Setting Your Sites
Retailers large and small seize upon cheaper dirt to augment their store portfolios.
With his company in the midst of a “massive building spree” that will stretch into 2012, one might consider this something of a mini-boom for Greg Parker. Of course, the spree is “massive” only in the context of his company’s somewhat diminutive size—24 stores now, and more than 30 by April of next year—but such ambitious growth bodes well for an industry that’s been stuck in a cryogenic freeze for the past three years.
“It’s fair to say that you can build cheaper and get it done more quickly now,” says Parker, president of The Parker Cos., Savannah, Ga. “Lending is very cheap, and it’s a great time to be building because the cost of construction has come down and you can negotiate the heck out of it.
“During the boom from a few years ago, you might have had a plumber not show up; now everybody’s hungry.”
Parker’s team has opened three stores in the past six months, with four more due to open by year’s end and another three by the first quarter of next year. The new stores, all of which are ground-up construction, follow one of two formats: 4,500 square feet with a full kitchen, or 4,000 square feet with limited foodservice.
“We look for rooftops when we’re opening a new store, but we look for a lot of things,” Parker says. “I would think No. 1 is traffic count, but it’s also the number of houses, and that’s more important than demographics—meaning who’s living within a 1-, 2- or 3-mile radius.”
More than anything else, for Parker, it comes down to one central question: Does it feel comfortable?
“It’s a matter of does it fit into our company footprint, but more so it means in terms of just a comfort of getting into a site,” he says. “What are the visibility blockers? What are the access issues, like ingress and egress? It’s all of those things.”
Parker’s growth is no anomaly, according to Jim Fisher, founder and CEO of IMST Corp., a Houston-based retail sales analysis firm with customers ranging from Fortune 500 companies to independents throughout the United States. Essentially, his firm helps retailers build out store counts or otherwise manage their growth strategies.
“We’ve been blessed as much as we’ve been busy, and the interesting thing is that we’re busy almost uniformly across the U.S.,” he says. “During the slowdown in 2008, it was very geographically specific in terms of who was growing … but now there’s uniformity in activity, be it new growth, raze-and-rebuilds or major upgrades of existing facilities. It’s really across the gamut throughout this industry.”
If his experience in the Western part of the country is any indication, then John Jackson is inclined to agree. Jackson started his company in 1975 with a single store and has since grown it into a chain of 220 company-operated stores and 380 dealers in Idaho, Nevada, Oregon, Utah and Washington. Growth slowed to a trickle during the nation’s recent economic mess, but his company is once again eyeing new locations.
“We do both [ground-ups and acquisitions], but we’re looking primarily for existing assets,” says Jackson, CEO of Jacksons Food Stores Inc., Meridian, Idaho. “There are pros and cons to both strategies, but there’s no way we could have grown as fast as we have if we had tried to build assets.
“I don’t think there’s a perfect site,” he continues. “Because we are more focused on acquiring existing sites, we’re not looking for something site-specific; that doesn’t mean we’re not interested in finding that perfect site, but the focus is really to find more of an existing chain” that fits into the company’s geographic footprint.
Jacksons Food Stores also has its own grocery distribution so it’s careful to avoid markets where it doesn’t yet have critical mass, which would build in unnecessary cost and inefficiency. In Utah, for example, the company operates only two stores but supplies as many as 100 stores with wholesale fuels.
“The biggest challenge is dealing with the entitlement process,” Jackson says. “[Local governments] throw a lot of curveballs at you in terms of requirements, landscaping and other things, and sometimes they throw up so many hurdles that you just can’t do it. We’re creating jobs and adding a little bit of stimulus to the area, and they have their positions, too, which I can understand, but sometimes it just seems to be overreaching.
“It depends on the municipality,” he continues. “Some are helpful, and others just don’t want you; they have a vision of something else.”
Parker agrees that the permitting process is among the most difficult aspects of managing one’s growth, but sources suggest they are seeing “kinder, gentler” local governments in the aftermath of the financial downturn because, simply put, they need the money from a beefier tax base. For Parker’s company, it doesn’t hurt that it builds stores that are atypically upscale both inside and out.
“Wide aisles, low gondolas, granite countertops, Italian tiles, a lot of glass, a clear line of sight into the building, beautiful restrooms—this is what the inside of each store looks like,” he says. “You’ll see no [stores] with finer building materials, and we’re not done with making them better. We’re also known for our great landscaping, so that when we go before a review board, they say, ‘Oh my gosh. This is so far beyond anything else we’ve seen.’ ”
Past performance of nearby sites is one indicator of future success, but most times it’s difficult to tell how a new store will perform because each market—and each corner, for that matter—is a unique, ever-changing environment. “We’ve built some sites we thought would perform pretty well and didn’t, and I didn’t always understand why,” says Jackson. “It can be hard to quantify. Of course you need to do the research and check the demographics, income levels and population density, and sometimes all those factors point to a positive direction and you get a different outcome. Sometimes it works out and sometimes it doesn’t. And that’s what keeps it interesting.”
Unlike Jacksons, Rutter’s Farm Stores prefers to grow chiefly—almost exclusively, in fact—through new builds, according to president Scott Hartman.
Although York, Pa.-based Rutter’s, which operates more than 50 stores in central Pennsylvania, considers everything from municipal governments, rooftops and nearby competition when targeting potential sites, Hartman insists consumer traffic pattern is the No. 1 consideration.
Amid rising costs and stiffer competition, Rutter’s site-development strategy continues to evolve as it expands into new areas. The company now spends $5 million to $6 million developing a new site, requiring larger buildings and overall acreage to meet volume and profitability goals. In May, for example, the company opened a new, 5,200-square-foot store in Fayetteville, Pa., which includes a fuel court with eight gasoline pumps, two diesel pumps, a two-bay car wash and restaurant seating for 12.
“We keep buying larger parcels and doing co-development,” Hartman says. This has become an increasingly common approach to expansion.
“Retailers on the whole are looking at larger land parcels to co-develop,” Fisher says. “To get more sites and keep growing, sometimes you have to buy more land than you need, which takes some creativity and some intuitiveness. If you need an acre and a half or 2 acres to accomplish what you want to accomplish, maybe you’ve got to buy 5 acres and co-develop the site.”
Although the industry continues to evolve as a means of keeping up with competitors and consumers, the core elements of site development have not changed, according to Fisher.
“It’s a matter of population base— not just residential, but a full day-part for employment and consistency throughout the day,” he says. “It’s the same as a day-part menu for foodservice; you need strong potential customers throughout all the daytime hours—full day-part hours. That’s what [Tulsa, Okla.-based] QuikTrip and other megaperformers look for, not just people who are spending dollars between 6 a.m. and 8 a.m. and 4 p.m. and 6 p.m.
“The new modern, multifaceted facilities that are being developed by many in the industry need that kind of traffic for the 300,000 gallons [per month] and $150,000 to $200,000 in [monthly] inside sales they need to be profitable.”
Retailers such as Parker’s and Rutter’s have built progressively larger stores from one generation to the next, but larger stores are not ideal for every corner—or even every market. Developing a virgin site in a small, rural market could cost as little as $750,000, compared with a site in a large metropolitan market where good real estate is tough to come by, which could cost in excess of $4 million. Despite the lingering availability of prime real estate, and even though some retailers suggest funding from industry lenders is now easier to come by, adding units to one’s store count isn’t the only way to spur growth. Rationalizing and/or investing in current assets, for example, could be another worthwhile investment.
“The easy way to get the highest rate of return may be the evaluation of the assets we’ve got,” says Fisher. “You have sites that may be 20 or 25 years old, and by evaluating them you can decide to upgrade this, modernize this, find out where to spend the money or say, ‘Hey, this one’s life is over.’ By doing an upgrade, facelift, expansion or raze-andrebuild, and assuming you can physically accomplish it, you might be able to get another 15 years out of [an asset].”
Like a Good Neighbor…
Greg Parker considers himself “fortunate” that community leaders now come to him, asking him to build a convenience store bearing his family name. But such a sterling reputation doesn’t come unearned.
“I can’t tell you how many times a mayor of a town will call us and say, ‘We need a Parker’s here,’ ” says Parker, president of the Savannah, Ga.-based Parker’s chain. “We’ve got a good reputation, with beautifully landscaped, spotlessly clean sites. We want to be part of a community, and that means philanthropically and also being a good corporate citizen.”
It also comes from communicating with local residents and community leaders when building a new store, whether to put homeowners’ fears to rest or simply to gather feedback when trying to beautify a host neighborhood.
“One of the things we like to do is get in front of local groups and then build from a base of community support, especially if there’s any controversy associated with it,” says Parker. “You can essentially create your own town-hall meeting and meet with the homeowners association or whomever. … You go and sit down with people and tell them your story.”
He recalls a series of town-hall meetings concerning the rezoning of a parcel that would include a Parker’s store in the neighborhood of Wilshire. He listened to residents’ concerns and took their recommendations into consideration, ultimately agreeing to create a pillared entryway into the community as part of the rezoning. After the store opening, the president of the neighborhood association asked Parker to meet her at the store, where she had assembled the press to unveil a plaque thanking Parker and his company for going “above and beyond.”
“The great thing is that those people are now loyal customers because they like what we did there,” he says. “They’re raving fans of Parker’s, they’re advocates, and the word spreads. It’s all about exceeding expectations of where you are.”
Even so, sources suggest, working with local governments still ranks among the most difficult—and often most frustrating— aspects of site development.
“Pennsylvania has a municipal-based government; thus local rules vary all over the place,” says Scott Hartman, president of York, Pa.-based Rutter’s Farm Stores. “We operate in six counties with probably 20 municipalities with different rules. Understanding the rules and what can and cannot be done in a particular market is quite challenging at times.
“We are a local company,” he continues, “and we do work very closely with anyone who wants to work with us to understand the best development options.”