerwick said. “I’d like to see us continue to grow our breadth as a company. It’s very possible in the future that we might open some new retail stations, specifically travel centers in the coming years.”
HIGH PERFORMANCE
By increasing its stamp on the market, Noonen said VP is a brand offering solutions. “We’re a ‘lifestyle’ brand that can leverage 40 years of racing history to reach a very unique customer base. People want to get the best performance out of their race cars, motorcycles, boats, cars or trucks. No other brand in the industry offers those products right there in the store.”
“We appeal to a unique category and a lot of younger customers who are going to stay with us for years to come. We’re not an oil company and we’re not corporate. Because we’re in racing our brand is perceived as cool and edgy, so we can push the limits a little, but with class,” said Cerwick.
Do noted VP allows c-stores to differentiate and better compete by buying fuel on the open market. “Secondly we get the lowest credit card fees in the industry. Third, VP gives us a niche offering specialty fuel and other consumer products. Those are the top things, in my opinion, that make VP stand out as unique from the rest of the crowd.”