R.H. Smith Distributing Company, Inc.

Founded in the late 1940s by Robert Henry Smith, today R.H. Smith Distributing Co. stakes a strong foothold with 36 stations in south-central Washington.
Today, sons Rod, Rick and Doug Smith run day-to-day operations, rotating titles every few years to keep a fresh perspective.
Company expansion goals focus more on increasing gallonage rather than opening a set number of new locations.
A new company venture, Splash Car Washes, turned a failed car wash business around with a new identity, color scheme, and logo.

An entrepreneurial spirit, innovative nature, and a sense of family are cornerstones of R.H. Smith Distr- ibuting Co. of Grandview, Washington, says Treasurer Rod Smith, son of company founder Robert Henry Smith. Since its founding in 1947, the company has prided itself on introducing technological innovations to the petroleum industry in south-central Washington. According to Smith, the company, which operates c-stores primarily as Smitty's, was the first in the area to offer self-service fueling, card readers in its MPD's and a quick-serve restaurant (QSR) in a c-store. Rod and his brother Rick took over the company when their father retired in 1985; their brother Doug joined the business two years later. R.H. continues as chairman of the board, although he is not involved with daily operations. At their father's request, the brothers rotate titles. Rick is currently vice president, and Doug is president. Rod Smith views the company as a classic family business, with the family as primary stockholders. Although the next generation of Smiths is still too young to become involved in the company, Rod remembers working for his father as a teenager. "All three of us were pumping gas or painting restroom floors-we grew up working in the stations after school," Rod says.

R.H. Smith Distributing began when Robert Henry Smith returned from college to purchase a fuel oil business that was for sale in his hometown. The business included a Signal Oil delivery plant, one delivery truck, and two open dealers. By 1950, Smith was purchasing fuel from Clipper, Phillips, and Texaco. Two years later, he purchased a Rainbow Station and became the jobber for what is now Gull Industries of Seattle. Rod Smith credits Gull, now headed by Douglas L. True, for providing the advice and support that helped his father's company grow. In 1959, when American Oil purchased Rainbow, R.H. continued as a jobber, an unusual position for a company that had previously only worked via agents. R.H. Smith Distributing expanded slowly over the next two decades, continuing to operate stations, sell fuel to wholesale dealers, and work with the farm trade. In 1981, American Oil, by then Amoco, pulled out of the Northwest, and R.H. Smith signed on with Conoco as a jobber. Today, the company has an equal number of retail and wholesale accounts and supplies 36 branded Conoco locations, 20 of which it owns and operates. R.H. Smith Distributing has grown from selling 6 millions gallons of Conoco fuel in 1985 to 38.5 million in 1999. The 2000 D&B Million Dollar Directory lists it sales at $38.5 million. The company currently employs 180 people. Smith is especially proud of the company's technological innovations. All of the locations have MPDs, card readers, and back office personal computers. Each station's PC can sweep the point of sale units and send the data back to the main office. Five of the locations also have in-pump cash acceptors.

Seventeen of R.H. Smith Distributing's Conoco stations feature a Smitty's, the company's own c-store. In the mid 1980s, Rod Smith, a marketing major in college, came up with the idea of calling the stores Smitty's to emphasize the companies commitment to "the everyday consumer. We named it Smitty's because Smith is our family name as well as the most widely seen surname in America. Our goal is to be a feel-good store, not a Taj Mahal," Smith quips. The company built its first c-store in 1979, although R.H. Smith had been involved with earlier efforts to combine groceries, restaurants, and gasoline pumps. Rod Smith remembers how unusual the QSR concept was in 1985. "The state Department of Labor and Industries sent a team of four people to our store in rural Washington to figure out how to categorize our employees. For several days they studied our operations because they had never heard of people working in a restaurant inside a c-store," Smith says. Although there is no specific Smitty's brand, R.H. Smith Distributing has partnered with a major coffee company to provide Rick's Coffee Bar in each of its stores. Named after Rick Smith, its coffee club theme is "Pour it again, Sam." The coffee bar idea came from one of the brothers' late night brainstorming sessions after their father challenged them to come up with a profit center for the store that would be exclusively Smitty's. While not every Smitty's location sells food, several have seating areas for their QSR offerings. According to Rod Smith, the stores have co-branded with several "second-tier QSRs: Orion Food Systems, Taco Maker, and Piccadilly Circus Pizza." They are currently negotiating a contract to open a full-sized Burger King in their next store. Rather than design a standard architectural look for the stores, Smitty's tries "to keep more attuned to the demographics of the local clientele," says Smith. Several stores feature the company's gasoline memorabilia collection, which Doug started in 1980 and R.H. Smith now oversees. The collection includes antique and porcelain signs and a glass tank globe from Rainbow Oil, the original True's oil company brand. "Depending on market studies, we will decorate our new stores with this antique theme," says Smith. The company's expansion goals center on increasing the number of gallons sold annually, rather than adding a specific number of new locations. "Our goal in five years is to be selling 75 millions gallons a year," says Smith. "We are constantly evaluating wholesale and retail sites." The company will continue to operate in its present locale, which Smith characterizes as a"large growth area where there is plenty of opportunity and by no means over-saturation of the industry."

A recent addition to the company is Splash Car Washes, featured at six of its locations. Using the same concept employed when they developed the Smitty's identity separate from the gasoline business, R.H. Smith Distributing devised an independent identity, color scheme, and logo for the car wash division and positioned it as a separate profit center. "Our car wash business was failing four years ago until we gave it its own identity. Now we've drastically improved our profits," reports Smith. The company also continues to operate its wholesale business. While no longer running a rural small truck business, R.H. Smith Distributing instead concentrates on large commercial accounts, using its own eight-axle trailer trucks to transport fuel. Another division is Smith Petroleum Services, which provides service and maintenance to its own stations as well as others. "With our center of operations 180 miles away from Seattle, Portland, or Spokane, we were at a disadvantage in trying to expand into the high-tech world of gasoline marketing," says Smith. "Whenever there were problems we had to wait three days for anyone to come fix them." To remedy the problem, Smith decided to build his own service staff who would specialize in petroleum work and handle everything from "installing and moving tanks and the high-tech aspects of tank monitors and gasoline dispensers to integrated register systems and Internet access." This division did $1 million worth of business in 1999.

Smith believes his father's entrepreneurial spirit continues to guide the company. In the 1970s, while building a successful sports marketing company in Europe, Rod had watched with interest as innovations such as unattended fueling, c-stores, and cash acceptors became commonplace. "When I returned in the 1980s, my interest was piqued to try some of the ideas I had seen work very well in Europe," he says. Over the past 15 years the company expanded and implemented many of these new innovations. For the past 10 years, reports Smith, the company's goal also has been to "survive one of the corporate giants in this region." He is proud that R.H. Smith Distributing has thrived and never lost a site while competing against Arco, a claim few, in any, other small petroleum companies can make. With the merger of BP Amoco and Arco on April 18, 2000, R.H. Smith Distributing is looking forward to new changes in the Northwest marketplace. It's most likely Arco will sell its eastern Washington operations to the jobber network. "With this company out of the picture, I'm confident we can hold our own with other competitors," says Smith. "We're a smaller marketer, but we compete on the same playing field by keeping up with new technology." Being a small marketer, Smith is an active member in the state-level Western Petroleum Marketers Association. He also serves on the board of directors for the Pacific Oil Conference and the Washington Oil Marketers Association, of which he'll serve as president in 2004. Above and beyond that involvement, Smith is grateful for SIGMA's support in helping "a rural marketer learn the latest ways of marketing and using technology." He first learned about the association in 1987 when Douglas True cited the importance of membership to an expanding company that was just attending local marketer meetings. "We were trying to secure financing for new acquisitions, and banks were insisting we have tank leak insurance, which we had never heard of," remembers Smith. "True said, 'SIGMA can solve your problem today,' and, along with the tank leak insurance, their attention to regulatory issues and technology has been a big help to us." Looking to the future, Rod Smith proudly stresses both family roots and the company's attention to technology. "We try to portray an image that is a combination of a major oil company and homegrown talent. One way we fight the giants is by being the everyday store you feel good visiting."

In its January 2003 issue, CSP Magazine published a “Special Report: Category Strategies – Rethinking, Reintroducing and Retooling Categories.”

CSP Magazine emphasized the R.H. Smith Distributing practice as one of the best examples under the title “REintroducers” and subtitle: “R.H. Smith revamps tobacco”.

The following text is an extract from the mentioned article and the related interview with Rick Smith, the company's co-owner in charge of Retail Operations.

Something giving a category a boost means reintroducing it to customers. For prime examples, look no further than R.H. Smith Distributing, where the tobacco category recently got its own branded look, or ExxonMobil, where the On the Run food service program got some spicing up.

Touting tobacco
The No. 1 category in the industry deserves first-rate attention. That’s the theory R.H. Smith Distributing kept in mind as it reworked the cigarette displays in its stores during the past year.

“We’re in an area where there’s a lot of Indian smoke shops and a lot of small ma-and-pa convenience stores that like to give away cigarettes,” says Rick Smith, vice president of the Grandview, Washington based company. :We just don’t want to give up any more ground because convenience stores are our business, and we want to make sure we keep our sales and keep our customers happy.”

After signing contract with the big three cigarette companies in 2001, Smith began developing what would become The Tobacco Plant, a mini-smoke-shop concept that Smith says makes it easier for customers to find what they want at a value price and, perhaps more importantly, lets them know the 13 Smitty’s Conoco stores carry those products.

“We registered the name in the state and have a logo to go with it; it’s a tobacco leaf,” Smith says. ‘We developed some signage and put it on the building. It says ‘Tobacco Plant’ and ‘discount cigarettes,’…The stores all have gas pumps, but at least I’ve added signage that compares with [the smoke shops] that are competing against me.”

Inside the stores, all the tobacco products were moved behind the counter in similar racks throughout the chain, a big change for Smith Distributing.

“Before we had little presence of cigarettes behind the counter,” he says. “We had counter displays on the front [of the counter]. We had overheads and small racks on the counters. It was a mismatch of a bunch of displays.”

The back walls are now all cigarettes and other tobacco products in larger sets than ever before.

“I had to give up some counter space in the back, and we lost a window here or there”, Smith says of the effort to increase merchandising space. “Each set is a little bit different. Our stores aren’t carbon copies; we had to modify space.”

The result is sets ranging from 6 to 10 feet wide and 4 to 7 feet tall, with an added countertop variation.

Additional tobacco products are included. “That’s all part of my Tobacco Plan image, to have a good selection of cigars and chewing tobacco and roll-your-own tobacco,” Smith says. “And I’ve put that right in with the cigarettes.”

Making it all work was a struggle for Smith, who literally found himself sawing racks in half and just finished renovating the final store in late November. But it was worth it, he says.

“It’s worked,” he says, “We’ve increased sales; we’ve done very well with it. I’ve had to give up some margin, but I kept my business and it’s growing incremental sales on top of that. We’ve had a good year as far as sales go.”