MACS the Knife

Mid-Atlantic retailer is carving out a new vision for Circle K.

By
Angel Abcede, Senior Editor/Content Development Coordinator

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Profit Pressure

Though the reasons for the Circle K choice may appear evident, Bishop says other factors may have contributed, with MACS’ private-equity history a big driver. Cat­terton Partners started the platform in 2010 with the purchase of the Richmond, Va.-based Uppy’s convenience chain and a subsequent buy of 230 stores and fueling stations from Houston-based ExxonMo­bil. (See timeline on p. 52.)

For any investment firm, return on capital employed (ROCE) is a priority. Seeing a return sooner is obviously bet­ter than later, and it may have spurred the Circle K choice with its ready-made infrastructure.

But motivation for a quicker return may also lie in the ever-changing invest­ment landscape. Returns fluctuate over time, with consequences for companies such as MACS if other, more attractive investment opportunities should arise. As an example, return on petroleum explora­tion and extraction was at a general metric of 10 or 12 in the early 2000s, says Bishop, a range in which retail investments could compete. In the mid-2000s, upstream returns jumped to 25, triggering a scram­ble by the majors to back off from retail.

While comparing upstream with downstream ROCE may be apples and oranges, Bishop says that historically, retail returns were comparable to many other investment options—and were probably safe bets during the uncertain days of the recession. Today, a more promising economic picture may lure private equity firms toward more aggressive investments.

Of course, different businesses also evaluate ROCE from a range of perspec­tives, not just the bottom line. While a major oil, for instance, may fall out of pas­sion for c-stores, a competing retailer may find the price and the ability to enhance brand presence attractive.

“Expectation is changing because of who’s interested in the business,” Bishop says. “Wall Street has a different set of expectations vs. retailers.”

That said, Bishop believes private-equity firms are more likely to measure investments the way a major oil would, continually looking for the best return across channels, industries and opportuni­ties. Companies such as MACS are pres­sured to perform sooner rather than later.

What Customers Will See

With motives set, the task remains. Rede­fining an established brand for a new set of customers is an enviable position for a two-year-old entity, an opportunity that would not have materialized if any of a number of market forces failed to align.

But MACS has quickly turned the opportunity into a concrete, back-lit real­ity, as a walk into a newly revamped store in the D.C. suburb of Sterling, Va., showed this fall, initially revealing clean lines, shoulder-height shelving and a vibrantly designed, back-lit fountain area. It’s a regionally developed Circle K program called Polar Pop, and it anchors a three-part remodeling that includes an upgraded coffee offer and expanded roller grill.

While a step-by-step storyline for cus­tomers, the three core elements are meant to first communicate variety and value:

  • Polar Pop: The 20-valve fountain carries competing cola brands, with mar­keting messages encouraging customiza­tion of flavors—all at a single 89-cent price point for small and large drinks. Gaskins says MACS’ value-focused strategy and Circle K’s established buying power led to what is arguably an eye-catching price.
  • Coffee: Upscale gourmet blends with six options and state-of-the-art dis­pensers help deliver consistent, quality cups at a competitive price.
  • Roller grills: An expanded setup covering all day-parts visually speaks to variety and commitment to the category.

“The biggest challenge is to make sure we’re communicating clearly and in a sim­ple manner—that sounds easy, but it’s not,” says Gaskins. “With the holidays coming up, our people want to get into shippers, gift cards, sporting events and partnerships, but if it doesn’t fit in our ‘big three’ [focus] and what we want to stand for, we have to have the courage to not do it.”

Mid-Atlantic Circle K

Whatever the reasoning behind its deci­sion, MACS is now presenting the indus­try with what may be a “best of Circle K” scenario. Its new store in Sterling, Va., is decidedly MACS, but future sites have the potential of aggregating Circle K’s best programs under a single canopy. Gaskins says Circle K had “dozens” of programs spanning core categories of center store, packaged beverages and foodservice for MACS to choose from, such as Living Well bottled water and Circle K-branded mugs. Though more than willing to comply with many standard Circle K specs, that degree of autonomy was pivotal for MACS.

Part of store upgrades meant cabinetry and shelving to match Circle K specs, says Dwight Aston, president of SHOPCO USA Inc., Houston, which implemented the changes. He describes the units as metal cabinets with wood-grain vinyl.

It’s a strategy that extends the parent chain’s philosophy of decentralization and local focus, while reaping the buying power and development resources of a major consolidator.

MACS’ core programs in this initial brand introduction are straightforward but precise:

  • Value Plus Differentiation: In Polar Pop, MACS sees a point of differen­tiation. In the Midwest and South, Gaskins says, people think “pop” vs. “soda.” Not so in the Mid-Atlantic, so the word “pop” may literally “pop” in consumers’ minds. The single price point for large and small sizes suggests value, while the number of spigots and a choice of two types of ice suggests variety. Another slogan written on the dispensers is “Stays cold longer.” It refers to the use of Styrofoam cups, which can help retain the temperature of the bev­erage over paper or other cup material. Of all the in-house brands, Gaskins believes Polar Pop can be a “stand-alone,” one he can market outside the stores’ four walls.
  • Elevating Existing Programs: While Polar Pop was an existing Circle K program, MACS felt it needed to elevate Circle K’s current coffee program because of the “sophisticated palates” of its market. Gaskins says its equipment was a “hodgepodge of glass pots and thermal brewers.” Now the equipment has soft thermal heating capability that keeps the quality of the product from breaking down over time. MACS expanded the selection from three to five main options and worked on blends to make them “meaningful and authentic.” Its core flavors are Circle K premium house blend, 100% Colombian dark roast, bakery blend, hazelnut blend and Circle K premium decaf. In addition, it will have limited-time offers of harvest spice, “Jamaican Me Crazy” and Peruvian blend.
  • Foodservice Statement: As part of a broader foodservice statement, MACS decided to ramp up its roller-grill program, taking the number of machines at each store from one or two to four or five, according to Williams. The goal was to keep high-quality products in all day-parts. The expanded number of grills and forefront presence was important. “Having the breadth of offering says we’re in the business,” Williams says. “And we found that once we doubled the equipment, we doubled our volume.” Its offer is a combination of Ball Park, Home Market Foods and Ruiz programs for day-part variety, but managers also have options to cater to local tastes.

More Circle K

The partnership between Circle K and MACS will more than likely continue to reap mutual rewards, Bishop of Balvor says. He points out that Couche-Tard has begun to develop pro­prietary, low-tier cigarettes with its Crown offer, as well as a growing loyalty program.

On a broader front, Couche-Tard continues to improve in-store sales and foodservice, analysts say, but cigarettes continue to be an issue. Speaking to Couche-Tard’s overall growth, Martin Landry, equity research analyst for GMP Securities, Montreal, says in its last quarter, ending July 22, 2012, the company saw a 2.8% increase in same-store sales, which was below its historical average of 4%. Cigarettes were partly to blame, with the chain reporting that without cigarettes, the merchandise performance was 6.6%.

That said, Landry believes cigarettes remain a concern, albeit “the only dark cloud on the horizon” for Couche-Tard.

For MACS, its choice of Circle K and its brand execution will unfold quickly over the coming months, and the customers, Gaskins says, will decide if they made the right choice: “When they look into stores, hopefully they see a transformation and will be willing to trust it.”

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