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Agrimarketing : May 2009 Supplement
28 AG BIZ Propane:16 Thinking Outside Box 5/4/09 4:30 PM Page 28 2009 NAMA AGRIBUSINESS LEADER OF THE YEAR STRONGCOMMITMENTLEADSTO CHSPROPANEPROFITABILITY W hile every business has its ups and downs, the propane industry tends to encounter more volatility thanmost. CHS has risen to the challenge, providing cooperatives and independent propane companieswith a safe, dependable supply formany decades. CHS has persevered in large part because of LeonWestbrock’s courage and commitment, believes DarinHunhoff, VP, Propane, CHS. “Afewyears ago,we hit a bit of a rocky period,”Hunoff explains. “The CHS propane businesswas not providing the desired returns andwas requiring an increasing amount of working capital. Key stakeholders began to questionwhether better returns lie ahead, and evenwhether propane remained a core business for CHS.” Some executivesmight have jumped to selling the low-performing business unit, butWestbrockwas steadfast in his commitment tomeeting customers’ needs for a reliable, safe propane supply. “Hewas also clear in his expectation thatwe find a way to do itmore profitably,” says Hunhoff. “He thenmade some tough decisions and empowered the propane leadership teamto do the same. “I’mhappy to say that a year ago we celebrated record earnings in our propane business andwe have the opportunity to do the same this year.” CHANGING THE BUSINESSMODEL One reason for the group’s challenges in 2002-2005was its business model, according toHunhoff. “We were outsourcing our supply and our riskmanagement processes to a third party. Initially itworkedwell, butwhen our partnerwas sold, the complexion of the arrangement changed. We became responsible for carrying additional inventory and the visions of the two companies did not seemwell-aligned.” 28 Agri Marketing s May 2009 LeonWestbrock sawthe need for a propane business restructuring that added profitability for the entire CHS system. “The propane turnaround began with KevinWilliams, nowSr VP, Energy Sales,who helped revamp our businessmodel.He and the team decided to sever our exclusive relationshipwith the third party, redevelop our own propane supply team, and establish our own propane trading and riskmanagement functions,” saysHunhoff. “Thosewere big moves that set the stage for a successful future.” BOLSTERING THE BRAND While CHS was reconfiguring its propane operations, it was also reinvigorating its brand. Led by the branded refined fuels area, CHS had begun sharpening its focus on Cenex brandmanagement andmarketing acrossmultiple categories. After conducting propane con- sumer and dealer research tomeasure To gain a fresh perspective, Westbrock assembled an internal, cross-functional committee to evaluate the situation and recommend an overall strategic direction.He then brought in a newleader fromoutside the company. current perceptions and gain insights into extractingmore value out of the brand, newpropane standards and agreementswere developed. “We asked customers to choose whether or not they wanted to use the growing Cenex brand in conjunction with their local brand name in their propane business,” Hunhoff says. Retailers who saw value in co-branding were asked to bring their propane rolling stock and storage tanks into compliance with new image standards. “About one-third of our propane business is branded today, and how the brand is portrayed ismarkedly improving.” VALUABLEMOMENTUM These recent successes have given the CHS propane teamnewmomentum and turned its attention to growth. While continuing to improve the performance of the core business remains a top priority, the group has newinitiatives to growmarket share in the eastern U.S. and is exploring entry into newmarket channels. The propane business unit has also renewed its emphasis on innovations to help its customers manage price volatility. “CHS has long been a leader in leveraging technology with programs like our “Propane Control Room,” a first-ofits-kind online tool that helps customersmanage all aspects of their business with us, including forward contracting.We’d like to take the Propane Control Roomto the next level in the near future.” It all boils down to a dedication to serving customers, believes Hunhoff. “Leon has demonstrated a tremendous commitment to the propane business and to our stakeholders.With his strong support, our teamhas been able to generate the performance our owners and stakeholders expect,which is very rewarding.” AM