What’s in a name?

The ongoing de-integration of major Canadian refining companies means greater market share for independent fuel marketers who appreciate the value of well established retail brands.

Stewart Dudley is a freelance writer and regular contributor to Canadian Fuels Association publications.

The news that Imperial Oil had sold its remaining 497 Esso retail stations to five fuel distributors in March 2016 came as little surprise to the oil industry. The process of de-integration had been going on for years, with Shell and Valero also divesting themselves of major retail assets. Still, Imperial Oil’s $2.8-billion deal raised more than a few eyebrows. Analysts had pegged the price to be between $500 million and $1.2 billion. This underestimation highlights not only the complex economics of the deal and the retail fuels market, but also the influence a brand like Esso may have on the final price. Physical assets aside, how is value placed on a name and a logo?

“Brand plays a much broader role than simply inspiring consumer confidence and generating sales and market share,” says Patricia McQuillan, President of Brand Matters Inc., a Toronto-based strategic marketing and branding firm. “A well-defined brand strategy combined with an analysis-driven marketing plan can effectively manage the customer experience to create goodwill equity. That equity can be tracked and measured, increasing the difference between the book value and the market value of a company’s assets.”

The value of Esso is particularly impressive considering that the brand influenced the sale price without being part of it. According to terms of the agreements, the purchasers will keep the stations under the Esso brand, ownership of which Imperial Oil will retain as it continues to supply fuel to the outlets.

“We believe these agreements represent the best way for Imperial to grow in the highly competitive fuels marketing business,” Imperial Oil President and CEO Rich Kruger said in a release. By establishing branded distributor relationships, the agreements enable Imperial to maintain buyers for their refined products while generating the capital needed to explore higher returns elsewhere in their operations.

Brand value increases over time

Parkland Fuels Corporation—a member of the Canadian Fuels Association—is betting that a fair share of Esso’s brand value will end up on its balance sheet. One of North America’s fastest growing distributors and marketers of fuels and lubricants, Parkland acquired a number of Esso retail outlets in the recent sell-off, and many of Imperial’s On the Run convenience stores (c-stores) in a separate agreement.

“We expected to pay for Esso’s goodwill and reputation as part of the purchase,” says Peter Kilty, Parkland’s Vice-President, Retail and New Markets. He indicates his company would have had no interest in re-branding the stations. For Parkland, the deal’s value lies in the opportunity to capitalize on the market strength that Esso has built over the years, and will continue to build.

“Generally, the value of a brand does increase over time,” says McQuillan, “so the older the brand, the greater the intrinsic value.” She considers it hard to judge Esso’s true value without close examination of marketing plans. “But I would say that in an industry in which it is difficult to differentiate a brand, Esso’s long presence in the market suggests that Imperial Oil has done a great job.”

Minimizing risks to a brand

McQuillan believes the risks associated with the sale to Parkland and other distributors are typically higher for the seller. “If the brand is not managed at the level that Imperial Oil deems appropriate, then there could be a risk to their master brand. There would probably be contractual mechanisms to manage that, but typically the seller of the asset will have factored that risk into the purchase price.”

At Parkland, rigorous oversight minimizes those risks and upholds the integrity of the brand. “The way we work in these acquisitions is to follow through on the original intent of the deed owner of the brand,” says Kilty, “working in partnership with them, giving them the comfort that we fully understand where they want the brand to go.”

Parkland’s reputation is built on reliable brand stewardship. The company’s value proposition is in a diverse portfolio of retail brands that appeal to a wide variety of potential operators.

“Our business strategy focuses on three components,” says Kilty. “We want to have strong national, regional and independent brands. This multi-branded, tiered offering means that when we approach operators, we have a portfolio of brands that can match anyone’s needs.”

With the Esso and Chevron brands, Parkland is able offer premium options to its dealer network. The company’s Fas Gas Plus is a community­ focused independent brand that gives consumers a large urban, c-store offering in non-urban markets. The Race Trac brand is designed for dealers who want to operate with greater independence from Parkland.

Freedom to adjust a proven brand

Parkland’s terms were different for the acquisition of approximately 90 On the Run sites. “We bought that brand outright,” says Kilty. “We have a disparate group of c-store brands, so the value of On the Run was in a national brand that could tie the network together and avoid the need to create a new brand.”

Patricia McQuillan confirms this option often arises during an acquisition. “Do you leave brand assets in place, or do you rebrand? It depends on the strategic fit with your operations and your long-term vision. Typically, there’s less risk to leave the brand as is. You get to capture the customers and goodwill that come over with it.”

“Generally, the value of a brand does increase over time,” says McQuillan, “so the older the brand, the greater the intrinsic value.”

Parkland is just as comfortable forging new brand architecture as it is overseeing existing designs.

“It’s now up to us to take the On the Run brand and determine where it’s going to go as opposed to supporting the direction that’s been set by the brand owner,” says Kilty.

Seizing on brand potential

The sale of Imperial’s Esso assets, and the price they fetched, suggest a healthy retail market that is populated by an optimistic group of fuel marketers. The question may now be, having seized on the value of national brands, what plans do those marketers have to evolve them? What room do marketers have to place their own mark on industry brands that have been fixtures in Canadian communities—and that consumers have valued highly—for the better part of a century?

Patricia McQuillan can be reached at Brandmatters.ca,
or on Twitter @brandmattersinc.