Fueling growth Featured

10:23am EDT March 30, 2006
At first glance, RKA Petroleum Cos. might seem like just another family-run business.

But in an industry where every tenth of a cent counts and profits are hard to come by, no company can afford to be just another business.

Keith Albertie, vice president of Romulus-based RKA Petroleum, knows this all too well. So with the help of managers and family members including brother Kyle Albertie and sister Kari Elliott, the leadership team has laid a foundation to differentiate RKA in a competitive marketplace.

The strategy is paying off: Last year, RKA made a swift leap from mid-sized petroleum company to major market player, with annual revenue jumping from $150 million to $250 million. Its growth and market share increases are thanks to aggressive planning that focuses on carefully choosing customers to limit risks, expanding capabilities and market reach, and using technology to maximize efficiency.

Elliott, who manages retail branding, says the family has been tooling these initiatives for some time by re-evaluating the business and focusing on how to be a survivor in one of the nation’s toughest fuel markets. Last year, their efforts finally clicked.

“I don’t think there was anything in part that made it all happen for us,” Elliott says. “We had goals and ideas that we structured for our company, and new business has surfaced and finally come around in the last couple of years.”

Choosing customers
Because energy is an essential element of most businesses, Keith Albertie knew RKA’s prospect base was large, but he didn’t want to market to everyone, particularly on the retail side.

“Everyone buys fuel from us at one point or another,” Albertie says. “For us, it’s just deciding who we want to market to.”

Ten years ago, the company owned and operated more than 10 retail gas stations in Michigan, and in the 1980s, it co-owned more than 40 locations. But these ventures were costly and time-consuming for RKA’s retail division because of operation expenses and the risk associated with co-owning gas stations.

Today, every one of RKA’s retail customers is independent, which alleviates liability. And in the last couple of years, the company has avoided collections problems by making conservative decisions on which retail customers it will serve.

“We have taken a hard look at our customers,” Elliott says. “RKA is being picky and choosy as far as who we do business with. We want quality customers that will be around.”

How does RKA separate sustainable retail customers from risky business?

“We watch their credit closely,” Elliott says, noting that RKA will not supply fuel to customers with credit scores that dip below 650.

And it no longer accepts personal guarantees; station owners must have collateral such as property or home mortgages to back up their credit.

Such prequalification is just a smart business, Keith Albertie says, recognizing that RKA could not continue with lax credit and retail contract policies. One load of fuel can cost $30,000, and customers must prove that they can back up the credit on that delivery before RKA will enter a supply agreement with the retailer. Daily, weekly and monthly evaluations determine whether the customer deserves more or less credit with RKA.

“We actually turn away business on the retail side,” Elliott says.

A tough Michigan economy calls for conservative decision-making, and one mistake can hurt cash flow.

“We don’t throw credit to just anyone,” Keith Albertie says. “With the economy, you have to watch that, or you’ll take a hit.”

The terminal difference
RKA’s terminal with its 20-million-gallon storage capacity is the hub that serves as the foundation for the company’s growth and its edge over the competition.

When RKA purchased it in 1998, it was considered a mild investment opportunity but has since become a major driver behind the company’s success.

“We are lucky to be well-positioned with our terminal facility,” says Kyle Albertie, who serves as the company’s transportation manager and oversees deliveries and terminal operations.

Not only is the terminal conveniently located with rail access, its size allowed RKA to build a 30,000-gallon tank for biodiesel, with room for another 1.68 million-gallon ethanol tank it will add in the next couple of years. It’s all part of a strategy to make sure the company is poised to take advantage of increased demand for alternative fuels.

Already, 90 percent of RKA’s retail customers supply alternative fuel, and many of its wholesale customers purchase blended products and alternative fuels. The challenge in banking on alternative fuels is the risk associated with any new concept — and the investment in tanks. With a 30,000-gallon heated tank already installed, Keith Albertie is optimistic about seeing a return on the investment.

“We are gambling a bit because it is alternative fuel, but if you look at the price of diesel and our dependency on the Middle East, it makes sense to move toward biodiesel,” Keith Albertie says.

The terminal allowed RKA to pull all operations in-house. Now, rather than getting fuel from other distributors’ terminals and transporting it to customers, RKA can work directly with suppliers and store fuel in its own terminal, saving transportation time and costs of going to other terminals to fill trucks with product.

“We are just like a warehouse,” Keith Albertie says. “The terminal is another part of our business. We lock up deals with suppliers — they own that product and issue the credit to us for that. But we house that product in the terminal.”

RKA also can sell its fuel product to other distributors, so in a sense, it never truly loses a sale. Even if it loses a wholesale or retail customer to the competition, that distributor may choose to pull fuel from RKA’s terminal to supply that customer, especially if its prices are attractive.

“If the diesel is cheaper in our terminal, why would our closest competition drive 20 miles down the road to another terminal to pay 20 cents more for fuel?” Keith Albertie says. “They are not necessarily buying the product from us, but they are pulling the product from our terminal.”

RKA has also assembled partnerships with some of the industry’s top suppliers, including Citgo, Marathon, BP, Mystik and Valero.

“We look for cutting-edge suppliers who will be competitive in our marketplace, and that is why our competition comes to our terminal,” says Elliott.

RKA competes with a half-dozen other fuel distributors in the immediate Detroit area, the most difficult area of the company’s six-state market. That is resulting in consolidation as companies struggle to compete.

RKA hasn’t ignored this trend; in fact, it acquired Wixom-based Chain Oil Co. last year, delivering new customers to RKA, along with trucks and tanks. But it primarily has focused on organic growth and solidifying its infrastructure so it can maintain its momentum.

“We store the product, we sell the product and then we freight the product,” Kyle Albertie says. “We have all three major parts of our industry locked into one company.”

Expanding market reach
With roots in Detroit, RKA concentrated on solidifying business there first. Two years ago, 90 percent of its customers were based in Michigan. But many were multistate operations, and Keith Albertie recognized an opportunity for RKA to stretch its market reach.

“We can do business in 50 states if we want to, it just comes down to getting the proper systems in place,” Albertie says.

So RKA designed a process for scouting and securing out-of-state business. It starts close to home.

“We find a few customers that we know branch out to other areas of the country,” Albertie says. “We lock them into a local contract, then we talk to them and find out how we can manage their fuel needs elsewhere. That gets us in to other states.”

Sounds simple enough, but what about terminals and trucking — the infrastructure pieces RKA does not have in other states?

“The suppliers know us and give us credit lines in other states,” Keith Albertie says.

Supplier relationships formed in the Detroit market are important in building a business relationship so that RKA can access fuel outside of its home market. Instead of making expensive infrastructure investments, it contracts with trucking firms in other states to deliver the fuel, pulling it from partner suppliers’ terminals and delivering it to out-of-state customers.

Customer service is vital to maintaining those contracts, so Keith Albertie implemented a hands-on program for sales representatives that starts in the trucks and continues in the field.

“They need to understand what really happens in the field when a driver makes a delivery,” Keith Albertie says. “We provide many different products — on-road, off-road, blended with ethanol. We want our customer service representatives to know how a driver makes sure he or she is delivering the right product.”

Fuel efficiency
Technology has played a significant role in fine-tuning RKA’s delivery processes to make the company more efficient.

Jason Hittleman, information systems manager, leads software and alternative fuel initiatives — two evolving and promising ventures for the company. First, communication technology allows sales representatives to service customers more efficiently.

“Most of our salespeople are empowered with mobile devices so they can communicate from the field to the office,” Hittleman says. “We make sure they have the tools in the field that they need.”

Just as important is RKA’s remote monitoring system, a software system that reports the number of tanks in the field and the volume in each tank.

“We know exactly how many gallons need to go to each company,” Hittleman says. “That means we can (service) more customers with fewer trucks.”

For example, rather than scheduling regular fill-ups for retail customers, the remote monitoring device communicates to RKA’s in-house software system the fuel level of each tank in the field. When they run low, RKA sends a truck with a delivery.

It’s all part of RKA’s strategy to be the most efficient organization it can be so it can continue to grow in a crowded marketplace as it evolves.

Elliott says the fuel market will look drastically different 10 years from now, and RKA’s success will depend on conservative decisions but aggressive ideas. Keith Albertie agrees.

“We can’t just be an oil company,” says Keith Albertie. “We need to focus on being an energy company and continue to position ourselves for growth.”

How to reach: RKA Petroleum Cos., www.rkapetroleum.com or (734) 946-2199