March 19, 2018
Propane marketers across most of the country are looking for additional sources of revenue as residential propane demand is in decline. However, the propane industry on the East Coast has seen strong demand after two cold winters. Paraco (Rye Brook, N.Y.) is a prime example. The company has hired an outside board in response to its strong growth, and it runs its board meetings “almost as if we were a public company,” said Paraco CEO Joe Armentano. After completing several propane company acquisitions, venturing into the oil business, entering into a joint venture to sell forklift gas, building up its sales and marketing organization, and expanding its executive management team, Paraco has nearly doubled its business over the past five years. And 2015 is shaping up to be a record year.
“This upcoming fiscal year — Aug. 1 through the next 12 months — we’re probably budgeting about 70 million gallons between propane, fuel oil and distillates,” Armentano stated.
Although the company’s growth started picking up about five years ago, it began to accelerate in 2012, when Paraco made a deal with AmeriGas (Valley Forge, Pa.) to swap some Paraco locations in southern New Jersey, Saratoga, N.Y., and some Virginia locations for several Long Island locations of AmeriGas. The acquisition gave Paraco about 40,000 total customers on Long Island. Armentano notes that the acquisition has been beneficial for both companies. Another Paraco/AmeriGas deal followed in August 2013, with Paraco acquiring additional Long Island businesses in Wyandanch and Riverhead that added up to about 3 million gallons of added propane business for the company.
Then this year Paraco completed what Armentano called “probably the best acquisition we’ve done to date,” when it purchased Kosco (Kingston Oil Supply Co, Saugerties, N.Y.), a subsidiary of Luk Oil of North America. The move resulted in Paraco acquiring about 3.5 million gallons of propane business, but the transaction also put Paraco into the retail fueloil business with about 10 million gallons in Hudson Valley, N.Y.
Paraco now services more than 12,000 Kosco retail fueloil customers still delivered and serviced under the Kosco brand and 10,000 Kosco propane accounts (most now serviced under the Paraco brand), in addition to the existing Paraco customer base. The acquisition included about 5000 Luk Oil customers that use propane and fueloil, and that business is co-branded as Kosco/Paraco. The propane business, of course, is branded as Paraco.
“The good news is we have probably another 20,000 to 30,000 customers in that area that are propane-only, and this gives us the opportunity over the next year or two to try and sell them oil [in addition to propane],” Armentano noted. “It was an interesting acquisition. But I’m still very prejudiced: I like the propane industry a lot better than I like the oil industry. But I think in certain markets, there are some advantages of being dual-fuel.”
Armentano noted that Paraco’s joint venture into the propane forklift business, which the company entered in January 2012, has been successful. Joe Armentano’s father, Pat Armentano, who passed away in 2010, founded Patsems Incorporated (original company) as a welding and industrial gas supplier in 1968, so the forklift venture is a natural fit for the business. The transaction started in 2012 with joint ventures with Atlanta Propane Exchange, Florida Lift Gas, and Illinois-based Tri-State Propane Exchange, for a combined retail propane forklift fuel business of about 3 million gallons. Since then, the partnership has expanded to forklift fuel locations in St. Louis, Denver, Nashville, Baltimore, Miami, and Orlando, and the most recent was in Charlotte, N.C. All those locations have resulted in about 8 million gallons of retail propane forklift fuel business. Paraco opened a regional headquarters location under the name Paraco South in Charlotte to support the joint venture, and Mike Gioffre serves as president of that business.
Outside board members help advise the business on the various new initiatives. The overall board includes Armentano; his brother, John, who is vice president of business development; and three outside independent board members. Like a public company, the executive team reports to the board, with board meetings taking place quarterly. Joe Armentano noted the group was necessary to provide a sounding board, which had been lacking since the death of Pat Armentano.
The outside board members include Dennis Glazer, a former partner at New York law firm Davis Polk & Wardwell; Steve Fournier of aerospace company Gar Kenyon; and recent addition Charlie Sabada, an Armentano family friend with an extensive finance background.
Customer growth is an increased area of focus, and for that, Armentano is going back to the company’s roots and how his father grew the business. Pat Armentano was a sales professional before he founded Paraco, and growing a business internally was his strength. Joe Armentano believes propane companies today focus more on operations than on sales and marketing. He noted that Paraco has been an exception, but over the past few years the company has stepped up its sales and marketing efforts. The business in 2014 hired Dan Kostecki as its new vice president of sales and approximately doubled its outside sales force to 17. Kostecki is looking for a 5% to 7% growth in new customers to increase the current customer base of about 120,000. Paraco is also working to retain the customers it has, and it hired Mohammad Naqvi several years ago as director of customer service. Retaining about 95% of the current customer base is among Naqvi’s goals, and to do that, he is focusing on improving customer service. The company has tracked the number of phone calls handled, but now the business has adopted new technology to measure the number of dropped calls and to call a customer back when the customer hangs up before reaching a live person.ParacoSBArmentano added that all industries lose customers for various reasons, such as credit collection or the customer finds a better price from a competitor. “Another reason is you simply don’t perform to expectation. We’re human,” he added. “We want to make sure we minimize problems and provide the customer with a great experience. We want to be able to respond to competitive pricing pressures, we want to be able to retain our customer base, and at the same time, make sure we get the margin we need on customers so that we can provide our customers the valued service we need to provide and they should expect.”Improved customer service will help his company continue to grow internally and through acquisition. Moving into the fueloil market in the Hudson Valley means the company will pursue new dual-fuel opportunities.
“We obviously love propane. It’s our bread and butter, and the traditional propane marketers continue to be good acquisition candidates for us.” — Daryl Lubinsky