On the QT

CSP sits down with QuikTrips Chet Cadieux for an exclusive look at the company's rapid growth.

By  Mitch Morrison, Vice President & Group Editor

Article Preview: 

Growing Share

QT’s formula is clearly working. Via exclusive market research, the company has found that once it’s in a market for at least a few years, its stores easily outpace most of its competition. A fascinating spotlight is the Phoenix area, long dominated by Circle K. In 2001, Circle K ran 300 sites with market effectiveness of 1.41. This means inside sales generated 41% above average c-store sales in that market. At the same time, QuikTrip’s first full year in the Phoenix area, QT stores scored an impressive 1.85—remarkable considering its newcomer status. In 2010, QT’s 67 stores outpaced Circle K units by nearly a full point on an average store-to-store basis: 2.13 market effectiveness vs. 1.2. (See full results in the sidebar on p. 42.)

Market jumping is no small feat. Successful chains have to establish a distribution network able to duplicate everything that defines a brand as it stretches from state to state. A QuikTrip in Dallas has to look like a QuikTrip in Tulsa.

To do this, QT plans in blocks, with roughly 10 stores the magic number needed to make that first phase economically viable, according to Jim Fisher, CEO of land-use specialists IMST Corp., Houston.

Typically, within two to three years, as the original cluster bears fruit, new ones spring forth, giving QT the prominence to effect a full-blown marketing program, leveraging scalability to turn investment into profit. In breaking into a new market, Quik-Trip often maximizes gas prices to grab market share, industry experts say. But fuel dominance is not the endgame, says Bob Stein, president and CEO of KSSFuels, Florham Park, N.J.

“These successful retailers going into new markets aren’t just about fuel,” he says generally about the industry. “It’s a starting point to get attention, but they’re coming in with a large, state-of the-art site, a presence in the forecourt and then, inside, great merchandising and foodservice.”

As its new-market strategy builds on itself, QuikTrip can backfill, adding both stores and infrastructure such as with its new stores in the Carolinas and new commissary in Atlanta.

The industry is also enamored with QuikTrip’s reputation of constantly renovating its portfolio. “I think their oldest stores are only eight to 10 years old,” says Bill Weigel, chairman and CEO of Weigel’s Stores, Powell, Tenn.

The continuous reinvestment in existing stock, on top of fresh ground-ups, makes QT among the most formidable competitors in the country. The company is not shy about withdrawing from markets, such as when it pulled out of Springfield,Mo., divesting five stores in 2010.

Equally true, the operator has little tolerance for legacy stores, even in its home state. So when the company made a full-fledge commitment to high-volume fuel sites, it may have been surprising at first glance for QuikTrip to divest its profitable older stores in Stillwater, Okla. But Cadieux is resolute: The reputation and expectation of QT’s portfolio outweighs laggard, even if moderately profitable, legacy locations.

“Those stores were still profitable, but when it came time for us to say [whether]we’re going to go invest in them to bring them to the newest standard—whatever that standard is—the answer was if we did, it would lose money,” he says. Once the decision was made not to upgrade, Stillwater became backwater, dissolved from QT’s stable.

So whether it’s upgrades, complete raze-and-rebuilds (either on the same property or a better location) or the shuttering of failing stores, QuikTrip is nimble enough to “close as many stores as it opens,” says industry consultant Dick Meyer of Meyer & Associates, Mesa, Ariz.

“They don’t like operating lower than-expected volume locations,” he says.“It’s not fun and not worth their business model. It’s not their core competency.”

Respect from Peers

As much as QuikTrip evokes fear and awe from competitors, it also draws respect.

Jim Griffith, CEO of Stillwater-based OnCue Express, calls QuikTrip “one of the best retailers in the country” and acknowledges that his 46-store chain looks to it for new ideas and inspiration.

“I just think the world of them,” he says. “Someday maybe I can grow up and be QuikTrip.”

Griffith, who started his c-store business in 1966 and created On Cue through a merger with a partner in 2004, has one store in a market occupied by two Quik-Trips. When he opened his Bartlesville, Okla., site in 1980, “the stores QuikTrip had were nothing like the stores QuikTrip has now.

“They have evolved considerably,” he says. He appreciates the size and dimensions of the facilities, which make it easy for customers. He also compliments its labor development and management.“They have extremely informed and friendly employees. They have a great culture.”

And when it comes to QuikTrip’s culture of employee retention: “My hat is off to them. It takes a lot of work. And they’ve done the work. Anytime you can reduce turnover, you reduce costs.”

QuikTrip consistently shows up as atop employer on national ratings lists. Jim Fram, senior vice president for economic development for the Tulsa Chamber of Commerce, credits the chain’s above industry pay and the fact that the retailer promotes from within for employee retention.

“[Employees] have their anniversary date on their name badges,” Fram says.“You don’t see very many people who have worked there only a few months. They are all long-term employees.”

OnCue Express is expanding in the Oklahoma City market, where there are no QuikTrips. Griffith’s chain has four new stores in the works in that market, bringing the total there to 12. “One of the biggest compliments I have,” Griffith says, “is when someone says, ‘Gosh, your stores remind me of a QuikTrip.’ ”

“The key is raising quality perception,” says Ben Brownlow, an Atlanta-based analyst with Raymond James & Associates, which has its main headquarters in St. Petersburg, Fla. “Their whole model is to raise the customer experience and capture market share.”

Fresh food, sandwiches, salads and improved lighting and flooring are part of the mix. “Customers are viewing it as less of a trade-down from [quick-service restaurants], leading to market-share gains in not just the c-store channel, but capturing market share from food service,” Brownlow says. “Their initiatives transition customers to a different perception of [c-store food.]”

“They keep reinventing themselves, “Meyer says. “But the core principles that they came from a long time ago still exist.”

QuikTrip employees are simply hard workers with a passion for customers.“It isn’t a new machine that came in yesterday or one that comes in to sell gas at a lower price,” he continues. “They do the same thing, every day, with the same passion to get up and serve.”

What’s Ahead

QuikTrip in fiscal year 2013 will build 60 sites known as Gen 3, which feature 16 gasoline pumps and a 5,700-square-foot facility. The design, with a brick and glass exterior, is more than 1,000 square feet larger than the previous prototype and is flanked with bookend entrances along with two central portals.

Inside, an arena-style ceiling immediately catches the eye. It is both artistic element and practical consideration, aimed at muffling excess noise. “It gets pretty noisy in here,” Cadieux says with deliberate understatement at one of the new Tulsa locations.

In addition to the rollouts, QuikTrip is also busy beta testing various programs:

Gasoline loyalty with a Tulsa grocer: The program is a classic cents-off gasoline redemption program that takes the supermarket consumer to QT for discounted fill-up.

Modularity: In years past, QT would build a new, larger format behind a legacy store that would then be razed. With the current building deeply egressed to allow for ample forecourt space, QT is piloting a modular, plop-and-play unit at existing raze-and-rebuilt sites. The goal is to sustain some level of operation while a permanent fixture is erected. “We’re testing it. We’re still in the very early stages,” Cadieux says.

Mobile apps: QuikTrip is testing a QT app. As of CSP’s deadline, the application had not been rolled out to test markets.

“We consciously stayed out of the first-generation of [Web-based loyalty], which was email marketing, and the second-generation of text marketing because our customers told us they didn’t want a convenience store to be marketing to them,”Cadieux says. “But they’re OK with an app.

“What they’ve said is, ‘I don’t want anybody sending stuff to my phone; the last thing I want is clutter. An app? That’s fine, because I’ve chosen to open it up or to set settings on it. I can set up the parameters myself.’ ”

Deep in Thought

The clock is ticking. A two-hour interview, among the few Cadieux will hold with a reporter, is nearing its end.

It’s a blustery day as January is about to cede to February. Cadieux is focused on his guests, only once looking at his smartphone and, even then, offering an apology.

It’s that focus, that eye-to-eye personal engagement that colleagues cite among Cadieux’s finest qualities: his ability to concentrate on what’s before him while possessing the wherewithal to keep sight of the big picture.

The question that follows is among the last and one that prompts a thoughtful pause. Which retailer today excites him? He considers Whole Foods but suggests its model is replaceable. He considers other brick-and-mortar operations but dismisses them as being potentially usurped by online commerce.

Then he lets loose a brief smile, and an intriguing answer.

“Trader Joe’s,” he says, “is interesting because almost all of their product you can only buy there, yet people want it. Even though it’s take-home, you cannot buy it on the Internet.

“It’s interesting they are that good in product development that they can make a business out of stuff only they have developed, by and large.”

QT’s model in some ways mimics and in other ways opposes Trader Joe’s. QT is built on commodity products readily available in most c-stores: major brand cigarettes, salty snacks, roller-grill options, carbonated soft drinks and the like.

True, it owns a strong private-label program and a vastly improving foodservice commissary. Yet, in these areas, QuikTrip is not Trader Joe’s.

What the Oklahoma convenience chain shares with that Southern California purveyor is extraordinary verticality. Both QT and Trader Joe’s have largely eliminated the middleman, investing in robust supply-chain dynamics they own and operate.

Both adhere to a culture of extraordinary consistency and build store formats with little variation by region or demographic. Both are recognized for hiring remarkable people trained in multitasking and delighting customers. And both promulgate the values of price and quality, from the fresh-cut flowers of Trader Joe’s to the robust fuel island of QuikTrip.

There are no shortcuts or undercuts. Just an investment tested, and tested again, with the results to show for it.

Output with Throughput

In gauging fuel performance, there are few better in the United States than QuikTrip. When looking at output per unit, only Wawa scores higher.

In 2012, QT controlled 2.63% market share with an outlet share of 0.57%, giving it a remarkable 4.58 efficiency rating.(Efficiency is market share divided by outlet share, with a higher number indicating higher per-store volumes.) Only Wawa scores higher, with an efficiency rating of 5.8. Sheetz finished third with 4.52, and Get Go fourth with 4.17.

For 2012, a typical QT site priced its pumps on any given day at $3.09 per gallon, considered below-tier direct competition.

In 2011, QT controlled 2.52% market share with an outlet share of 0.54%, for an efficiency rating of 4.64. They priced 3.04 cents per gallon below competitors.


QuikTrip

by the Numbers

Headquarters: Tulsa, Okla.

Store Count: 645Store

 Breakdown by Market: Tulsa, 68; Kansas City, 79; Wichita, 38; Des Moines, 36; Phoenix-Tucson, 100; St.Louis, 73; Atlanta, 128; Dallas/Ft. Worth,99; Carolina, 24

Employees: Almost 13,0002012

Revenues: $10.77 billion company

Ranking: 26th largest privately held corporation, according to Forbes

Pages

Click here to download full article