Just as the seeds of Microsoft were sown when the adolescent Bill Gates and Paul Allen shared a passion for early computers in Seattle, so the current success of Tacoma’s Associated Petroleum Products was born at a lemonade stand.
Luke Xitco and Frank Pupo Jr. were boyhood pals then, just as their fathers were best friends: John D. Xitco in the construction business and Frank Pupo Sr. in tires.
Later – some 30 years ago – the elder Pupo and Xitco bought a sleepy petroleum distribution business located near the Port of Tacoma.
“We purchased it in 1982,” said Frank Pupo Sr. last week. “It was pretty small at the time. There were maybe a dozen employees.”
Along with a manager, the four partners included Pupo, Xitco and friend Mike Tucci.
At the time, there was no real plan for growth.
At the time, there was no thought that the sons who were pals, who once sold lemonade, would end up running one of the state’s largest petroleum and propane distributorships.
THE BUSINESS
Associated Petroleum Products sells and distributes gasoline, diesel fuel, propane and lubricants. The headquarters is located on Milwaukee Way, tucked into 4.4 industrial acres near the Puyallup River between I-5 and Hwy. 509.
The company earns $600 million in annual sales and employs some 200 people.
Working partners Luke Xitco and Frank Pupo Jr. proclaim their Tacoma roots, having attended – as did their grandfathers, graduating in the school’s first two classes – Bellarmine Prep.
Where Pupo went on to graduate from the University of Puget Sound, Xitco went on to the University of Portland.
Where Pupo studied accounting and economics, Xitco studied marketing and management.
“We’ve been best friends since we were in diapers,” Xitco said last month.
Their fathers, he said, “are as much like brothers as you can get without the blood.”
Not long after buying the business, said the elder Pupo, “We were actually thinking of selling it. It was growing a little bit.”
Over the early years, the partners had some difficulty finding managers that fit.
“We hired one guy from California, paid his way up here, he only lasted a few months,” Pupo said. “We hired a couple of guys.”
As Frank and Luke grew older, Pupo and Xitco thought they’d give their sons a chance.
“We figured that these boys are working hard, they got brains, the only thing we were worried about – they were young.” Pupo said. “I think we just felt it would work. Naturally, we had some concerns.”
The younger Pupo and Xitco began working full-time at the company in the mid-’90s.
“I think our dads saw an opportunity,” said Xitco. “Let’s see if Frank and Luke can make it happen.”
“We were very young. It was quite the baptism by fire,” he said. “I think our dads enjoyed watching us trip over ourselves (occasionally). We had good mentors, and we still do.”
In the beginning, leadership and success did not come easily. To prove themselves, the pair arrived early to work and stayed late. They made difficult decisions.
“We had some people walk out, and we pushed people out,” said Pupo.
“We’re not better than anybody and we don’t treat people like that. We’re not afraid to say we screwed up,” said Xitco.
“They’ve gotten themselves in some legal fights, but that’s typical in the industry,” said Tim Hamilton, a petroleum industry consultant and executive director of the state’s Automotive United Trades Organization.
He said he has known APP “for years.”
“In the industry, when you’re a supplier, people swear by you or swear at you. (Xitco and Pupo) seem to be doing something right.”
They are, he said, “just very shrewd and closed-mouth, and very private. They’re known to be very aggressive. There’s bigger companies out there, but Associated is one of the largest in the state. These guys are pure capitalists. They run a fairly first-class operation.”
“I would say they’re one of the top five companies in the state by gallon-volume,” said Lea Wilson, executive director of the Washington Oil Marketers Association.
“They’re a highly reputable company,” she said. “They have done a great job in growing that business. I think APP has done a really good job finding niche markets that fit their business model.”
AFOUL OF ECOLOGY
Like many privately held businesses, Associated Petroleum is rarely in the news – and when those companies do make news, the news is not necessarily good.
So it was in late 2008 when The News Tribune reported that the “Washington Department of Ecology has issued one of its biggest fines of the year to a Tacoma fuel oil distributor for letting toxic runoff pollute Commencement Bay.”
Disagreement remains concerning details of the incident – over the seriousness of the environmental impact, the method of its discovery and subsequent enforcement – but all sides agree that the matter has now been settled.
After negotiations with the state, Associated Petroleum paid a $30,000 fine and agreed to take “meaningful stormwater improvements.”
“It’s been settled. We’re happy with what they’re doing,” said John Diamant, the Department of Ecology environmental engineer who oversees Associated Petroleum’s permit.
“I think they’ve really turned the corner,” he said last week. “I think the new system will be a role model for the Tacoma area. They really chose to heed our directives and go beyond that.”
“We’re the only petroleum distributor that has a system like this,” Xitco said, recently conducting a tour of the facility. The company has invested $750,000 in the stormwater treatment system, which began operation earlier this year, having treated 732,000 gallons since March.
“We could have paid the fine and made a few adjustments,” Xitco said. “We wanted to get the fine settled and be good stewards, and go beyond the requirements. It was a matter of principle. Our reputation is everything to us. We felt the fine was unjustified, and we could have fought that, but we thought we’d work out a solution that was best for everyone.”
Diamant said he manages individual permits for some 30 facilities in the Tacoma area, and that hundreds more are under general stormwater permits. Associated Petroleum, he said, “is in the top tier. They are one of the better facilities.”
He also names the Bradken-Atlas foundry.
“Relatively, Atlas and APP are eight out of 10,” he said. “There are other ones that are a three. We’re working with them.”
He said the original infraction was open to interpretation. Associated Petroleum, he said, had “a valid complaint. It was kind of confusing. That’s why we are changing their permit now. They were also violating the permit. It was a little bit of both.”
Brad Jones, a partner at the Tacoma law firm Gordon, Thomas, represented Associated Petroleum throughout the imbroglio.
“It is refreshing to have a client who is aware of (its) responsibilities,” he said. “Often my job is to bring a client kicking and screaming into the 21st century. Usually, a company’s response is, ‘What is the bare minimum I need to comply?’ That’s not (Associated Petroleum’s) approach. Their approach was, ‘Why throw a bunch of money at lawyers? Let’s take our money and address our issues.’
“I think they’re coming at the business from a perspective of it being both a family business and they are the next generation to be entrusted with this business. They take a much longer perspective and have a heightened sense of responsibility to improve on what they’ve been given to manage. I wouldn’t say it’s unheard of, but it’s certainly a rare commodity in today’s business environment,” Jones said.
STEWARDSHIP
There is another spill on the Associated Petroleum logbook.
Marine View Ventures, the economic development arm of the Puyallup Tribe of Indians, operates a handful of gasoline stations in the Tacoma area. Associated Petroleum supplies three of those stations, said chief operating officer Jamey Balousek.
He tells the story of a small fuel spill that occurred at one of the firm’s stations – a Chevron station that was not supplied by Associated Petroleum.
“We had a small fuel spill,” Balousek said. “The manager of our site called Associated for advice, and within minutes they were at the site with a spill response team. To me, that represents a couple of things.”
The first concerns customer service and initiative. The second, he said, speaks to environmental stewardship. “Even before I could get there, they got there that fast. It was just the right thing to do. They jumped on it, no questions asked.”
Others in the community are equally complimentary – not just about the way in which Xitco and Pupo manage their business, but about the two men themselves.
Both serve on foundation boards of directors at Tacoma’s MultiCare Health System.
“We all see the Bill Philips and Bill Weyerhaeusers, John Folsoms – theirs was the golden age of service,” said Sara Long, vice president of MultiCare foundations. “They call that the Greatest Generation, who gave back both professionally and personally with a sense of service. What I love about these young men is that they are stepping forward to fill those shoes. This community is lucky to have them.”
Diane Cecchettini, MultiCare CEO, agrees.
“I think they’re absolute role models for the community,” she said. “Usually, you see that in more mature citizens. It brings a vibrancy to our effort. It also means they’re asking some tough questions. They view the world a little differently. They’re parents with young, active families. They connect with a whole different core. It keeps us on our toes.”
GROWING
“Our diversification is one of the things that has kept us strong,” said Pupo.
One example is the company’s entry into the propane business. In 2002, Associated Petroleum did not store or distribute propane. Xitco and Pupo had considered adding the fuel to their line of products, but the right opportunity had not presented itself.
In walked Don Kollmansberger, who had experience in the business and who, with two colleagues, had considered opening their own propane distributorship.
“It was whether or not we wanted to form a group of three and go alone or find a company that did well at what they do,” he said recently. “I recognized that APP was a significant marketer. They did not do propane. It seemed like a natural. I developed a business plan.”
The group presented the business plan to Pupo and Xitco. “It just caught me off guard,” Kollmansberger said. “We presented the business plan, they said, ‘OK, we like the idea.’ I said how about starting the first of next month. They said ‘how about next Monday?’ ”
In 2002, Associated Petroleum invested some $5 million in the propane operation, Pupo said.
“They gave us a significant level of autonomy,” said Kollmansberger. “They allowed us to do what we did, and were very open-minded about what our capital needs were. They expected a good operation, to be honest, grow the business and produce profits, and not do anything to embarrass them.”
Today, the propane operation is among the top 50 by volume in the country, Kollmansberger said. And it’s growing. “We started in Pierce County, now we operate from the Canada border to the Oregon border,” he said. “A month ago we launched into Eastern Washington. Frank and Luke’s plan is to continue growth in the Northwest, with Oregon at the right time.”
“We were thinking about the propane business, but it never felt right,” said Xitco.
Said Pupo, “We were mentally ready when these gentlemen showed up.”
“It’s not all about making money today, It’s about making a good living for ourselves and our employees,” said John M. Xitco, Luke’s brother and a partner at Associated Petroleum.
“Our fathers gave us a great opportunity, and we could have blown it. But we built something out of it,” said Xitco. “We did it on our own, slowly.”
“It turned out wonderful,” said Frank Pupo Sr.
He recalls the days when his sons were young and they worked at his tire company.
“We made ‘em work. We put the boys to work in the retread shop. They hated it. It was messy and dirty, but they did it.”
It was that, and probably the lemonade.
C.R. Roberts: 253-597-8535
c.r.roberts@thenewstribune.com
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