Success in Gasoline Alley—$ave-A-$ 99 Success in Gasoline Alley—$ave-A-$ Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth. —Peter Drucker If I had asked the public what they wanted, they would have said a faster horse. —Henry Ford The Sussers were always on the lookout for new opportunities to innovate and create value. One innovation the Sussers added to their ever-expanding Susser Petroleum enterprise was their use of key-lock pumps for fleet vehicles and commercial accounts. These customers could fuel their vehicle using a key to unlock a meter, and the customer was billed monthly. This approach was unique, and in high demand to save them time. It would develop into a still more efficient and profitable system, but like many changes, this evolution had to be sparked by a hard blow. In this case, a positive change for the Sussers took place after the company lost a lot of money. But it all worked out in the end. To further move up the motor fuel value chain and expand their offerings, in 1968 the Sussers found a vendor that manufactured a special pump with • an attached mechanical unit that unlocked the pump with a key. This key-lock system was the next step in more efficient delivery. Susser Petroleum would lease inexpensive real estate in high traffic areas around grocery stores, convenience stores, or industrial areas in order to install these units. They would then issue cylinder keys to customers and bill them monthly after a Susser employee (sometimes called “meter maids”) visited each
100 Susser Holdings site and manually recorded the meter readings. Customers would purchase a key to gain access more quickly and on their own schedule, fill up faster, and be charged on a monthly basis, saving substantial amounts of time and hassle. To expand their customer base Jerry Susser headed up the growth plan for this enterprise, and it expanded significantly. There were drawbacks, of course. The system eventually had fifty keys for fifty locks controlling fifty meters, all of which involved maintenance and regular review. This had significant operating costs that cut into profits. There were constant repairs and accounts receivable problems involving the few customers who got behind in their bills, and in some ways these issues offset the advantages of remote, unattended operations. The basic idea was sound, but the methods needed refining. Still, it worked well for a few years… until things went very, very wrong. Ten Thousand Gallons Gone Houston, we have a problem. —Apollo 13 If you’re going through hell, keep going. —Winston Churchill I n every business, problems are bound to arise. Nothing can go perfectly all the time; even the most well-run operation will face unexpected obstacles, unavoidable failures, and challenges to the smooth maintenance of the status quo. There are minor issues that can be glossed over or even safely ignored; there are concerns that should be analyzed, addressed, and learned from for the future; and then there are those “uh-oh” moments when a problem is so staggering that it demands a solution… and fast. Key-lock gasoline pump
Success in Gasoline Alley—$ave-A-$ 101 In 1972, one of those moments arrived for Susser Petroleum. Jerry realized that the family business had a problem that could not be left unattended for even one more day. He had gone to check the meters at Dillon Industrial Park in Corpus Christi and saw dozens of “customers” in line waiting to get fuel. This was extraordinarily unusual so Jerry went over to investigate and learned that the equipment wasn’t working, and they were giving gasoline away for free! He discovered that at least ten thousand gallons of gas had been distributed with no record of who received it or where to send the bill. The mechanism that was the link between the main meter and all the individual meters had broken, and the customers could turn on, fill up, and drive away, without the transaction ever showing up on the meter. Word had spread around the neighborhood, and at least 500 folks had stolen a tank of gas. The Sussers had no way of knowing who had been getting the fuel. Sam J. and Jerry were on the way back to the office at the bonded warehouse after making this discovery, complaining about their poor luck, when Jerry, the technologist, began to speculate about using computers to oversee the gasoline sales. “I wonder if IBM has a computer that might work?” he mused. Jerry told Sam J, “I’ll handle calling IBM. Sam, you can go tell daddy that we just lost ten thousand gallons of fuel!” While Sam J. was being chewed out by his father, Jerry broke in with the good news. “IBM has a brand-new process control computer designed to run pipeline, steel mills, refineries. This would be perfect for us because essentially what we have is a mini pipeline that runs from a tank in the ground, through a pump, through a meter and through a hose into the customer’s car, and it is controlled by card access. Breaking that unpleasant news was not an easy thing to do, but thankfully the next phase of these unattended pumps would offer a real boon to Susser Petroleum.
102 Susser Holdings The $ave-A-$ Club If at first you don’t succeed, try, try again. —Thomas H. Palmer, The Village Reader (1840) Watch the pennies and the dollars will take care of themselves. —Anonymous Jerry called IBM and quickly discovered that the company did indeed offer an IBM System 7 computer that could do the job. The System 7 had a maximum memory capacity of 128K and was designed to operate pipelines and refineries. The Sussers, working with IBM engineers sent down from NASA (as the Apollo work was winding First automated transaction, January 8, 1974
Success in Gasoline Alley—$ave-A-$ 103 down) and computer programmers, designed a terminal that would interface with a gasoline pump utilizing a magnetic card reader and be connected to a dedicated telephone line in real time to initialize the purchase if credit was approved—and so, the first magnetic card, automated, unattended “point-of-sale” terminal was created. Starting in 1973, the Sussers replaced key-lock pumps with new gasoline pumps that sold multiple grades of fuel along with a computer terminal. It was quite a leap forward, and now self-service was off to the races. The Exclusive Rewards—$ave-A-$ Club To eliminate concerns by local fire marshals, who disallowed pay at the pump to the general public for safety concerns, the Sussers developed a “club” whose members had special access and rights to these pay at the pump locations. To further strengthen their position, Jerry Susser worked with the Texas Insurance Commission, which had jurisdiction over fire marshals in the state, and developed a close relationship with its chairman, Joe Christy, in Austin. Jerry was able to persuade the Texas Insurance Commission of the benefits and safety of this new approach, and the commission finally ruled in favor of allowing self-service fuel pumps in Texas. In many ways this was a landmark ruling, and other states took notice. With the approval in the State of Texas self-service gasoline sales began to take hold and grow across the country, a key event that propelled pay-at-the-pump nationwide. Now, customers who signed up as “$ave-A-$ Club” members received cards that they swiped to activate the pump. A remote computer started the pump, kept track of the number of gallons dispensed, and then created a record so that the client could be billed. That was the first magnetically encoded “pay at the pump” system. These customers could, at any time, drive up to one of the service stations, take out a credit card, and insert it into the The Club card
104 Susser Holdings slot on the pump. Miles away, a computer located in a warehouse in the Corpus Christi port area would check to see if the card was valid before giving approval. The pump would then turn on, allowing the motorist to fill his or her tank. The computer would then make a record of the purchase and the amount of gasoline sold. If any customers were not paying their bills, they were unable to pump fuel. Daily reports detailed by type of gasoline at each site the perpetual status of gasoline inventories, each site’s productivity, and information with which to anticipate and plan the Club’s monthly gasoline allocation. It was a wealth of very helpful data—and much better than trying to guess who got how much fuel. The Sussers intentionally chose specific sites to test this concept, the new remote terminal to replace the key lock system. To expand their footprint, the Sussers installed fuel tanks in the access alleyways adjacent to supermarkets and isolated sections of a residential areas, almost literally in gasoline alleys— located conveniently for customers but also inconspicuous to the general public. Although vandalism had not been a problem in Corpus Christi, to be on the safe side, the card reading equipment was fortified, and the electronic equipment was located at a safe, secure distance from the pumps themselves. “We wanted to find out, first, would our member-customers use the pumps, and at what times of the day?” Sam Jr. said at the time, “Second, is the concept of providing gasoline at unattended stations valid?” The computer system gathered the data to provide the answers for the first question, and the answer to the second was resoundingly affirmative—as the widespread acceptance of “pay at the pump” technology for gas stations over the years has confirmed. Unattended gas pumps for the general public were still not legal, and because the “members” who paid a dollar became private “club” members, they could fill up 24 hours a day, 7 days a week, without an attendant. As well, this “club” created a status for customers who liked the special privilege. Membership to the $ave-A-$ Club was an elite one. Membership grew, so that eventually several thousand club members were using the five locations around the clock, while these pumps were monitored remotely 24/7. Due to limited amounts of gasoline, only so many memberships for this prestigious group could be granted, and a waiting list for the $ave-A-$
Success in Gasoline Alley—$ave-A-$ 105 Club had to be formed. To join the $ave-A-$ Club, members agreed to pay one dollar for membership, maintain their credit with the Club by paying the monthly statement by the 10th of the following month. Delinquent accounts were terminated by merely removing the customer number from the IBM System 7’s file of valid member numbers. As a result of implementing $ave-A-$, bill paying delinquencies were cut in half. Meanwhile, their customers saw advantages of not just convenience—being able to gas up when they liked, with dedicated locations, ease of access, and shorter fueling times—but also cost. On average, clients who utilized $ave-A-$ were able to purchase gasoline two cents per gallon cheaper than the average charged by other vendors. And especially in the early 1970s, when it came to gasoline prices, every penny helped. The $ave-A-$ systems were also a big hit with wholesalers who could contract the Sussers to purchase and install them. Today $ave-A-$ systems are still in operation in some convenience stores as far away as Hawaii. Thriving through the Oil Embargo I n the early 1970s, the American economy was floundering due in large part to an oil embargo. Following Israel’s defeat of Egyptian and Syrian armies in the Yom Kippur War of 1973, Libya halted oil exports to the United States. Shortly after, to make matters significantly worse for anyone using gasoline in America, Saudi Arabia and the Shah of Iran led the Organization of the Petroleum Exporting Countries (OPEC) in an oil embargo against multiple countries that included the United States. This oil embargo created an energy crisis in the West, where Middle Eastern oil had become a dependable—and necessary—commodity. An economic recession followed as gasoline prices doubled and then tripled. President Nixon’s administration responded with regulations such as gas rationing, limited hours of operation at gas stations, and a fifty-five mile per hour speed limit in order to
106 Susser Holdings conserve fuel. Congress also passed laws that mandated improved fuel economy for motor vehicles. From October 1973 to the end of 1975, oil prices quadrupled in the face of shortages. Meanwhile, the American economy was a mess by almost any measure. The stock market faced 40 percent losses in just eighteen months, economic growth was weak, and unemployment kept rising until it reached double digits. These factors combined with high inflation to create a financial quagmire that few seemed capable of navigating. Interest rates skyrocketed, preventing many people from making big purchases like cars and houses, and they had fewer funds for leisure driving or traveling, which meant less need for fuel. Part of the reason this economic downturn hit so hard was that it was so unexpected, coming as it did on the heels of an apparent economic boom—a time of strong growth and low unemployment. The Vietnam War had ended, and the market seemed poised to rise higher. But hugely detrimental monetary policies, supported by political leaders and the Federal Reserve, started the snowball rolling, and it just continued downhill from there. Now people had little money to spend, no gas to get around, and terrible interest rates for purchases, so businesses struggled to cover their costs. Yet, while all of this was taking place, Susser Petroleum persisted, and the value of the $ave-A-$ Club to the family business—and to their growing number of clients—was made even more abundantly clear. During the oil embargo and the resulting fallout across the industry, the Department of Energy allocated fuel to customers and fuel distributors. Through $ave-A-$ and its technology, real-time tracking and highly specific data could monitor the outflow of gas and identify who received it, providing invaluable information at a time when strict monitoring was a necessary standard. Plus, the savings associated with the system and membership were particularly needed in a time of such economic turmoil, high prices, and limited fuel quotas. By 1974, the Club’s waiting list had about six hundred names on it. In addition, with states controlling the supply of gasoline, the Sussers had an ace up their sleeve. Since they were serving emergency vehicles at $ave-A-$, pumps, the State of Texas granted the Sussers an adequate fuel supply for all their customers.
Success in Gasoline Alley—$ave-A-$ 107 The Texas Oil and Gas Association praised the Sussers’ innovation for the convenience and control that it promulgated. In the wake of the stringent new governmental requirements and the need for careful control and precise reporting, many new large fleet customers requested to join the $ave-A-$ Club. The Ohio Bell Telephone Company and the City of Cincinnati purchased over one hundred systems. By 1976, Susser Petroleum had installed over a thousand $ave-A-$ terminals. Unfortunately, the Sussers did not think their $ave-A-$ pumps were patentable, so they never filed for a patent. Besides, IBM convinced the Sussers not to, as IBM wanted to market their computers with this new gas card system. IBM gave the Sussers leads, though, and that was very helpful in growing the business. Competition Enters the Fray It is amazing how many people you can beat if you just never quit. —Babe Ruth Competitors to IBM System 7 were developing systems to compete with the Susser system. Technology was changing rapidly, and with every improvement faster and better technology kept surfacing. The Sussers realized that with many systems sold across the country they needed to raise a tremendous amount of capital to keep up with the developing technology and with the need for a far-flung service organization in order to compete in the marketplace. Since this was not their primary source of profitability, and the fact that servicing these terminals throughout the United States would be burdensome, the Sussers sold their manufacturing rights for the credit card pumps to manufacturer William M. Wilson Sons, a company started by a previously indentured servant on old Philadelphia’s “Merchant’s Row” in the 1780s to build hand-operated water pumps for drinking wells. Mr. Howard Ewing’s company had built a similar credit card system, but it was not as effective as the $ave-A-$ system. The deal was advanced at the dinner table in Sam J. and Pat’s home when they hosted the CEO, a kind and sophisticated “old Philadelphia” executive.
108 Susser Holdings Although the Sussers were out of the manufacturing and service segment of the business, their impact on the industry through the $ave-A-$ Club would be felt for many decades to come. The family continued to operate and expand their network of unattended retail sites across the state of Texas. Of course, even the greatest players cannot hit a home run on every swing. That doesn’t mean they stop swinging. Sometimes effort is put in, and the results • are not immediately seen—it might even seem like a complete miss. But down the road, that experience proves invaluable, and can contribute to a higher level of success than would have been possible otherwise. That’s exactly what happened with the Sussers and $ave A-$ Convenience Stores. I’m not afraid to take a swing and miss. —Fred Smith, Founder, FedEx Corporation Susser Energy Management Systems—1976 Still another creative new business that Jerry started was Susser Energy Management Systems. This enterprise began when utility companies, looking for ways to boost revenue, began charging consumers at higher rates when electric usage occurred during peak hours. IBM had software that could monitor when electric usage would hit a higher threshold, at which point Remote Terminal Units could automatically turn the usage off, lowering the peak billing threshold and controlling energy cost. Jerry Susser installed the energy management software onto the computer used for $ave-A-$ in the Susser offices in 1976 and then into the medical office buildings owned by “Senator” Sam Susser and his longtime business partner, Mr. Joe Craine. The result reduced their monthly utility bill significantly. The light bulb flashed on. Why not sell this system to other companies? Who wouldn’t be interested in a system that would help to save money? Jerry started positioning the system with companies in Corpus Christi. Company leaders responded positively, eager to cut back on mounting energy costs. It was another successful Susser business, and this energy management system was installed in half of the high-rise office buildings in the city.
Success in Gasoline Alley—$ave-A-$ 109 Downtown Corpus Christi, 1970s
110 Susser Holdings Every once in a while, a new technology, an old problem, and a big idea turn into an innovation. DEAN KAMEN
Self-Service on the Rise 111 Self-Service on the Rise Business has only two functions— marketing and innovation. —Milan Kundera There’s no good idea that cannot be improved on. —Michael Eisner Until 1964, unattended gas pumps were being installed at convenience stores in a spotty manner. Full-service stations and attended pumps were still, by far, the accepted norm. Local municipalities’ fire marshals held approval authority, and they required a lot of cajoling to depart from the traditional approach to full-service, manned gas stations. However, the expectations for fuel sales were about to change in a big way. 7-Eleven—and its parent company, Southland Corporation—was reading the weather carefully and preparing for the wave of the future. The Thompson family was planning for the soon-to-be ubiquitous existence of self-service pumps, and their intention was to provide these gas pumps throughout their nationwide footprint. Their strategy included the need to find just the right person to lead this development. And they knew just the man—their go-to guy, Sam J. Susser. Without change, there is no innovation, creativity, or incentive for improvement. • Those who initiate change will have a better opportunity to manage the change that is inevitable. —William Pollard
112 Susser Holdings I n the early 1960s, John Thompson, chairman of the board of 7-Eleven, had heard about a convenience store in Denver that had installed a unique gas pump. It piqued his interest, so he called Sam J. and asked for a favor: “Would you go up to Denver and investigate this for me?” Sam J. agreed and boarded a flight for Colorado. He went to the store that had this novelty offering, tried it out, and spent time talking to the store workers. After his return from Denver, he shared his analysis and opinion with John, saying, “John, I think this is perfect for 7-Eleven stores.” John concurred, “Why don’t you put these gas pumps in some of our stores for us?” Sam J. accepted the challenge, for he too foresaw the future, and he knew he would gain a lot of experience working on this burgeoning frontier of self-service pumps. After all, he was right in the thick of it. In 1964–1965, Sam J. oversaw the installation of the first 50 self-service pumps in locations where approvals could be obtained. These locations encompassed a good trail of business and covered a broad swath of Texas, Utah, Maryland, Delaware, and Colorado. Sam J. set out to put a plan in motion for a multi-state distribution system for 7-Eleven. But fire marshals had to be convinced that unattended fuel pumps were as safe as fully attended pumps. Sam J. presented a persuasive case to a convention at the National Fire Prevention Association, attended by 10,000 fire marshals from across the nation. He argued that it was much safer for a driver— who owned his own car and cared about his own safety—to pump gasoline than a man-off-the-street who did nothing but fill up the tank. Even more importantly, if things went awry, the attendant inside would have a kill switch in order to intervene. For the most part, the fire marshals were convinced, and after two years 7-Eleven was finally able to move forward with self-service. Sam J.’s success was highly regarded by the Thompson family, who understood the significant impact of his efforts on their business endeavors. Naturally, they wanted to extend his involvement with 7-Eleven. Sam J. had other ideas, though.
Self-Service on the Rise 113 First, though, some background would be helpful to highlight the pending need for 7-Eleven to ramp up their deployment of pumps, fuel acquisition • strategy, and their distribution requirements. In 1965 when Susser Petroleum and their partnership with the Thompsons ended, Sam Jr. moved back to Corpus Christi, temporarily ending his employment with 7-Eleven. In late January 1981, President Ronald Reagan removed the remaining price controls on gasoline, propane, and U.S.-produced crude oil as part of his campaign promise to “deregulate America.” The oil industry was given control over gas prices and distribution for the first time in a decade, a move which would add between six and twelve cents a gallon to the price of gasoline. The lifting of regulations would permit refiners and retailers to charge for their products as they saw fit. Optimists hoped that decontrol would increase domestic energy production, encouraging the use of alternative forms of energy. Southland, one of the smaller players in the fuel industry, remained alert to the actions of the larger corporations in the months after deregulation, patiently waiting to see what they were going to do. As time passed, Southland formulated a plan. In 1982, a year after the decontrol of gasoline pricing, Southland had 7,000 7-Eleven stores nationwide, 2,500 of which sold gasoline. Southland ranked 13th in the nation for motor fuel sales during the first eleven months of 1981. It bought about 1.2 billion gallons of gasoline that year from major refineries along the Gulf Coast. Over the years, Sam and the Thompsons continued discussing Sam’s strategy. He advised the Thompsons that they needed a master plan to more efficiently purchase and deliver gasoline to their stores. They were not buying in volume, but rather using many different wholesalers. The plan they needed to implement, Sam J. told them, was to add pipeline and terminal capabilities in order to purchase gasoline in larger quantities, which would drive costs down, and then distribute it directly to their 7-Eleven stores, eliminating distributors. With now a massive footprint of convenience stores, Southland needed more cost effective and efficient purchasing and distribution of gasoline to fill their
114 Susser Holdings tanks. The Thompsons asked Sam J. to help them recruit an executive with the requisite experience, which proved to be unsuccessful, so they asked Sam J. to consider taking the role himself. The Thompson family just needed to convince Sam J. Susser to re-join them for this initiative. After the Sussers sold Continental Parts to a competitor on the West Coast, Sam J. Susser did not have to search for his next big opportunity. Instead, it • found him. In 1981, Sam J’s college roommate, now a key executive at his family’s company, was duly amazed at the windfall that Sam J. had helped to bring about. With the successful sale of Continental Parts Co. and with Sam J. on the sidelines, Jodie Thompson knew that 7-Eleven needed Sam J. back. At the time, 7-Eleven self-service pumps were installed in only 35 percent of their 5,000 convenience stores. Certain regulations still stifled the full, unrestricted use of these pumps nationwide. But regulations were expected to change soon, and the company wanted to get a start on the mass deployment of self-service gas pumps at all their stores. 7-Eleven anticipated the need to ramp up this installation throughout their entire footprint. To do this, they sought someone they trusted, and a person who also had the needed experience. Few in the industry possessed both of these qualities, and one of the few was Sam J. Susser. “Sam, why don’t you come back to 7-Eleven?” Jodie asked him, “You can do what you always do: help make our business even better.” Sam replied, “Jodie, first my wife and I are planning an extended vacation to Europe. Then I really need to get back to Corpus. We have a lot going on at Susser Petroleum and our other companies.” Jodie was not one to give up. Sam J. had been crucially helpful in expanding 7-Eleven’s fuel distribution years before, and right now 7-Eleven was expanding rapidly and on the cusp of much more, with self-service pumps about to be added to the vast majority of their stores. Sam J.’s talents at logistics, winning new business, and providing fuel on a timely basis were just what 7-Eleven needed. The two former college roommates talked until 2 a.m. When they finally
Self-Service on the Rise 115 finished their conversation, Sam J. still had not bought in. But then other Thompson brothers pressed their case too. They just would not take “No” for an answer, no matter how many times it was given. Jere Thompson called Sam J. the day after Jodie’s conversation with him and asked, “You coming back? We really need you.” Sam J. responded, “Thanks, but the timing is just not right for me.” The following day, John Thompson tried his hand as well. He had come up with another incentive to sweeten the deal, and a tasty meal was only the beginning. “Let’s have lunch,” John offered. Sam asked, “When?” John replied, “Today. I’m sending our plane to Corpus Christi to pick you up. We’ll lunch at Celebration in Dallas.” The jet picked Sam J. up, and soon he was dining on delicious farmto-table fare at one of Dallas’s most beloved restaurants, founded in 1971 and built out of stately stone, wood, and copper. As they sat down for some chicken fried streak, John wasted no time, asking Sam J, “Did you like our plane?” Sam J. replied, “Yes. It’s wonderful.” John pressed the advantage, offering, “If you come back to help us, you can use the plane whenever you want.” John could see that he had won a point. Sam J.’s resistance started to weaken. Certainly, having access to a big, fast jet was not the main reason Sam J. began to consider returning to help 7-Eleven. The real driving force was the opportunity that it offered. Still, the jet didn’t hurt. Over that meal, they reached an agreement. Not everyone was happy about the arrangement, though—Sam J.’s father was not pleased about his son moving to Dallas, asking him, “Why are you • leaving? You have a good life in Corpus Christi.” Sam J. replied, “Dad, 7-Eleven has close to five thousand stores but less than half with gas pumps. Regulations are changing—and 7-Eleven expects that
116 Susser Holdings unattended pumps will soon be allowed nationwide. They plan to add pumps to all their stores where possible. Imagine the opportunity!” Sam, Sr. realized this was going to be a significant play for his son. Sam J. was on target—this was the right place, right time, and right move to make. Then Sam J. further emphasized his point, “Besides, when is a fat Jewish boy from South Texas going to get to work with a billion gallons of gasoline… and… know what to do with it?!” He was spot on. Few in the fuel industry had the knowledge and talent to make this happen, but he did. And he had a plan. Sam J’s father was curious about his son’s strategy to expand 7-Eleven’s fuel acquisition logistics. After all, if a lot of new pumps were going to be installed, 7-Eleven would need billions of gallons of fuel delivered. So he asked, “What’s your plan?” Sam J. explained, “First, I want to buy Albert Alkek’s pipeline and fuel storage terminals. This will provide us the infrastructure to consolidate our volume, lower our cost, and increase margins, and with this we will be able to control the fuel distribution to many 7-Eleven stores.” It was a lock-solid strategy, if he could pull it off and convince the well-known oil man, rancher, and philanthropist to do business with him. But would he be able to? Sam J. still had to convince his wife as well, so he asked her, “Pat, how would you like to move to Dallas?” Pat quickly responded, “Not interested.” She was raising her three children and deeply involved in Corpus Christi, especially in charitable causes. But Sam J. knew how to be persuasive, so he explained to Pat, “I don’t want to look back and say, ‘I wish I had done that.’” With that Pat caught the vision. Two weeks later the couple bought a home in Dallas. Now Sam J. had to convince one of the toughest oil men in the industry, Albert Alkek.
Self-Service on the Rise 117 Downtown Dallas, 1980
118 Susser Holdings You don’t need to be a genius or a visionary, or even a college graduate for that matter, to be successful. You just need framework and a dream. MICHAEL DELL
Fueling Up 7-Eleven 119 Fueling Up 7-Eleven Life is too short to spend your time avoiding failure. —Michael Bloomberg You have to create something from nothing. —Ralph Lauren The heart of Sam J.’s strategy was to ensure a steady supply of gasoline for Southland. Only then could Southland’s 7-Eleven stores control their destiny. He knew that owning a pipeline and fuel storage terminals would go a long way toward accomplishing this goal. In fact, his initial analysis revealed that, with pipeline ownership, Southland would reduce its gasoline cost by two cents per gallon which was worth more than $24 million per year. Considering the volume of gasoline that Southland was selling, a fortune was at stake. In fact, such a plan when successfully executed would materially affect Southland’s stock price. Aligning with Alkek • Albert Alkek owned pipelines that transported refined products from Oscar Wyatt’s Coastal States refinery in Corpus Christi to Austin, College Station, Waco, Dallas, and San Antonio. His pipelines were just what 7-Eleven needed, so Sam J. set to work investigating this potential opportunity. Alkek was as tough as 700 nails, and stories abounded about his legendary, hard-nosed dealings. Sam J. was uncertain whether he would prove to be the right partner. So he set out to learn about Alkek. Sam J. discovered that Alkek actually worked for larger companies that invested money in his deals, while Alkek did the crude trading. He took 60 percent of the profits, and his partners received 40 percent of the take. At the time, his main contract with National Industries was coming to an end. Alkek
120 Susser Holdings held a close personal relationship with the National Industries president and CEO, who was dying of cancer. When Sam J. reached out to Alkek, the man proved quite approachable, and Alkek liked the idea of partnering with 7-Eleven. Sam said to him, “Albert, between 7-Eleven’s retail power and your trading connections and pipelines, we can make a lot more money. You game?” With a deal in sight, Sam J. asked Albert permission to talk with the president of National Industries; Albert explained to him, “The man is very ill, but here’s his phone number.” Sam called the president and CEO, set up a meeting, and spent four hours with him in his living room. Sam J. asked questions and listened while the ailing president told him about all his dealings with Albert Alkek, all of which had been positive experiences. It was encouraging to hear. Sam J. continued with his research on Alkek. John Thompson suggested that he talk with Bill Noble, president of The Victoria Bank, a longtime friend of Albert. He too confirmed that Alkek was rough and tough but a real money-maker. It was just what Sam J. had hoped to hear. He gave the green light to 7-Eleven, and they proceeded to acquire Alkek’s pipeline system. It did not look like 7-Eleven’s pumps would be drying up anytime soon. T. Boone Pickens Enters the Fray About a month after the Alkek deal, John Thompson received a call from T. Boone Pickens, the well-known takeover operator and American capitalist. Boone told him, “I’m going to make a play for Cities Service Company. I’m looking for some investors. You buy a lot; oil prices are moving up… this would be a great hedge for you against your gasoline sales.” John called Sam J. and asked him, “What do you think?” Sam replied, “Sounds interesting. Let’s go talk with Boone.” Cities Service had a large refinery in Lake Charles, Louisiana and a had significant expansion underway that would run 330,000 barrels of crude a day,
Fueling Up 7-Eleven 121 including inexpensive heavy sour crude. Sam J. told Boone, “If we come into this deal, we will invest $500 million and will take twenty percent of the capacity from the Cities Service refinery.” Boone was receptive, so Sam J. continued, “And we want to transport gasoline on the Explorer and Colonial pipeline to get the gasoline to our stores as these fit our distributing needs nicely.” Boone approved. Still, Sam J. needed to once again first complete his due diligence. He sought out a top refinery consultant, Ray Stancil in Dallas, to help determine the value of the refinery processing and transportation agreements Boone had generated to consummate the deal. Next, he started the process of raising the needed funds from investment banks. After all the due diligences and analyzing all the aspects of the deal, Sam J. and the Thompson brothers agreed not to move forward with T. Boone Pickens. Undeterred, Sam J. kept looking for the right deal. Occidental Petroleum Swoops In T. Boone Pickens continued forward and made his offer to acquire Cities Service but was unsuccessful. Ultimately Occidental Petroleum wound up as the owner of Cities Service Oil and Gas. This was not bad news. In fact, the silver lining that kept Sam J. hopeful was the well-known fact that Armand Hammer did not like refining operations, preferring to own the upstream operations—exploration and production. Sam J. and 7-Eleven believed that Occidental would eventually sell off the downstream Cities Service operations. This also would help Occidental pare down the heavy debt load from this acquisition. After all, the transaction was valued by analysts at about $4 billion, creating the nation’s eighth largest oil company. Sam J. wasted no time in working to position for the downstream assets. The day after Occidental announced its acquisition of Cities Service, Sam J. contacted Goldman Sachs—the investment bankers to both Southland and Occidental—and told them of Southland’s interest in acquiring the refining, marketing (retail and wholesale), and transport assets (pipeline) from Occidental.
122 Susser Holdings By this point in 1983, 7-Eleven was on its way toward becoming the largest gasoline marketer in the industry. It had become the largest independent gasoline retailer the year before with 1 percent of the U.S. gasoline market. This planned acquisition from Occidental would raise its market share to 2.5 percent. It took some time for Sam J.’s plan to be proved right, but he was correct— Hammer wanted to sell. Southland Acquired Occidental Petroleum / Cities Service Downstream Operations • Armand Hammer spent a year attempting to off-load Cities Service’s downstream assets at a premium. He held out for a high price, one that Southland was unwilling to pay. Hammer finally capitulated and agreed to a deal with 7-Eleven and its offered price. Still, there was a lot of work to do before a final agreement could be achieved. Sam J. and his team rolled up their sleeves. As part of the Occidental acquisition of Cities Service, Occidental now owned a gas field in Northern Louisiana and a refinery in Lake Charles, Louisiana (formerly a Cities Service refinery). Natural gas could be heated at their refineries to produce gasoline, motor oil, asphalt, and other petroleum-based products. The goal for Southland regarding the contract was to eliminate as much risk as possible. A team of experts was formed to evaluate the refinery that Cities Service operated in Lake Charles, Louisiana. Their major concern was to ensure a long-term supply of gasoline and diesel fuel at a reasonable price. Everything was coming together… so far, so good. But even if everything looked to be in order, a deal still had to be struck.
Fueling Up 7-Eleven 123 The Billion-Dollar Phone Booth Deal It’s kind of fun to do the impossible. —Walt Disney Finally, after four months, the analysis was complete. The experts’ final determination was that these gas fields’ remaining lifetime of supply was a period of fifty years. This number was plenty high enough to move forward; they were good to go. With that positive evaluation in hand, it was now time to make an official decision and commitment about moving forward. Sam J. and Dave Henchel, the president of Cities Service, summoned all the experts to the office of Vinson & Elkins to finalize the contract. When everyone gathered, the conference room in Houston held twelve people standing around, each with individual opinions and perspectives, each with a substantial reservoir of data and findings, ready to provide deep analysis and debate whether the deal was warranted. Sam J. knew this would get heated and drag on, and he wanted to cut to the chase and close the deal without wasting time. He decided on an alternative course of action. Sam J. told Dave, “This will take forever. My office is just outside this conference room. Come with me.” What Sam J. was referring to as “his office” was actually a phone booth that he often used when at Vinson & Elkins conducting business. In the tiny booth the two men worked out the final details. After a few minutes of finalizing the remaining details, the two men were in agreement on how they would proceed. Before re-entering the conference room, Sam J. told Dave, “Let’s not try and explain this to all these lawyers, accountants, engineers, and geologists. They will all pipe in and it will just drag on and on. Let’s just go in there and tell them how to write it up. Take no questions. We tell them what to do.” Harking back to Sam J.’s good friend and attorney Harry Marks, had told him years before: Remember lawyers are risk adverse and act as risk advisors. Businessmen are risk takers and they have to make the call.
124 Susser Holdings Sam and Dave re-entered the room with this pronouncement: “Everyone gather around. We have a green light. Here is what you write up. Don’t ask any questions. Dave will confirm this is accurate. Right, Dave?” Dave confirmed, “Yes, I confirm, this is what we’ve agreed to.” With that, in 1983, Southland agreed to purchase the refining, marketing, and transportation arm of Cities Service from Occidental Petroleum for $1.2 billion. This purchase gave Southland 350 Quik Mart stores that sold gasoline, 76 directly supplied Citgo stations, 535 directly supplied gasoline retail outlets, a wholesale network that sold branded Citgo gasoline to more than 4,000 retailers, and the nation’s ninth largest refinery, located in Lake Charles, Louisiana. Sam J. Susser was named president of CITGO Petroleum Corporation. Two days after the purchase went through, the lead attorney for Southland at Vinson & Elkins, Joe Dilg, realized that this major deal was struck in a phone booth. He was astounded and commented, “Sam, I’m thinking of naming that phone booth, ‘The Sam Susser Billion Dollar Phone Booth.’” The South American Connection With Southland’s chain of 7-Eleven 5,000 convenience stores continuing to grow, even more gasoline would be required to fuel the rows of drivers streaming to their pumps. Knowing full well that Southland would be needing more crude oil for refining, Sam J. still worried that the supply of crude oil might decline and fail to keep the refineries producing. He had kept his ear to the Celebrating the closing—Sam Susser, Jodie Thompson and Armand Hammer
Fueling Up 7-Eleven 125 ground, open to new opportunities, and he was considering a possibility in the other hemisphere—in South America. Sam J. called Bob Strauss in Washington, D.C. and asked for a person in the state department who was knowledgeable about Venezuela. Through contacts, Sam J. was given a connection to Wolf Petsel, COO of Petróleos de Venezuela. Sam J. initiated a call to explain how much volume 7-Eleven sold of gasoline and diesel and how Southland would like to make a longterm arrangement for crude oil supply and hopefully have Petsel’s company as an equity partner. As Sam J. explained, Petróleos de Venezuela would be able to sell its heavy sour crude for Citgo’s refining operations at a favorable price to both parties. Petsel liked the idea. At breakfast in New York City, the two dined on eggs and toast at a hotel and struck a tentative deal outlined on a linen napkin. After that meeting, the two companies proceeded toward a 50-50 partnership agreement to acquire Citgo. But soon the opposition party in Venezuela took control of the government, and it scuttled the deal, as members of that party did not want any more foreign investments from outside of Venezuela. This was an unfortunate setback, but Sam J. was not one to give up. It was time for Plan B. He placed another call. “Dr. Petsel, if you can’t go forward, then Southland wants a long-term crude oil contract,” Sam J. said. “And, secondly, we can agree to allow you to buy back into the Citgo operations when the political parties change again.” Dr. Petsel agreed. The agreement between Southland and Petróleos de Venezuela allowed for a steady supply of crude at an attractive price. Two years later, the Venezuelan government changed again, and now Petróleos de Venezuela was eager to buy into Citgo. Petróleos de Venezuela acquired a 50 percent interest in Citgo from Southland for $290 million in September 1986. These were heady times for Sam J., the great dealmaker for Southland. He became president of Citgo, and senior vice president of 7-Eleven. However, not everything was coming up roses. Back in Corpus Christi, Susser Petroleum seemed to be nearing the end of its road.
126 Susser Holdings We were able to hold on by our fingernails and crawl back out. SAM L. SUSSER
Saving the Ship, 1986 127 Saving the Ship, 1986 Failure is success if we learn from it. —Malcolm Forbes The best way out of a difficulty is through it. —Will Rogers Victory is sweetest when you’ve known defeat. —Malcolm Forbes I have not failed. I’ve just found 10,000 ways that don’t work. —Thomas A. Edison I n 1986 following the passage of the Tax Reform Act of 1986 which dramatically impacted energy and real estate partnerships, high crudeoil prices plunged below $10 a barrel, triggering massive job loss across the state of Texas and forcing many businesses into bankruptcy. South Texas was suffering, as was Susser Petroleum right along with it. The Susser family also had five small stores that were doing well. However, the company’s accumulated financials were in distress. The family businesses had lost millions in accounts receivables from businesses and individuals that couldn’t pay their bills, the real estate had plummeted in value, and all of the banks that the family borrowed from had failed and could no longer renew the lines of credit that the Sussers counted on. The financial pressures were incredibly intense and survival was in serious doubt. Help was needed. Sam J. called up his son, Sam L., to seek his advice. This was a wise decision, as Sam L. would help evaluate the existing business, develop a workout plan with the bankers, and then dig Susser Holdings out of near-bankruptcy, and grow their nascent convenience store business to remarkable heights.
128 Susser Holdings results. As the company expanded its customer base, delivering wholesale gas During the early 1980s, Susser Petroleum continued to produce stellar • and creating new lines of business by supplying lube oils for the oil rigs and fleet boats and gas to airports, it looked like the Susser model would continue for years to come. In 1983, Sam J. and Jerry acquired their father’s ownership in the business for cash which was funded primarily with bank debt. Of course, it often seems that the fiercest storms are most likely to appear when everything is smooth sailing. And in this case, the howling winds of an economic downturn nearly sank the ship. It would take the most dedicated efforts of the entire crew to keep the ship afloat… and true to its course. The Unfolding Crisis Following the 1970s energy crisis, which radically shook up the industry, demand fell for crude oil. As a result, in the 1980s there was a substantial surplus. The world price of oil had reached its high point in 1980, topping $35 per barrel, but by the time 1986 arrived, it had plummeted to below $10 per barrel. Talk of an “oil glut” circulated in the news and media outlets, a glut that started in the early ’80s due to slowed economic activity in industrial nations after the crises of the 1970s. High fuel prices also drove energy conservation, which meant using less oil. As the Organization of Petroleum Exporting Countries (OPEC) and other oil exporters continued to increase oil prices, oil consumption in many countries continued to fall. Still, all of this meant that those in the oil industry were struggling to survive. In the U.S., domestic exploration for oil was cut back, as were the number of active drilling rigs. In just a year, between late 1985 and 1986, the number of drilling wells in the nation dropped from nearly 2,300 to barely 1,000. The number of petroleum producers nationwide dropped by more than half, as companies went out of business. Oil producers were reluctant to search for
Saving the Ship, 1986 129 new oilfields, fearing the loss of their investments. In 1986, the price for crude oil, which had been kept artificially high, plunged below $10 a barrel. Across the state of Texas, this development spawned a massive wave of job loss and bankruptcy as businesses were forced to close. South Texas was hit hard by the crash in energy prices. And as the local economy suffered, so did the Susser family—right along with it. Hard Times in 1986 ‘Tis the song, the sign of the weary Hard times, hard times, come again no more Many days you have lingered all around my cabin door Oh hard times, come again no more —Johnny Cash, “Hard Times” Until this time, Susser Petroleum had been doing well, even as many other businesses were hard-hit during the 1970s energy crisis. However, in 1986, the real pain started. On the bright side, their convenience store business by this time had five stores and revenues of several million dollars, but it was not enough to right the sinking ship of their petroleum subsidiary. Two separate forces culminated to create the perfect storm, one that led to mounting losses for Susser Petroleum. First Problem—Accounts Receivable Losses During this time, Susser Petroleum was purchasing fuel on volume contracts and trading fuel to hedge pricing in order to ensure a favorable pricing position. As long as pricing stayed stable, their position remained in the black. But when crude prices declined, along with the banking collapse, the economy of Texas suffered. Susser Petroleum’s customer base shrank, with many Susser
130 Susser Holdings Petroleum customers out of business. With $5 million in outstanding accounts receivable losses, from clients unable or unwilling to pay for the fuel they had purchased on credit from Susser, dark financial clouds were on the horizon. Second Problem—No Money to Spare Normally, Susser Petroleum would have secured debt from financial institutions to offset this situation and carry them through the roughest patch. But during these turbulent times, many banks and savings and loan institutions went belly up themselves, or were in merger mode, and it grew harder to find anyone with money to spare. Nine of the ten biggest Texas banks failed, which triggered a banking crisis that was as hard and possibly worse than The Great Depression. Losses mounted month over month, and the Sussers were unable to secure funds to dig out. The situation continued to deteriorate, and by 1986, Susser Petroleum and Apache Oil were on the verge of bankruptcy. As Rob Darville recalls: Sam J. and Jerry were brilliant guys. Sam J. was the deal maker, and Jerry was the idea guy. Jerry hired me to manage operations at Susser Petroleum and $ave-A-$ stores. In late 1986, the price of crude sank to $14.33 from a high six years prior at $37.42. We had 300 customers. Fuel tanks, commercial companies (fleets), farmers, unbranded retail, commercial, and industrial. We were transporting gas to commercial customers and diesel to oil field service operations and aviation customers. During my interview with Jerry Susser and David Coover, David told me, “All you need to do is find all the money that has fallen through the cracks, and the Sussers will be very pleased.” During the downturn in 1986, Susser Petroleum kept the commercial business but scuttled the oil field business and others that delayed payment. With bankruptcy looming around the corner as 1987 drew to a close, Sam J. and his brother Jerry decided to call in reinforcements. They called Sam J.’s son, Sam Louis, who had been working for three years at Salomon Brothers on Wall
Saving the Ship, 1986 131 Street. They asked Sam L. to help find a solution, a way out of this imminent disaster. The situation was dire, and when Sam L. came to Corpus Christi over the Christmas holidays, he too understood the severity and urgency. When he joined the family business, he had no expectations except to make sure that the business survived, which the Sussers did “by the skin of their teeth,” Sam L. later said. Sam L. attended a meeting in Dallas at the end of 1987 with Susser Holdings’ commercial bankers. His father and uncle had personal guarantees on their loans, and the senior banker explained that they intended to call on the guaranty to ensure the bank didn’t take a loss. The banker was technically employed by the U.S. Government who took over the “bad loans” and put them in a workout group. After that, Sam L. used his Christmas vacation in Corpus Christi to analyze the financials with Joe Vela, who had worked for Sam L.’s grandfather and was now Susser Holdings’ controller. As they crunched numbers through the holidays, they developed a game plan to resuscitate the company. As an initial step, Sam L. needed to resign from Saloman Brothers as soon as possible and move to Corpus Christi. The primary goal was to raise cash so they could catch up on past due bills and debt, but first they had to restructure the financials. The Sussers had different financial records for different situations— unaudited records for vendors and an audited version for their bankers. Once the records were reconstructed into a single ledger for clarity, the full circumstances were clear. And they were painful. Sam L. considered hiring bankruptcy lawyers but decided to keep the very limited cash on hand. The action plan: • Liquidate personal assets to raise cash—that is, sell the boats, airplanes, condos, and most of their cars • Sell some real estate holdings to generate cash • Exit the business that extended significant credit • Downsize all businesses to be cash-flow positive They had to write off $5 million from accounts receivable that could no
132 Susser Holdings longer be collected. They sold assets for as little as 50-cents on the dollar to generate desperately needed cash and curry favor with area banks. It was tough medicine to swallow, but it was needed to save the patient. The Sussers used creative ways to conserve cash and were willing to do what it would take to survive. As Sam J. later said, “People who refused to do that, they all went bankrupt. We were able to hold on by our fingernails and crawl back out.” After spending weeks poring over the financials, Sam L.’s analysis revealed one shining area of sustained profitability. This became Sam L.’s “ah ha” moment—an epiphany that would help to restructure and grow the company. The single bright spot in all of the gloom and doom was the ongoing success of the convenience stores. The Sussers had taken back three $ave-A-$ stores from Erich Wendl to expand their convenience store operation. As well, Rob Darville—an experienced executive with a fourteen-year tenure working with Philips Petroleum—was hired in April 1986 to expand by building two new $ave-A-$ stores. The strategy focused on expanding interior space to sell more merchandise and on placing the pump locations specifically for easy access. Customers could come in and get out quick. Meanwhile, the available merchandise provided a steady and positive cash flow. Retail was always successful. Getting out of the underperforming entities was the first step. Then, the goal was to build a business big enough to cover the remaining debt service and overhead… or grow their way out of the problem. The patient was struggling but was hanging on. And the elixir to bring complete health could be found in this one area that was profitable, an area that could be leveraged to produce the ultimate miracle tonic: convenience stores.
Saving the Ship, 1986 133 The single bright spot in all of the gloom and doom was the ongoing success of the convenience stores.
134 Susser Holdings My athletic endeavors feed a competitive fire inside me. SAM L. SUSSER
A Pro in the Making—Sam Louis Susser 135 A Pro in the Making— Sam Louis Susser Life must be understood backward; but it must be lived forward. —Søren Kierkegaard One of the luckiest things that can happen to you in life is, I think, to have a happy childhood. —Agatha Christie There is always one moment in childhood when the door opens and lets the future in. —Graham Greene Like his father and his uncle, Sam L. learned a lot from watching how his relatives handled the family business. By observing his grandfather, father, and uncle, he soaked up lessons about leadership, boldness, integrity, and a successful entrepreneurial drive. Their close-knit family unit provided all the tools he needed, but no one could have foreseen how effectively he would employ them. Sam L.’s business acumen and leadership characteristics were put to the test and fine-tuned through his efforts to right the ship in the midst of the turbulent waters facing the Susser business in the late 1980s. He grabbed hold of the wheel and steered it true. After the young Susser returned to Corpus Christi in 1988 and joined the family business, he became the General Manager, Vice President, and Director of the company. He became President and Chief Executive Officer in 1992. his father, uncle, and grandfather. Most of Sam L.’s earliest memories were of weekend visits to the office of •There, young Sam L. observed as the men
136 Susser Holdings studied the company’s accounts receivable, spending hours examining the green and white general ledger papers. Other early memories involved going with his grandfather down to the warehouse to ensure that the doors were locked properly. That warehouse was the site of its own business endeavors, but the family’s primary business was always fuel supply. Sam J. would take his son on “ride-alongs” to business meetings and sales calls, and as they traveled, he would point out to young Sam L. different properties and speculate aloud about the types of businesses they could support. He was allowed to tag along at the industry trade conventions such as the Texas Oil Workers Association (TOMA) and the Society for Independent Gasoline Marketers of America (SIGMA). When Sam L. was growing up, his father and Uncle Jerry had substantial business in Dallas and Atlanta, and for much of Sam L.’s childhood, his father needed to travel a lot and was frequently out of town. His grandfather, Sam Susser, was a big part of Sam L.’s life and helped to raise him. Sam L. was the oldest of nine grandchildren. “I remember spending time at my grandfather’s house, and he insisted I sleep on a cot right next to him,” Sam L. later recalled. “He told me that when he got up in the middle of the night, he wanted to see me.” Sam L. remembers a game that his grandfather played at restaurants when the family went out for lunch or breakfast: he would ask how much the grandchildren thought the check was for, and everyone who could guess the amount within a quarter got a $20 bill. It was good motivation to develop a solid number sense and an appreciation for how much things cost in the real world. Sam L.’s grandparents also took him to a lot of fun destinations, such as New York City, New Orleans, the Catskill Mountains, and Walt Disney World. These trips bonded the family closer, brought a lot of joy to Sam L.’s life, and also expanded his horizons. Great times were also had at home, such as family gatherings on Sunday to watch the Dallas Cowboys football game with all the extended family present. It was a command performance whenever the beloved Cowboys played and his grandmother Minna (a/k/a Magoo) also cooked an enormous and delicious meal to eat at halftime.
A Pro in the Making—Sam Louis Susser 137 A Golf Pro A kid grows up a lot faster on the golf course. Golf teaches you how to behave. —Jack Nicklaus Sam Louis was a talented and enthusiastic golf player from a very young age. As a child of seven, his father and grandfather would take him out to the golf course with them, and the boy would fiddle around and soak up the sport. His first lessons were at age seven with a distinguished professional, Tommy Burke, and by nine years old, Sam L. had set his sights on becoming a professional golfer. At the age of twelve, he had matured enough as a player that he traveled to San Diego for the 11-12 division of the Junior World Golf Championships at Mission Bay. Out of all the competitors, he finished eighth. His clubs were an old set—1968 Wilson Staff Customs that had once belonged to Don January, a professional golfer who had won the 1967 PGA Championship. When Sam L. was thirteen years old, his grandparents paid his entry fee of $650 to participate in the Pro-Am prelude to the tenth annual Andy Williams San Diego Open at Torrey Pines, a course on the coastal cliffs overlooking the Pacific Ocean. This was a reward for Sam L. from his grandparents for earning straight A’s at Hamlin Junior High. This was Sam L.’s first real pro tournament, playing to a 12 handicap. He finished with an 80. His partner was Ed Snead, publisher of the San Diego Tribune, who sent out an AP news story and UPI wire photo about Sam L., and it was published all over the world. Golf had become a very big part of Sam L.’s life. In May 1978, Sam L., now fourteen years old, played in the Colonial National Invitational Tournament Pro-Am, shooting a two-under-par 68. He bagged four birdies and two bogeys while shooting a two-under par 33 on the front nine and an even par 35 on the back. He had recorded a pair of 68s the previous week on the same course. Sam L., pro wannabe
138 Susser Holdings Sam L. became runner-up in the Junior World Championship at age thirteen, Texas Golf Association State Junior Club Champion at age sixteen, and at age fourteen, he won the Colonial. He was clearly a talented athlete. Then there was the $100 motivation Sam L. received for his sports performance. “My Grandfather (a/k/a “Paw Paw”) would come out and watch my local tournaments,” Sam L. recalled. “He would offer to give me a hundred dollars if I made a particularly long putt, a clutch birdie, or an eagle during competition. That was quite an encouragement.” Sports fed a competitive fire inside Sam L., one that continued to burn even when he was not on the green. University of Texas Texas Fight, Texas Fight, And it’s goodbye to A&M. Texas Fight, Texas Fight, And we’ll put over one more win. Texas Fight, Texas Fight, For it’s Texas that we love best. Hail, Hail, the gang’s all here, And it’s good-bye to all the rest! —“Texas Fight,” official fight song, University of Texas Sam L.’s passion for golf remained strong throughout high school, and he was successful in local rankings. When the time came to consider a university to attend, he turned down a scholarship offer to play golf at Baylor and Rice University. Sam L. had been advised by family friends in a meeting that his father arranged that if Sam L. was planning to do business in the state of Texas, he would be better served attending the University of Texas than Rice. Although he was not initially offered a golf scholarship to the University of Texas, UT did allow him to play in the walk-on tournament which resulted in a modest scholarship during the first semester of his freshman year. He graduated from
A Pro in the Making—Sam Louis Susser 139 Richard King High School in 1981, ready for the next phase of his life to begin. At UT, Sam L. majored in Finance. Sam L. had a great experience with his professors, who were understanding about the sports obligations he faced and the commitment he had made to the golf team. Their flexibility helped him to keep up with his studies while also participating in many tournaments. However, an unexpected experience while playing on the UT golf team would turn his life in a different direction. After a rare opportunity to meet golf legend Jack Nicklaus, Sam L. was inspired not to pursue the sport, but to actually leave it. Nicklaus was showing the UT golf team how to play its new home course, The Hills of Lakeway, which he had designed. Sam L. told his father afterward, “I watched Jack Nicklaus play today. No matter how hard I practice or how many years I play, I’ll never be good enough, so I’ll give up golf at the end of the season.” This realization led to a shift in priorities that would have a big impact on his life. “Watching his skills got me thinking that I would never be able to ascend to that level,” Sam L. remembers. “Soon after this, I was in a slump and not playing so well. I was up against very talented golfers—many of my UT teammates have won tour events all around the world—and again I started thinking about the long-term viability of being a professional golfer.” On the academic front, Sam L.’s grades were mediocre, largely due to his split commitments—trying to succeed at both his classes and his golfing at the same time. He missed classes regularly due to the tournament schedule and struggled to perform at an elite level on the courses while making mostly B’s and C’s in his classes. Sam L. was forced to realize that he had to make a hard choice—either golf or grades. At the end of his junior year, he dropped his golf scholarship to focus on school. During his senior year, he opted for some very challenging electives (including a course for Ph.D. students in corporate financial reporting taught by a former SEC staff member, Professor Jack Robertson), and he made straight A’s. Sam L. received a crash course in acquisition strategy from his father. In 1983, during the lengthy contract negotiation between 7-Eleven and Occidental / Citgo, Sam J. would often invite his son to attend these negotiations and learn from them, just as Sam J. himself had learned in the presence of his father. Sam
140 Susser Holdings L. even helped with some of the financial analysis. Sam L. graduated from the University of Texas in 1985 with a BBA in Finance and would put that to good use in the years to come. Salomon Brothers Inc Money never sleeps, pal. —Gordon Gekko (played by Michael Douglas), Wall Street (1987) You have got to be in shape. I don’t mean jogging and all that crap. You have to walk in at 7:00 a.m. every morning and be ready to bite the ass off the bear. —John Gutfreund, CEO, Salomon Brothers Inc Next, with the help of an introduction by Ray Golden, a senior partner at Salomon whose son Neal was also a ZBT at UT, Sam L. acquired a position with the New York firm Salomon Brothers, where he worked in the corporate finance and mergers acquisitions groups from 1985 to February 1988. He had the option to take the summer off after graduation and then start at Salomon Brothers, the number one firm by volume, fees, and influence on Wall Street, at the end of July, but his father’s guidance motivated him to begin even sooner. “You should start earlier to get a jump on the others,” Sam J. said. Heeding this advice, Sam L. started on June 1, even though his other class members were starting at the end of July. This was the Gordon Gekko era on Wall Street, and anything that gave an advantage was worth the extra effort. Thankfully, Sam L.’s accounting and finance classes at University of Texas helped a lot. During his three years working in Manhattan for this firm, at least one night a week, he worked until sunrise the next morning. Salomon Brothers was the top investment banking company in the world,
A Pro in the Making—Sam Louis Susser 141 and they had the numbers to prove it. They had two times more profit with one half the number of people versus their most significant competitor. So pound for pound, person for person, they were four times better—both more profitable and more efficient. Sam L. had the opportunity to work with some of the smartest and most successful people in the business, who today are top leaders in their industries. Sam L. believes the training and experience he received from the many mentors he had in those years really set him up for future success. Mitch Scherzer, who worked at Salomon Brothers with Sam L. and developed a lifelong friendship with him, said of Sam L.: “He had something to say, a very earnest, honest way about him, a disarming way about him. He was not someone at the time that anyone viewed as a young buck who didn’t know anything, but someone who could contribute immediately, could hold an audience. People thoroughly enjoyed him.” Sam L. worked in the investment banking division, one of 180 investment bankers. This position enabled him to work across many different industries, gaining a broad brush understanding of many businesses and vertical markets. His first task in corporate finance was being assigned to some mergers and acquisition deals, at the age of twenty-one years old. A year later, in August 1986, they wanted him to develop an analyst training program. This enabled Sam L. to meet many different people at the firm, further broadening his perspective and deepening his experience. Sam L. recalled later, “I had a The Big Three early on wonderful experience in New York.
142 Susser Holdings I was so lucky to have had a chance to work with some of the smartest people in finance. It was a very humbling experience and a great training ground.” Sam L.’s Wall Street experience would help his family in the mid-1980s when the dramatic fall in oil prices put the Susser business in jeopardy. The Susser Family used substantial debt to fund the significant growth in the 70s and early 80s and that proved to be their undoing when nine of the ten biggest Texas banks failed in the late 80s. Sam L.’s father and uncle called him to come home and help, and Sam L. heeded the call. And it’s a good thing that he did, because although the situation was dire, Sam L. had all the training, experience, and know-how that he needed to formulate a strategy… just the plan the family business needed when their banks decided to not renew their lines of credit.
A Pro in the Making—Sam Louis Susser 143
144 Susser Holdings Even if you’re on the right track, you’ll get run over if you just sit there. WILL ROGERS
Stores, Storms and Southguard—1988 145 Stores, Storms and Southguard—1988 The greater the difficulty, the more glory in surmounting it. Skillful pilots gain their reputation from storms and tempests. —Epictetus Success is how high you bounce when you hit bottom. —General George Patton I’m not afraid of storms, for I’m learning how to sail my ship. —Louisa May Alcott As 1988 began, the Sussers took stock of their situation and found that they were left with a much different enterprise than had existed just a few short years before. The portfolios of wholesale gas and real estate properties were right sized to manage ongoing debt, which continued to be a grave concern. Susser Petroleum Co. and $ave-A-$ had lost millions of dollars in bad debt from companies and individuals that failed to pay for their fuel. Their real estate had collapsed in value. A large S&L that owned 50% of a high-rise condo on Padre Island had failed, and the government called on the other two 25% partners, the Sussers and the Crain Family, to make good on the 50% guaranty that had been provided by the now defunct S&L. The single standout, one bright spot within a lot of gloom, was the dependable performance of the five convenience stores. With Sam Louis’s financial acumen, the family began to dig out of the hole and to stabilize the company. Understanding the wisdom of playing to their strengths, the Sussers set about expanding their convenience store holdings. Sam L. said later, “What we observed through poring over the financials of the wide variety of businesses we were in was [that any] business that involved credit—the oil patch and real estate—was volatile and highly cyclical. But we
146 Susser Holdings observed the five convenience stores, which were more gasoline outlets than convenience stores, were profitable every year, year in and year out, whether crude was $10 a barrel or as high as $36, the stores consistently produced about $500,000 in store level cash flow. The problem was we had $600,000 in overhead!” While honoring the traditions and principles upon which the company had been founded, Sam L. nonetheless had set out to completely restructure this fifty-year-old family business in order to help it adapt, grow, and reach new heights. Shortly after his arrival, in September 1988, a new entity was formed by outside investors. It would be called Southguard Corporation and would have an independent board of directors. In forming Southguard, the three Susser leaders—Sam J., Jerry Susser, and Sam L.—split their Southguard ownership. Sam L. used the $30,000 he had in savings from his Bar Mitzvah and bonuses from Salomon, along with a $70,000 loan from his father, to acquire $100,000 of Southguard stock. The problem in growing the convenience store retail operations was that they did not own enough stores to cover overhead, much less contribute to the group’s profitability. Fortunately, other owners were willing to sell properties to the Sussers, and acquiring these properties meant the Sussers could expand. The strategy put in place was to expand the presence of the convenience stores and manage overhead to stay generally constant, so the Sussers could grow the business to profitability. At the time, 7-Eleven was going through a difficult period as well, and a corporate raider forced the company into a leveraged buyout. Needing to streamline operations and reduce debt, 7-Eleven was looking to sell some convenience stores. Given Sam J.’s close personal relationship with his college roommate, Jodie Thompson, the son of 7-Eleven’s founder, they did not have to look very far to find a willing partner to buy them. That said, there were many bidders for the Corpus Christi and Victoria stores, and many of them had significantly stronger balance sheets. After many months of tense negotiations, the Sussers finally prevailed and had to go raise money. It was a perfect match as the stores were located in the Sussers’ backyard of Corpus Christi, and on September 14, 1988, Southguard acquired thirty-three
Stores, Storms and Southguard—1988 147 7-Eleven convenience stores. The stores located in Victoria, Texas, were immediately sold to Maverick Markets, leaving Southguard with twenty-six stores. The debt of $12 million needed for the transaction was secured from Citigroup, along with $2 million in equity in contributions from family and friends (the Susser Family put up $600,000 of the $2 million). The $ave A-$ convenience stores sold their credit card operation at this time to Citgo in exchange for a favorable supply contract. The remaining $1.4 million was invested by a group of Susser friends including Robert Adler, Jon Drake, Jodie Thompson, Jon Baum, Rick Strauss, Robert Harris, Dr. Alan Sutker, Bob Sutker, and Ambassador Robert S. Strauss. Just prior to closing the debt financing, a natural disaster hit; Hurricane Gilbert wreaked havoc in the Caribbean and the Gulf of Mexico for nearly nine days, peaking as a Category 5 hurricane and taking its place in history as one of the largest tropical cyclones to ever form in the Atlantic basin. It killed over three hundred people and caused nearly $3 billion (in 1988 dollars) in damages—and its path of destruction was on course directly toward Corpus Christi. Citigroup worried in the face of the impending storm and showed tremendous reluctance to complete the financing. The New York bankers wanted to wait until the storm passed to ensure their collateral wasn’t going to be wiped out one day after funding. 7-Eleven was unwilling to extend the contract and was prepared to keep the Susser escrow money and turn the stores over to the backup bidder. Sam J. kept his composure and told Sam L. to tell the bankers, “There is nothing better for convenience stores than business after a hurricane. Workers descend upon the damaged area to work, and essentially all their food comes from
148 Susser Holdings convenience stores.” Yes, Sam J. was always the calm during a storm and from the beginning was a steady hand and mentor to Sam L. Sam J. and Jerry were thrilled with Sam L.’s leadership, and they were especially happy to let Sam L. take the lead when it came to talking with bankers. Sam L. recalls his father’s words of wisdom for dealing with financial institutions, advice that served him well during his business career: Whether good news or bad news, keep your bankers informed. Sam J. taught his son to never keep secrets from your doctors, your lawyers, or your bankers. After the closing, Sam L. flew to Corpus Christi to work in the stores, right in the midst of the torrential storm. A CNN reporter came into the store (at Staples and Williams Street, later renamed 52102!) and interviewed him while he was stocking shelves and mopping the floors. Soon that news story appeared on all American Airlines planes, spreading the tale across the skies and from city to city. Sam L.’s first appearance in his stores was a real public relations boost, and a display of commitment that foreshadowed his desire to do whatever it took to make his stores a success. As the storm passed, more difficult times ensued. Money was very tight, and side jobs or temporary revenue streams were welcome. In fact, the maintenance van that the team used for store repairs was used to deliver Shipley donuts. Terry Beach, the 7-Eleven Operations Manager, Uncle Jerry, and Sam L. took turns delivering the donuts at 5:00 a.m. every morning. But the Sussers never blinked, and they never looked back. After the first full year in business with these stores, their 1989 totals registered $1.6 million in positive cash flow, which was $200,000 over budget. That was the beginning of their highly successful expansion of a venture that eventually became Stripes, Laredo Taco Company, Applied Petroleum Technologies, and Susser Petroleum Partners.