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

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Chet Cadieux pauses. The executive’s easy smile, infectious and at the ready, turns pensive. A full minute passes as he ponders what he was just asked.

“That’s a really good question,” says the 46-year-old Cadieux, who’s dressed in the company’s red QT polo shirt, consistent with QuikTrip casual persona.

The question: Is there a retailer out there that excites him?

For a chain recognized as arguably the best in the c-store business, there are few surprises at QuikTrip and few answers the company doesn’t dispatch with a finger’s snap.

A visit to a QT store is a snapshot of its culture, its soul. At a new site just blocks from QT’s Tulsa, Okla., headquarters, the scene whirs with activity. Blake is mopping floors, wiping down the coffee bar, then assisting a customer. Erica is preparing a fresh pretzel, greeting a couple of regulars, then hopping over to the register to ring up a customer.

“These folks never stop moving,” a barrel-chested customer says with envy.“No wonder they stay so skinny.”

One of QT’s longstanding secrets is its effervescent, clockwork chemistry. Its team of store associates routinely cover for each other, much like a veteran basketball team, whose members implicitly know where the other will be with nary a nod or gesture.

Blake and Erica are among the nearly 13,000 employees stocking, spiffing up, circulating through the 645 stores bearing the QT logo on a backdrop of red. From August through December, Cadieux will meet them all and make it a point to remember as many names as he can. It’s a side of Cadieux few in the public will see—but it doesn’t faze him.

Frequently praised but protectively private, QuikTrip is one of the industry’s great stories, yet one without an easy script. Its roots are well told, that of a singlestore in Tulsa opened by Chester CadieuxII and Burt Holmes, of their expansion and embrace of fuel and later foodservice.

Over the past 20-some years, as QThas grown, a young man bearing the owner’s family name is working his way up to the stage, from the store to the district to headquarters, and the transition from Chester to Chet is done quietly, transparently and without controversy—the QuikTrip way.

Yet, for all its seamlessness, QT is a company that abstains from notoriety. It participates in few industry events, disdains coverage in the trade press and is perfectly fine letting other retail chains garner the glory.

As QT manager Mike Thornbrughm uses, “We don’t write a press release every time we open up a new store or rollout a new menu item.”

They don’t have to. Their customer base bears out QT’s success. Store visits in its hometown of Tulsa and one of its newer markets, Phoenix, demonstrate a fierce customer loyalty rarely seen in the convenience channel.

“I like going there because their sandwiches are always fresh,” says Carrie, a 30-year-old Oklahoman visiting a site in the Phoenix market. “They don’t taste like typical convenience-store food.”

“QT is the best for gas,” says another patron, a cab driver who fills up four to five times a week. “You never have to wait, and they have the best prices.”

Another, a longtime Arizona native, cannot help but compare QT to a more established competitor. “I didn’t know what to expect when QuikTrip arrived,” he says, alluding to an expansion that began shortly after the millennium. “Now they’re my store—for gas, for sandwiches, for drinks, for everything.”

Finding negatives is a challenge, and even then they’re often the flipside of a positive.“Hmm, what don’t I like about QT?” one customer wonders. “The new stores are great, but because of all the entrances, you don’t always get greeted by the store workers when you walk in. It depends if you come in through the side or the main entrance.” Yet the entrances shorten the walk and take patrons to their preferred destination.

Another customer laments that the coffee and fountain bars are separated in the newest stores, known internally as Gen 3. But it is that very division that creates clear destinations and diverts in-store traffic, which is often intense.

Pump You Up

As busy as traffic can be inside a QT, the forecourt often mimics early rush hour in a modest city. Trucks, SUVs and sedans negotiate off a thoroughfare, jockeying for an MPD. Most stations feature 12 fueling slots; the newest sites boast 16.

Like RaceTrac or Pilot travel centers, QuikTrip is a super pumper extraordinaire, driving high throughput off prime locations. There are no gimmicks at the pump—no TVs, coupon dispensers or assorted loyalty programs. It’s just gas. And, for that matter, cheap gas.

In virtually all 11 core markets in which QT operates, the company either drives the market or ranks among the lowest-priced operators with its proprietary brand. As a private company, QT declines to reveal its gallon sales, but industry experts say there may be no other in the channel that rivals QuikTrip’sper-site fuel sales.

“They do a booming business on fuel volumes,” one petroleum expert says on condition of anonymity. “They move a lot of their own product on the pipeline so they can be very competitive with those who have to buy from suppliers.

“They also buy a lot on contract.

Again, when you can commit to good monthly volume with a supplier, you can get much better than average pricing.”The upshot, says the petro expert, is highly profitable forecourt: “All contributes to stronger margins even with lower street prices.

“Some chains of size don’t ‘put as much’ into their fuel buying or lock in the majority of their volume with one supplier. In my opinion, putting all your eggs in one basket doesn’t give you as much flexibility to move with the market. QT seems to do a nice job of balancing.”

That balance is borne out in a recent report by OPIS. The fuels wholesaling/retailing specialist tracks what it calls an efficiency rating, which is defined by market share—the amount of fuel volume—divided by outlet share. So if a company had 1% of all stores and 2% of all fuel sales, its efficiency grade would be 2.0%

According to OPIS, by fuel performance, few perform better than QT. In 2012, QuikTrip controlled 2.63% market share with an outlet share of 0.57%. That gives QT a remarkable 4.58 efficiency rating, trailing only Wawa among U.S. operators. (See sidebar on p. 42.)

“They have a lot of sites … doing 300,000 gallons a month and $300,000 a month in inside sales,” says OPIS chief oil analyst Tom Kloza.

“What makes them interesting is they have a trading operation. They trade for-profit,” he continues. “QT ships on the pipelines, and they have clearly become some of the best traders. They do spot; they do hedging. They are very active in the spot market and they know how to take advantage in [times of] volatility.”

Put another way, despite ranking among the lowest-priced operators in its markets, QuikTrip is not skimping on margins. “I’d put them up there with Pilot in terms of sophisticated buying, risk management and buying on dips,” Kloza says. “They are strong enough that over time they can buy below the rack average and really take advantage of that.”

Not surprisingly, fuel plays an essential role in QT’s growth strategy. Talking about the company’s expansion into the Carolinas, launched two years ago, Cadieux  shares the importance of drive time not only in a city or county but also the broader market when considering new growth opportunities.

“Charlotte, Greenville, Spartanburg: The bigger the city, the more fuel they’re going to burn,” Cadieux says, “because theoretically the drive time is longer and our site selection model knows on average… how far somebody drives everyday commuting. We know in Atlanta, we know in Dallas, we know in Chicago, even though we’re not there.

“Miles driven per day equates to how much gas you burn.”

Growth Strategy

QT’s soaring success in the Phoenix-Tucson market and new ventures into North and South Carolina are no small feats. Several factors stand out:

Distribution: QT has invested hundreds of millions of dollars into opening five commissaries in Tulsa, Kansas City, Atlanta, Dallas and Phoenix. Each has been designed to double in capacity if/when necessary.

Pipelines: Either through serendipity or brilliant planning, much of QT’s growth is situated nicely near fuel pipelines, thereby saving shipping and overall transportation costs. For instance, the current ramp-up in the Carolinas aligns with the Colonial pipeline in eastern North Carolina.

Culture: For QT, it’s all about exporting a culture of fast, friendly customer engagement—with a notable nod to speed.

“We’re fast, we’re just really fast,”Cadieux says with certitude. “I don’t know if anybody really measures that: customer count per man hour. If that’s a key customer service measurement for us… then you can’t destroy that.”

Toward that end, QT is known for relocating district managers and store employees from successful stores to fresh markets. Culture and career growth, Cadieux says, are key drivers behind QT’s expansion, and without store growth, good employees will exit.“It’s not so much a draft—more of a volunteer army that’s going,” he says.“

And they’re excited about going and sticking a flag in the ground in a new geography and being part of the team to build that market.“It’s not like we take them at gunpoint and say, ‘Move.’ It’s employees who are excited about the opportunities,” he says. And there is another layer to this equation. “In markets where we are saturated… if there’s no store growth and there’s no turnover, you basically have to wait for somebody to die, quit or get fired to get promoted.”

Employees: In conjunction with culture, consider this remarkable statistic. In a channel in which turn overruns more than 100%, QT lists turnover of full-time employees at just 10%, and 30% to 40% for part-timers. Some attribute it to QT’s compensation plan, which includes a base salary in excess of $40,000 per year for a full-time store associate, plus profit sharing.

Regardless of the reason, its employees are recognized for sharing responsibilities, engaging customers and multitasking as if it were routine. “In those new markets where we are growing fast, you don’t want to open with inexperienced staff. Those people aren’t ready to run the store,” says Cadieux. “God help them! Have you been in a QuikTrip? You knowhow many transactions they’re running? We’d be setting them up to fail.”

Company Support: When QT penetrates new markets, typically with five to 10 stores, it’s a companywide story.

“As we say, store growth somewhere creates promotion opportunities,” Cadieux says. “Every other geography we’re in wants the new market to do well. It’s critical because, in the meantime, they’re subsidizing that new market. As long as that new market loses money, the rest [of the company] is subsidizing. Not to mention they’re all shareholders. In every store we’re building, we’re investing every employee’s money.

“The first five years we’re in a new market, our employees are asking about them: ‘How are we doing in the Carolinas?’They’re shareholders. They get it. They understand QT is taking their money as shareholders and building these stores as an investment in QT’s future—their future.”

Format: Defying conventional wisdom, QT does not endorse differentiated store sets. So whether a market is predominantly Hispanic, elderly, more affluent or working class, those stores will adhere closely to their QT peers.

“We just believe that in a given market, people are cross-shopping our stores regardless of what the demographic is around the store,” says Cadieux, who nonetheless politely acknowledges the validity of his industry counterparts ‘strategies. “Just because that’s where the store is located doesn’t mean that’s who’s walking through the door.”

Its fixed store set, in fact, is a slice of the company’s site selection process.“We’re looking for markets that fit our model. We aren’t planning on doing a different store set to fit a market; we ‘relooking for a market to fit our product offering and approach to market.”

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