Gas, Smokes Helping Casey's Drive New Initiatives
But analyst asks, can growing chain replicate its "small-market" success?
Published in CSP Daily News
Meanwhile, Casey's cigarette category "is performing very well," said Herzog. The chain "is comping in the mid-high single digits--quite impressive given the category decline. Now that Casey's has fully lapped the [cigarette] price decreases it took in late 2012, it believes it is taking back some of the share it lost when it was less price competitive in the cigarette category."
For fuel, "Casey's gallon growth has been impressive, aided by [its] partnership with Hy-Vee," she said.
The deal offers Hy-Vee customers discounts on gasoline for purchases made in Hy-Vee stores. "While the benefits that Casey's has seen from this program have driven both fuel … and in-store sales, the opportunities to expand the program further appear limited given the current Hy-Vee footprint," Herzog said. "Casey's is currently exploring other partnerships to create similar programs with other grocery chains, albeit at likely a much less magnitude to the current Hy-Vee partnership."
Myers continued to tout growth. "We are making considerable investment in our infrastructure to be able to handle the additional business the new stores and initiatives are bringing on," he said. "We are also in the late planning stages of our second distribution center to be located in Terre Haute, Ind. The second facility will be 275,000 square feet, and we look for it to take over approximately 40% of our routes once the construction project is complete in calendar 2015. Obviously, this facility will give us the ability to expand our reach into new territories, but perhaps the greatest benefit is reducing our miles driven by eliminating all of our three-day grocery routes."
Herzog said, "The new [distribution center] coming online should alleviate the slight pressure on the current DC, which is running over capacity, and overall, Casey's entire distribution operation should be more efficient over time, despite the partial offset of the incremental costs associated with operating a second DC."
She also said that the new distribution center could aid in eastward expansion.
"Newer stores are expected to be more focused on suburban areas and higher-traffic store formats where Casey's will likely face greater competition in a more challenging marketplace in addition to higher costs of development; therefore … we continue to question if Casey's can replicate its 'small-market' success as it expands to larger communities where it will encounter greater competition," Herzog said.
Before turning the presentation over to Casey's new president, 33-year company veteran Terry Handley, Myers also specifically addressed "one item that has been getting some attention lately," namely master limited partnerships (MLPs).
Citing the MLP strategies of Susser Holdings Corp. and its acquirer, Energy Transfer Partners (ETP), he said, "While Sam [Susser] and his team deserve a lot of credit for what they have been able to do, it is important to understand that their business model is different than ours. We have closely reviewed the strategy, and at this point, we feel the best approach is to stay the current course with our structure. We already have a low cost of capital, which is one of the reasons to create a MLP. Also, we don't have the wholesale fuel distribution operations, so it would be difficult to attain the steady gallon growth MLP investors are generally looking for."
Ankeny, Iowa-based Casey's operates nearly 1,800 convenience stores in 14 Midwestern states: Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Minnesota, Missouri, Nebraska, North Carolina, Oklahoma, South Dakota, Tennessee and Wisconsin. It also operates one standalone pizza delivery and carryout store.