Sunoco to shift focus to convenience-store offerings

Now that Sunoco Inc. is spinning off its profitable coke-manufacturing unit, the Philadelphia refiner is taking aim at a new moneymaking frontier:

Coke.

And Pepsi.

Lynn L. Elsenhans, Sunoco's chief executive officer, told analysts this week that she wanted to expand the company's profitable retail business by ramping up its convenience-store offerings.

"An area of opportunity for us to unlock even more value out of our real estate is by changing our mind-set from a fuels retailer that also sells some convenience items, to a convenience retailer that retails fuels," Elsenhans said at the Barclays Capital CEO Energy Power Conference on Wednesday in New York.

"We do a good job of retailing fuels and believe we can up our game in convenience retailing," she said.

Elsenhans outlined a vision for the company after next year's planned divestiture of SunCoke Energy Inc., which manufactures coke used in steelmaking.

She said the company's focus would be on becoming the "premiere fuel supplier" in its markets and on using a "brand-led strategy" to pull greater volumes through Sunoco's retail outlets and its extensive pipeline and terminal network.

Sunoco's strategy may result in bigger stores with more choices, or simply more outlets. "Eventually, we want to fill our entire footprint from Maine to Florida," said Thomas P. Golembeski, company spokesman.

Elsenhans reiterated her bearish outlook on the petroleum-refining business, long the center of Sunoco's business. Sunoco last year shut down its Eagle Point refinery in New Jersey, but still operates facilities in Philadelphia and Marcus Hook.

Though Sunoco had $86 million in refining profit in the second quarter, business has slipped over the summer, she said. "We can see that the industry market environment in the Northeast is significantly worse than the second quarter," she said.

The problem is a nationwide oversupply of refining capacity, she said. She expects that, when growth in fuel sales resumes, demand will be met by new mandates to boost sales of biofuels such as ethanol.

"While we think we can be competitive with the refining assets that we have, longer-term we do not believe refining investments will produce the kind of returns we can generate in our logistics and retail branded fuels businesses," she said.

"While we don't want to increase our ownership in refining, the assets we own will be run well and will be cost-competitive."

Sunoco sells about 80 percent of the fuel it produces through its branded network - the rest is sold to other retailers. Eventually, she said, the company aspires to sell more fuel than it produces.

Selling fuel, transporting it through pipelines, and blending fuel at terminals holds greater promise than manufacturing fuel, said Elsenhans, who became Sunoco's CEO two years ago, just before the market crashed.

"Our refineries are going to be a supply point, but they are not the only supply point as we bring fuel to the marketplace," she said.

"Obviously, this is a shift in our traditional strategy, where our focal points of the business become the logistics terminals and pipeline and the retail sites."