You Are my Sunshine

Still the new guy on the block, Tucson's Catalina Mart is content with not being the biggest.

By  Abbey Lewis, Executive Editor

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“I think we are a little unique.”

Catalina Mart’s president, Bob Mahlstede, found himself the unlikely owner and operator of a single store in 2002, having previously worked on the construction side of the c-store business—never on the operational end. But that’s not the part that makes the chain of 17 stores so different.

IT’S ALL ABOUT FATE

To open his first store, Mahlstede went to his own little private equity firm: his close friends and family. “When we’re talking investor groups,” he says, “you usually think of Fortune 500 company CEOs. This was not the case.”

He assembled his eclectic group of investors at $14,000 a pop. But it wasn’t until his son, a student at the local University of Arizona, mentioned the opportunity to one of his fraternity brothers that the deal’s wheels really began to spin.

In another corner of the business world …

Tom Keating and his family sold the privately owned, 19,000-person company American Protective Services in 2000. Fifty-eight at the time, he was back in college at the University of Arizona for the first time in 35 years, since dropping out at his father’s suggestion that he join the family business. He slipped back into college life easily, even getting involved in the fraternity he belonged to more than three decades ago—the same fraternity that Mahlstede’s son belonged to.

“We sent Tom the prospectus, and he invested,” Mahlstede says. “A couple of years later, he contacted me and said … ‘So, if you didn’t have to worry about borrowing money or getting investors, how many of these gas stations could you build?’ ”

“I was in minor shock, but I recognized the opportunity and began looking for new-build locations and existing locations to purchase.”

The two, under the name Loma Catalina Co., looked in the Tucson area, soon discovering that the area is oversaturated with gasoline pumps. “There were a lot of existing stations for sale in a pretty saturated market. Texaco was undergoing major changes and a number of their units were closed or on the market. While there was some growth at the time and a number of newly developed areas, Tucson is so spread out that our unit efficiencies for gasoline sales were then as now very low,” he says.

They heard through the c-store grapevine that Chevron was looking to sell 12 company-owned and -operated stations. Mahlstede called. The response? “You know, Bob, we like you. You’re a good operator, but you don’t have the experience and you don’t have the money,” to which Mahlstede responded, “You’re right. I probably don’t have the experience, but I think I can get the money.”

All the same, Chevron decided to go through a bidding process without Mahlstede and Keating. And no deals were made; the bidding process didn’t glean any offers remotely close enough to their expectations. So the folks at Chevron went with Plan B and called Mahlstede back to see if he was still interested.

At the time, Loma Catalina Co. was interested in only six of the properties, and Chevron was very interested in unloading all 12. The company contacted Mahlstede and told him that they needed to bid all 12 to stay in the game. Loma Catalina countered and, on July 8, 2003, they made the deal for all 12. The ownership was transferred over two weeks in November.

“We went from about zero to 60 in about two weeks,” Mahlstede says.

Since the company’s purchase of its first stores, adding a few more, and seeing some nice same-store growth, the econ- omy has taken a toll.

Sales have dropped in the past 12 months, both in gasoline and in-store: “It looks like gas sales have leveled off, but store sales are starting to go up,” he says.

Though fuel is a big part of the business (all locations sell gas), three stores also have U.S. Post Office substations and seven locations have car washes. While some of the locations are small island marketers, others are expanded with foodservice and grocery options. The store’s slogan, “Convenience at Its Best,” is taken very seriously by Mahlstede. He prides himself on the stores’ cleanliness, neat appearance and great staff. “We’re very clean. We try to be a convenient and safe place to go. … We have a good following and loyalty,” he says.

Mahlstede is the type of owner who shows up in his stores to hang signs and move furniture. The company innovates “slowly and organically,” generously rewards its loyal managers, and keeps a keen eye on its growing competition (see sidebar). And despite its sudden jump from single-store ownership to multiple, Catalina Mart will continue to count its numbers in the teens—no more, only perhaps less. The city’s glut of convenience stores doesn’t allow for much growth, unless you’re Couche-Tard or QuikTrip.

“I think the big thing is we’re not going to grow,” Mahlstede says. “We’re 17 locations. We are going to make these 17 locations the best they can be.” 


Catalina Mart

The company is known for its friendly, neat, clean locations through the market, and its slogan is “The Sun Always Shines at Catalina Mart.”

States of operation:Arizona

Stores owned and operated: 17

Fuel brands: Chevron, Valero

Stores with car wash: 7

Average store size: 1,000-2,500 square feet

Total fuel gallons sold per month: 2 million 


Supplier Partners

How one supplier partner is helping the small chain break into foodservice

“We are improving our foodservice. Again, as a small guy, we’ve put a lot of money in our stores … and can’t put much more in. … We’re looking at fresh offerings. We’re getting a lot of help from Core-Mark. It’s packaged, but it’s fresh and it comes twice a week. We’re constantly on the lookout for something that we can do to have a fresh appearance.”

 Bob Mahlstede, president, Loma Catalina Co., dba Catalina Mart 


Taking on the Competition

“I think we’re really focusing on the word ‘local,’ ” says Bob Mahlstede, president of Catalina Mart.

Read: We were here first.

Catalina Mart has four big competitors and a lot of little ones, which are all company owned in Arizona. Two major forces are Couche-Tard’s Circle K, and another formidable c-store powerhouse, QuikTrip, just making its way into the Tucson metro area.

“We can compete in the stores,” Mahlstede says. “We have good locations and a loyal following. Adding to an already saturated market doesn’t make sense to me, but they are and there is little we can do about it. If QT has goals in Tucson similar to other markets, five average gasoline outlets will close for every QT built. Our population is simply not growing as it has been in other markets they have entered.”

That said, he’s using QuikTrip as his benchmark: “I’m going into their store a couple of times a week and seeing what they’re doing and asking myself, ‘How can I do this with a very limited budget and not necessarily knowing much about the business?’”

He’s trying to see his cup as half-full, asking his managers to take a look at “what they’re doing over there,” recognizing that the bar has been raised.

“They’re accustomed to going into a market and taking share away from their competitors. They probably prevented some other players from building. … There’s no question you have to admire them.”

But there is one place where Catalina Mart is winning, Mahlstede says: “Some of our managers have had the opportunity to go over to the ‘dark side,’ and they’ve chosen to stay with us.”  

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