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Sharing Category Insights

Individualized e-Learning

Manager-led Resources

more knowledge about the ever-changing tobacco categories. Get involved with AGDC epresentative or logging on to insightsC3M.com to learn more.

Log on to APT through insightsC3M.com for new training tools and resources.

Š2015 Altria Group Distribution Company For Trade Purposes Only


VIEWPOINT By Don Longo, Editorial Director

Take Care of Your Legacy Even Top Growth Chains are polishing up their older stores

I

n retail, store count growth is extremely important to a company’s success. It’s even been said that if you’re not growing, you’re dying. This year’s edition of Convenience Store News’ exclusive Top 20 Growth Chains issue puts the spotlight on convenience store retailers that are leading the industry in store count growth. This year’s list reflects some of the huge merger and acquisition deals that were consummated in 2014, including Speedway/Hess (which propelled Speedway to No. 1 on our 2015 list; see our interview with President Tony Kenney on page 24), Sunoco/Susser/ Aloha Petroleum, and CST/CrossAmerica Partners (Lehigh Gas)/Nice N Easy. Despite all the M&A activity, other retailers on our list grew organically. Wisconsin-based Kwik Trip, Pennsylvania-based Wawa and Oklahoma-based QuikTrip were among the top c-store chains in building new stores over the past year. One of my favorite industry consultants Terry Monroe says that, on average, about one-third of the stores operated by any chain in the industry are what he would call “A” stores. These stores are relatively new, big enough to contain all the brand’s necessary products and services, have large parking lots and are in great locations. The rest are “B” and “C” stores — older, but still profitable units that have seen better days and need a facelift, or breakeven stores that should be sold off. Even as top c-store chains continue to add new stores — whether by acquisition or new builds — most recognize that ultimate success lies not in how many

CSNews has been recognized with more editorial awards, including the prestigious Jesse H. Neal Award for business journalism, in the past six years than any other industry publication. 2013 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2012 2013 Jesse H. Neal National Business Journalism Award Finalist, Best Profile, August 2012 2008 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2007

new stores they add to their stable, but in how many of their stores are Class A stores, representing the latest incarnation of the brand and generating strong profits. Wawa, our No. 14 ranked top growth chain, just kicked off an expansive remodel program of its legacy stores. For comments, please contact Don Longo, Editorial Director, As reported on CSNews.com, at (201) 855-7606 or this initiative is aimed at trans- dlongo@stagnitomail.com. forming the retailer’s older convenience stores to reflect Wawa’s latest store design and foodservice offering. Throughout 2015, the company will remodel 40 stores — the most remodels to happen in one year in Wawa’s history. Other c-store chains currently involved in major remodeling efforts include The Pantry, Thorntons, E-Z Mart, Tedeschi Food Shops and QuikTrip. Sheetz also has been spending money on a heavy ongoing remodeling initiative the past few years, according to CEO Joe Sheetz. Even Top Growth Chain Speedway, which achieved that position mostly through acquisition, plans to continue to invest in its legacy Speedway business, Kenney told CSNews Senior Editor Melissa Kress. “We’ve really got parallel paths. We’re very focused on what we need to do with Hess … at the same time, we are not ignoring our Speedway stores in the Midwest … We are going to rebuild a number of stores, spend capital on remodeling stores. We are going to continue to drive both pieces to drive overall growth for the company.” CSN

2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2013 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2013 2013 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2012 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2010 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Best Single Article, October 2010 2009 Gold Ozzie Award, Folio: magazine Best Use of Illustration, October 2008 2009 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2008 2009 Bronze Eddie Award, Folio: magazine Business to Business, Retail, Website

2013 American Society of Business Publication Editors, Midwest Regional Bronze Azbee Award Best Editorial/Commentary, July 2012 2010 American Society of Business Publication Editors, Northeast Regional Silver Azbee Award Feature Article Design, November 2010 2010 Trade Association Business Publications Intl. Tabbie Awards Honorable Mention, Front Cover Illustration, October 2009 2009 Trade Association Business Publications Intl. Tabbie Awards Gold, Front Cover Illustration, February 2008 Honorable Mention, Best Single Issue, October 2008

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 3


CONTENTS MARCH 2015

VOLUME 51/NUMBER 3

24 | COVER STORY Speeding to the Top

Speedway’s footprint explodes through Hess retail acquisition and organic growth. 36 | Consolidation Nation This year’s Top 20 Growth Chains reflect a busy year on the M&A front. 46 | Can M&A Get Any Hotter in the C-store Industry? The strong tailwind from 2014 will continue to blow in 2015.

INDUSTRY ROUNDUP 12 | GPM Grows Midwest Reach With Final Pieces of VPS 14 | CSNews Parent Expands Leadership in C-store Media 15 | Eye on Growth 17 | Wawa Refreshing Legacy Stores 18 | Supplier Tidbits 21 | Retailer Tidbits 21 | Legislative Corner

HOW TO DO WORLD-CLASS FOODSERVICE 64 | How to Use Loyalty Programs to Drive Foodservice Sales 64 | Call to Action: Foodservice 101 66 | Call to Action: Foodservice 201 70 | Call to Action: Foodservice 301

Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by Stagnito Business Information, 570 Lake Cook Rd. Deerfield, IL 60015. Copyright © 2015 by Stagnito Business Information. All rights reserved. Subscriptions: One year, $93; two years, $152. One year, Canada, $110; two years, Canada, $175. One year, foreign, $150. Payable in advance with a bank draft drawn on a U.S. bank in U.S. funds. Single copies, $10, except foreign, where postage will be added. Printed in U.S.A. Periodicals postage paid at Deerfield, IL, and at additional mailing offices. POSTMASTER: Send address changes to Convenience Store News, P.O. Box 1842, Lowell, MA 01853.

4 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


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CONTENTS 111 Town Square Place, Suite 400, Jersey City, NJ 07310 (201) 855-7600 Fax: (201) 855-7373 www.csnews.com

FEATURES 48 | Driving Sales Drive-thru service can add an additional revenue stream for c-stores, while satisfying customers.

CATEGORY MANAGEMENT MOTOR FUELS

61 | When Fuel Prices Hit Bottom U.S. consumers are sure to miss the good old days of sub-$2 gas. TOBACCO

74 | Now Trending Vapor products continue to evolve, but e-cigarettes still command respectable sales. COLD VAULT

78 | The Beverage Wrap-Up Packaging innovation is accelerating in both packaged beverages and beer. CANDY & SNACKS

82 | Meat Snack Momentum Nutrition-conscious consumers are increasingly turning to protein-heavy snacks like jerky.

BRAND MANAGEMENT Chief Brand Officer (224) 632-8171

Korry Stagnito korrystagnito@stagnitomail.com

EDITORIAL Editorial Director (201) 855-7606 Editor-in-Chief (201) 855-7608 Managing Editor (201) 855-7614 Senior Editor (201) 855-7618 Field Editor (201) 855-7619 Assistant Editor (201) 855-7604 Contributing Editor (303) 741-3377 Contributing Editor (201) 280-2614 Art Director (224) 632-8245 Director of Market Research (201) 855-7605

Don Longo dlongo@stagnitomail.com Linda Lisanti llisanti@stagnitomail.com Brian Berk bberk@stagnitomail.com Melissa Kress mkress@stagnitomail.com Angela Hanson ahanson@stagnitomail.com Danielle Romano dromano@stagnitomail.com Renée M. Covino reneek@aol.com Tammy Mastroberte tmastroberte@gmail.com Michael Escobedo mescobedo@stagnitomail.com Debra Chanil dchanil@stagnitomail.com

MARKETING & PROMOTION Audience Development Manager Shelly Patton (646) 217-1045 spatton@stagnitomail.com List Rental The Information Refinery (800) 529-9020 Brian Clotworthy Reprints and Licensing Wright’s Media (877) 652-5295 sales@wrightsmedia.com Subscriber Services/Single-Copy Purchases (978) 671-0449 Stagnito@e-circ.net

IN-STORE MERCHANDISING

86 | Another Shot for Energy Shots? A flavor overhaul by the segment leader and new entrants could reinvigorate the category.

DEPARTMENTS VIEWPOINT

3 | Take Care of Your Legacy Even Top Growth Chains are polishing up their older stores. 8 | CSNews Online

22 | New Products

President & CEO Harry Stagnito Chief Information Officer Kollin Stagnito Vice President & CFO Kyle Stagnito Senior Vice President, Partner Ned Bardic Chief Brand Officer Korry Stagnito Vice President/Custom Media Division Pierce Hollingsworth (224) 632-8229 phollingsworth@stagnitomail.com Production Manager Anngail Norris Human Resources Manager Sandy Berndt Strategic Marketing Director Bruce Hendrickson (224) 632-8214 bhendrickson@stagnitomail.com Vice President, Events John Failla (914) 574-5709 jfailla@stagnitomail.com Director of Digital Media John Callanan (203) 295-7058 jcallanan@stagnitomail.com

CONVENIENCE STORE NEWS AFFILIATIONS STORE SPOTLIGHT

90 | Ricker’s Next Generation A new flagship store design paves the way for the brand’s future. STORE SPOTLIGHT

92 | A Hub of Convenience Opening day for this travel center-style location follows two years of prep. EXPERT’S VIEW

94 | The ABCs of Appealing to Female Shoppers There are six key areas in the store that women view differently than men. 6 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

Premier Trade Press Exhibitor

EDITORIAL ADVISORY BOARD Edward Davidson ER Davidson & Associates (7-Eleven Inc., retired) Kyle McKeen Alon Brands Inc.

Richard Mione GPM Southeast Rick Crawford Green Valley Grocery

Ian Johnstone Cenex Zip Trip

Matt Paduano Nice N Easy Grocery Shoppes

Jon Urbanik CST Brands Inc.

Jonathan Polonsky Plaid Pantries Inc.

Roy Strasburger Convenience Management Services Inc. Joe Hamza Tedeschi Food Shops Jack Lewis Village Pantry LLC

The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations.


©2015 R.J. REYNOLDS TOBACCO CO. (1Q)

THE ORIGINAL

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CSNEWS.COM ONLINE EXCLUSIVE

TOP 5 Daily News Headlines The most viewed articles online.

Low Gas Prices Taking Toll on Alt Fuels

1 | Wawa Launches Legacy Store Remodel Initiative Wawa Inc. is kicking off an expansive remodel program of its legacy stores. The Wawa Remodel Program is an initiative to transform the retailer’s older convenience stores to reflect Wawa’s latest store design and foodservice offering. Throughout 2015, the company will remodel 40 stores — the most remodels to happen in one year in Wawa’s history. 2 | Sheetz Taking New Campus Concept to Second College Sheetz Inc. will open its second convenience store without gas pumps later this year. Located at 129 S. Pugh St. in State College, Pa., the new store near Penn State University will feature a beer cave and casual dining options. The first such store opened at West Virginia University.

Plummeting gas prices, which dipped below an average of $2 per gallon in several states, have consumers cheering. But the same cannot be said for those in the alternative fuels business. While lower gas prices allow consumers to have more money in their wallets — perhaps leading to higher in-store spending at convenience stores — feeling the pain are alternative fuels, which have benefited from traditional petroleum costing more in recent years. Compressed natural gas (CNG) is being hit the hardest from this new reality.  For more exclusive stories, visit the Special Features section of www.csnews.com.

PRODUCT HIGHLIGHT 3 | The Pantry Completes Final Prep for Couche-Tard Merger The Pantry Inc. filed a preliminary proxy statement with the U.S. Securities and Exchange Commission in connection with a special meeting of its shareholders to seek approval and adoption of the merger agreement. The special meeting is slated for March 10. 4) Speedway’s Hess Acquisition Has Been Seamless Speedway LLC’s acquisition of Hess Corp.’s retail division has been “seamless,” and customer feedback has been “very good” thus far, Speedway President Tony Kenney said during parent company Marathon Petroleum Corp.’s 2014 fiscal fourth-quarter earnings call. “So far, so good,” Kenney said of Speedway’s addition of 1,245 Hess convenience stores and gas stations in 13 states.

POLL

5 | Pilot Flying J Probe Continues After Almost Two Years A federal probe of Pilot Flying J over alleged diesel fuel rebate fraud remains ongoing nearly two years after federal officials raided the company’s Knoxville, Tenn., headquarters. “The status of this matter remains unchanged,” federal prosecutors David Lewen and Trey Hamilton wrote to U.S. District Judge Amul Thapar in a joint motion to delay sentencing.

How are lower gas prices impacting your in-store merchandise sales?

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Very favorably

Somewhat favorably

No effect at all

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35%

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19%

12%

8 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


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INDUSTRYROUNDUP FAST FACT

Meat snack purchasers are frequent convenience store shoppers. In a recent consumer survey, 32 percent of c-store meat snack purchasers said they shop at a convenience store almost every day and 24 percent said they shop at a c-store two or three times a week. Source: Convenience Store News Realities of the Aisle Study, 2015 (page 82)

QUOTABLES

“There are some basic fundamentals in our business. If you get those right, you’re generally going to be a good step along the way to being able to enter new markets.” — Tony Kenney, Speedway LLC (page 24)

GPM Grows Midwest Reach With Final Pieces of VPS Round-two acquisition includes 163 Village Pantry and Next Door Store sites

G

PM Investments LLC and VPS Convenience Store Group Inc. shook hands once again, this time for VPS’ Midwest division. The latest transaction between the two companies comes about 18 months after GPM acquired the Southeast operations of VPS. The new deal, announced by GPM on Feb. 11, includes 163 company-operated stores located in the midwestern United States, with 116 stores in Indiana, 10 in Ohio, 30 in Michigan and seven in Illinois. The store brands include Village Pantry and Next Door Store. Fuel brands include Marathon and Phillips 66, with additional unbranded fuel locations. “We have started 2015 with a continued focus on store expansion,” said GPM President and CEO Arie Kotler. “This acquisition is our largest purchase in this region of the country and we are excited to continue our plan of strategic growth.”

12 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

The purchase includes all of VPS’ remaining assets. Raymond James served as exclusive financial advisor to VPS in connection with the transaction. GPM’s acquisition of the VPS Midwest division comes just two months after GPM made its first inroads into the Midwest with a deal to buy 43 c-stores from Road Ranger LLC. In early February, GPM Investments also closed on its purchase of eight One Stop Food Stores in North and South Carolina that were previously owned by Arey Oil. These stores are currently being rebranded to one of GPM’s existing brands, Scotchman Stores. All the recent transactions will bring GPM’s footprint to more than 800 locations in 14 states. Its current operating banners include Fas Mart, Shore Stop, Scotchman Stores, Young’s, Li’l Cricket and BreadBox.


Š2015 Goya Foods, Inc. *Top selling coconut water SKU (in Grocery outlets) Source: Nielsen Strategic Planner, Total US (unit sales), 52 weeks ending 9/27/14


INDUSTRYROUNDUP

CSNews Parent Expands Leadership in C-store Media Stagnito Business Information acquires Canadian brands from Fulcrum Media

S

tagnito Business Information, parent company to Convenience Store News, has acquired several Canadian media brands, conferences and trade shows from Fulcrum Media. Media brands acquired were Convenience News, Your Convenience Manager, Octane, Pharmacy Business and Your Foodservice Manager, along with French-language editions of three of the publications and affiliated websites across all brands. The exclusive distribution relationship of Your Convenience Manager, Your Foodservice Manager and their Frenchlanguage editions will continue to be managed by ITWAL Ltd. and its members. On the conference and trade show side, Stagnito purchased Pharmacy U, The Convenience U Carwacs Show, Le Salon Dépanneurs — Épicuries & Cie, and

The Canadian Coffee & Tea Show. “With research, information services, media and event assets, Stagnito is the U.S. retail industry’s most complete provider of business intelligence and strategic marketing programs. These Canadian brands bring capabilities that fit perfectly with our mission,” said Harry Stagnito, president and CEO of Stagnito Business Information. “Convenience Store News is a leading businessto-business resource for retailers and suppliers. Adding two major c-store media brands — plus Canada’s largest c-store tradeshow — extends our leadership position even further and allows us to bring our audiences and customers greatly enhanced information and marketing opportunities throughout North America.”

“ THE EASIEST DOLLAR YOU WILL EVER MAKE IS ONE THAT YOU SAVE! ” GRADY ROSIER

CEO, McLANE COMPANY, INC.

WHAT IF YOU COULD SAVE UP TO

$41,000 PER STORE, PER YEAR?

14 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


eye on growth n Stockholders of The Pantry Inc. will cast their votes

on the company’s pending merger with Alimentation Couche-Tard Inc. on March 10. n GPM Southeast LLC closed

n Royal Farms opened its first

on its purchase of eight One Stop Food Store locations in North and South Carolina. The convenience stores will convert to the Scotchman retail banner. n Energy Transfer Partners LP agreed to merge with

Regency Energy Partners LP in an $18-billion transaction. The deal is expected to close in the second quarter. n Sheetz Inc. will open its second

convenience store without gas pumps later this year in State College, Pa. The store near

Penn State University will feature a beer cave and casual dining options. Renovations of the 5,000-square-foot site will begin in April.

store in Delaware County, Pa. The move puts the retailer in head-to-head competition with Wawa Inc. Another Royal Farms store in the area is planned. n SCV Oil LLC, a newly

formed company, closed on its purchase of Rhodes Oil Co. Inc., its first acquisition. Included in the transaction are four RhodesWay convenience stores and gas stations.

FOR A 100-STORE CHAIN, THAT WOULD TOTAL $4,100,000! We did the math and a c-store could save up to $41,000/store per year by using just 3 of our 20 easy-to-implement, easy-to-use technology solutions—Virtual Trade Show, Direct Store Delivery application and Customer Managed Inventory application. McLane is committed to developing and providing technology solutions that bring efciencies to your operations and save you big bucks along the way. To fnd out how you can start saving, go to mclaneco.com/goto/savings

© 2015 McLane Company, Inc. All rights reserved.

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 15


INDUSTRYROUNDUP

Wawa Refreshing Legacy Stores Forty older sites will be remodeled in 2015

W

awa Inc. kicked off an expansive remodel program of its legacy stores in early February. The Wawa Remodel Program is an initiative to transform the retailer’s older convenience stores to reflect Wawa’s latest store design and foodservice offering. Throughout 2015, the company will remodel 40 stores — the most remodels to happen in one year in Wawa’s history. With a focus on remodeling a combination of both legacy and older fuel stores, customers can look forward to such features as fuel stores receiving diesel pumps; new hand-spun milkshakes; Coca-Cola Freestyle fountain machines; and new store graphics and designs. “This effort is extremely meaningful to all of us at Wawa, as it will enable us to share the most up-to-date Wawa brand features with more people in more places than ever before,” said President and CEO Chris Gheysens. “Through this massive remodeling effort, we will enhance the customer and associate experience in our stores and begin to bring our older stores up-to-date by featuring our latest offer and design.” Stores will close for a few weeks while renovations take place, during which time employees will be transferred to other stores. The first remodels are slated for stores in Philadelphia; Toms River, N.J., Gloucester, N.J., Winslow, N.J., and Wrightstown, N.J. The first of the remodeled Wawa locations will reopen on March 6. Wawa Inc. operates more than 680 convenience stores — 400-plus offering gasoline — in Pennsylvania, New Jersey, Delaware, Maryland, Virginia and Florida.

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 17


INDUSTRYROUNDUP

supplier tidbits n Shareholders of Reynolds American Inc.

and Lorillard Inc. voted overwhelmingly in favor of the pending $27.4-billion merger between the companies during a special meeting on Jan. 28. Imperial Tobacco Group plc shareholders also approved a deal to acquire certain brands from the two companies.

n The Coca-Cola Co. added three

brands to its roster of beverages that generate annual retail sales of more than $1 billion. They are Gold Peak Tea, FUZE Tea and I LOHAS mineral water. n Mondelez International Inc. acquired Enjoy Life

n The Hershey Co. will acquire

KRAVE Pure Foods Inc., manufacturer of KRAVE jerky, an allnatural snack brand of premium jerky products. n A new retail and on-premise

program from Strongbow Hard Cider has launched. Entitled “Cider at its Bestest,” the promotion runs through April 30.

18 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

Foods, a leader in the $12-billion “free from” market. Terms of the deal were not disclosed. n JTI will acquire Ploom Inc.’s modelTwo and pods

product line — including the Ploom trademark. Ploom will buy back JTI’s minority stake and take on a new corporate name, PAX Labs Inc. n Snyder’s-Lance formed Clearview Foods, a new snack

food division with a focus on developing innovative and better-for-you snacking options.


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INDUSTRYROUNDUP

retailer tidbits n Speedway LLC

began rebranding Hess locations in Florida. The work is expected to be finished in April, when Speedway switches its focus to stores in the Northeast. n Mutual Oil Co. Inc. divested its branded fuels business

so the company can turn its focus to its unbranded fuel supply and trading business, which is now present in most states along the East Coast. n Tesoro Corp. completed the transition of all of its

company-operated convenience stores to multi-site operator locations at the end of December. Under this model, Tesoro only provides fuel at the forecourt and prices the fuel. n The Connecticut Supreme Court

upheld a trial court’s decision that the termination of a master lease between Getty Properties and its prior tenant Getty Petroleum

Marketing Inc. (GPMI) also effectively terminated the sublease between GPMI and its subtenant, Green Valley Oil LLC. n Cumberland Farms Inc. offered free

coffee, tea or hot chocolate to any municipal, state or private plow driver working to clear public roads during an epic blizzard that hit the Northeast in late January. n Murphy USA Inc. is expanding

its sale of E15 and E85 to the Chicago and Houston suburbs this year. The company added the fuels at seven Iowa c-stores in September. n Global Partners LP selected Kalibrate Pricing to sup-

port fuel pricing strategy and execution across its network of more than 800 retail fuel locations. n TravelCenters of America LLC is using Zenput’s

mobile retail software to improve its data collection and analysis.

legislative corner n President Barack Obama proposed raising the fed-

eral tobacco tax from just under $1.01 per pack to about $1.95 per pack in his $4-trillion budget for fiscal year 2016. n Colorado lawmakers are mulling a bill

that would exempt sales tax from swipe fees. If passed, it would be the first of its kind in the United States. The bill has been assigned to the state’s House Finance Committee. n A group of state attorneys gen-

eral are calling on major oil companies to work with their franchisees to rid synthetic drugs such as K2 and Spice from the convenience stores and gas stations operating under their brand names.

n NACS, the Association for Convenience & Fuel

Retailing, and SIGMA: America’s Leading Fuel Marketers told Congress that creating a level playing field, providing flexibility for retailers, and avoiding punitive approaches are three key elements that should be part of any federal data breach legislation. n Margaret Hamburg, commissioner of the Food and

Drug Administration, is stepping down from her role at the agency at the end of March. Stephen Ostroff, the FDA’s chief scientist, will fill Hamburg’s position until a new commissioner is named. n Public health officials are “in desperate

need of clarity” regarding electronic cigarettes in order to guide policies, U.S. Surgeon General Dr. Vivek Murthy said during his recent cross-country listening tour.

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 21


NEWPRODUCTS Brookside Chocolate Crunchy Clusters

Sparkling ICE Tea

Brookside Chocolate, a part of The Hershey Co., added Crunchy Clusters, which combine crispy multigrains of rice, toasted oats and graham cracker bits with fruit-flavored centers covered in smooth dark chocolate. The new product joins the existing Brookside Dark Chocolate Acai and Blueberry Flavors, Pomegranate Flavor, and Gogi and Raspberry Flavors. Crunchy Clusters are available nationwide in 2.5-ounce, 5-ounce and 15-ounce sizes with suggested retail prices of $2.59, $4.19 and $10.69, respectively.

The latest line extension from Sparkling ICE delivers the only zero-calorie sparkling iced tea on the market. A lightly carbonated blend of brewed black tea, green tea and real fruit juice, Sparkling ICE Tea is available in new flavors that include Raspberry Tea, Lemon Tea and Peach Tea. The national rollout of Sparkling ICE Tea kicked off in January with single-serve bottles and a variety club pack.

Brookside Chocolate Hershey, Pa. (800) 468-1714 www.brooksidechocolate.com/usa/home

Bud Light MIXXTAIL Bud Light added a new cocktail-inspired product to its portfolio, Bud Light MIXXTAIL. The beverage has an 8-percent ABV and is available in three flavors: Long Island, Firewalker and Hurricane. Bud Light MIXXTAIL is best served over ice, according to its maker. Launched Feb. 16, the new product is available in 8-packs of 11.5-ounce recloseable aluminum bottles, and single-serve 16-ounce and 25-ounce cans. Anheuser-Busch St. Louis (314) 577-2000 www.anheuser-busch.com

Talking Rain Beverage Co. Preston, Wash. (800) 734-0748 www.talkingrain.com

Swisher Diamonds Swisher International Inc. introduced Swisher Diamonds cigarillos, dubbed “the un-sweet Swisher.” These cigarillos take out the sweet and leave a smooth, rich taste. Swisher Diamonds are available in a two-count resealable pouch at three price points: 99 cents, $1.49 and non-priced “Save on 2.” Swisher International Inc. Jacksonville, Fla. (800) 874-9720 www.swisher.com

Petrosoft DC-301 Petrosoft Inc. launched DC-301, the next generation of DirectConnect. The DC-301 is a reliable, fast and secure way for retailers to connect and transfer encrypted data between front- and back-end retail systems, the company reported. It comes equipped with backup, internet (Ethernet), ATG, POS, EXT and serial ports to automatically collect sales data, price book changes and inventory data and transfer it securely to the back-office system. Petrosoft LLC Pittsburgh (888) 306-0640 info@petrosoftinc.com www.petrosoftinc.com

22 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


Cover Story

Speeding

to the Top Speedway’s footprint explodes through Hess retail acquisition and organic growth

By Melissa Kress

I

n early March 2013, Hess Corp. announced it would exit the convenience store and gas station industry. At the time, the oil giant had not decided whether it would spin off or sell its retail network, but that did not stop the industry from buzzing about potential buyers. The usual suspects were named, and Marathon Petroleum Corp.’s (MPC) President and CEO Gary R. Heminger acknowledged during an earnings call later that year that the chain would be a great fit for its subsidiary Speedway LLC. Truer words may never have been spoken. “In 2013, Hess Corp. was divesting all [its] downstream businesses — refining, terminals, fuels program, retail. It had made it clear it wanted to become an E&P (exploration and production) company. What was known at the time, Hess was looking at spinning the retail into a separate standalone entity. That was the path they were heading down,” recalled Tony Kenney, president of Speedway. Option No. 2 was a sale. Figuring it ought to take a look and see what a third party would pay for the business, Hess hired an investment bank,

24 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

which went out to look for interested parties. “Speedway was one company the bank contacted to look at the business, which we did, and the rest as they say is history,” Kenney explained. The seeds were sown for what would eventually become Speedway’s $2.8-billion acquisition of Hess’ 1,200-plus-store retail network. The deal first made headlines in May 2014 and closed Sept. 30. Not surprisingly, this transaction led Speedway to handily claim the top spot on this year’s Convenience Store News Top 20 Growth Chains annual ranking. The combination makes sense for several reasons: location, assets and synergies. “Just look at the geography itself. Speedway is in the nine Midwest states and Hess is up and down the East Coast in 15 states, running from New Hampshire all the way down to Florida. When you put the two chains together, there is virtually no overlap of the business,” said Kenney. Looking closer at the portfolio, Speedway gained attractive assets. The retailer believes bringing Speedway’s convenience store skills to Hess’ fuel program will be a winning combination.


Tony Kenney is at the helm of Speedway, which grew its store count by 86 percent last year.

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 25


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“There is so much upside inside the convenience store,” Kenney noted. “Hess has done a great job marketing fuels — gasoline and diesel. We recognize there is a big opportunity to bring some of our merchandising and marketing programs to inside the store to create value.” Add Marathon Petroleum’s expertise to the mix and there’s also some nice synergies on the light product supply side of the business, utilizing or leveraging MPC’s refining capabilities, pipelines, terminals and logistics to supply nearly 3 billion gallons a year to the Hess locations. The deal also furthers Speedway’s goal to be a $1-billion-a-yearEBITDA business.

Before

NEW KID ON THE BLOCK

Enon, Ohio-based Speedway now has the opportunity to introduce its brand to a whole new customer base on the East Coast. The retailer previously had a presence in the Southeast, a market it exited around 2003 as it turned its focus to the Midwest. So, while it’s been more than a decade since Speedway has been in that region, it does have past experience to draw on. The Northeast, on the other hand, is an entirely brand-new territory for the company. “We are somewhat familiar with Speedway has begun the multiyear process of “re-identifying” the stores it acquired from Hess. the Southeast. There is nothing down there that would be something unusual that we wouldn’t already know about area. All this is preparing the company to “re-identify” or be able to apply a lot of the things we are doing these c-stores and introduce the Speedway brand into in the Speedway core markets,” Kenney said. “The the Northeast starting this spring. Northeast is really the area of opportunity. We have “It’s an interesting opportunity. It’s a challengnever been in those states. Clearly, it’s a different type ing opportunity. But I think we have a good plan to of consumer — driving patterns, shopping behaviors address that opportunity,” Kenney asserted, pointing are all a little bit different than maybe what we are out that once you have the basics down in the conveaccustomed to in the Midwest.” nience channel, it shouldn’t matter if you are setting With that said, he acknowledged Speedway has some up shop in a new market. learning to do, which it is tackling now. The retailer is “There are some basic fundamentals in our busispending a lot of time in the Northeast stores, underness. If you get those right, you’re generally going to standing the markets and the consumer behavior in the be a good step along the way to being able to enter

After

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new markets,” he said. “Things like paying attention to details that consumers appreciate, such as good customer service and clean stores that are well-lit and safe. In our business, value is a good driver for the type of consumers that shop convenience stores. “While it’s a new market where we’ve never been before, I think we’ve got a pretty good focus on these fundamentals that drive success in the convenience store business,” he continued. “I think it will go a long way if we get those right and get them in place. Then, we will be a long way down the path of estab-

TIMELINE

March 2013

Hess Corp. begins exploring options for its retail network.

May 2014

Speedway LLC wins bid to acquire Hess’ retail network for $2.8 billion.

lishing our brand in the Northeast.” SO FAR, SO GOOD

As with any acquisition, one of the first steps in the process is integration — both at the corporate level and store level. It’s been four months since Speedway officially took ownership of Hess’ retail network and it’s so far, so good, according to Kenney. On the corporate side, areas such as human resources, benefit programs and payroll are being addressed. In addition, Speedway is lining up consistent contracts for many of the goods and services sold inside the stores in an effort to leverage buying power and synergies across both chains — the legacy Speedway stores and the newly acquired Hess stores. The company is also progressing with the integration of support services, like information technol-

“W

e still have a lot of work to do. We’re going to fnish Florida

and part of South Carolina by the end

Sept. 30, 2014 Speedway closes on its acquisition of Hess’ retail network.

Oct. 1, 2014

Speedway gets to work on its integration plan at both the corporate and store levels.

January 2015

Speedway completes rebranding of 134 Hess stores out of the 1,250-store network.

March 2015

Rebranding efforts in Florida and part of South Carolina are slated to be completed.

Spring 2015

Hess locations in the Northeast will begin to transition to the Speedway brand. Work will continue through the fall.

Late 2015

Speedway will move back to the Carolinas to complete all rebranding by early 2016.

28 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

of March. Then, we will move up to the Northeast in the spring, summer and fall. Ultimately, we will fnish up in the Carolinas at the end of 2015 and into 2016.” —Tony Kenney, Speedway LLC

ogy, accounting and customer service. “All of those functions corporately are moving along quite nicely,” Kenney noted. At the store level, much attention has been paid to ensure the integration plan is seamless. “On the store-level side, the single most important thing we needed to do on Oct. 1 when we took these stores over is to continue to run them the way they have been. Customers were going to show up the next day and we needed to make sure they were all being taken care of,” the president explained. “We were able to accomplish that with very, very few issues at all. Right from the beginning, the operations were running smoothly.”


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Speedway is making progress re-identifying the Hess locations, remodeling some locations and taking advantage of merchandise opportunities inside the stores. At the end of January, the retailer had 134 stores out of 1,250 re-identified as Speedway locations. “We are more than 10 percent on our way. We still have a lot of work to do. We’re going to finish Florida and part of South Carolina by the end of March. Then, we will move up to the Northeast in the spring, summer and fall when the weather is stable up there to do work outside,” Kenney shared. “Ultimately, we will finish up in the Carolinas at the end of 2015 and into 2016. We’ve got a plan and so far, so good.” MORE THAN A NAME

Kenney believes bringing Speedway’s convenience store skills to Hess’ fuel program will be a winning combination.

Re-identifying the stores is more than just changing the banner. Speedway is going into each location and installing a new point-of-sale system, its own backoffice system, its inventory management and labor management technology and — most importantly —

ph: 800-776-8834 | fax: 920-432-1918 | www.cdlatm.com 32 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


the technology base for its highly successful Speedy Rewards loyalty program. “I talk about putting the Speedway name on the store, but really there is much more to it than just the name. In fact, the name and the colors themselves are really the minor part,” Kenney said. “Until they are re-identified Speedway and we really get into the store and put all of our platforms in place, it will still look like a Hess [store] to those customers. Until they are re-identified and we can get in and do some marketing [and] some promotional activity around our loyalty program, it really isn’t going to be any different to those customers.” As of now, there are no plans to close any of the newly acquired assets. As Kenney said, Speedway is in the business to grow and add stores, not necessarily close them. That being said, when you operate a number of convenience stores, one of the responsibilities you always have is to continually rationalize your portfolio, he acknowledged. “You’re always looking for underperformers or

S

peedway added 30 new stores just in its legacy nine states in the

Midwest last year and plans for 2015 call for just as many new stores, if not more, in the legacy markets. situations where market or consumer patterns have shifted and a store is no longer profitable, or there is negative cash flow. You are always looking to evaluate those and decide the best course of action. That could be closing or selling certain assets,” he said. At this point, he believes it’s way too early to make those kinds of decisions about the Hess stores. Speedway is still learning about the assets and wants to give itself the opportunity to get in there with its marketing, merchandising and loyalty programs.

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GEOGRAPHICALLY SPEAKING One of the reasons Hess’ retail assets were attractive to Speedway is because there is little geographical overlap between the two companies’ operating areas. Speedway Hess

“Maybe it’s a turnaround story with some of these stores that appear to be underperforming, but we want to make sure to give them every chance; that we’re not missing something before we decide to close something,” he said. “One of the attractive features of the Hess stores is they are in great markets. They have great assets and facilities. They have good people running the stores, good locations, good corners. Everything’s right. But if they are underperforming, we want to make sure we’ve got everything right before we decide to close or sell a property.” LEGACY GROWTH

While Speedway will certainly be busy with the Hess rebranding this year, it is not the retailer’s sole area of growth. The company continues to invest in its legacy Speedway business from an organic growth

34 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

standpoint. Even before the Hess pact, it was on its way to a nice growth program with expansion into the Pittsburgh market, as well as Tennessee. In fact, Speedway added 30 new stores just in its legacy nine states in the Midwest last year and plans for 2015 call for just as many new stores, if not more, in the legacy markets. “We’ve really got parallel paths here. We’re very focused on what we need to do with Hess to bring that up to where we need to get to [in order] to drive the value for our shareholders,” Kenney concluded. “At the same time, we are not ignoring our Speedway stores in the Midwest. We continue to look for newbuild opportunities, we are going to rebuild a number of stores, spend capital on remodeling stores. We are going to continue to drive both pieces in terms of driving overall growth for the company.”


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Consolidation

Nation

This year’s Top 20 Growth Chains reflect a busy year on the M&A front By Brian Berk

2

014 was one of the most active years on record for merger and acquisition activity in the convenience store industry, with some moves leaving even the most in-the-know experts surprised. This year’s Convenience Store News Top 20 Growth Chains list reflects the huge merger and acquisition deals that were consummated last year. To recap some of the most significant moves: Marathon Petroleum Corp.’s Speedway LLC division purchased Hess Corp.’s retail holdings; Sunoco parent Energy Transfer Partners LP (ETP) bought Susser Holdings Corp., Aloha Petroleum Ltd. and 40 Tigermarket stores from Tiger Management; and CST Brands Inc. bought the general partner interest of what is now called CrossAmerica Partners LP, with the two companies teaming up to acquire Nice N Easy Grocery Shoppes Inc. Other acquisitions announced in 2014, but not closed by the end of the year included Alimentation CoucheTard Inc. merging with Kangaroo Express parent The Pantry Inc.; and CST and CrossAmerica teaming up again to acquire Erickson Oil Products Inc., operator of Freedom Valu stores, and Landmark Industries, operator of Timewise stores. Dennis Ruben, managing director of NRC Realty & Capital Advisors LLC, said he was most surprised by the ETP/Sunoco acquisition of Susser Holdings. “I’ve known [Susser Holdings CEO] Sam Susser for 20 years and I didn’t see him as a seller,” Ruben said. “I also didn’t think Sunoco would expand from the East Coast to Texas.” Ruben told Convenience Store News he was then even more surprised when ETP went to Hawaii and purchased Aloha Petroleum. “One thing I really learned last year is there are no longer any geographical boundaries for anybody in this business,” he noted. “Everyone is looking everywhere for offensive and defensive reasons.” Also surprised by the ETP-Susser deal was John Sartory,

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managing director of Petroleum Capital & Real Estate LLC, but he was even more taken aback by the number of mammoth deals, such as the Speedway-Hess transaction and Couche-Tard’s purchase of The Pantry. “The momentum is there to continue to consolidate,” Sartory said. “Although the c-store part of the business is definitely growing, the gas portion of the business is mature. Motor fuel volumes are projected to decline in the coming years, so it is natural people will want to consolidate.” Consolidation is happening for many reasons, including the fact that the “convenience” retail space is more crowded than ever before, according to Ann Mann, communications director for CHS/Cenex Inc., ranked No. 9 among this year’s Top 20 Growth Chains. “Drugstores, dollar stores, quick-serve restaurants, as well as other competitors are all in the convenience retail space, an area previously dominated by gas stations/c-stores,” Mann said. “Consumers have more options for their convenience shopping, which is putting pressure on c-store operators that have not

1.Speedway LLC

Enon, Ohio 2013 store count: 1,478 2014 store count: 2,746 Increase: 1,268 (86%) About the company’s growth: Speedway completed its acquisition of Hess Corp.’s retail network, boosting its footprint from nine states to 22. It entered new markets on the East Coast and in the Southeast, plus expanded in its nine Midwest legacy states.

2.

Western Refining Inc.

El Paso, Texas 2013 store count: 212 2014 store count: 453 Increase: 241 (113.7%) About the company’s growth: Western Refining closed on its agreement to buy a stake in SuperAmerica parent Northern Tier Energy. Under terms of the agreement, Western Refining now owns 100 percent of the general

invested to stay relevant with consumers in this highly evolved market.” ANOTHER BIG YEAR FOR M&A?

It will be difficult to top what took place last year, but 2015 is expected to take its best shot. Although there are very few publicly traded convenience store-related entities left to be acquired, several acquisitions of midsized privately held companies could occur this year. “When you look at our industry overall, the latest number I saw is we’re an industry of more than 152,000 convenience stores in the country and almost 65 percent of them are single-store operators,” said Tony Kenney, president of Speedway, this year’s No. 1 top growth chain. “That’s staggering. That tells you we’re an extremely fragmented industry.” Hence, Kenney believes the M&A environment will be active for the foreseeable future. “I’m a believer that over the next period of time, there will continue to be further consolidation both at the smaller chain level and there may be one or two larger chains out there that

partner interest and 38.7 percent of Northern Tier. The deal gave it entry into the new markets of Minnesota and Wisconsin. It also expanded in Arizona, Colorado, New Mexico and Texas. On Jan. 16 of this year, Western Refining added to its Arizona portfolio by acquiring 31 c-stores formerly operated by Reay’s Ranch Investors LLC.

3.

Alimentation Couche-Tard Inc.

Tempe, Arizona (U.S. headquarters) 2013 store count: 3,794* 2014 store count: 3,938* Increase: 144 (3.8%) About the company’s growth: Couche-Tard went into 2014 with an eye to expand. After announcing that it was actively looking to make new acquisitions, the company purchased 55 Super Pantry stores in Illinois and Indiana through its Mac’s Convenience Stores LLC subsidiary. It also expanded its existing Midwest division. In 2015, Couche-Tard will add more than 1,500 stores through its merger with The Pantry Inc., operator of Kangaroo Express. *Couche-Tard does not disclose its store count on a monthly basis. These figures reflect its store counts as of Q2 2014 (Oct. 15, 2013) and Q2 2015 (Oct. 12, 2014).

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might look at some opportunities would not go into effect until Jan. to change their model in some fash1, 2021 at the earliest. Therefore, ion,” he explained. MLPs can feel safe about their tax Six companies — Alimentation Master limited partnerships situation when considering purCouche-Tard, Casey’s General (MLPs), flush with cash due to difchasing c-store assets. Stores, Murphy USA, QuikTrip, ferent tax requirements compared Since EBITDA multiples have Sheetz and Shell Oil/Motiva to other companies, will continue become so high, and with MLPs Enterprises — have earned a spot to be acquirers, noted Ruben. often outbidding pure-play retailon the CSNews Top 20 Growth “[EBITDA] multiples are almost ers for assets, many mid-sized Chains list all four years it’s irrelevant for these companies,” he c-store operators have called NRC been published. said. “If it moves the needle in terms Realty already in 2015 looking to sell of being accretive to cash flow, they seem their businesses, Ruben confirmed. to worry about if they overpaid later on.” “I think in the next 12 to 24 months, you could see A stipulation in President Barack Obama’s fiscal 30-40 percent of the c-store assets in the hands of half 2016 budget calls for MLPs formed by fossil fuel entia dozen players,” he said. ties to be taxed as traditional C corporations, instead As for the most likely acquirers, Ruben cited ETP/ of their highly favorable tax treatment currently. Sunoco (this year’s No. 4 top growth chain), CST However, even if approved by Congress, this rule Brands/CrossAmerica (Nos. 15 and 5, respectively),

4.

Energy Transfer Partners LP

Dallas, Texas 2013 store count: 2,594* 2014 store count: 2,731* Increase: 137 (5.3%) About the company’s growth: Energy Transfer Partners’ Sunoco LP division completed its acquisition of Aloha Petroleum Ltd. on Dec. 17, consisting of approximately 100 Shell, Aloha and Mahalo branded fuel stations in Hawaii. The master limited partnership also acquired 40 Tigermarket convenience stores from Tiger Management Group. These deals brought it to Hawaii and Tennessee. ETP also grew in its existing markets of Texas, New Mexico, Oklahoma and most states on the eastern seaboard. ETP plans to “drop down” its entire retail division to Sunoco LP, also parent to Stripes convenience stores. This could occur in 2015. *According to Energy Transfer Partners, it operated a total of 5,782 convenience stores at the end of 2014, including its Sunoco-branded distributor network.

5.

CrossAmerica Partners LP

Allentown, Pennsylvania 2013 store count: 204 2014 store count: 309 Increase: 105 (51.5%) About the company’s growth: Lehigh Gas Partners LP changed its name to CrossAmerica Partners LP, effective

38 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

Oct. 1, the same day CST Brands Inc. acquired the general partner of CrossAmerica. The companies said this new name reflects the combined vision of growth of CST and CrossAmerica across the North American continent. During 2014, the companies completed their first joint transaction by acquiring Nice N Easy Grocery Shoppes in upstate New York. CrossAmerica, a master limited partnership, also acquired assets last year from affiliates of Atlas Oil Co.; Petroleum Marketers Inc.; and Manchester Marketing Inc. CrossAmerica is a wholesale distributor of motor fuels to more than 1,100 locations, and owner and lessee of real estate used in the retail distribution of motor fuels. As of February 2015, the company owned or leased more than 625 sites in 16 states.

6.

Casey’s General Stores Inc.

Ankeny, Iowa 2013 store count: 1,778 2014 store count: 1,865 Increase: 87 (4.9%) About the company’s growth: Casey’s increased its number of new store constructions from the previous year, at the same time it continued to acquire locations. Casey’s expanded its presence in newer states including North Dakota, Kentucky, Tennessee and Arkansas. For its fiscal 2015 year, which ends in April 2015, Casey’s goal is to increase unit growth by 4-6 percent. The company has not yet released its goals for fiscal 2016.


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Global Partners LP and Casey’s General Stores Inc. (No. 6). Private-equity firms could also get into the mix, both Ruben and Sartory noted. Fortress Investment Group LLC, which in July acquired United Oil — the largest independent convenience store and gas station operator in the southern California market — was mentioned as one such firm. CST Brands is always on the lookout for growth, Chairman, President and CEO Kim Lubel told CSNews. “When we looked at the retail space and the CST growth potential [before spinning off from Valero Energy Corp.], we saw that consolidation in the indus-

7.Shell Oil Co./Motiva Enterprises LLC

try was going to be one of our greatest opportunities,” she recounted. CST Brands’ leader noted that there are plenty of states the parent of Corner Store locations hasn’t touched yet. “I could see us doing a third-party acquisition and then a few years later, doing new builds in that area. A little Pac-Man strategy — buy and build around it, buy and build around it,” Lubel explained. Discussing the c-store M&A environment in general, Casey’s Chief Financial Officer Bill Walljasper agreed the industry is “very fragmented with the majority of companies being operators of 10 stores or less.

Houston, Texas 2013 store count: 4,978 2014 store count: 5,055 Increase: 77 (1.5%) About the company’s growth: Shell does not own any sites, but instead aligns with wholesalers to grow the Shell brand. Each wholesaler understands its market and therefore decides if a location needs a convenience store, its size, what it will carry, etc.

Increase: 38 (2.8%) About the company’s growth: CHS credits its growth last year to competitive conversion programs, solid relationships with its jobber and marketer network, and a high level of investment in Cenex brand advertising targeted at the consumer audience. The company focused its brand expansion efforts around its refinery and pipeline assets in Montana, Kansas and Missouri. Its growth goal for 2015 is to add 65 new-to-brand stores.

8.Murphy USA Inc.

10.Exxon Mobil Corp.

El Dorado, Arkansas 2013 store count: 178 2014 store count: 239 Increase: 61 (34.3%) About the company’s growth: All of Murphy USA’s 2014 growth was thanks to new store builds. Forty-three of the 61 new stores opened last year were large-format, 1,200-square-foot stores. The retailer operates in 23 states: Alabama, Arkansas, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, New Mexico, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Virginia. Murphy USA plans to open 60 to 80 new stores this year. CEO Andrew Clyde ruled out any acquisitions, stating: “Organic growth is the first point of our strategy.”

9.CHS Inc./Cenex

Inver Grove Heights, Minnesota 2013 store count: 1,361 2014 store count: 1,399

40 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

Irving, Texas 2013 store count: 3,459 2014 store count: 3,495 Increase: 36 (1%) About the company’s growth: ExxonMobil no longer directly owns or operates retail stations in the United States. There are approximately 10,000 U.S. Exxon- and Mobil-branded stations.

11.TravelCenters of America LLC

Westlake, Ohio 2013 store count: 250* 2014 store count: 285* Increase: 35 (14%) About the company’s growth: TravelCenters entered the Missoula, Mont., market last year and expanded in Brooklyn, Iowa; Johnson’s Corner, Colo.; and Lincoln, Ala. *TravelCenters’ 31-store Minit Mart acquisition closed in mid-December 2013, but was registered by Nielsen TDLinx as a 2014 gain.


Cover Story

With this in mind and [the] competitiveness of the industry, we believe there will be continued consolidation.” The names of c-store chains that could be acquired are more difficult to ascertain. One expert, speaking on the condition of anonymity, said Kum & Go LC has been mentioned as a strong acquisition target. But this expert added that Kum & Go management has not expressed interest in selling its business, and a sale is definitely nowhere near imminent. ORGANIC GROWTH

While there are certainly plenty of companies likely to acquire c-store assets this year, there are also com-

12.Kwik Trip Inc.

La Crosse, Wisconsin 2013 store count: 407 2014 store count: 441 Increase: 34 (8.4%) About the company’s growth: This is the most new stores Kwik Trip opened in one year in its 50-year history. It opened eight new stores in the Twin Ports of Duluth, Minn. and Superior, Wis., and expanded in existing markets in the Upper Midwest: Wisconsin, Minnesota and Iowa. Kwik Trip will expand at roughly the same rate in 2015 in the same three-state region.

13.QuikTrip Corp.

Tulsa, Oklahoma 2013 store count: 678 2014 store count: 711 Increase: 33 (4.9%) About the company’s growth: While QuikTrip continues to grow organically and add locations across all of its existing markets, the Carolinas saw most of the new growth last year. The retailer expects its 2015 store count growth to be about the same as 2014.

14.Wawa Inc.

Wawa, Pennsylvania 2013 store count: 648 2014 store count: 678 Increase: 30 (4.6%) About the company’s growth: 2014 was a milestone year for Wawa, which celebrated its 50th anniversary and opened 45 new stores. It entered southwest Florida and

42 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

2470 This year’s Top 20 Growth Chains added 2,470 stores to their portfolios year over year.

panies unlikely to get involved in any major acquisitions in the near future. Sartory said retailers such as QuikTrip Corp. (this year’s No. 13 top growth chain), Sheetz Inc. (No. 19), Thorntons Inc. and Wawa Inc. (No. 14) are instead excellent candidates to significantly ramp up organic growth, in part to keep up with

expanded in central Florida. Wawa also opened its 400th gas store, located in Frederick, Md.

15.CST Brands Inc.

San Antonio, Texas 2013 store count: 1,036* 2014 store count: 1,065* Increase: 29 (2.8%) About the company’s growth: CST Brands built 28 new U.S. stores last year and acquired 32 sites in central New York from Nice N Easy Grocery Shoppes — its first entry into the Northeast market — while also executing a network optimization plan to divest up to 100 stores. Most of the Corner Store new builds were in Texas. The retailer additionally acquired the general partner of CrossAmerica Partners LP. In partnership with CrossAmerica, CST intends to continue participating in the active M&A market to accelerate its organic growth strategy. *Includes U.S. stores only

16.Pilot Flying J

Knoxville, Tennessee 2013 store count: 555 2014 store count: 582 Increase: 27 (4.9%) About the company’s growth: Pilot Flying J opened new locations in Colorado, Florida, Illinois, Indiana, Iowa, Missouri, New Mexico, Ohio, Oklahoma, Oregon, Texas and Virginia. It also launched a fresh brand identity that includes a $100-million investment in facility upgrades. Pilot Flying J expects to maintain a similar level of growth and momentum in 2015.


Cover Story

competitor happenings in the marketplace. Another phenomenon could take place this year for the first time in several years, predicted Sartory. Current private compaThe Convenience Store News Top 20 Growth nies — perhaps seeking a capital infusion to drive growth plans Chains report is based on store count figures — could file for initial public offerings with the U.S. Securities provided by TDLinx, a service of Nielsen. This is and Exchange Commission to become publicly traded stocks. the fourth year that CSNews has partnered with “It’s not likely that 50 companies will suddenly go public this TDLinx to identify the c-store retailers that added year, but we could see three or four do so this year and every the most convenience stores in the past year. year in the near future,” said Sartory. “You could also see conWherever possible, the TDLinx numbers were venience store companies look to turn themselves into MLPs.” confirmed by the companies. TDLinx defines a To better understand who might take the public plunge, convenience store as a store that includes a Petroleum Capital & Real Estate’s managing director said one broad merchandising mix, extended hours of must look at the makeup of the company. Family-owned busioperation and a minimum of 500 SKUs. Fueling nesses looking to raise cash, or private companies partially stations with small kiosk stores do not meet the funded by a private-equity company are two examples of busiofficial definition of a c-store and thus are not nesses that would consider becoming public entities. reflected in TDLinx’s store count figures. “Private companies really into expanding growth will be willing to put up with the headaches of the public scrutiny to go public,” Sartory concluded. “Becoming a public company gives them much more access to capital to drive that growth.” Sheetz Inc. Altoona, Pennsylvania 2013 store count: 466 2014 store count: 486 Increase: 20 (4.3%) Love’s Travel Stops About the company’s growth: “We’re not forging new & Country Stores Inc. ground like we are in North Carolina, but based on the Oklahoma City, Oklahoma population, we have room to grow,” Sheetz Inc. CEO Joe 2013 store count: 308 stores Sheetz said toward the beginning of 2014 as he dis2014 store count: 334 stores cussed the retailer’s growth goals for the year. The chief Increase: 26 (8.4%) executive noted that 2014 would see more “onesies” About the company’s growth: During its 50th anniversary — single stores built to fill in existing markets. Last year year, Love’s focused on achieving “unprecedented” new store growth, as well as reinvestment in existing properties also saw Sheetz open the company’s second distribution through remodeling and expansion. In March 2014, Love’s center in Burlington, N.C., to serve its growing footprint in North Carolina, Virginia and West Virginia. opened the doors to a new model with an efficient design that marked its expansion from interstates to major highways. Additionally, the company rolled out a fast-fill compressed natural gas offering at multiple locations. Holiday Cos. Bloomington, Minnesota 2013 store count: 479 2014 store count: 498 Mirabito Energy Products Increase: 19 (4%) Binghamton, New York About the company’s growth: Yocum Oil Inc. sold its 2013 store count: 62 nine Holiday Stationstores convenience stores and gas 2014 store count: 85 stations back to Holiday Cos., which reportedly paid Increase: 23 (37.1%) $8 million for the locations in Cottage Grove, Eagan, About the company’s growth: In April 2014, Mirabito Inver Grove Heights, Jordan, Maplewood, North St. Paul, acquired Manley’s Might Mart LLC and its network of 17 Stillwater and Woodbury, Minn., along with the business c-stores. The Manley’s stores are located in the upstate New York towns of Binghamton, Endicott, Endwell, Vestal, operations for a second site that Yocum leased in North St. Paul. These sales closed April 17 of last year. Johnson City, Windsor, Ithaca and Glen Aubrey.

METHODOLOGY

19.

17.

18.

44 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

20.


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Cover Story

Can M&A Get Any Hotter in the C-store Industry? The strong tailwind from 2014 will continue to blow in 2015

T

he red hot merger and acquisition activity in 2014 included several major mega transactions such as Speedway LLC purchasing the Hess Corp. retail network, CST Brands Inc. acquiring 100 percent of the membership interest in Lehigh Gas GP LLC, Susser Holdings Corp. selling to Energy Transfer Partners LP, Global Partners LP purchasing the equity interest of Warren Equities and, of course, the recent announcement that Alimentation Couche-Tard Inc. will acquire The Pantry in an all-cash transaction. These were big announcements made by some of the most active publicly traded companies within the convenience and gas station (C&G) industry, but there was also an explosion of smaller private transactions from coast to coast. So, what does all this recent M&A activity in the C&G industry mean By John C. Flippen for 2015? Jr. & John Sartory, One of the first questions a new or Petroleum Capital & existing client, banker, private equity Real Estate LLC investor, source of capital, industryrelated supplier or member of the media inevitably asks us when we attend any industry-related meeting revolves around the following question: Do we think the almostbreakneck pace of M&A activity that has occurred in the C&G industry over the past five years will continue? And if so, what market forces or external events will continue to drive this ongoing process or could slow down or inhibit the current pace of merger activity? While no one can accurately predict the future, listed below are some of the market forces and/or external events that will continue to support the current pace of consolidation within the C&G industry. An Almost Unlimited sUpply of Willing sellers

While the C&G industry landscape has radically changed

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over the past 10 years, the simple truth is that the industry is still fragmented and includes hundreds of small to mid-sized companies. Unlike other major retail industries in the United States, there is no retail chain that dominates or controls a large percentage of the marketplace. Simply stated, at this time, the C&G industry does not include a McDonald’s, Burger King or Wendy’s. In addition to the fragmented nature of the marketplace, there are generational forces that are feeding the M&A marketplace. Many of the current sellers in the industry started their family business in the ‘50s, ‘60s or ‘70s and for whatever reason, no member of the family’s second generation is interested in operating and/or growing the existing business. As a result, the most viable exit for the founding member of the business is to sell. mArket mUltiples & sAles terms Very AttrActiVe for sellers

Open discussion of the current prices or multiples that most aggressive buyers are willing to pay for C&G assets has quickly filtered its way throughout an industry that had been known for most of its history to be fairly secretive about transactional pricing and the overall terms of any sale. This increased visibility into market pricing has been an obvious plus for any seller that has been contemplating exiting the industry. After Marathon Petroleum Corp.’s retail subsidiary Speedway announced its $2.82-billion purchase price for Hess’ retail network and associated 16.1 times multiple of Hess’ 2013 pro-forma EBITDA, any seller that was still on the fence had to take notice. Our firm represented one of the companies that participated in the Hess bidding process, and while we were not surprised that Speedway was the successful bidder, we also felt the ultimate purchase price was certainly on the very outer range of potential values for the assets. In addition to the aggressive multiples that buyers are willing to pay in this current environment, especially for superior retail assets such as the Hess network, the various sources of capital that are funding


these acquisitions have been loosening their underwriting standards for buyers. As a result, sellers are more comfortable that traditional post-closing liabilities, such as environmental, can be walled-off or quantified. the need to groW or sell mentAlity dominAtes the mArketplAce

While the industry is still fragmented, most savvy marketers understand that the most active regional players and major consolidators in the industry, such as QuikTrip Corp., Sheetz Inc., Speedway, Global Partners, Alimentation Couche-Tard and 7-Eleven Inc., are going to continue to expand through additional acquisitions and/or organic growth.

many obvious advantages in the bid process such as access to more flexible and competitive sources of capital. it’s the economy

Although the United States has seen below-trend growth in gross domestic product (GDP) since the end of the Great Recession, it looks like growth may now be accelerating. GDP recently grew 5 percent in the third quarter and 2.6 percent in the fourth quarter. The Federal Reserve could raise interest rates in the second quarter of this year, but with low inflation expectations and the tailwind of lower gas prices at the pump, we may be able to continue along in this “Goldilocks Economy.” mlps & pUblicly trAded entities

The traditional small or mid-sized distributor that directly competes with these marketers does not enjoy the same marketing, operational or supply economies of scale as their larger competitors. Many of these marketers must either grow or upgrade their traditional business model, or they will most likely face an environment in which their company’s EBITDA will continue to decline over time. These smaller marketers also face the ultimate “Catch22” situation — many want to expand, but in order to quickly expand in their existing trade areas, they must become active in the M&A marketplace. However, in order to be successful, these smaller marketers in many instances must outbid their larger competitors that enjoy

The growing number of master limited partnerships (MLPs) and the increasing share prices of publicly traded C&G companies have had a significant impact on purchase multiples and the overall level of M&A activity within the industry. MLPs specifically have had an enormous impact on the current multiples being paid for supply-only agreements that are normally part of any acquisition opportunity. These large public entities have an ability to finance acquisitions with a more flexible and lower cost of capital when compared to most traditional bank financing options and, most importantly, guarantee any seller a non-contingent and quick closing. If interest rates remain low by historical standards and the loan standards in the capital markets continue to loosen, this will further support increasing M&A activity in 2015 by this group of active buyers. The above points are some of the reasons why the strong M&A tailwind from 2014 will continue to blow in 2015 and we expect to see further consolidation with the C&G industry. In our next article, we will discuss the market forces and/or external events that could inhibit future M&A activity in 2015 and beyond. CSN John C. Flippen Jr. and John Sartory are managing directors of Petroleum Capital and Real Estate LLC (www.PetroCapRE.com). The firm provides buy-side acquisition, refinancing, capital restructuring and select sell-side advisory services in the convenience and gas station industry. PetroCapRE has assisted clients in completing transactions valued at more than $1.3 billion. Flippen can be reached at jflippen@PetroCapRE.com. Sartory can be reached at jsartory@PetroCapRE.com. Editor’s note: The opinions expressed in this column are the authors’ and do not necessarily reflect the views of Convenience Store News.

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 47


Driving Sales Drive-thru service can add an additional revenue stream for c-stores, while satisfying customers By Tammy Mastroberte

T

he cornerstone of the convenience store industry is to offer convenience to customers, making each visit as seamless and quick as possible — whether it’s filling up on fuel, grabbing lunch or picking up a few needed items. People are more pressed for time than ever before, and what was convenient yesterday may not be convenient today. To keep up with these changing needs, many convenience stores are incorporating drive-thrus into their locations, where they offer foodservice, coffee and more without a customer ever having to leave their car. The Parker Cos., based in Savannah, Ga., opened its first store with a drive-thru last summer, and The United Family’s United Express concept, based in Lubbock, Texas, operates a number of locations with a drive-thru, selling a variety of items including the chain’s Arriba brand of spe-

48 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

cialty coffee and tea. At Sheetz Inc., operator of 500 stores, the chain just opened its 49th location featuring a drive-thru, which accounts for 10 percent of inside sales at stores with the feature. “Consumers today are time-starved, especially the younger generation,” said Maurice Bared, chief operating officer of Farm Stores Corp., based in Palmetto Bay, Fla., operating 70 full-service, drive-thru-only locations throughout Florida. “They want it now, and their time is valuable. The drive-thru offers that.” In the c-store industry, the foodservice category continues to grow, with sales climbing higher each year. This puts many c-stores in direct competition with quick-service restaurants (QSRs). Some c-store operators believe QSRs like McDonald’s and Wendy’s are actually their biggest competitors, and these restaurant chains have been mastering the drive-thru experience for years. Even Starbucks and Dunkin’ Donuts continue to add drive-thru locations, competing with c-stores for the coffee customer. “C-stores’ adoption of drive-thrus is adapting to the customer’s changing perception of convenience,”


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item via the drive-thru, including a made-to-order sub, pizza, burger or a Sheetz Bros. coffee. “The drive-thru is about food to our customers, but they can also get a gallon of milk and a carton of eggs.” Tackling PercePTion

Sheetz recently opened its 49th location with a drive-thru.

explained Steven Montgomery, president of b2b Solutions LLC, a consulting firm in Lake Forest, Ill. “The QSR industry has morphed from a place where most customers bought their meal inside the restaurant to where the majority of the sales come via the drivethru. This helped move the customer’s perception of what is convenient and what is not.” Since many QSRs do 60 to 70 percent of their overall business via the drive-thru, according to QSR

While some c-store players are reporting success on the drive-thru front, others believe more education is needed to change consumer perception about drive-thru convenience. There are some companies that attempted to offer the drive-thru experience, but ended up pulling the option after some time. SavOn Convenience Stores, owned and operated by the Oneida Indian Nation based in Oneida, N.Y., added drive-thrus to four of its 12 stores in March 2013, but told Convenience Store News the company no longer operates drive-thrus. And Slovacek’s Market, a single store based in West, Texas, advertises drivethru on the store’s website, but the feature was never opened to customers, according to the manager.

Our goal is to offer a convenience “service to people. We want to get our food out as fast as possible, but we don’t have the food just sitting there waiting to be handed out the window.

— Jenna Coltrin, Sheetz Inc.

Magazine, c-stores with a robust foodservice program can not only offer more convenience to their customers with a drive-thru, but can also rack up more sales with the option. For Sheetz, food was the main motivation behind its adoption, according to Jenna Coltrin, drivethru development manager for the chain. “We want to be known as a restaurant that is also able to provide you with your c-store needs,” she said, explaining that customers can get any foodservice

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Sheetz drive-thrus are food-focused, although all in-store items except alcohol and lottery are available.


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Drive-thru accounts for 10 percent of inside sales at Sheetz stores with the feature.

“What I found for us in the Midwest is the c-store drive-thru is still a concept that needs education,” said Scott Zaremba, president of Zarco USA in Lawrence, Kan., operator of three locations. At one of his stores, he has both a sub shop and a coffee shop, each with its own drive-thru, but he has not added the option to the c-store. However, with the addition of a proprietary ordering system at the pump, this is his next step. “We developed touchscreens at our pumps so customers can order a sub or coffee and go from the pump to the drive-thru to pick it up,” Zaremba said. “Now, it will be easier to morph the drive-thru con-

cept to the c-store side because that is the ultimate goal. Customers can order at the pump and the interior crew can pull the items for them and have them ready when they are done fueling.” When Sheetz first entered the drive-thru arena, the company started in its hometown of Altoona, Pa., and put a lot of time into researching what its customers wanted via a drive-thru before taking it on. At first, the chain only offered a limited menu of foodservice items at four locations, but soon realized customers wanted more. “We found our customers wanted to be able to get

Top Sellers at the Drive-Thru For those convenience stores that have taken the plunge into the drive-thru arena, foodservice and coffee are the top-selling products, but customers are also picking up milk, eggs and bread to take home. Here, three chains rundown their offer:

Sheetz Inc., Altoona, Pa.

Farm Stores Corp., Palmetto Bay, Fla.

Zarco USA, Lawrence, Kan.

Top products: Made-to-order foodservice items, Sheetz Bros. coffee drinks and Fizz City fountain drinks. Also offered: All foodservice items, including pizza, made-to-order subs, salads, chicken sandwiches, burgers and hot dogs, can be ordered at the drive-thru. Customers can also get any c-store item, except for alcohol and lottery tickets.

Top products: Fresh-baked bread, milk, eggs, cigarettes, ice cream and produce. Also offered: Foodservice items account for more than 50 percent of this drive-thru-only chain’s volume. The menu includes breakfast, lunch and take-home dinner options, such as hot soups, rotisserie baked chicken and a variety of mini desserts — cakes, pies, tiramisu, cake pops, cinnamon rolls, and newly introduced fresh-baked crunchy chocolate chip cookies.

Top products: Sub sandwiches and coffee drinks. Coming soon: The chain plans to open up its drive-thru, now limited to sandwiches and coffee, to all convenience items in-store in the near future.

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ISSUE ONE, VOLUME FOUR

Growth experiences Attorney Joe Janes has helped expand his family’s Ohio grocery business with Save-A-Lot stores throughout the state.

Advertorial


GROWTH EXPERIENCES Save-A-Lot Store Snapshot OPERATOR: Janes Group NUMBER OF STORES: 13 LOCATIONS: Ohio FIRST STORE OPENING: 1996

OHIO

Attorney Joe Janes returned to his family’s Ohio grocery business just in time to expand throughout the state. Joe Janes grew up working in his family’s small southern Ohio grocery store but left the business behind as an adult, opting instead to become an attorney practicing commercial law. He had a change of heart, though, after his father converted an existing conventional grocery store into a Save-A-Lot in 1996. The elder Janes was happily surprised at the dramatic increase in sales and began encouraging his son to return to the grocery business. “Which I did,” recalls Janes, in November 2000 when his parents were operating two Save-A-Lots, in Chillicothe and Athens, Ohio. > PHOTOS BY JESSICA GRIMM

Advertorial

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Growing together

place dominated by big box retailers, says Janes.

Today Janes is president of the Janes Group, and the business has added 11 more Save-A-Lots—including a Lancaster, Ohio, location that opened in late January 2015—along with one conventional grocery and two convenience stores throughout Ohio.

Shopping at Save-A-Lot is convenient, he adds, with selling areas that range from approximately 12,000 to 15,000 square feet. In contrast, a Kroger has about 60,000 to 80,000 square feet of space and a Walmart has about 100,000 to 120,000 square feet. At Save-A-Lot, “shoppers can park close to the store, get around easily, fnd what they need and get out without making it a twohour adventure,” says Janes.

“We own our locations for the most part to justify investing as much as realistically practical in each location to create the atmosphere that we consider appropriate for our customers,” says Janes. “We have built two ground-up stores and are considering building more.”

In addition, “there are a lot of small things that make a big difference,” he says. Save-A-Lot’s edited assortment model focuses on key commodity food items, and allows the company to be an effcient supplier that leverages its distribution system to keep costs low and maintain minimum out-of-stocks. “It’s a fully comprehensive system,” he says.

The company’s development strategy focuses on areas where customers in the middle- to lower-income demographic are not well-served by existing grocery store retailers, Janes explains. “Our stores place primary importance on operating fresh produce and meat departments with quality products, while maintaining a bright, clean and well-merchandised store with associates who are respectful of our customers,” he says. “One of [our] key differentiating factors is we have professionally trained butchers who cut meat in our stores every day.”

Retailers also can take advantage of assistance from Save-A-Lot’s experienced district managers, adds Janes. “They provide us with industry-leading ideas and services. They help to locate stores in the right area. They do demographic analysis,” he says. “They help Joe Janes (right) and his father, design interior layouts to produce Carl Janes, say working with an optimum shopping experience Save-A-Lot enables their stores His customers rely on Save-A-Lot, to be cost competitive. for the customer. They do so much he adds, to offer fresh produce and more than just sell us groceries. meat, frozen foods and dry groThey offer a full-service approach ceries at market-leading low prices to make us as successful as possible.” on a consistent basis and in a convenient-to-shop format. Janes says new Save-A-Lot program offerings and draThe stores offer 50 to 60 fresh produce items and about matic price reductions for many grocery items have made 3,000 SKUs overall. Says Janes, “We have most of the his family’s stores even more cost competitive. “We can key grocery commodity items. If you’re looking for tofu see that a lot of the new initiatives from the leadership or bean sprouts, we don’t have it. We don’t carry heirloom are reaping rewards. It’s an excellent time to grow our tomatoes. We carry everyday grocery items.” business by adding new stores,” he says. 'Small things make a big difference' “Save-A-Lot has evolved very positively over the last Because Save-A-Lot requires its products to meet the several years to become, in our opinion, the pre-eminent quality standards of branded items, and provides retailer edited assortment grocery store in the United States. The support through its procurement program and distribuemphasis on quality and retailer support, all while maintion network, the company offers one of the only models taining low retails at acceptable gross margins, makes that allow independent grocers to compete in a marketSave-A-Lot a winning combination,” says Janes. GE

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Advertorial


With a proven hard discount, carefully selected-assortment business model, Save-A-Lot offers entrepreneurs the ability to compete effectively in today’s ever-changing grocery industry. And there’s never been a better time to be a Save-A-Lot licensee: Save-A-Lot is now offering a Licensed Store Incentive Program for all new and converted licensed stores. The amount of the incentive for each store will depend on the specific terms and financial considerations of each project, but will be a minimum of $200,000 per new store. If you have a proven track record of successful experience in grocery or other retail management, Save-A-Lot would like to talk to you about becoming a store owner. Here’s how you can take the next step toward a rewarding entrepreneurial opportunity as a Save-A-Lot licensee: ✱ Contact Eric Hunn, Save-A-Lot License Development, at eric.v.hunn@savealot.com or at (314) 592-9446. ✱ Visit the Save-A-Lot website at www.save-a-lot.com/own for more detailed information about becoming a Save-A-Lot owner.

The Save-A-Lot support advantage

Save-A-Lot by the numbers

✱ More than 1,300 stores nationwide ✱ 70% of locations owned and operated by independent licensed retailers ✱ Target neighborhoods with annual household income under $45,000 ✱ Average store size: 15,000 square feet ✱ Fewer than 2,500 SKUs per store ✱ 17 distribution centers across the country ✱ Prices up to 40% lower than conventional supermarkets

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✱ Market and consumer research ✱ Site selection and development assistance ✱ Owner, manager and associate training programs ✱ Advertising, public relations and information technology support programs ✱ Store opening assistance and ongoing operations support ✱ Integrated distribution center system

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farm Stores is a full-service, drive-thru-only chain operating in florida. it recently announced a nationwide franchise program.

anything inside the store through our drive-thru and when we expanded the selection, our sales went from 2 percent of inside sales to 10 percent,” Coltrin noted. Also, when a new drive-thru opens, Sheetz will do an interview with the local newspaper, promoting the drive-thru and all that it offers to educate customers in that area. MaSTering SPeeD of Service

Another area for c-stores to consider regarding drive-thrus is speed of service. QSRs still lead the way, with Wendy’s boasting an average service time of 145 seconds, according to a 2011 QSR Drive-Thru Performance Study published by QSR Magazine. However, fast-food companies don’t offer anywhere near the SKUs available at a convenience store, nor are their items as customizable. “Unlike a QSR, where the number of items is quite small compared to a c-store, our retailers face the challenge of how many items do they want to offer,” said Montgomery of b2b Solutions. “Too few and no one will be attracted to their drive-thru. Too many and the time to serve gets to be too long and drives up labor cost.” Sheetz, which is known for its made-to-order (MTO) line of sandwiches, extended its indoor self-service ordering kiosk concept to the drive-thru, allowing customers to place an order and customize their sandwiches the same way they do inside the store. Because

Drive-Thru Challenges When it comes to selling convenience store items via a drive-thru window, most products do not pose a challenge. However, age-restrictive items, especially alcohol, can be more difficult. As a result, many choose to only offer these products for sale in the store. “Certainly, age-restrictive items present a challenge,” said Steven Montgomery, president of b2b Solutions LLC, a consulting firm based in Lake Forest, Ill. “For exams ple, what is the sales associate to do when p a customer who has presented the proper iidentification to buy beer is accompanied by what appears to be minors? True, this b same type of situation might occur inside the store, but the minors would have likely not entered the store.” At Altoona, Pa.-based Sheetz Inc., which operates drive-thus at 49 of its 500 w stores, alcohol and lottery tickets are not sold via the drive-thru. Lottery tickets are actually sold via a self-serve machine inside, so logistically it doesn’t make sense to offer these products through the drive-thru. When it comes to alcohol, it can be harder to tell if someone is intoxicated when sitting in a car, said Jenna Coltrin, drive-thru development manager for Sheetz. “Employees are TIPS certified, and the clues they teach you to look for with intoxicated customers are easier to see when the person is walking in the store and closer to you,” she said. “We are protecting our employees because it’s hard to make that decision in a drive-thru situation.”

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 57


of this customization, they are not as fast as a QSR, but they are not trying to be, according to Coltrin. “Our goal is to offer a convenience service to people,” she said. “We want to get our food out as fast as possible, but we don’t have the food just sitting there waiting to be handed out the window.” When an order goes through the outdoor kiosk, it hits the store’s kitchen monitoring system, which notes it’s a drive-thru order at the top. There’s also separate screens for drive-thru orders, and all employees wear headsets so they can hear when an order comes in because most people will say their order out loud while entering it, Coltrin noted. “The drive-thru is a team effort where everyone works together to execute, but we do have one employee at the store who knows drive-thru is his or

Zarco USa pumps have touchscreens where orders can be placed for sandwiches and coffee, and then picked up at the drive-thru.

58 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

her main focus that day,” she explained. In addition to the MTO sandwiches, fried items are also cooked to order, and anything that takes time to make can be more challenging. To address this, the chain created a system that allows stores to cater to those with quicker orders first. “If someone only ordered coffee, you don’t want them sitting there waiting for the person who ordered three pizzas and a cheesesteak. If we can service the second car in line faster, we will park the first car to move to the second, and then take the order out to the parked car when it’s done,” Coltrin said. At Farm Stores, which is now launching a national franchise rollout, the goal is to keep each ttransaction under two minutes ffrom the time they reach the cue, despite the nearly 800 SKUs carrried in the store including foodsservice and coffee products. The chain is also working on a pre-order app so customers can place an order from home or on their way to work and it will be ready by the time they arrive, Bared said. “We deliver high-quality products like fresh-baked breads delivered hot to the car, but we need to deliver fast so the equipment and process flow we use is designed to meet this speed,” he said. “There are techniques we use in the store to serve the second, third and fourth car, as well as the first.” Farm Stores, which are less than 700 square feet, feature drive-thru windows on both sides of the building and employees also run orders out to customers’ cars in addition to handing them through the window. While its hot bread is the No. 1 selling product, milk, eggs and cigarettes are other top products for the chain, which is likewise known for its soft-serve ice cream. This past year, Farm Stores also launched a new premium coffee line, now selling espresso, cappuccino and lattes. Another drive-thru-only concept, The Cube, which just opened its first location in Norman, Okla., in December, didn’t think it would be able to offer highquality foodservice items fast enough, but after hiring an executive chef who trained in France and owned restaurants in the past, the owners realized they would be able to get the window time customers expected without compromising the quality of the food.


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The cube, a drive-thru-only store in norman, okla., has four windows to serve customers.

Although The Cube kitchen is small, it houses two turbo convection ovens, which cook the food quicker than a conventional oven. The store serves breakfast, lunch and dinner no matter what time of day it is.

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However, the owners did limit the menu in order to maintain the timeframe of service desired. “Everything is made fresh, even the pizza. We cut the meats and cook the sausage at the store,” said Jake Sharp, one of the owners of The Cube. “We don’t have fryers, microwaves or grease, and we can take the pizza dough, Boar’s Head cheese and Italian sausages, and have it ready for you in four minutes.” For those convenience stores delivering what the customers want and maintaining speed and convenience at the drive-thru, the addition is bringing in sales and profits, while satisfying customers. Done right, it can be a win-win on both sides. “A drive-thru offers the customers the greatest convenience,” said Montgomery. “They can buy items and never leave their car, and this can be a great advantage to anyone traveling with children or in bad weather. For the retailer, it allows them to capture sales they might not have been able to do if the customer had to come into the store to make the purchase.” CSN


MOTOR FUELS Gasoline + Diesel + Ethanol + LNG/CNG + Electric

EDitor’s ViEW

When Fuel Prices Hit Bottom U.S. consumers are sure to miss the good old days of sub-$2 gas

L

ow gas prices are great for in-store merchandise sales while they last. Happy consumers with more money in their wallets are spending that additional money on candy and snacks, made-to-order foodservice, and other food and beverage items at convenience stores. AAA expects gas prices to remain below a nationwide average of $3 per gallon throughout this year, but of course, this is no sure thing. On Jan. 29, March futures for a barrel of West Texas Intermediate (WTI) crude oil — considered the benchmark for U.S. oil prices — By Brian Berk, dipped to $43.76, the lowest level Managing Editor seen since 2009. That same month, a CNBC survey of 33 analysts found that these experts believed crude oil would drop to $40 per barrel before a bottom could be found. Instead, prices began to rise to more than $50 per barrel. Some analysts think this is what is known as a “short squeeze” and oil prices will drop all the way to $30 to $33 per barrel in the near future, meaning prices at the pump will get much cheaper. But it’s difficult to see this scenario playing out. Gas prices are certainly unlikely to reach the $3.50-$4 range as in previous years anytime soon, but sub-$2 per-gallon prices at the pump are likely unsustainable as we look toward the future. This is because the environment for low gas prices has been perfect in recent months. Geopolitical turmoil, a refinery outage in the United States or simply increased fuel demand as the summer driving season nears are just three reasons fuel prices could soon rise. The Organization of Petroleum Exporting Countries (OPEC) decreasing its fuel output is another simple way gas prices would jump. In fact, we’ve already seen one unexpected event cause oil prices to rise on a short-term basis. Saudi Arabian King Abdullah bin Abdulaziz Al Saud passed away Jan. 22, succeeded by Salman bin Abdulaziz Al Saud. Considering Saudi Arabia is the largest oil pro-

ducer in OPEC, this has to be considered significant. Many convenience store retailers have acknowledged they are enjoying the ride while it lasts, including publicly traded companies Speedway LLC and Tesoro Corp. C-store operators are seeing earnings rise substantially, in large part due to low gas prices. Americans reportedly were saving $630 million per day on gasoline in late 2014, compared to what they paid six months earlier. Spread out over an entire year, consumers would have $230 billion more disposable income. But nobody expects gas prices to remain low in the long term. Perhaps this is due to multiple experts predicting oil prices will rise this year. Former Royal Dutch Shell plc President John Hofmeister predicted in late January that a barrel of oil will tick up to $80 this summer, more than a 40-percent increase compared to the $45-$50 per barrel seen recently.

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MOTOR FUELS Gasoline + Diesel + Ethanol + LNG/CNG + Electric

Current Shell CEO Ben Van Beurden made similar comments, stating “the fundamentals of supply and demand will reassert themselves” and “oil prices will revert to much higher levels” in the long term. As for what “much higher levels” means, Van Beurden told CNBC a barrel of WTI crude could reach $100 in the near future, about twice the price of recent levels. OPEC’s Secretary-General Abdulla al-Badri has even loftier expectations for fuel prices. He said on Feb. 3 that oil prices have already bottomed and he believes WTI crude could push its way up to a mammoth $200 per barrel in the future. LITTLE ROOM TO DROP

Simply put, while it’s hard for oil to go much lower, any piece of news will cause oil prices to spike. For example, WTI crude rose by $3.71 per barrel on Jan. 30 alone, because U.S. drillers said they were trimming back on shale drilling.

Gas prices are certainly unlikely to reach the $3.50-$4 range as in previous years anytime soon, but sub-$2 per-gallon prices at the pump are likely unsustainable as we look toward the future. All is not lost for some gas station operators, however. One major beneficiary of rising oil prices will be alternative fuels. Although the prices of compressed natural gas (CNG), E15 and E85 still tended to be lower at the pump than traditional E10 even at oil’s lowest point, the price spread narrowed considerably as gas prices plummeted. As gas prices rise, this price spread will widen, leading to increased demand for natural gas and higher ethanol blends. In the case of natural gas, fleets may resume the process of converting their gas tanks to CNG and liquefied natural gas, a process that has slowed in the past few months. Like the economy, fuel prices are cyclical. To borrow a scene from a famous fairy tale being released as a new Cate Blanchett film in theaters this month, the clock on bottom-basement oil prices is about to strike midnight. It’s time for Cinderella to leave the ball. CSN


FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

HOW TO

How to Use Loyalty Programs to Drive Foodservice Sales By Maureen Azzato

Call tO aCtIOn: Foodservice 101

• Be sure your foodservice quality and customer service is more than satisfactory before launching a loyalty program associated with it. • Begin with frequency punch-card programs with targeted offers (for your coffee, bakery or sandwich programs, for example), and evolve from there. • Begin with easy rewards, such as price-offs and trial of new products, to build the customer database. • Solicit the help of technology providers to begin investing in a technology infrastructure to support point-of-sale data and customer information collection.

T

he foundation to build a loyal foodservice customer base must first and foremost begin with a high-quality prepared food offering. Only then can loyalty marketing programs be developed and launched to help convenience store operators create deeper emotional connections with their most valued foodservice customers. While only a few in the convenience store industry — such as Sheetz Inc., Wawa Inc. and Maverik Inc. — have loyalty marketing programs in place that include a foodservice focus, most industry programs primarily target customers with fuel rewards instead. Several Convenience Store News How To Crew experts, however, believe c-store loyalty marketing programs of the future should focus more heavily on foodservice and beverage programs, especially in an industry that views foodservice as a vital strategic sales and profit driver. “My question to the [convenience store] community is this: If you actually buy into the fact … about the critical need to develop foodservice as the primary go-forward driver of the c-store business [vs. fuel], then why not turn your loyalty program focus on its head and position foodservice first in your loyalty marketing planning?” asked Maurice Minno of MPM Consulting Group, a member of the CSNews How To Crew. An environment of low pump prices, gasoline rewards and discounts may not resonate as much with customers as they do when gas prices are high. Given the price volatility of gasoline, it is incumbent on convenience store retailers to include other strategic marketing incentives and rewards in their

64 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

loyalty programs that include important in-store categories such as foodservice, according to our expert panel. And loyalty programs are so much more than incentive offers to get customers to increase their shopping frequency or encourage new product trials. Loyalty marketing is “more about your brand and creating a distinctive, long-term and deep emotionally bonded relationship with your most valuable customers,” Minno said. One How To Crew retailer noted that a successful loyalty marketing program must alter a customer’s behavior in some positive way or it risks simply becoming a customer appreciation program that just costs the retailer money. “Loyalty programs can be “Frequent shopper “Frequ h programs help develop and extremely effective in any marketing plan, but the reinforce habits, which is very relevant to convenience structure of the program is where [operators] need to retailers given the routines that many shoppers go spend time,” he said. “Retailers need to create prothrough every day unconsciously,” Bishop said. “The grams that will make their best customers spend more downside is these programs may not help create stronwhen they are in the store and/or come into the store ger emotional connections, which means the shopper more frequently.” could defect if he or she becomes aware of, and is Loyalty program strateexposed to, a better offering.” gies should take both marThe beauty of true loyalty programs keting and merchandising — although they are more expensive to into account, according to build, execute and manage — is they can Foodservice 201 David Bishop, managing support different customer rewards based partner with Balvor LLC on past purchases and overall program • Focus on building your foodservice and a How To Crew memstatus, according to Minno, who added brand so it resonates personally ber. “From a marketing that program member communications, with customers. perspective, loyalty stratepromotions and rewards also can be indi• Continue to invest in technology to gies should enhance the vidualized and specialized. ensure systems are current and will relationship between the Other benefits of true loyalty programs be able to support future loyalty proshopper and the retailer, are that they can offer a broad array of grams and enhancements. whereas the merchandising program alternatives, facilitate product • Use your database information to view would be to increase recalls, and enable operators to segment create different profiles of customer spending levels,” he said. foodservice customers and offer customusers so you can tailor foodservice “How a retailer approachized marketing initiatives, he noted. marketing programs to them. es both will be different in While foodservice loyalty programs are • Use targeted email marketing camterms of execution, but the still in their infancy in the convenience paigns, limited-time offers and bonus power is in implementing store industry, Minno said most successoffers to drive customer frequency plans to deal with both.” ful programs call customers to action and rewards. While many c-stores with a trial purchase of a specific or new • Begin planning for a more comprecurrently use low-tech product, and offer “hooks” for future purhensive, proprietary customer loyalty and easy-to-execute club chases. Retailers should reward customers program to more deeply engage cuscard and frequent shopper for their first trial purchase and provide tomers with your foodservice brand. punch-card programs, these easy-to-understand rewards for future purshould not be confused chases that resonate with the customer, are with technology-driven and database-driven loyalty attainable and build value over time, which will stimumarketing programs that capture customer data and late repeat purchase action and brand loyalty, he said. purchase behavior. The program should also “provide customers with

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66 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

‘upward mobility,’ [presenting them] with a clear path for how they can attain higher and higher loyalty program levels and status,” Minno said. He added that programs should also: • Promote sustained new purchase behavior with highly targeted and personalized communications; • Stimulate a positive, fun and fulfilling brandcentric experience that customers ultimately highly value and crave; and • Empower and continuously enrich a robust consumer purchase history database that allows fruitful, ongoing data mining to capture consumer trends and insights that can help operators craft innovative loyalty program promotions. app IntEgRatIOn

Several How To Crew experts point to Starbucks as the gold standard in foodservice loyalty programs. Starbucks recently integrated a payment option and other marketing activities into its multi-tiered rewards program and also increased reward levels based on how customers

engage with the brand. For example, Starbucks offers its mobile app users a higher level of incentives and rewards than it does to its loyalty card users. “Promoting the app [as Starbucks does] helps not only build usage, but also gives retailers the opportunity to utilize even more tools to drive sales with things such as geo-fencing, beacons in the store and augmented reality,” Bishop said. “It also improves the customer experience by making the checkout easier and quicker, while paving the way for other opportunities to make connections with the customer.” As loyalty programs in the foodservice industry evolve, more retailers will develop and launch apps

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68 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

that fully integrate payment options and rewards programs with other offerings to increase and strengthen customer connections, and boost convenience and engagement, according to our How To Crew panelists. In the news recently, Wawa has linked its Wawa Rewards program to its new Wawa Mobile App, which is now available for free through the App Store and Google Play. The new Wawa app, however –– similar to the Sheetz and Maverik apps — does not allow shoppers to place food orders or make purchases with a credit card. Unlike the Starbucks model, customers must purchase a Wawa gift card in order to make purchases with the app, and they must spend $50 on a gift card to earn a reward. Via the Wawa app, customers can manage their Wawa gift card, register a Wawa gift card to earn rewards, check their card balance, reload their card anytime and redeem Wawa Rewards. In addition, the app enables customers to find stores, check fuel prices in real time, view nutrition informaFoodservice 301 tion and connect with friends using • Invest in and launch customer reward social check-ins. cards and a loyalty program with tiered The next iterarewards levels to encourage deep custion of c-store apps tomer engagement with your brand. will most certainly • Develop an app that integrates the add ordering and components of your loyalty program payment capabiliand brand offering, making it easy ties, like Starbucks for customers to use all the benefits currently offers, and services. but these programs • Add ordering and payment options are more costly through the company app, making the and require strong experience more convenient and commanagement and plete for customers. focused execution. • Explore mobile wallet payment pro“The use of a grams that will reduce credit intercard or app autochange fees and maximize customer mates the loyalty convenience and usage. program and makes it easier for the guest,” said How To Crew member and former retailer Ed Burcher of Burcher Consulting. “This is the key — make it easy and become part of the customer’s routine, or the program will not be used with the frequency needed to change behavior. The other component is to allow guests to redeem accumulated points for products, which rewards your loyal guests with value back.”

Call tO aCtIOn:

70 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

How to Build a World-Class

Loyalty Program

Today’s best-in-class loyalty programs such as Starbucks’ My Rewards are successful because they drive customer loyalty with offers that are innovative, targeted and customized to specific customers with personalized communications, according to Convenience Store News How To Crew member Maurice Minno of MPM Consulting Group. To successfully develop and launch such programs in the convenience store industry requires: • Commitment. A companywide strategic commitment must be in place to create, resource, manage and continuously innovate robust loyalty program infrastructure. This includes computer systems hardware, software databases, analytical programs, dedicated and experienced program management talent, and program data analytic resources to data mine and analyze loyalty member purchase behavior. • Customer-centric company focus. Everyone in the company needs to commit to a companywide customer-centric focus, with a loyalty program that reveals and enables understanding of the retailer’s most profitable customers. • Cross-functional teams. A cross-functional administrative team is necessary to create and manage the loyalty program promotions. Team members should include professionals from foodservice, marketing, information technology, finance, social media and operations, among others. • Customer experience “touchpoint” management. All of the touchpoints customers have with a brand and retailer must be managed in new and innovative ways. These customer touchpoints are enabled by the right loyalty program that yield new insights on specific customer wants and needs, and customer segment trends by group. • Loyalty program software. Partnering with the right loyalty program software provider is essential in today’s technology-rich operating environment. The right loyalty program software partner can facilitate ongoing program innovation and success. Starbucks, for example, partnered with BigDoor in 2012 to take its rewards program, launched in 2008, to new heights.


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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

ShOppER InSIghtS & tEChnOlOgy

Most retailers develop loyalty marketing programs to enhance sales, but they also do it to gain access to important shopper data and insights. “Loyalty strategies that provide strategic shopper insights can produce even stronger economic value than focusing only on rewards,” Bishop said. “A loyalty-based program enables this for most retailers and being shopper-centric in their analytics is the catalyst for bringing the program to life.” Loyalty programs yield vvast amounts of data on customer habits and o needs. For retailers to n lleverage this data, “they sshould develop profiles of individual customo eers and create targeted offers that increase the lifetime value of that c-store consumer,”

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said Tim Powell, a foodservice consultant with THINK Marketing and a member of the CSNews How To Crew. “Marketers then need to decide on the type of loyalty program to employ, such as rewarding consumers in a sought-after age group, income level or gender. Still, it’s fundamental to reward your heaviest users.” The data can help retailers gain a deeper understanding of who is buying what, and reveal opportunity gaps. A retailer can then begin to develop a process for learning why others may not be purchasing these products. “For example, a retailer may identify that females under-index relative to prepared food purchases,” Bishop said. While the data won’t reveal why that is, “it will help the retailer focus on what to test based on data-driven opportunity gaps.” The biggest issue facing c-store foodservice marketers is the ability to collect market basket data, tie it to a customer loyalty database and act on that information in a way that is both timely and meets the specific needs of the loyalty program, according to Minno. Most if not all of today’s point-of-sale systems marketed


to the c-store industry use the NACS XML Data Interchange Standard for market basket data, and most provide for system integration with current loyalty program technology companies. And of course, there are myriad companies that offer loyalty programs. Before selecting a program partner, retailers should clearly articulate their goals for the program and how they want it to evolve over time. This will ensure that the solution partner a retailer selects will be able to keep pace with its future needs. “Knowing what you want and having it before you need it is the key,” Minno said. Many retailers also underestimate the important role strong database management plays in a loyalty marketing program. “Loyalty is just one piece of database management. In order to make it successful for the long term, it is a good idea to have a role created specifically for database management,” Powell said. “Many retailers ignore the costs and overhead of such programs and it is essential that it be structured and operated effectively.” Other loyalty program costs to consider include recruiting new customer members, initial sign-up offers, administration, marketing costs and cost of interaction (if there are help lines, for example), he added. CSn

Our How To Crew David Bishop — Balvor LLC Ed Burcher — Burcher Consulting Joseph Chiovera — XS Foodservice & Marketing Jack W. Cushman — Nice N Easy Grocery Shoppes Dean Dirks — b2b Solutions Eric Giandelone — Mintel Foodservice Kane Kulas — CSM Bakery Products Michael Lawshe — Paragon Solutions Mathew Mandeltort — Eby-Brown Co. Larry Miller — Miller Management & Consulting Services Maurice Minno — MPM Group Paul Pierce — Pure Plates Tim Powell — THINK Marketing Chad Prast — Murphy USA Inc. Bonnie Riggs — The NPD Group Jennifer Vespole — QuickChek Corp. Jerry Weiner — Rutter’s Farm Stores

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WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 73


TOBACCO Cigarettes + Cigars + Smokeless + E-Cigs + Other OTP

Now Trending Vapor products continue to evolve, but e-cigarettes still command respectable sales By Melissa Kress

I

t seems so long ago now, but it was just about five short years ago that electronic cigarettes were the new kid on the block. In truth, their popularity really only hit its stride about three years ago. Already, though, there is talk e-cigarettes have peaked. Walking around the show floor at the 2015 Tobacco Plus Convenience Expo in Las Vegas in late January, one could believe the situation is so. While e-cigarette manufacturers still exhibited at the event, a far larger amount of floor space was dedicated to other vaping products such as open-systems, e-hookahs and e-liquids. Is that the future? Industry insiders say yes and no. “In 2015, we will see a continuation of the trend toward large-scale devices, tank systems, multi-function vaporizers, mods — those types of products,” said Jan Verleur, CEO and co-founder of Miami-based VMR Products. “I think you will certainly see e-liquids contin-

74 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

ue to be a driving force at retail and likely will, at some point in time throughout the year, surpass the volumes of disposables and some of the legacy retail products.” To that point, as a function of its partnership with National Tobacco, VMR is adding to its current six retail SKUs with nine SKUs that are more focused on the open-system segment of vapor products, large-scale devices and e-liquids, Verleur noted. A new report by Barrington, Ill.-based sales and marketing firm Balvor LLC highlighted that sales of electronic cigarettes were up almost 14 percent in December vs. the prior year — a stat derived from analyzing total chainwide sales across participating retailers. However, this figure likely understates the growth that many retailers are experiencing as the Balvor Retailer Composite, which equalizes chainwide data to an “average per store week,” revealed that dollar sales


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other hand, the company’s open-system business saw great growth last year. DispOsing DispOsABles?

Green Valley Grocery does a brisk business in disposable e-cigarettes, but will be adding more refillable vapor products and rechargeable e-cigs later this year.

are up more than 25 percent year over year. The firm also found that consumers are following the innovation in the segment. Notably, sales share of disposables has gone from more than 60 percent to less than 30 percent in just 18 months. Rechargeables are now the dominant system type, while refillables have captured nearly 15 percent of sales after experiencing explosive distribution gains in the last several months. “The END [electronic nicotine device] category continues to evolve with innovations that better satisfy what consumers crave,” explained David Bishop, managing partner of Balvor. “Having the ability to more quickly identify, understand and respond to changes in the marketplace is key for retail growth, which ultimately also benefits manufacturers that are truly committed to providing better product alternatives.” John Wiesehan Jr., CEO of Charlotte, N.C.-based Mistic Electronic Cigarettes, a division of Ballantyne Brands LLC, acknowledged that his company needs to keep innovating in order to meet consumers’ needs as the segment shifts away from cig-alikes toward open systems. He said Mistic’s electronic cigarette business was good in 2014, but “not off the charts.” On the

VMR Products is adding more SKUs focused on the open-system segment of vapor products. 76 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

Does this mean first-generation electronic cigarettes, like disposables, are going the way of the phone booth? Not necessarily, according to at least one convenience store retailer. Green Valley Grocery in Las Vegas still does a brisk business in electronic cigarettes, with the blu and NJOY brands particularly standing out in its stores. Disposable products remain the largest portion of the chain’s vapor segment, said David Crawford, vice president of operations. “The disposable [segment] is our biggest vapor [segment] and it’s led by blu. Rechargeable and refillable products can be hit or miss,” he said. “Customers seem to be a tech-savvy bunch. Quality and function are just as important as price. Maybe more so.” According to Crawford, Green Valley Grocery began adding next-generation vapor products to its mix about six months ago and intends to keep up with the trend. Still, electronic cigarettes and vaping products make up only a small percentage of the retailer’s tobacco category. “The technology and the customer demands are both changing; retailers need to keep up,” Crawford said. At the same time, he doesn’t see his disposable business declining. “I don’t see disposables going down any this year,” he said. “We might sell more of the other products as things evolve and new programs come out. The category might grow a little bit, which will bring some of the other guys in. But disposables are still pretty strong.” shOp ArOunD

Going forward in 2015, Green Valley Grocery will be adding more refillable vapor products and rechargeable e-cigarettes. At this point, Crawford said e-liquids are selling well, but the vaporizer devices are slow movers. “If you are going into a c-store, you probably already have the device. You are just looking for a flavor,” he explained. Which brings up the subject of competition from vape shops. Vapor manufacturers that have been in the c-store space from the beginning are well aware of the emergence of vape shops. With thousands across the country — and more opening every day — these new retail outlets play an important role in the vaping industry.


Talking Vapor Understanding the vapor segment can be made even more difficult when you don’t understand the terms. Here is a quick look at some common words associated with the segment, as defined by the Smoke-Free Alternatives Trade Association. • Cartomizer: A combination disposable atomizer and cartridge, employed by two-piece electronic cigarettes. Mistic sells its products in both convenience stores and vape shops.

Mistic is one such manufacturer turning an eye toward vape shops. The company is introducing a high-end line of e-liquids, set to launch in April, specifically 30-milliliter bottles that will be sold exclusively in vape shops. The thing about vape shops compared to c-stores, Wiesehan Jr. said, is that everyone in a vape shop is there to buy a vapor product. Justin Wiesehan, vice president of marketing for Mistic, pointed out that since the vaping segment is still relatively new and ever-changing, consumers need to learn about the products — and that’s where vape shops have the advantage. Wiesehan Jr. agrees, but believes there will eventually be a tipping point where the consumer no longer needs that education and the price and convenience of c-stores will trump vape shops. VMR, once primarily an Internet sales company, has optimized the price points of many of its products for convenience stores, big-box outlets and other similar channels. However, Verleur acknowledged that vape shops are a great market for the company. “For us, we have a very broad range of products we sell both under the V2 brands and others we manufacture,” the CEO said. “Because of that, we have some high price-point products that play extremely well in vape shops or specialty stores. We also have some products that are optimized for the faster forms of retail, which is when you are getting your morning coffee or filling your gas tank.” Vape shops have the opportunity to excel in the variety they can offer. “I think open system has a place in c-store retail. I just think it is hard to get into anything that is particularly specialized in c-store retail,” Verleur explained. “If you want every possible iteration of something, or if you want 50 different flavors, or if you want to have the $150 and $200 devices, that’s really where I think the vape shop can excel.”

• Cartridge: This is where flavored liquid containing nicotine is stored. • Disposable E-Cigarette: A single-use electronic cigarette designed to be thrown away when the e-liquid is empty. • Electronic Cigarette: A battery-powered electronic device that converts a liquid nicotine or non-nicotine e-liquid into water vapor. • Mod: Short for modification, this is a homemade or purchased design alteration of a manufactured battery, atomizer or cartridge. • Pen-Style: A style of electronic cigarette known for its resemblance to a ballpoint pen and/or a 1920’s to 1950’s cigarette holder. • Personal Vaporizer: Another term for an electronic cigarette. • Starter Kits: Can contain anything from the basics (battery and charger) to a complete assortment of parts and accessories. • Tank: A container that holds a substantial amount of liquid, generally clear so the amount is visible. • Vaporizer: The electronic component that turns e-liquid into a gas or vapor. • Vaping: An alternative word for e-smoking; the habit or pastime of using electronic cigarettes.

C-stores will still do well with some mainstay products, according to Verleur. “In the c-store environment, we are only launching four or five major flavors of e-liquids and they are flavors that we have been selling in massive quantities on the Internet and other verticals,” he said. “We have the luxury of saying let’s only take our top performers, our most-wanted SKUs to a c-store. I think a vape shop has the flexibility to carry things that move with slightly lesser velocity than you would be able to do in a c-store.” Csn

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COLD VAULT Beer + Wine + CSDs + Energy + Water + Sports + Juice + Dairy

The Beverage Wrap-Up Packaging innovation is accelerating in both packaged beverages and beer By Renée M. Covino

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an you judge a beverage by its package? Packaging is one of the most crucial factors in any industry — it not only protects and stores the product, but it also differentiates it and attracts consumers. Packaging innovation is on the rise lately, particularly in beverages. Of the 4,245 new beverage introductions in 2013, 22 percent were new packaging, according to the most recent beverage packaging research from Mintel. The research identified the importance of innovation in eco-friendly, altruistic and ergonomic packaging designs to meet consumer expectations and, to a lesser extent, innovation in aesthetic qualities to help brands stand out on a crowded shelf. “The beverage industry is continuing to recover from the economic downturn and shoppers will continue to pay attention to health, nutrition and ingredient labeling, as well as sustainable packaging attributes over design elements,” said Elizabeth Sisel, beverage analyst for Mintel. However, shoppers are not willing to put more money where their packaging preferences are. “Despite higher demands for more informative, convenient and sustainable beverage packaging, consumers do not want to [pay] higher prices.” Nevertheless, beverage manufacturers are betting on packaging investments — Anheuser-Busch’s twist-off cap aluminum bottle and the subsequent and Heineken’s slim can are recent examples of beer packaging innovation.

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Coca-Cola’s mini can is 7.5 ounces vs. 12 ounces for its standard-size can.

increase in sales volume they are hoping will follow. In the beer category, Anheuser-Busch put a packaging slant to its innovation recently with less of a focus on new products and more on the outside elements of its primary lines. “The best thing we could do for our core brands is elevate their image,” explained David Almeida, vice president of sales and wholesaler development. Last year, the company rolled out its 25-ounce can (an extra ounce as a reward to consumers) and an aluminum bottle with a twist-off cap so consumers can opt to reclose the beer. Resealable bottles and cans are also growing in the energy drinks segment as a new way manufacturers cater to the lifestyles of their target audience. According to Mintel, nearly a third of energy drink consumers aged 18-34 are interested in resealable bottles or cans. ‘MiniMize Me’

A reclosable cap is also a way to cater to consumers’ growing desire for smaller portions. Slimming down the can is another — as Heineken has done. The brewer


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COLD VAULT Beer + Wine + CSDs + Energy + Water + Sports + Juice + Dairy

is supporting its new 8.5-ounce slim can with marketing efforts such as advertising and point-of-sale that emphasize “cold to the last drop” and “perfect for any occasion” consumer benefits. “Sales of small-can offerings (8-9 ounces) grew Beverage packaging trends are influenced by overall more than 350 percent last year, delivering incremenpackaging trends. Suley Muratoglu, vice president of martal volume and profit to retailers across all channels,” keting and product management for Tetra Pak Inc. U.S. said Jonathan Simpson, director of commercial mar& Canada, who runs the company’s presence in core catketing for Heineken USA. “The small can keeps the egories including dairy, beverage and food, told Packaging liquid colder longer and has strong appeal among mulDigest these are the five critical overall ticultural consumers looking to unwind after work or packaging trends for 2015: elevate their casual social gatherings.” Shrinking packages in carbonated soft drinks Simplified are on the rise, too, as both The Coca-Cola Co. and PepsiCo Inc. push 7.5-ounce mini cans and 8-ounce and 8.5-ounce glass and aluminum Compact and Earth-friendly bottles, which can cost consumers more than lightweight twice as much per ounce, according to The Associated Press. Reportedly, these smaller cans Sport a Digitally and bottles are giving soda a sense of newness personality savvy among the growing proliferation of beverage choices, while catering to the consumer desire for more modest servings in high-calorie beverages. The health and wellness trend has set up “a tremendous opportunity for the Coca-Cola brand with our tion, Mintel noted. smaller packages,” said Sandy Douglas, Coca-Cola’s Controlling beverage consumption through pouch North American president. packaging is another innovative hit, particularly in the Smaller options are part of how the carbonated soft energy drinks arena, where consumers add the desired drink giants are repositioning their brands amid changamount of water to a pouch pack that contains the ing consumer habits around soda, according to Bonnie (often organic) drink mix. The popularity of pouches Herzog, managing director of beverage, tobacco and is attributed to their portability as well. convenience store research at Wells Fargo Securities LLC. Beyond pouches, other attributes that are acceleratSmaller offerings are a way beverage manufacturers ing because they aid in portability include lightweight are addressing concerns with caffeine and sugar conpackaging, bag-in-box and paper-based packaging. tent by allowing consumers to control their consump-

Top Packaging Trends for 2015

ACes fOr AsepTiC

PepsiCo’s mini cans offer consumers an option for portion control.

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Aseptic processing and packaging, found in Special K Shakes and other yogurt-style drinks, has helped grow the beverage category recently for Allen Brothers Wholesale Distribution, a convenience store distributor in Philadelphia that serves Pennsylvania, New Jersey, Delaware, Maryland, New York and Washington, D.C. “Not only are they a healthier alternative, but their shelf life is more conducive to the c-store,” Dave Oehlert, senior buyer, told Convenience Store News. There are also a number of “prominent protein drinks” that c-store customers are starting to substitute for a candy bar or sandwich. Rockin’ Refuel from Shamrock Foods Co. is one the distributor cited. Csn


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CANDY & SNACKS Chocolate + Non-Chocolate + Gum + Salty Snacks

Meat Snack Momentum Nutrition-conscious consumers are increasingly turning to protein-heavy snacks like jerky By Angela Hanson

A

s more consumers realize convenience stores offer more than “junk food,” there is an increased demand for functional and betterfor-you products. This doesn’t just mean fresh fruit and low-calorie snacks; the meat snacks segment is heating up and for reasons beyond flavor. “As Millennials become part of the c-store consumer base, research shows they may be more healthconscious,” said Jennifer Miller, category manager, center of store for the Chevron ExtraMile chain of convenience stores. “Protein products appeal to many consumers and can help satisfy appetite, maintain a healthy weight or build muscle.” Consumer research lately shows c-store customers want the opportunity to make healthier snack decisions. Meat snacks offer the combined benefits of low calories, fat and carbohydrates that let people feel fuller longer. Consumers are also finding new opportunities to snack throughout the day, and the proteinheavy Paleo diet has taken off in some circles. It’s a potentially golden opportunity for meat snack sups in k c a n s pliers, one encourmeat led ales of s ta r to a l ll e o aged by the fact D chann 52 nience e e v th n r o c that 20 percent of the lion fo Year 1.29 bil . $ 4 1 ly 0 h 2 g snack sales in the rou 22, ed Nov. .5 1 d 1 n e y b s k c-store channel come wee grew r, sales a e y r e from new products ov percent. every year. Clearly, . lsen Co The Nie c-store shoppers want to Source: try new things. Flavor variety is already expanding, with chili-based flavors such as Chili Lime, Chili Chipotle and Chili Honey standing out as a popular variety, according to ExtraMile, which operates on the West Coast. Different meat types, and product

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Flavor variety, different meat types and product labeling that highlights specific attributes are among the latest trends in meat snacks. Some suppliers recommend that c-stores offer “good, better, best” quality options.


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CANDY & SNACKS Chocolate + Non-Chocolate + Gum + Salty Snacks

labeling that highlights specific information such as minutes in a c-store, on average, GMO- or gluten-free, are also on the rise as brands being able to locate and attempt to stand out from the pack. get to the items they’re “Alternative proteins continue to drive category interested in will up the growth,” Kevin Papacek, director of marketing convenience factor that for Jack Link’s, told Convenience Store News. they value. “Turkey has the largest share of all alterna“Consumers tive proteins and has increased double digits want convenience C-store m eat snack for the past three years. We see opportunity at a convenience purchaser night owls s are . In a rece nt consum for growth in both new flavors of turkey store and making 37 percen er survey, t of meat snack purc products and new innovation with chicken the shopping trip hasers said they shop later than and pork.” simpler can drive 10 p.m. an 31 percen d t shop from 7 p.m. to As the segment grows, both suppliers and loyalty for your 10 p.m. Source: Co retailers should be aware that consumers are stores,” said Terry nvenience Store New Realities of s learning more about meat snacks as they buy Hancock, field manthe Aisle Study, 2015 more of them, and they won’t settle for less. ager, category leadership “As consumers get more deeply involved in the for ConAgra Foods Inc., segment, they will get pickier about the brands they manufacturer of the Slim Jim choose. They are starting to read the backs of packbrand of meat snacks. ages as much as they are reading the fronts,” noted Other suppliers recommend taking a cue from sucGreg O’Neal, director of marketing for Thanasi cessful beer category management practices by offerFoods LLC, maker of Duke’s Small Batch Smoked ing shoppers “good, better, best” quality options, Meats. “Smart brands will be focused on strong conand placing meat snacks next to protein and nutrisumer product loyalty and repeat product velocity to tion bars to capitalize on the nutritional connection survive in the category.” between them. As with any category that sees explosive growth, retailers should be cautious about what varieties of SmoothiNg the meat snacks they stock. Rather than offer as many PAth to PurChASe SKUs as possible for the sake of sheer variety, c-store All this means that operators must pay attention to market research and with the right category management communicate with their customers to find out what ent flavors and brands will get the best results. practices, c-store re frequ asers a h rc u p cent k re c a a n s In t Retailers should also consider why certain types operators should Mea oppers. re meat store sh to e s c c n f of meat snacks are coming out, such as sweeter jerky be able to maxiie rcent o conven , 32 pe at a y e p o rv h u s s products — which Thanasi warns may not be driven mize meat snack er id they consum y and asers sa a h d rc u ry p e by demand alone. sales at a higher snack ost ev store store alm c e c a n t ie a “We don’t necessarily think people are desiring more level than they shop conven aid they s . t k e n e e w rc sugar-packed jerky snacks. Consumers appear interested currently do. Step 24 pe mes a three ti s e two or in jerkies that use more natural ingredients, come in one is to make it ealiti News R ce Store n ie n 5 ve more creative flavors and ultimately provide less sugar as easy as possible Con dy, 201 Source: isle Stu of the A than snack bars,” said O’Neal. “So, why the added for consumers to find sugar? The main reason is that the sweeter jerkies are and get what they want. typically cheaper for manufacturers to produce since “We don’t hide our meat sugars drive down the total cost of ingredients while snacks. Make sure it is positioned still driving up manufacturer yields.” in a highly visible and well-lit section of the store,” Consumers are becoming aware of these “sugary said Miller of ExtraMile. “Place it near common tieshortcuts,” according to O’Neal. To ensure repeat purins — think beverages and snacks. We dedicate a prochases, c-store retailers should remember that as the motional endcap to meat snacks.” meat snacks segment grows and matures, consumer Navigation is key for driving snack sales overall, knowledge is growing with it. CSN including meat snacks. With shoppers spending only

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IN-STORE MERCHANDISING Grocery + General Merchandise + HBC + Periodicals

Another Shot for Energy Shots? A flavor overhaul by the segment leader and new entrants could reinvigorate the category By Renée M. Covino

5-hour Energy relaunched its entire product line with “new improved” flavors this year.

T

he energy shots category has taken a few shots lately, both in sales and reputation. Allen Brothers Wholesale Distribution, a convenience store distributor in Philadelphia that serves Pennsylvania, New Jersey, Delaware, Maryland, New York and Washington, D.C., confirmed it has experienced a “slight decline” in sales in the category recently. “Not only is the press attacking energy drinks as unhealthy, but disposable income is still down it seems in our markets,” relayed Dave Oehlert, senior buyer at Allen Brothers. “With the decline of gas prices at the pump, we are seeing some lift, but this time of year things are normally slow, so it’s harder to gauge the impact from low gas prices.” While sister category energy drinks are expected to see continued healthy single-digit growth, energy shots have been declining since 2013 and a continued decline of approximately 3 percent is forecasted from 2014 to 2019, according to market researcher Mintel. Current nutritional trends warn against high sugar content, the effects of caffeine and artificial ingredients, which are traditionally found in energy shots. In addition to ingredient/nutritional concerns, flavor is reportedly at the heart of the declining matter. In recent research, Mintel found that the majority of energy drink and energy shot consumers agree energy drinks taste better than energy shots, and less than

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one in five respondents said they drink energy shots because they enjoy the taste. In late 2013 and 2014, the c-store channel leader in the category, 5-hour Energy from Living Essentials LLC, addressed its brand flavor profile with new launches (a limited-edition raspberry flavor and a limited-edition cherry flavor). In addition, new marketing and a sweepstakes — a “Yummification” competition that asked consumers to share how they enjoy 5-hour Energy — were aimed at appealing to young adult men, the segment’s target consumer. This year, 5-hour Energy relaunched its entire product line with “new improved” flavors in its original offerings (berry, grape, citrus lime, orange, pink lemonade and pomegranate) and its extra strength offerings (berry, grape, sour apple and new strawberry-watermelon). Decaffeinated 5-hour Energy also has a new and improved citrus taste. The “new improved” line is already shipping and is being advertised nationally. “Over the last year, the company conducted a series of focus groups to listen to the pulse of the consumer,” Melissa Skabich, director of communications for 5-hour Energy, told Convenience Store News. “The flavor relaunch, the most significant change to the taste of the product in 5-hour Energy’s 10-year history, is a direct result of this feedback.” The company is optimistic that the better-tasting


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IN-STORE MERCHANDISING Grocery + General Merchandise + HBC + Periodicals product “will result in increased demand through the existing and new user base,” she added. Oehlert is looking forward to what the brand will do in the coming months to stay on top of the market. “5-hour continues to be the standard for shots, and we have brought in its new Strawberry-Watermelon and the reissued Cherry,” he said. “However, some rising companies, such as SK, are marketing to the next generation, trying to pull in younger consumers.” Mintel has reported on the increased emergence of smaller energy shot manufacturers, offering consumers alternatives (often natural) in ingredients and flavors, which is expected to give the category a boost. For instance, Hangover Joe’s Git-R-Done Energy is a caffeine-free and sugar-free energy shot launched in July, while Guayaki Yerba Mate Wild Berry Reishi Organic Energy Shot is a high-energy infusion made from the naturally caffeinated leaves of the South American mate tree. New packaging in pouches and bottles is also offering consumers more convenient, portable options. At the same time, new bulk products for at-home use are expected to encourage greater consumption across more occasions. CSN

Power Points • Men aged 18-34 are significantly more likely than any other group to consume energy shots. • Households with children are significantly more likely to consume energy shots than those without children. • Hispanics are the most likely ethnicity to drink energy shots; whites and blacks are the least likely. • Flickr and foursquare are the most popular social media sites with energy shot users, with more than nine in 10 visiting these sites at least every day. • Consumers are significantly more likely to drink energy shots as a pick-me-up vs. a drink replacement. • Top reasons for consuming energy shots include needing more energy during the day and being a convenient option for on-the-go. • Approximately one in five drink energy shots because they like the taste, which is significantly less compared to energy drinks. Source: Mintel, August 2014

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STORESPOTLIGHT Ricker’s

Ricker’s Next Generation A new flagship store design paves the way for the brand’s future By Danielle Romano

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ith more than 700 employees and 50-plus convenience stores, the Ricker’s brand isn’t afraid to break the mold of what traditional convenience stores have to offer. Its latest addition in the Bridgewater Development at Carey Road and 146th Street in Carmel, Ind., paves the way for future Ricker’s stores, offering customers amenities not so common in c-stores. “This store will serve as the flagship for the Ricker’s brand,” said Quinn Ricker, president and CEO of Ricker Oil Co., headquartered in Anderson, Ind. “Quality food and drink offerings in convenience stores are the future of our industry.” As Ricker explained, there wasn’t any particular reason for choosing Carmel as the flagship store location other than it is a “great property” in “an underserved part of Indy metro” that fit the demographics the brand was looking to serve.

Similarly, there wasn’t any specific inspiration for the flagship design. “We have had a lot of learnings from visiting some of the best food operators on the East Coast,” he said. “It was a combination of these visits, our belief that the future of our company is in food, continuous improvement in store design, and the heritage we have with upscale convenience that led us to this store being our flagship design. We will move forward with our next generation of new builds and roll out the offers within it to our heritage stores.” The Indiana convenience store chain’s new sleek design is aesthetically different from what one might expect a typical c-store to look like, boasting features such as a large center atrium with heavy use of stone and brick that houses a chandelier, and use of subway tile throughout the store and glass mosaic tile throughout the food and coffee areas. Ricker’s Carmel location also offers a vast spread of unique amenities, including: • A Schaerer “fresh from bean to cup” coffee machine that delivers a fresh grind pressure-brewed cup of coffee similar to a French press. The c-store also features Franke premium coffee machines for real lattes, cappuccinos and espressos. All beverage machines use reverseosmosis water filtration for the

The flagship store features Ricker’s proprietary brand of fast and fresh Mexican cuisine.

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freshest tasting beverages. • A selection of beer and wine priced lower than most liquor stores. • A Manitowoc Multiplex machine for smoothies, yogurt smoothies and shakes. • Doorless and touch-free bathrooms. • Seating for food customers. • Touchscreen ordering. • Ricker’s new proprietary French recipe cookie baked fresh daily. • The brand’s famous “RickerPop” fountain drinks. This location is also home to Ricker’s proprietary brand of fast and fresh Mexican cuisine, complete with burritos, salads, quesadillas and soft tacos, similar to the menu of a Chipotle or Qdoba restaurant, according to Ricker. “We are proud to offer such a fresh, high-quality and affordable product that is also unique to the Ricker’s brand,” the CEO said. “We prepare all food items fresh, in-store and made to order. Kiosks are in place to allow each order to be customized to the individual’s liking.” Additionally, the new Carmel location is the second Ricker’s store to carry its own brand of frozen yogurt. Also offered at the Ricker’s at 7788 SR 13 near Pendleton, Ind., Ricker’s self-serve frozen yogurt is available in a variety of flavors with a toppings bar. Aside from its food and drink offerings, Ricker’s still values its fuel brand as a high priority. The flagship location features private-label Ricker’s fuels, along with providing Lucas Oil additives in its premium and diesel fuels to increase power and fuel mileage and lower exhaust emissions. Ricker excitedly shared that this is an industry first. The Carmel location serves the brand’s mission well. “We take care of our people first by how we communicate to our people, the type of facility we build and what we put inside our stores,” he said. “If we take care of our people, the customer will get taken care of ultimately.” And the Ricker’s brand isn’t showing signs of slowing down. In what will be its fastest year of organic growth in company history, Ricker’s will have five new stores coming online this year, each with virtually the same offer and layout as the flagship location. CSN

The new store model continues Ricker’s heritage of delivering upscale convenience.

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STORESPOTLIGHT The Hub

A Hub of Convenience Opening day for this travel center-style location follows two years of prep By Angela Hanson

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he Hub Convenience Stores began its first day of business on Jan. 8, but there are already big plans in motion for the future of this new convenience store company, which offers multiple foodservice programs, a large car wash and more at its first travel center-style location. “As the first upscale convenience store in our area, we are excited to show our guests a new brand of convenience retailing — one unlike they’ve ever seen before,” Jared Scheeler, managing director of The Hub Convenience Stores, told Convenience Store News. The inaugural store is located at 191 40th St. West in Dickinson, N.D., which is on the southern edge of the Bakken and Three Forks oil patch. In the past decade, the area population has doubled, giving The Hub a major strategic business opportunity. Scheeler, the former director of operations at Minneapolis-based Bobby & Steve’s Auto World, and Chris Fitterer, a partner at North Dakota-based Fitterer Oil Co. and West Dakota Oil Co., have been working on The Hub since 2012, putting effort into creating a great team of employees, as well as great amenities in the store itself. “The Hub’s initial goals and objectives revolve around establishing a workplace culture where our team members can thrive,” said Scheeler. “To achieve this, we’ve invested the necessary time in proper hiring,

The Hub, located in Dickinson, N.D., is the first upscale convenience store in its area.

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onboarding and educational processes to put our team members in the best position to succeed.” The Hub store makes up a 7,840-square-foot building with a 2,550-square-foot car wash that features the HubWashClub, which uses RFID technology. Outside, drivers can fill up at separate gasoline and diesel fueling areas. Inside, hungry customers can choose from a variety of fresh food offerings. Options include a Godfather’s Pizza franchise, a Schlotzsky’s Deli and a Cinnabon Express owned and operated by The Hub. A proprietary grab-and-go program called The Bite is also offered. Additionally, the store has a section dedicated to healthy snacks called #healthyhub, and signature food items such as kolaches, Hubwiches (hot sandwiches in rolled dough), Boylan fountain soda, and more. “The Hub has been a labor of love for almost two years now and I’m both excited and relieved to finally be opening the doors,” Scheeler said. “Dickinson is a community that has seen many challenges in manag-

For Jared Scheeler (center), former director of operations at Bobby & Steve’s Auto World, opening The Hub has been a labor of love for almost two years.

ing the exponential growth that the oil industry has brought. We’re glad that we have been able to overcome the hurdles we’ve faced to reach this day. Now, the focus turns to delivering on The Hub’s brand promises each and every day.” CSN

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WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 93


EXPERT’SVIEW

The ABCs of Appealing to Female Shoppers There are six key areas in the store that women view differently than men

D

espite the growth that the convenience business has seen over the past few years, one factor has remained stubbornly unchanged: Convenience stores are still seen by many as a malefocused channel. And that makes itself felt at the cash register. According to The NPD Group, 55 percent of food and beverage servings in c-stores are to men, 45 percent to women. In absolute numbers, more women are coming into the store — but that’s because the channel’s been growing and attracting more customers overall. As a percentage of business, however, women have been in By Christopher Quam, the minority for years. General Mills It’s a topic so important to the industry Convenience & that my colleague Michelle DeLamielleure Foodservice and I presented at the 2014 NACS Show to share some of our research findings on the subject. In this article, I’ll summarize the key insights. Women Have Higher Expectations Than Men In our research, we’ve seen that women generally have higher expectations of the retail experience than men. They put more emphasis on factors like cleanliness, safety, convenience, service and price. Across the store, they simply expect retailers to live up to a higher standard. So, appealing to women is not just about tweaking assortment; it’s about upgrading the entire experience.

said clean restrooms are “extremely important” to them. Among men, the percentage was 38 percent. Yes, there is a difference. But think about it for a moment. Roughly five in 10 women expect a clean restroom, compared to four in 10 men. The difference is not that great. Men think clean restrooms are important as well. Appealing to women does not mean alienating men. The Six Factors Women View Differently As we looked across our research, we realized there are six key areas in the store that women tend to view differently than men, and they’re easy to remember. Just think of the first six letters of the alphabet: A, B, C, D, E and F. Here’s what those letters stand for: A: Appetizing treats B: Better for you C: Child-friendly D: Deals and prices E: Experience F: Freshness in food

A:

APPETIZING TREATS

What About Alienating the Male Shopper? If a c-store delivers an experience that appeals to women, will it alienate that core male shopper? Nope. Men think the same factors are important, too. They just don’t rate their importance as highly as women do. Let me give you an example. In a recent General Mills study of c-store shoppers, 51 percent of women

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Back in 2011, we surveyed several thousand people about their purchases of food in c-stores. We wanted to uncover the need states that were motivating them. One of the need states we uncovered revolved around sweet treats: things like candy, cookies and dessert-type items. These were often impulsive buys, purchased by


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EXPERT’SVIEW shoppers as a little reward for themselves. Shoppers in this need state were more likely to visit the store in the afternoon, and they were more likely to buy other “vices” like alcohol and tobacco. Here’s the interesting part: Women were more likely to be in this appetizing-treat mindset than men. I’m not saying that men don’t buy candy bars. Obviously, they do. But the data showed that women were a bit more likely to indulge in a sweet reward than men. Appealing to the appetizing treat shopper entails the following: • Don’t make them wait. Since treat buying is often impulsive, messaging like “You deserve it” or “Ready in seconds” (for fresh foodservice items) should appeal to that immediate gratification mindset. • Offer afternoon treat specials. Treat-seeking happened more frequently in the afternoon. Promos on indulgent items that are only valid in the afternoon can capitalize on this behavior. • Do strategic cross-promotion. Crosspromote with other indulgent food, beverage or non-food categories to increase overall basket size.

B:

BETTER FOR YOU

Women are more concerned with better-for-you items than men. In 2013, we surveyed 1,600 c-store shoppers about their attitudes toward better-for-you products in c-stores. Overall, women expressed a greater desire for better-for-you items than men. Specifically, 31 percent of women agreed that “I wish convenience stores offered more healthy food options” (compared to 23 percent of men); 22 percent of women said they would visit c-stores more often if they carried more better-for-you options (compared to 17 percent of men); and 20 percent of women said they “sometimes feel guilty” about the food they buy in c-stores (compared to 15 percent of men). Wait a second. Doesn’t this contradict what we just said about appetizing treats? I don’t think so. I think women achieve a greater balance between an occasional indulgence and the overall desire to eat better than men. For women, it really depends on the situation. Both male and female c-store shoppers have a fairly mainstream definition of better for you. Fresh foods, as well as foods that have reduced fat, sugar or calories, have the broadest appeal.

96 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

They also look for foods that contain protein, whole grains or fiber. Trendy definitions, like vegan or glutenfree, tend to appeal to a much smaller group of shoppers. No matter what better-for-you items you offer, don’t forget that taste still drives food choice. Women (and men) are not going to eat something they don’t like, no matter how beneficial it is. Appealing to better-for-you shoppers entails the following: • Lead with taste. In your messaging, show and tell shoppers how great your products taste, then mention the benefits. • Go mainstream, not extreme. Products with reduced fat, calories or sugar, as well as products that contain protein, fiber or whole grains have the widest appeal. • Focus on basket builders. Every store has at least some better-for-you items, though shoppers might not trek around the store to find them. Make it easy by bundling. Fruit, water, snack bars and yogurt are all great candidates for better-for-you bundles.

C:

CHILD-FRIENDLY

When we asked c-store shoppers if offering kidfriendly food or beverages would make them more likely to visit, the answer was no — except for one group. Women aged 18 to 34 were more likely to say that kid-friendly items would encourage c-store visits. That should not be surprising since this is a


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EXPERT’SVIEW demographic with young kids. And when you can’t leave your kids at home, your only choice is to take them along, even on quick shopping trips. As women get older, their interest in kid-friendly items evaporated. Women aged 35-plus were no more likely than men to want kid-friendly items. Appealing to moms entails the following: • Smaller portions, smaller prices. Take inspiration from quick-service restaurants with their kidsized meals. • Offer foods mom can feel good about. Look for items that combine nutritional benefits with a bit of fun for the child. • Create an appealing environment. A sense of safety and cleanliness is vital to entice women to bring their kids inside the store.

D:

DEALS & PRICES

In our research, shoppers often highlight price as a concern. With women, that concern is even more acute. For example, low gas prices were cited by 59 percent of women as “extremely important” in visiting a c-store, vs. 38 percent of men. Also, prices similar to other retailers is “extremely important” to 45 percent of women vs. 34 percent of men; and offering coupons and deals is “extremely important” to 31 percent of women vs. 18 percent of men.

Women are price sensitive because they are often the primary grocery shopper for their households. They keep the family on budget. That means they are more aware of the price of things, and more likely to raise an eyebrow at high prices. Appealing to price-conscious women entails the following: • Deliver value, not just bargains. Value can come about in different ways. For example, a deal on graham crackers, marshmallows and chocolate can be positioned as “s’mores fixings,” delivering value not just through the price, but by giving moms a fun treat for their families. • Offer deals on femalefriendly items. Deals on items with specific appeal to women (remember the appetizing treats and better-for-you items we talked about) may change the overall perception of the store’s pricing. • Focus on signage. Women are more likely to make gas-only trips than men. So, when it comes to pump and outdoor signage, think about how the products, art design and messaging could be designed to appeal specifically to women.

E:

EXPERIENCE

Women’s Top 10 Factors in Visiting C-Stores WOMEN

Convenient location The store is clean Feel safe there Prepackaged foods not out-of date or damaged Can get in and out quickly Low gas prices Prepared/hot foods are not stale or soggy Restrooms are clean Offers a wide range of cold beverages Easy to get my needs met

MEN

63% 63 62

57% 45 44

62 61 59 53 51 50 50

50 50 38 44 38 43 39

Source: General Mills Research, January 2014 * Percent of respondents rating each factor as “extremely important.”

98 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

For both men and women, the No. 1 driver of c-store choice is location. Beyond that, women place more emphasis on a variety of store experience-related factors than men. We already talked about how cleanliness, safety, speed and customer service matter to women. But there’s more to it than that. There’s that c-store “guy vibe.” Whether it’s adult magazines, gag gifts or sexist bumper stickers, certain items create an image that can dissuade female shoppers. As a respondent in one of our surveys said: “When I think of convenience stores, I think of beef jerky, beer, lottery tickets. Nothing woman-oriented.” The effect of the “guy vibe” is tough to quantify, but I think the effect is clear. Delivering a female-friendly experience entails the following: • Clear visibility, inside and out. Ensure the store


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Who are 2015’s

?

Convenience Store News is seeking nominees for our second annual Top Women in Convenience awards program, which recognizes the integral role women play across all areas of the dynamic c-store industry. We will be saluting women from the retailer, wholesaler and supplier communities in six categories: WOMEN OF THE YEAR:

Retailer, supplier or wholesaler executives of any rank who have had an exceptional impact on the success or direction of their company as well as a positive impact on the convenience store industry as a whole.

SENIOR-LEVEL LEADERS:

Retailer, suppliers and wholesaler executives who have executed strategy and transformed their business.

RISING STARS:

Retailers, suppliers and wholesalers, with job titles above store managers but below VP, who are making their mark at an early stage of their careers.

MENTORS:

Retailers, suppliers and wholesalers who have had extraordinary impact on the careers of others.

STORE MANAGERS:

Outstanding store managers at chains.

SINGLE STORE OWNERS:

Successful women entrepreneurs.

TOP WOMEN IN CONVENIENCE ADVISORY BOARD Kim Lubel, Chairman, President and CEO, CST Brands Inc. Allison Moran, CEO, RaceTrac Petroleum Gwen Forman, Vice President of Marketing, Cumberland Farms Barbara Poremba, Vice President National Retail Sales for the Foodservice in Retail Center of Excellence, Coca-Cola Refreshments Jennifer Rhoads, President and CEO, Ohio Petroleum Marketers and Convenience Store Association Joan Toth, President and CEO, Network of Executive Women Blake Benefel, Director - Trade & State Relations, Training & Compliance, Altria Group Distribution Company

DEADLINE FOR SUBMISSIONS: APRIL 3, 2015 Visit www.csnews.com/twic2015 to nominate a deserving woman for recognition, download a nomination form and complete details.


EXPERT’SVIEW made, fresh food operation in your store, you should get credit for it. Open kitchens and displays of ingredients let shoppers know your foods are as fresh as possible. • Critical condiments. If you have a traditional roller grill program, you can still get credit for freshness through a well-tended condiment bar. Fresh ingredients in a clean layout can do it without the overhead of a full kitchen. CONCLUSION

and the forecourt are well-lit, with clear sightlines inside and outside the store. Lots of parking and easy access from the street are also important. • Stress-free shopping. Aisles should be clutterfree with wide, clean spaces and easy-to-navigate shelf sets. • Evaluate your assortment. What does your assortment say about you? If it conveys a “guy vibe,” you may inadvertently be dissuading female shoppers.

F:

FRESHNESS IN FOOD

Freshness in food is fundamental to female shoppers. In fact, freshness is so important that it ranks right up there with location, cleanliness and safety as a key factor in visiting a c-store for women. At its most basic level, freshness is simple. Packaged food can’t be out of date or damaged (62 percent of women agree with that, compared to 50 percent of men), and prepared foods cannot be stale or soggy (53 percent of women concur, compared to 44 percent of men). Beyond those basics, however, shoppers recognize freshness through the ingredients in their food (real and recognizable is better), how it was prepared (in front of me is better), and how long it’s been sitting out (ideally, just minutes after it was made). Conveying freshness entails the following: • Appetizing photography. There’s a reason that cookbooks devote so much space to photos. It’s because we eat with our eyes first. Appetizing photography on posters and signage can convey freshness and quality in a way that words can’t. • Theater of food prep. If you’ve got a custom-

100 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

There you have it, the six factors that women see differently than men. Interestingly, if we look at these in order of priority — the ones that retailers should tackle first — the order is almost exactly reversed. Take a look at the data table (page 98) and you’ll see that the factors at the bottom of my alphabetical list are actually rated at the top in overall importance. Experience factors (cleanliness, safety, speed) are the most critical, followed by freshness in food, then pricerelated factors. Further down the list (not shown on the table) are the availability of sweet treats, then better-foryou items. And child-friendly brings up the rear. I believe the male-focused image of c-stores is changing. As I talk to retailers across the country and look at the latest generation of stores, many of these factors are already being addressed. That’s a great thing to see. Attracting more women means attracting new customers and new revenue, and that is a worthy goal indeed. CSN Christopher Quam is a consumer insights manager at General Mills Convenience & Foodservice. He focuses exclusively on studying consumer behavior and trends in convenience stores. Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.


HOTPRODUCTS Special Advertising Section

Legal Notice

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 101


HOTPRODUCTS General Merchandise

Payroll Check Cashing

102 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


CLASSIFIED Credit Card Processing / Merchant Services

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CLASSIFIED POS/Equipment/Supplies

104 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


CLASSIFIED ATMs

Air Vacs

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 105


CLASSIFIED Air Vacs

Pre-Paid/Cellular Products

106 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


CLASSIFIED Pos/Supplies

ATM’s

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CLASSIFIED Age Verifier

Plastics

108 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM

Services

ATMs


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Help Wanted

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86

%

of retailers

who read Convenience Store News do so because they want to find out about new products. Reach those important hard to reach retailers by advertising here in the Hot Products Section of Convenience Store News by contacting:

Terry Kanganis at Stagnito Media at 201-855-7615 for more details.


CLASSIFIED Financial Services

Scales

General Merchandise

DAVY CROCKETT HATS SELL BY THE TENS OF THOUSANDS AT $3.50 EACH. Silver Fox tails are a good seller!

You Can Scan We have: Red Fox tails, Coyote tails, White tails, Racoon tails, etc.

Leopard Rabbit Skin

Rabbit skins come in White, Natural colors, Cheetah, Tiger, Leopard, Ocelot and Black.

LARGEST FUR TAIL DEALER WITH OVER A MILLION TAILS AT LOW WHOLESALE ONLY PRICES. $100 MIN. FREE PRICE LIST.

Strips Inc. Tel.: (718) 786-3381 Fax: (718) 786-0203 http://stripsinc.tripod.com

Check Guarantee Services

Wholesale Refrigeration

WWW.CSNEWS.COM | MARCH 2015 | Convenience Store News 111


Equipment / Supplies

570 Lake Cook Road, Suite 310, Deerfield IL 60015 Phone (224) 632-8200 Fax (224) 632-8266 www.stagnitobusinessinformation.com

Harry Stagnito President and CEO 224-632-8217 hstagnito@stagnitomail.com Kollin Stagnito Chief Operating Officer 224-632-8226 kollinstagnito@stagnitomail.com

ADINDEX Altria Group Distribution Company/Numark www.insightsc3m.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Ned Bardic Senior Vice President/Partner 224-632-8244 nbardic@stagnitomail.com

Bake ‘N Joy Foods . . . . . . . . . . . . . . . . . . . . . . . . . . www.bakenjoy.com . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Ballantyne Brands LLC . . . . . . . . . . . . . . . . . . . . . . www.misticecigs.com . . . . . . . . . . . . . . . . . . . . . . . . CV3 Bazooka Candy Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 BIC USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.biclighter.com . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Korry Stagnito Chief Brand Officer 224-632-8171 kstagnito@stagnitomail.com

Cash Depot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.cashdepotplus.com . . . . . . . . . . . . . . . . . . . . . 32 CB Distributors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.21stCenturySmoke.com. . . . . . . . . . . . . . . . . . . .75 Commonwealth –Altadis . . . . . . . . . . . . . . . . . . . . 888.781.9100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,89 ConAgraFoods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Convenience Valet . . . . . . . . . . . . . . . . . . . . . . . . . www.cvalet.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Terry Kanganis Account Executive & Classified Advertising 201-855-7615 tkanganis@stagnitomail.com

DBI Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.dbidistribution.com . . . . . . . . . . . . . . . . . . . . . . 33 DelMonte Fresh Produce Inc. . . . . . . . . . . . . . . . . . www.freshdelmonte.com . . . . . . . . . . . . . . . . . . . . . . .71 Ferrero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.ferrerousa.com . . . . . . . . . . . . . . . . . . . . . . . . . 29 Forte Product Solutions . . . . . . . . . . . . . . . . . . . . . . www.forteproductsolutions . . . . . . . . . . . . . . . . . . . . .72

Kevin McKay Western Regional Sales Manager 847-49-9519 kmkay@stagnitomail.com

Global Tobacco LLC . . . . . . . . . . . . . . . . . . . . . . . . . 888.597.6653 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Goya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . salesinfo@goya.com . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Heineken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.enjoyheinekenresponsibly.com . . 19,20,79,97Regional Hunt Brothers Pizza . . . . . . . . . . . . . . . . . . . . . . . . . www.huntbrotherspizza.com . . . . . . . . . . . . . . . . . . . . .5

Kim Hansen Midwestern Regional Sales Manager 847-726-1590 khansen@stagnitomail.com

IDDBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.iddba.org . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Innovative Control Systems. . . . . . . . . . . . . . . . . . . icscarwashsystems.com . . . . . . . . . . . . . . . . . . . . . . . 62 Jack Link’s Beef Jerky . . . . . . . . . . . . . . . . . . . . . . . www.jacklinks.com. . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Kretek . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.djarumcigar.com . . . . . . . . . . . . . . . . . . . . . . . . 45 Lindt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.lindt.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73

Rachel McGaffigan Northeast Regional Sales Manager 508-385-2524 rmcgaffgan@stagnitomail.com

Living Essentials . . . . . . . . . . . . . . . . . . . . . . . . . . . www.5hourenergy.com/trade . . . . . . . . . . . . . . . . . . .87 Logic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.logicecig.com . . . . . . . . . . . . . . . . . . CV1 & 10-11 MarsUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.mars24seven.com . . . . . . . . . . . . . . . . . . . . . . . 23 McCain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.mccain4cstores.com . . . . . . . . . . . . . . . . . . . . . .67

Christina Bear Associate Brand Director 224-632-8182 cbear@stagnitomail.com

McKee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.Little DebbieCStore.com . . . . . . . . . . . . . . . .30-31

Roz Gilman Ad Manager 224-632-8243 rgilman@stagnitomail.com

Papa Johns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.papajohns.com . . . . . . . . . . . . . . . . . . . . . . . . . 68

McLane Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.mclaneco.com . . . . . . . . . . . . . . . . . . . . . . . . 14-15 Milk Pep . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.800.945.MILK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 National Restaurant Association . . . . . . . . . . . . . . . www.restaurant.org/Show . . . . . . . . . . . . . . . . . Outsert NCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.sweetandsnacks.com . . . . . . . . . . . . . . . . . . . . 43

R.J Reynolds Tobacco Company . . . . . . . . . . . . . . . www.engagetradepartners.com . . . . . . . . . . . . . . . . . . .7 Rubbermaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-17,39 Save-A-Lot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.save-a-lot.com . . . . . . . . . . . . . . . . . . . . . . 53-56 Society Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . www.societyinsurance.com . . . . . . . . . . . . . 99 Regional Subway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800.888.1848 x1736 . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Stagnito Business Information brands also produces:

Swedish Match NS, Inc./White Owl . . . . . . . . . . . . customerservice@smna.com. . . . . . . . . . . . . . . . . . . . .51 Technomic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Tillamook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.tcsjerky.com. . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Verifone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.verifone.com . . . . . . . . . . . . . . . . . . . . . 49 & CV4 World Tea Expo . . . . . . . . . . . . . . . . . . . . . . . . . . . . www.worldteaexpo.com. . . . . . . . . . . . . . . . . . . . . . . .81

112 Convenience Store News | MARCH 2015 | WWW.CSNEWS.COM


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CSN - March 2015