Pride in Perishables
Its hip to be square: Family Express is a logistics story that reinvents the wheel.
It costs Family Express about a penny more to make a square doughnut than a round one. That’s because dough in a fryer naturally rounds out, so it takes a special mold and assembly setup to mass-produce the convenience chain’s signature indulgence.
But going against the grain, as it were, is Family Express—and, by default, a mirror of its outspoken leader, Gus Olympidis.
In this case, the cost of making the chain’s highest-selling baked good brings the return of differentiation. In a larger sense, it’s about being unique, the cost of being different and, more importantly, the value of being different.
For other perishables, for instance, the company is not so forgiving. In fact, Gus, president and CEO of 52-store Family Express Corp., Valparaiso, Ind., has spent the better part of the past decade slashing at what he feels are glaring inequities in the supply chain, forging a distribution system that’s “an antidote to the poison.”
That logistical setup of five trucks, a 120,000-square-foot distribution center and a newly remodeled $4-million office and training facility complete with a built-to-scale c-store has become his latest gem, crowning a still-burgeoning career marked by private-label pioneering, manufacturer arm-wrestling and a brazen sense of perspective and entrepreneurship.
G us’ independent streak reflects his supportive upbringing, immigrant roots and an almost devout hold on the American Dream. It’s reflected in the colonial-style architecture of his stores; Family Express fuel; Java Wave coffee; Cravin’s sandwiches, salads and wraps; and proprietary baked goods, milk, bottled water, energy drinks and even ice.
“I started with nothing,” he says, looking back on a career that began at 21 with a 7-Eleven franchise. He credits “nurturing” parents who believed in hard work, confidence and passion, traits that would shape his “conservative but risk-taking” style.
“Gus is usually a step ahead of everyone, getting into foodservice and self-distribution,” says Jay Ricker, who also operates in Indiana with 49 Ricker’s stores. “He has a thoughtful point of view. I mean, anyone can do [self-distribution] and lose money, but the trick is to do it and do it profitably.”
Standing in the way of that profitability has been the “poison” Gus refers to, namely the costs tied to manufacturer-delivered goods. It’s not a new issue for Gus, who from his days on the NACS retailer board to the present has been railing against what he decries as pricing inequities, pointing out that wholesale clubs all too frequently set beverages at retail prices less than what he has to pay wholesale. So, unable to change the system, Family Express changed its buying model. It will intentionally forgo brand names for items it can either produce itself or secure through bulk vendors.
“DSD is a huge Achilles’ heel for the c-store channel,” Gus says. From his perspective, the amount of direct-store delivered (DSD) items brought in once or twice a week by union drivers simply doesn’t justify the cost. His vision: corral product, calculate expenses and make daily deliveries (with the exception of Christmas) using his trucks. The result is an “equalizer.”
Today, DSDs account for merely 30% of Family Express deliveries, compared to some industry figures that put traditional c-store DSD at double that amount.
Still, in creating a flatter playing field, Gus keeps a tempered tone, humbled by a now-defunct attempt at running his own commissary. “We only eliminate traditional DSD when it makes economic sense to do so,” he says. “We are not averse to accepting traditional DSD when it is priced appropriately by our suppliers.” The industry, in his view, is so dynamic that he always finds himself either tackling challenges or chasing opportunities. “We’re very passionate about our business model, yet we are full of contradictions,” he admits.
Birth of a Notion
Gus opened what would eventually become the Family Express chain on Christmas Day in 1975. C-stores were just starting to get into gas, and an entire generation of Americans was being born never knowing life without a family car.
Coming of age as a businessman at that time played to Gus’ advantage, offering him the ability to forge his own identity in an industry itself just hitting adolescence.
Always a “demanding consumer,” his early focus was on the consumer experience. That’s why in 1987, the Family Express name was born, partly as a way to put a friendlier face on the stores and to attract female customers.
Innovations in cash counting and premium fuels followed, starting a technology and fuels bent that has a new vigor today with the company’s loyalty and ethanol efforts.
In time, books such as “The Customer- Driven Company” by R.C. Whiteley (1993); “Pour Your Heart Into It” by Starbucks founder Howard Schultz (1999); “Good to Great” by Jim Collins (2001); and “Blue Ocean Strategy” by W. Chan Kim and Renee Mauborgne (2005) would come to shape Gus’ gamesmanship.
Other milestones include the 1999 acquisition of Carter Oil, which bolstered the company’s presence along I-65; its foray into private label soon after; and the 2003 purchase of its distribution center, then half the size at 60,000 square feet.
In the eight years since, Family Express, a company with $300 million in annual sales and 500 employees, has doubled both the space and the amount of goods it moves through its internal system, according to Thomas Navarre, vice president of petroleum marketing and logistics for the chain. Besides fresh-baked goods, the range of items includes packaged snacks, proprietary products and bottled drinks. The daily capacity also prevents most out-of-stocks. “We keep our facings solid,” Navarre says. “If we have six [of any item] and sell four, we bring in four.”
The concepts may seem provocative, especially for operators firmly entrenched in supplier conditions and promotional funds. But examined separately, the pieces are straightforward:
A central distribution point and truck fleet, as well as field, logistics and administrative personnel. Its 120,000-square-foot facility along with a hybrid relationship with an area supplier handles 70% of the chain’s deliveries.
A store base clustered around the main distribution hub.
Contracts with suppliers willing to deliver product to his warehouse.
An in-house bakery providing primarily a morning day-part offer, with brownies and cupcakes for lunch and dinner snacking.
Proprietary products across numerous categories.
Loyalty promotions targeting his most profi table items.
And profitable he has been. Without divulging numbers, Family Express recorded its three most profitable years beginning in 2008 at the start of what many today call The Great Recession. The company now sits in the top 3% to 5% of the industry’s top-quartile performers. (See sidebar on p. 59.) At press time, preliminary numbers from the NACS State of the Industry Survey of 2010 Data show a growing gap between top- and bottom-quartile companies. So even in that upper echelon, Family Express is on a higher rung.
“In numbers of stores, we like growth but want not to be obsessed,” he says. “What’s intoxicating is internal growth.”
For manufacturers who believe in the Family Express model, “it’s a beautiful fit,” says Steve Seadeek, sales manager for Uncle Ray’s LLC, Detroit. His company doesn’t have route trucks, so shipping potato and kettle chips, cheese puffs and popcorn products to Family Express’ distribution center works well. “We saw the orders coming into their stores and were comfortable with how things were handled and the condition of the product,” Seadeek says. “They do a beautiful job in getting units to the store.”
Distribution of Power
For Family Express, self-distribution of perishables is a natural progression. “If you’re serving fresh pastries, you’re practicing daily delivery of perishables,” Gus says. “The question is: What else are you delivering?”
Even if an operator doesn’t receive pastries daily, the stores probably receive newspapers, he says. “Newspapers are the most perishable items, so the notion of expanding daily delivery is already there—it’s the common sense behind [our] model.”
Consolidating deliveries also reduces the number of non-patron interactions at the store. “It’s distracting from the purpose of our employees building relationships with our customers,” he says.
So why isn’t everyone doing it?
Besides the fact that logistics brings its own complexities, Gus says many chains aren’t clustered geographically to make a distribution system effi cient. Having said that, he points to Dallas-based 7-Eleven as having been very successful with its internal distribution efforts. “So size is not a prerequisite to efficient, logistical execution,” he says.
The distribution equation for Family Express is also fl uid and shifting. Yes, the core problem is an inefficient supply chain, but it’s also an issue of wholesale pricing. Procurement is an art, he says, one that takes a mastery of bulk purchasing so that deals don’t overshadow true demand.
But other challenges come into play. For years, manufacturers have bowed to the likes of Walmart, offering prices to the Bentonville, Ark.-based retail giant and other hypermarkets that differ from what c-store chains such as Family Express can get.
That’s why the chain takes issue with some tobacco contracts, in which manufacturers, according to Gus, are trying to manipulate retail prices. (See story on p. 14.)
“We spend $2 million, $3 million to build a store, and they want to tell us how to price?” he says, though he points out that new tobacco contracts are not going to affect Family Express as much as chains that rely heavily on those margins.
“The bigger picture for the channel is,” Gus says, “if one manufacturer does it, what’s going to stop [another]?”
Not hesitant to express his opinions about controlling retail pricing, Gus is also one to retrench when his own efforts don’t hit the mark. Such an instance occurred when he closed the commissary two years ago after a four-year run, opting instead for a supplier with a more aggressive menudevelopment strategy. “We were producing 1,500 to 2,000 items a day,” he says. “Not large enough to facilitate our execution.” The bigger enemy was what Gus describes as “menu fatigue.” A patron of any restaurant, no matter what the quality, will start to get bored with a menu that stays the same. “You can’t be in foodservice without development,” he says. “And without an executive chef, we were sentenced to a marginalized, stale menu.”
The chain’s current supplier, H.C. Schau & Son, Woodridge, Ill., produces a new item every 30 days, says Bill Nolan, vice president of marketing for Family Express. It provides six breakfast sandwiches, including a sausage, egg and cheese burrito, and 10 lunch-dinner sandwiches. The chain introduced two new sandwiches this past spring, a Buffalo chicken sub and a rib-and-onion sandwich. This month, it is scheduled to introduce a new Oriental chicken salad with mandarin oranges, noodles and a zesty dressing. The chain’s best-selling sandwich is an Italian sub with salami, pepperoni, ham, provolone and fresh pepperoncini served on a gourmet Italian-style roll.
Running the commissary also proved formidable. In addition to innovation, food safety and product consistency were ongoing concerns. When the commissary closed, its 15 or so employees were absorbed back into the bakery and distribution center.
Still, Family Express may eventually bring it back, considering the investment in the commissary already has been made, and the up-to-spec cleaning and production areas still exist at headquarters. But again, the company would have to resolve issues such as menu development, food safety and the development of a larger foodservice culture.
And as Family Express has discovered, foodservice is a moving target. Case in point: As its commissary strategy becomes a third-party scenario, its successful Java Wave coffee brand may have a new twist. After more than 10 years in the fi eld, the private-label brand may follow a path akin to that of Starbucks. “We’re in the early stages of exploration,” he says, “to move Java Wave off-site into home or offi ce use.”
For Family Express, another brandidentity focus has come with tech- nology, such as the chain’s F.E. Perks! loyalty program. Customers can trigger price discounts based on hundreds of items purchased in the store, according to Nolan. After a little more than a year of operation, 30% of the chain’s transactions now come through the loyalty program—a feat typically achieved after two or three years of operation, he says. The company has deployed 150,000 F.E. Perks cards, with 10,000 linked to its mobile application, or app.
Throughout the store, large magenta-and-teal sign “bubbles,” or what the company calls “coins,” announce the value of a promoted item in terms of gasoline rewards. “Gas becomes currency,” Nolan says. “We all know what a gallon of milk costs; [our program] promotes a value against gasoline.” Loyalty customers can earn a cent or multiple cents per gallon for qualified purchases, he says. For instance, the store offers a cent per gallon for each square doughnut a customer purchases, so a dozen doughnuts purchased translates to 12 cents off per gallon. Another example is offering 10 cents off per gallon with a purchase of a 12-pack of Red Bull. Because F.E. Perks is cumulative, if a customer purchased a 12-pack of Red Bull and a dozen doughnuts today, he or she will have earned 22 cents per gallon off the next gasoline purchase. The customer selects the time of redemption; when he or she does so, it can cause a price to roll back at the pump. On average, customers redeeming points save $1.20 per gallon, he says.
In addition, the technology also gives customers access to coupons that they can download and display on their mobile phones, which they can then scan at the store.
The loyalty program ties into a larger marketing effort that includes social media such as Facebook and Twitter. “There’s a lot of trust in Facebook in that customers are talking to customers,” Nolan says.
About 30,000 customers have formally registered their F.E. Perks card, giving Family Express the ability to send direct messages via texting, as well as promote specials via email campaigns. And the chain will expand its mobile couponing campaign to smartphone customers.
The long-term plan is to segment consumer purchase habits by understanding individual market-basket preferences. Then Family Express will be able to send specific product offerings to specific customers. “Social-media marketing has pro- vided Family Express more relevant venues to communicate to our customers,” Nolan says. “And they are responding.”
Beyond technology and distribution, Family Express, as its store name suggests, builds upon a foundation of people, Gus says.
Just last year, the company remodeled its distribution center to incorporate its executive, marketing, accounting and human-resource offices, creating a new training facility complete with a fitness center and state-of-the-art teleconferencing equipment (CSP—April 2011, p. 47). Upgrading the program with the space, equipment and instructional materials would ultimately cost $700,000, but it’s an investment to improve store-level consistency and reduce turnover (which is already 42% on average and zero in many stores; the industry as a whole faces triple-digit rates).
The system appears set up for both growth and consistency, able to handle large groups for start-up and replacement-staff trainings or multiple-store communications for broader updates.
The goal, he says, is to bridge the obstacle of distance with regards to training, so that even if staff is already in the field, they can continue to train and retrain without having to go to the main office.
“It’s about building relationships and extending kindness,” says Kris Condon, the company’s director of human resources, “even if they’re not kind to you.”
“It’s going beyond saying, ‘Hi,’ when a customer enters a Family Express store,” Gus says. Building trust and diffusing conflict are goals, but the bigger picture can be considered anthropological. “We capitalize on [our customers’ natural], tribal inclination … ‘to belong’ by treating them as neighbors,” he says. “It’s hard for someone to feel that they belong if they are not recognized. So our greetings have to come from the heart. It has to be genuine or it risks becoming an irritant.”
To this end, the company is building a five-category, 50-module video training series, scheduled to be completed this spring. These training segments show procedures such as the necessary steps to properly bag Family Express-branded ice.
But the company’s first step is to hire people who are “instinctively inclined” to build relationships. “We empower them to do whatever it takes in order to preserve a relationship with a customer,” he says. “We train our employees in conflict resolution, so they can give away money, or even send flowers to a customer, if they deem it appropriate in order to preserve a relationship.”
Gus believes the culture of building relationships applies both internally and externally, with the culture being its own reward. Beyond that, he says, the company provides “above average” compensation, a 401(k) package, wellness programs, continuing education and other benefits such as its corporate fitness center (which is available to both employees and family members).
Providing the kind of environment that identifies and nurtures a specific kind of employee takes work. On average, Family Express reviews 50 applicants to find a single fit. That task becomes much harder if another company—for example, Walgreens— is also looking for a similar employee.
“If someone is looking in your neighborhood for the same type of person, you may need to look at 100 before you find that one new employee,” Condon says.
It is no secret to the industry that Gus is both an insightful retailer and a perfectionist. Equally, he can be stubborn, independent-minded and passionate about what he believes.
And yet what you have is an intriguing composite. Just say his first name to virtually anyone in the industry, and they immediately know you’re talking about Gus Olympidis. There is only one Gus, and he’s the one who has forged an impressive legacy that is the source of great personal pride.
“The store [and its customers are] our world; we embrace it, we love it, we cuddle it,” Gus says. “And it cuddles us back.”
Square Doughnuts, Square Feet
To handle the intake, storage and supply of products through its in-house distribution system, Family Express needs space. Here’s a few of the dimensions the chains works with:
30 acres The land that the corporate and distribution facility occupies, which includes a company park
120,000 square feet The size of the distribution facility
6,000 square feet The bakery, including space for equipment, freezer, cooler and storage
30,000 square feet The newly designed office space, complete with a full-scale c-store Source: Family Express