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MAY 30, 2000

Over a Barrel

What's a supplier to do when she's on the wrong side of cheap oil contracts? Juggle, cut costs, and pray


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High oil prices got you down? Tell it to Loretta T. DeGrazia. The president of East Coast Petroleum, a North Quincy (Mass.) fuel oil supplier, DeGrazia was positively blindsided by the recent runup in petroleum prices. Now, as most thoughts turn to spring, a dazed DeGrazia--who only last year received an award from the U.S. Chamber of Commerce for reviving her once-ailing company--is still digging out from winter. "I don't know if I can keep pushing," says the 44-year old. "But I'm a fighter, not a quitter."

The steep climb in oil prices sent DeGrazia's costs from 60 cents a gallon to $1.75. Unfortunately, she had locked in most of her 4,000 customers at a pre-season price of just 88 cents a gallon--contracts she felt obliged to honor. As a result, while sales grew from $2.7 million in 1998 to $3 million in 1999, DeGrazia actually lost $30,000 last year. "We were waiting for them to come in and try to renegotiate," says Jim Bruce, purchasing agent for First Realty Management Corp. of Boston, which buys some 120,000 gallons of oil a year from DeGrazia to heat about 6,000 residential units throughout New England. "They showed themselves to be completely honorable." But that honor came at price. Without cash reserves, DeGrazia says she is scrambling to survive by "juggling, good business decisions, and cutting costs."

New England's oil heating business is fiercely competitive, with some 1,500 independent retailers in the region fighting for market share. Turning up the heat even more, national suppliers like Heating Oil Partners LP and Petro have been steadily buying up smaller players. Fixed costs--including labor and equipment maintenance--are high, and if they can't be spread out over increasing sales volumes, a small operator is in trouble.

Still, DeGrazia has beaten the odds before. One of the few women to lead an oil distributor, she began working as a clerk for a local fuel retailer at the age of 17 and never left the industry. She founded East Coast Petroleum in 1985. The company thrived for almost a decade, and DeGrazia became something of a local celebrity for bringing a woman's touch to a male-dominated industry, deploying a fleet of four mauve-colored delivery trucks adorned with a cute polar bear logo ("We Make Winter Bearable").

But things took a turn for the worse in the mid-1990s. Distracted while caring for her dying mother for most of 1995, DeGrazia returned to work and found the business was bleeding cash. She sold her house, ran her credit card to the limit, and began nursing the company back to health, marketing aggressively and cutting costs. The efforts paid off: In 1999, the U.S. Chamber of Commerce honored DeGrazia as a "business owner who has faced and overcome challenges and emerged from them stronger."

Then OPEC tightened the reins on the oil supply. Now, DeGrazia, who does 65% of her business selling home heating oil in the winter, is marketing like crazy and hunting for ways to keep the cash flowing throughout the year. She has begun selling diesel fuel to building contractors and is bidding on government contracts, such as a recent deal to deliver 80,000 gallons of heating oil to four nearby Air Force bases. As for next year, she'll avoid price surprises because she's purchased sufficient inventory to carry her through the winter.

Like most entrepreneurs, DeGrazia remains optimistic. But when the stress gets to be too much, she leaves the office and jumps on her Harley-Davidson 883 Sportster. "The bike gives me a sense of freedom," she says. "The feeling of empowerment is addictive. You rule the world." Assuming, of course, you can keep the tank filled.

By Neil Shister


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