Is Love’s a viable competitor to the 800-pound gorilla?

Love’s also increased its competitive footprint by acquiring 26 locations from Pilot Flying J, of which 20 were Pilots and six of which are under the Flying J brand.

By JACK HUMPHREVILLE
The Trucker News Services

10/8/2010

A NEWS ANALYSIS

The Trucker was happy to hear from executives at Love’s Travel Stops and Country Stores about their thoughts on our article about why the trucking industry is more than concerned about the newly formed Pilot Flying J using its market dominance to gain even a larger market share. 

(Click here to read the article.)

Love’s believes the company is a credible national competitor to Pilot Flying J, operating in 22 of the top 25 fuel markets, selling about 2 billion gallons of diesel fuel a year through their more than 200 locations.  These locations also have a profitable business serving four wheel customers.   

Love’s also increased its competitive footprint by acquiring 26 locations from Pilot Flying J, of which 20 were Pilots and six of which are under the Flying J brand. While the executives would not disclose the value of the transaction, they indicated that the purchase price was substantially below replacement cost of $5-7 million a location. Given the massive profit potential associated with this transaction, which combined the two largest marketers of over the road diesel fuel for long haul trucking companies, and Pilot’s urgent need to close the deal, the guesstimated purchase price is in the range of $75-100 million.

Love’s has also stated that they intend to open at least 15 new locations a year, adding to their market foot print.

Needless to say, this raised the question about Love’s finances.  How does Love’s finance its existing locations, all of which are company owned?  How did it finance the purchase of the 26 locations from Pilot and Flying J? How does it intend to finance the $100 million a year expansion program? And how does it finance its fuel purchases?

Love’s executives said the company has long established relationships with banks that provide lines of credit to support its fuel purchase requirements and finance the new facilities.  These lines of credit are supported by not only the assets of the company, but the company’s profits, which must be considerable to support the level of growth without burdening the company with excess debt.

As a private company that is 100 percent owned by the Love family, Love’s is not obligated to disclose any financial or market information.  But this is the primary reason why we underestimated Love’s market share.  And while Love’s has a good story to tell, its web site web site (loves.com) needs a major league makeover to improve its functionality and provide its customers with a better understanding of this consumer oriented company.

While Love’s and TA/Petro will be competitive forces, their combined fuel sales are about 65 percent of Pilot Flying J’s volume.  This will permit the new 800 pound gorilla to exercise its dominant market position through volume purchase discounts, aggressive pricing, and the bundling of its services with its TCH (Transportation Clearing House, a financial services company) fuel purchase card.

But the fat lady has not sung yet.  The FTC has yet to confirm the proposed Consent Agreement. Stay tuned.  There is more to come.

Jack Humphreville can be contacted to comment on this article at news@thetrucker.com. He is also affiliated with Recycler Classifieds (www.recycler.com).

Find more news and analysis from The Trucker, and share your thoughts, on Facebook.