Top of the Class
What retailers big and small can learn from CSP's top 25 industry giants.
ExxonMobil, BP, ConocoPhillips, Chevron, Shell: Wasn’t long ago that Big Oil dominated not only the fuel island but also the c-store side. Yet those who know the convenience channel have witnessed a major change in recent years.
“Big oil companies are fleeing the scene,” explains Gerald Lewis, a veteran industry consultant who has worked for a number of prominent c-store chains. “This has not consolidated the field, but created a way for the big non-oil companies to become bigger and the smaller companies to become more sizable by buying huge chunks of the oil companies’ properties. That has really contributed to diversity in the industry.”
It was with this change in mind that CSP set about compiling a list of the top 25 c-store chains. Guided by CSPedia, a proprietary CSP database with information on more than 450 convenience chains, we’ve ranked retailers by store count, specifically by company-operated or franchise stores. (Dealer-run sites did not apply.) While expected names such as Couche-Tard and The Pantry still appear, so do regional standouts, including Kum & Go and Sheetz.
On the surface, rank-and-file operators, who make up the bulk of the nearly 150,000-store convenience industry, might share little with businesses that top $1 billion in sales annually. As Lewis puts it, “Because of 7-Eleven’s size, they have the same kind of logistical advantage Wal- Mart has. Because they have more stores, they have more ways of making money by building up a bigger infrastructure to take cost out of the stores.”
However, not every retailer on the list is a 7-Eleven. With locations in all 50 states (as well as Canada and Mexico) and stores sizes ranging from 500 to more than 5,500 square feet, the top 25 are quite representative of the diversity within this industry.
In that sense, small retailers may have more in common with the top 25 than one might think. The operator with five or 10 locations within a single municipality or county might be ready to expand from smaller locations to bigger stores, as Murphy Oil USA is doing, or try to figure out a way to use Facebook to its advantage, such as Sheetz.
Operators big and small can certainly gain something by looking at the strategies employed by top retailers and studying what has and hasn’t worked for them. As Lewis points out, with oil companies heading mostly out of retail, it’s possible now more than ever for a small operation to grow in size, scale and buying power.
A critical denominator CSP’s 25 biggest chains share is constant growth: Couche- Tard has been growing virtually nonstop via acquisition since its first store opened. Chevron’s ExtraMile plans to double its retail network by 2015, mostly through a franchised growth strategy. And Susser Holdings Corp. opened four new big-box Stripes locations in the first quarter of 2012, with 11 additional sites under construction.
And top retailers aren’t growing just for the sake of padding their portfolio. According to veteran industry consultant Dick Meyer, president of Meyer & Associates, they’re surging judiciously.
“They’re buying assets, not the entity and its potential associated liabilities,” he says. “When you stop to be selective in your buying, that’s when things make sense.”
Couche-Tard is one such retailer applying common sense to its acquisition strategies, which Meyer describes as “almost symphonic in nature.” Common sense and creativity also played roles in Couche-Tard’s 2002 purchase of Dairy Mart.
“I couldn’t understand them buying the depressing Dairy Mart chain,” says Meyer. “But what I didn’t know initially was that Couche-Tard bought Dairy Mart out of bankruptcy court with the provision that they could study each of the stores and determine which stores were worthy of keeping. They only kept the good ones. This was a favorable game-changer for our industry.”
Acquisition isn’t the only way to grow. Several top-25 retailers prefer to avoid the hassle of renovating existing dirt to match their brand identity, and simply build from scratch.
For every retailer such as Couche- Tard, whose growth is pumped up primarily from acquisitions, there are Kwik Trips, Wawas, Kum & Gos and Quik-Trips who aim to build 10 to 20 ground-ups annually, expanding into new markets or reinforcing core strengths.
And some of these ground-ups represent new turfs. RaceTrac, for instance, recently opened a 6,000-square-foot proto type. QuikTrip unveiled a 5,700-square-foot site. Wawa has broken ground in central Florida on a café-style concept. Stripes is going bigger. And if there’s a unifying element to all of these build-from-scratch companies, it is their shared marquee: foodservice (CSP—June ’12, p. 50).
There are hardships with the ground-up model, including the cost and time behind identifying and purchasing real estate, studying the competitive landscape and demographic of that neighborhood, and dealing with planning and zoning boards. Sheetz has said that the company’s new builds are often determined, or at least influenced, by the restrictiveness of local zoning and permitting processes.
Growth doesn’t manifest exclusively through more stores. There’s also meat in the truism of growing through subtraction. QuikTrip may have added 36 stores in 2011, but it also had no qualms about shutting down five Springfield, Mo., locations that didn’t mesh with QT’s metro focus. Both Holiday Stationstores and The Pantry/Kangaroo Express have unloaded assets in states no longer considered core markets. Wawa actually factors store closings into its growth strategy: Over the past three years, the Pennsylvania-based chain has grown at a rate of 30 to 40 stores per year, while generally closing 20 to 25 underperformers (often legacy sites) in the same community, accounting for “real growth” of 10 to 15 stores per year.
Buy or sell? Acquire or build? When it comes to growth, the answer might be “all of the above.” That’s certainly the case with Kum & Go, which last year sold 22 of its Iowa sites and considers acquisitions, new builds or remodels based on what’s best for each situation.
Cracking the Foodservice Code
While the breadth and depth vary, each of our biggest 25 sells some kind of prepared food. This is representative of another shift in the industry.
“The fundamentals of convenience retailing used to be enabling customers to ‘run in when you run out,’ ” explains Lewis. “Today, the pendulum has swung dramatically toward foodservice.”
With taxes on cigarettes constantly increasing and gas prices in flux, retailers have to make up the margins elsewhere— such as with a high-quality, low-cost and convenient foodservice offering. It can also help retailers not named 7-Eleven or Circle K to distinguish themselves.
“The regional and local chains that have done well have succeeded by finding some niche they can own—that’s usually in the field of foodservice,” Lewis says, citing Wawa, Sheetz and QuikTrip for their outstanding success in building proprietary foodservice offerings.
Another example of a store making its reputation through restaurant-quality fare is Casey’s made-from-scratch pizza. What began as an experiment in 1984 is now the sixth-largest pizza chain in the country.
The shifting focus to foodservice was made even more apparent by 7-Eleven’s appointment of restaurant industry veteran Kelly Buckley to vice president of fresh food innovations. “I think historically, people that were in foodservice stayed in foodservice and people who were in retail stayed in retail. But the lines are very blurred these days,” Buckley said shortly after her hiring. “Everybody’s playing in everybody else’s area now. I don’t think there are classic silos in place any longer.”
While Casey’s and 7-Eleven’s successes may tempt others to try high-margin proprietary foodservice, Meyer is quick to warn that it’s not for everyone: “To have success with foodservice, you need 100% commitment at the top and limited turnover at the store level, and you need foodservice to represent a big enough percentage of your business that it’s not just a stepchild.”
Like the majority of c-store operators, several top 25 retailers don’t fit this description—but that doesn’t mean they’re excluded from the foodservice game. “Every chain can’t do proprietary foodservice,” says Meyer. “But many chains of various sizes have executed successful QSR co-existence partnerships.”
Take Pilot Flying J. Rather than invest in a singular proprietary foodservice program, the company has partnered with multiple franchises to offer customers a variety of QSR options. While it may not boast the high profit margins of a company-run program, it does leverage trusted brand names such as McDonald’s and Subway to prompt customers to fill up at Pilot or Flying J locations.
“Look at The Pantry,” Meyer says. “They have consistently expanded with their QSR partners as they indicate it provides another reason for consumers to shop their store. And, equally important, they tout that it helps their bottom line.”
Much like the question of opening new stores vs. closing old stores, most successful operators recognize franchise or proprietary foodservice isn’t necessarily an either/or situation.
“Hess has done an exceptional job of developing a foodservice program based on a combination of proprietary items and franchise names,” says Lewis. “They’ve got Dunkin’ Donuts and Godfather’s Pizza but they’ve also got several proprietary signature offerings, all presented in a kind of food-court setting.”