Description of Crossamerica Partners Lp's Business Segments
CrossAmerica Partners LP operates through multiple segments, primarily focusing on the wholesale distribution of motor fuel and the retail operation of gas stations. Below is an extensive description of their segments, products, and services based on the information provided.
Wholesale Segment The Wholesale segment is pivotal to CrossAmericas operations, having generated revenues of approximately $1.6 billion as of 2016. The segment is recognized as one of the largest independent distributors in the U.S. working with major oil brands such as ExxonMobil, BP, Motiva (Shell), Chevron, Sunoco, Valero, Gulf, Citgo, Marathon, and Phillips 66. Notably, approximately 83% of the motor fuel distributed in 2016 was branded fuel.
Distribution Contracts CrossAmerica primarily earns revenue through distribution contracts, either at a fixed mark-up per gallon (for about 87% of total gallons sold) or through dealer-tankwagen (DTW) priced contracts. These DTW contracts feature market-based pricing, meaning that both wholesale motor fuel costs and retail motor fuel prices fluctuate, affecting profit margins.
- Supplier Relationships: The company benefits from supplier discounts for early payments, which can significantly influence gross profits based on fluctuating crude oil prices. The estimated impact of a $10 per barrel change in crude oil prices is roughly $2.2 million on overall annual wholesale motor fuel gross profit.
Independent Dealer Sites Independent dealer sites are contracted to receive exclusive motor fuel distributions from CrossAmerica.
- Contract Length: Distribution contracts typically span 7 to 10 years, with an average remaining contract term of about6 years as of the end of 2016. - Ownership Structure: The independent dealers own or lease the property and control all motor fuel and convenience store inventory.
Lessee Dealer Sites In this model, CrossAmerica owns or leases the property where motor fuel is sold.
- Dealer Autonomy: Lessee dealers own the fuel and retail inventory, setting their pricing and profit margins while CrossAmerica collects margins based on fixed mark-ups or DTW at delivery. - Distribution Agreements: Contracts for distribution are tied to the duration of property leases, typically ranging from 3 to 10 years, and are often structured as triple net leases which require lessees to cover property expenses such as taxes and maintenance.
DMS Sites CrossAmerica manages distribution for DMS through a specific agreement.
- Long-term Agreements: The company has a 15-year motor fuel distribution agreement with DMS and also 15-year triple-net lease agreements for the sites, allowing DMS to operate independently regarding pricing and inventory management.
CST Sites Following joint acquisitions with CST of Nice N Easy and Landmark, CrossAmerica has established operational and leasing agreements.
- Operational Framework: CST leases the retail sites and manages its pricing independently, while CrossAmerica supplies motor fuel through a 10-year distribution agreement at a fixed mark-up.
Retail Segment The Retail segment generated $467 million in 2016 and focuses on the operation of retail gas stations, with strategies based on either converting sites into lessee dealers or evaluating other operational choices post-acquisition.
Company Operated Sites These are entirely owned and managed by CrossAmerica, where all profits from fuel sales are retained.
- Inventory and Pricing Control: The company maintains the fuel inventory and sets pricing strategies, holding an average of approximately five days worth of fuel sales in stock.
LGW and LGWS Structures CrossAmerica operates through two distinct distribution channels — LGW (retail fuel distribution) and LGWS (wholesale fuel distribution). LGW oversees wholesale distributions to company-operated sites while LGWS manages retail accounting for motor fuel sales.
Commission Sites In this model, the property is owned by CrossAmerica and leased to commission agents.
- Commission Structure: The agent pays rent and operates non-fuel related activities, while CrossAmerica maintains control over motor fuel inventory and pricing. The commission paid to agents depends on fuel sold, reinforcing the cost-effective operational structure.
Conclusion CrossAmerica Partners LPs comprehensive approach to the wholesale and retail distribution of motor fuel enables robust operational growth. The inclusion of various contract structures, dealer relationships, and tailored operational strategies ensures flexibility in navigating market fluctuations while maximizing revenue through diversified offerings. Through innovation in their wholesale practices and a strategic shift towards lessee dealer models in their retail segment, CrossAmerica positions itself favorably within a dynamic energy market.
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