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Company Profile: NOCO Energy Corporation


NOCO Energy Corporation is celebrating the type of milestone this year that most companies only dream of’80 years in business. The story is typically American, with an entrepreneur seeing an opportunity and taking the risks to turn that opportunity into a successful enterprise. Two subsequent generations in this family-owned company each built upon the success of the previous, to take the operation to new levels of success.


Multi-generational, family-owned companies are not all that unusual in this industry, nor is successful entrepreneurship. What might be unusual in many cases is how smoothly the process has run, not only with the transitions of leadership, but with a dramatic expansion and diversification of the company’s operations.


NOCO today distributes a full portfolio of energy products, including residential and commercial fuels, natural gas, electricity, and lubricants. In addition, NOCO operates 34 NOCO Express retail convenience stores and supplies branded and unbranded gasoline to a growing dealer network. NOCO employs over 800 employees across New York State, Vermont, Pennsylvania, as well as Ontario, and operates a fleet of over 180 vehicles.


The company was founded in Tonawanda, New York in 1933 by Reginald B. Newman. Donald F. Newman, Reginald’s son, describes how he played a key role in the operation being founded.


“My mom and dad were married in 1932 during the depression,” he said. “My dad was called in to the office where he worked and was told that since his wife also worked and he and my mother were living with his in-laws, he was getting a pay cut. Now, I was born about nine months and 15 minutes later during March of 1933. He went back in and said, ‘My wife can’t work anymore and I would like to be able to get a home for my new family.’ His boss said that was too bad, and my dad quit on the spot. He went out and borrowed a couple of hundred dollars from my maternal grandmother and went to the bank and borrowed a few hundred more dollars and bought his first coal truck in July of 1933, and he went door-to-door peddling coal.”


The move to fuel oil began in 1939 when the company purchased its first 1,000 gallon tank truck. The first oil deliveries were made using a spigot on the back of the truck with the driver filling a couple of 5 gallon cans filling the tanks through a funnel.


“When they had the first hose reel, they would pull that out. but had to reel it in with a big crank,” said Don. “I remember as a kid and when we got the first electric hose reel, everybody died and went to heaven, but the only problem was that it ran the battery down too fast.” The company offered “full oil service” that included getting the tank in the basement and installing, maintaining and servicing the heating appliances.


As a young man, Don went out with his father while the process was under way of ripping out the old coal grates and putting in oil tanks and oil burners.


“When I was a young teenager, I learned how to fix oil burners,” Don said. “I remember Dad would come home after a couple of cocktails, and he would make me go down in the basement and take the oil burner apart and put it back together. When I was a kid, I used to pull hose and fill up oil tanks. The ticket was easy to calculate back then because oil cost $.10 per gallon.”


In 1950 Reginald Newman expanded the company’s focus to begin servicing commercial and industrial customers with lubricants, gasoline and diesel fuel. Reginald’s two sons, Don and Reginald B. Newman II, joined the company in 1954 and 1960, respectively. They continued the family tradition of growth by broadening NOCO’s product lines and marketing area.


The next move from traditional residential oil heating came during the 1960s with a move into commercial and industrial No. 6 oil that was distributed to churches and hospitals and schools. It was at this point that the company began buying its first large tractor-trailer vehicles.


In 1964, NOCO expanded its operations to include service stations. Typical for the time, these were two-bay stations with one or two full-service fueling islands. There was a gradual expansion during the next 20 years with a number of sites peaking at near 70 stores.


 


The Second Generation Takes Over


In 1971 Don and his brother Reginald assumed control of the company. “My dad decided’when my brother and myself were coming along’that when you are in a family business and the heirs are capable of running it, you get the heck out of the way when you turn 65,” said Don. “He did that for us, and I elected to do that for my two boys, Jim and Mike. I felt you can’t have a business where Pop and uncle go to Florida for half a year and then want to slip back into the seat and take over again. It doesn’t work.”


This period marks notable expansion both in the scale and breadth of its operations.


At the height of the oil crisis, in 1973, Reginald and Donald had the opportunity to take advantage of an industrial development bond and buy the 33-million gallon Gulf Oil terminal in Buffalo, N.Y. In 1982, NOCO Home Heat was formed with the acquisition of Ashland Oil’s home heat business and Akron Oil Corp., which was expanded in 1985 with the purchase of a 10-million gallon storage facility from Ashland Oil that was adjacent to its existing terminal operations.


It was during this period, in 1983 that the company changed its name to NOCO Energy Corp. It also, through a long-running relationship with Mobil, became involved with bulk lubricants sales and has grown its footprint to not only include the Northeast and Canada, but as far inland as Ohio and Kentucky.


Geographical expansion was also in the works. In 1986 Reginald worked to develop a business relationship with a former Petro Canada executive, Jeremy Hinchcliffe, to create NOCO Canada that involved both fuel distribution and lubricants.


In 1984 NOCO opened its first convenience store in what was the growing trend at the time of converting service stations into small convenience operations. “I opened the first convenience store with what we describe up in this market as a mini-serv,” said Don Newman. “We took old two-bays gas stations, closed the bays down and had kids there to pump the gas with a very competitive pricing system. Of course, that is totally obsolete today, but it helped launch our convenience store business, which Jim and Mike have taken to a completely new level, particularly with what they have done in the past few years.”


As with many companies moving in the convenience from a fuel focus, the early efforts post some difficulty. “To be honest, we struggled a great deal with the transition,” said Don Newman. “We were very petroleum oriented. Not that we weren’t successful, but I did bring some people in to help us with the merchandising and vendor relationships.”


 


Generation Now


Don’s children, Mike and Jim Newman, began working in the business as kids. One of their first jobs was to cut the grass at one of the early NOCO gas stations. Mike came back professionally during 1989 and Jim around 1996.


In 2001, Jim and Mike were named president and executive vice president, respectively, carrying the business into the third generation. Under their leadership, the company has not only fine-tuned its existing operations, but continued the process of expansion as a true energy company.


Jim took the lead on expanding the company’s home heating business to include marketing propane to commercial and residential customers. These operations have been greatly expanded during the previous decade. And, in 2002 NOCO began marketing natural gas to commercial and industrial customers. This operation was expanded in 2006 to include residential customers and to also include an electricity sales program.


Natural gas is a fierce competitor to the heating oil industry, but it also offers an opportunity. “We are an energy company’we’re just a distributor,” said Mike Neumann. “We try to be agnostic as to what we distribute as long as there are parallels around the same types of customers we are working with. We can go to the same customer with multiple of products. One reason natural gas works well for us is that many of our potential customers might have been our heating oil customer 20 years ago. We can go back to them and try to be their partner in natural gas and electric and that provides us another opportunity to comb through database that we already have and sell them again. Or, if they are going to transition to natural gas, we would like to be their provider for that as well.”


The company also began to rationalize its convenience store operations downsizing the number by approximately half, but increasing the quality of each location retained to maximize profitability. In 2004 it completed its first major retail station rebuild and incorporates two quick-serve restaurants (Charlie the Butcher and Tim Hortons) at the Express Store.


Its Canadian operations were also adjusted during the last ownership transition with NOCO maintaining its lubricant operations, but divesting its motor fuels operations.


In a not entirely uncommon offshoot for companies involved in convenience store operations, NOCO has a real estate development division. NOCO Energy also has a business where it collects and recycles used motor oil back at its terminal for reuse as a heating product. The company also operates a soil recycling facility near its terminal where it processes gasoline contaminated soil.


 


Managing diversification


While diversification provides a powerful source of revenue stability in the volatile energy market, one challenge for any company as diversified as NOCO is managing the different operations in an effective and efficient manner.


“The biggest challenge when you begin to do that is to understand how to allocate capital properly,” said Mike. “You cannot fall in love with a particular business, and you have to be able to measure them across and against each other using risk-adjusted measures.”


In order to conduct that valuation, the proper benchmarking metrics need to be established. “For the stores, we are really involved in the CSX/NACS data collection, and we aggressively benchmark our operations against industry leaders. We use industry data elsewhere in our business to see if we are staying on track. But one of the challenges we have come across, since we’re in the business, is how do you measure current asset utilization? A lot of (assets) have already been written off, so do you throw a market value on there and look at the utility of market so you’re not missing out on opportunity costs, and how do you allocate capital around that? So we try to walk through and evaluate the risks that each business brings.” Another issue Newman cited is avoiding popularity contests where you invest in things you like more than you invest in operations that are providing higher returns.


Diversification holds with it the promise of integrating a range of administrative functions on the back end to support the varied front end operations. While there is considerable opportunity in areas such as accounting, Mike Newman notes that those efficiencies diminish as you get closer to the specialized operational and system needs of the independent business units.


“We can aggregate data very well and measure it. You have to be careful not to try to do too much one-size-fits-all for systems development,” he said. “There are some really specialized systems that are really well done, and even though we would like to have one overall kind of enterprise software, there are limitations. You can do that somewhat on the lubricant side’we’re trying to put that in place on the fuel side’but it gets more difficult when you get out into the dealer business, for example.”


While NOCO has taken diversification to a top level, some degree of diversification should be on the mind of any fuel oil or motor fuels market. “I think diversification is critical,” said Mike. “Obviously in the energy business there is a lot of natural market correlation, but we try to be able to look at as a continuum of risk. We have some things that are probably on the more risky side and some that are far less risky, and we try to make sure we balance ourselves across a number of them. So we try to put ourselves in the position that if any one thing happens, it would kill us. But with that, sometimes I get concerned that without more specialization

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