I flipped, again on Blue Diamond. I know I’m fucked up, but hear me out.
I can’t overstate the value of a product distribution agreement with Texaco. There is another value in this deal but having a Texaco relationship is huge and with that opportunity on the table, I gotta figure out how to make this shit work. There are other considerations too. Let me explain.
I’ll start with the “other considerations.”
Entrepreneurs figure shit out. That’s what we do. For me to walk away from this deal without working through how to mitigate the risks, including the race issue would be a punk move. I’m better than that.
The race issue is real. I mean, half of these stores are in small towns or rural areas, as I have stated before. The largest volume stores are in larger towns. I can figure that out, I think partially with the team I put together and with the help of some outside advice and a marketing campaign. Also, the actual store setup, including merchandising and marketing can help mitigate some of that risk. I don’t think you eliminate the risks; I think you manage it, actively. I’ll think through that some more and share a plan, assuming I can get the seller off his ass.
Speaking if the seller, he’s a fucking pain in the ass. I figure I just have to aggressively manage his ass. Be on his ass like stank on shit, like white on rice. He’s entertaining the sale. I just don’t need to be passive in my approach, which I have been. I need to make him make this deal a priority.
The construction risks are manageable. I need to have a detailed plan with measurable milestones. I can make adjustments when needed. The private equity firm will be a valuable resource helping me identify risks and work through them
The other deal that I’m not giving the proper amount of thought to, in terms of value is the QSR opportunity. I know I have two excellent locations for a fast-food franchise or QSR. Depending on which relationship or relationships I choose, I probably have the chance to buy more. The growth of that business outside of the stores is a big-ass deal, and that growth doesn’t have to be in small-ass towns. These franchises “trade” or get bought and sold, often so the chance for growth or to make a big profit on a sale can’t be overstated.
One potential line of business (LOB) I don’t think I have discussed, probably because it doesn’t excite me, is transportation, the gasoline delivery business. It ain’t a sexy business and in these small towns and rural areas, there is a lotta competition. Not sure it makes sense, with just 14 stores but, if the wholesale distribution business grows, so will the need for a transportation LOB.
Let’s dance with the Texaco relationship.
Let me explain the way a branded wholesale relationship with a major oil company works. Then you can see why this shit is so valuable and why I need to bust my ass to get it.
Many people consider the relationship to be a franchise relationship. It’s not really that. If you talk to a wholesaler or an oil company and you call it a franchise you will get an earful of them trying to tell you it’s not, primarily because “franchises” come with some regulatory requirements that oil companies don’t want to deal with. These relationships, the wholesaler-MOC relationships are governed by an act called the Petroleum Marketing Practices Act. It’s complicated and not worth getting into the details. But, just know it’s a little different from a franchise and comes with Its own nuances.
The agreements, arrangements generally come with some minimum branded gasoline volume and a plan to grow that volume. Think about it, one brand wants to have its flag or brand in markets where they want to be. In today’s environment, major oil companies don’t really own and operate stores. They depend on wholesalers and dealers to brand stores with their flags. You can think of wholesalers as middle-men in a since. In some cases, they’re also store-owners and operators. There are a lot of combinations that work for different wholesalers. You get to define your business model and as long as it works for you and for the MOC and you meet the MOC volume you can get the distribution contract. There is an experience requirement, which is an important point to make. I’ll address the experience issue in another post or when I give details on my deal with Conoco. The other thing is MOCs don’t like having too many wholesalers working in the same market(s).
While the Texaco brand is in the markets where the stores are located, it’s not the dominant brand, by far.
Let me mention this, Chevron owns the Texaco brand. If I make this deal work, I not only get the Texaco brand, but I also get the right to market Chevron. The combined volume counts towards my minimum volume. We would choose which flag to fly based on the store location and its relationship, in distance, from another Chevron or Texaco store.
You might think that in today’s market, a brand is not that important, especially with the growth of unbranded gasoline marketing by the likes of grocery stores. RaceTrac, QT, Walmart’s Murphy Oil Company stores. Those stores compete in price and make for a very competitive market. For a small company, like Blue Diamond, having the MOC flag on the stores helps us compete.
The contract with Chevron/Texaco would be five years and obviously can be extended. I’ll get to why that’s important in just a minute.
One of the things most people don’t know and don’t give a shit about is that diesel is unbranded, meaning the diesel island, for trucks, doesn’t carry a branded oil company flag. As such, the diesel volume doesn’t count towards the minimum volume requirement. That’s kind of a separate line of business and a very important separate business.
In addition to operating retail stores, Blue Diamond will sale gasoline and diesel to other companies, fleet operators. The name of the company is Blue Diamond Distributing, LP. Its primarily a wholesale petroleum products distribution company. We will sell both branded and unbranded petroleum products. That means branded gasoline to retail stores and unbranded gasoline and diesel to other fleet operators and users.
Here’s another LOB that we get with the Chevron/Texaco relationship, the right to sell light and heavy oils and lubricants. That is a huge business with much larger margins than retail gasoline marketing. Yelp, the marketing of branded oils and lubricants. That market is a large market and includes not only fleets but manufacturing plants and other industrial uses. Here’s the kicker, it’s not location sensitive. I would have the right to sell this shit to whoever I could get to buy it. I would have to develop a segmented strategy, find a niche and go with it. That might not resonate with you but trust me it’s a big fucking deal.
Five years is not a really long time. If we get to the minimum gasoline volume in 24 months, that will give me time to set up the lubricant’s business. That would be a multiple LOB business. I could see getting to $75-100 million annual revenue in five years
I can’t let this opportunity go away without working my ass off to figure it out. Given my current financial situation, it probably seems stupid as fuck to explore it but I’m an entrepreneur. I just gotta be a smarter entrepreneur than I’ve ever been before.
I had this same opportunity with my Conoco company and didn’t manage it right. Conoco wasn’t supportive, not as much as they should or could have been and I didn’t have a private equity firm as an investor. This is different and I just gotta be smarter.
So, I gotta press this to see if I can make it work, don’t I?