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55% of ATC will go to another store if their regular brand of tobacco is not available

WE’RE INSIGHTFUL

45% of ATC are very likely to consider buying a tobacco product mentioned by a store clerk

74% of ATC are very likely to consider switching stores for lower everyday tobacco prices

Source: 2014 Retail Experience Study (Altria Client Services) Š2015 Altria Group Distribution Company For Trade Purposes Only


VIEWPOINT By Don Longo, Editorial Director

A Team Greater Than the Sum of Its Parts Our “A Day in the Life” series shines a light on fast-growing CST Brands

I

n June, Convenience Store News went inside CST Brands, the second-largest publicly traded fuel and convenience retailer in North America, with 1,900 outlets in the United States and Canada. In this industry-first, multinational, multisite project, our editors obtained unparalleled access to the top executives across all of CST’s divisions: its Central Support Center in San Antonio, CST Canada in Montréal, CrossAmerica Partners in Allentown, Pa., and Nice N Easy in Canastota, N.Y. Our first interview for our annual “A Day in the Life” of a c-store chain series set the tone for the entire report and illustrated both the challenges faced by this growing “aggregator” in the c-store industry, as well as its competitive advantages (see page 22). CSNews Field Editor Angela Hanson and I met with CST Brands CEO Kim Lubel as she spent the day at a store making sandwiches, cleaning counters and interacting with customers alongside store employees as part of Corner Store Time. Corner Store Time is a program in which all CST office employees have to work in stores twice a year, while leadership executives like Lubel must spend five days a year working in the stores. Corner Store Time helps the office people better appreciate the fundamentals of the business and the people at the stores who are critical to the company’s success. Our Day in the Life series is a little bit like Corner Store Time. Covering a day in the life of a major

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

c-store retailer helps CSNews’ editors better appreciate the tasks performed by the smart, hard-working people who keep the c-store industry running, and we are proud to communicate that message to others both inside and outside the retail industry. For comments, please contact The Day in the Life artiDon Longo, Editorial Director, cles — now in their 10th year at (201) 855-7606 or — also shine a positive light dlongo@stagnitomail.com. on the quality of jobs and careers in the convenience retail industry, and help all c-store retailers recruit, hire and nurture good people for their organizations. I want to say thank you to Lisa Koenig and Melissa Ludwig for all their help in setting up our visits to the support centers and stores. And a sincere thanks to Lubel, Hal Adams, Tony Bartys and Tonjalia Green in San Antonio, Dr. Jack Cushman and Jared Sturtevant in central New York, Mario Sauvé, Stéphane Trudel and Sophie Provencher in Montréal, and Jeremy Bergeron and George Wilkins in Allentown for spending time with us. It was a genuine pleasure to spend a day in the life at a company like CST, which sees the value in not just its own people, but also in the new people that have joined the company with each and every acquisition it’s made. 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 | AUGUST 2015 | Convenience Store News 3


CONTENTS AUGUST 2015

VOLUME 51/NUMBER 8

22 | COVER STORY

INDUSTRY ROUNDUP

A Day in the Life of CST Brands

12 | Succession Plan Takes Shape at Casey’s

CSNews editors fan out across two countries for unparalleled access to North America’s second-largest, publicly-traded fuel and convenience retailer.

14 | Retailers Get More Time to Comply with Menu-Labeling Rules 15 | Eye on Growth 16 | Getting to the Core 20 | Retailer Tidbits

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 | AUGUST 2015 | WWW.CSNEWS.COM


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

BRAND MANAGEMENT Chief Brand Officer (224) 632-8171

Korry Stagnito korrystagnito@stagnitomail.com

EDITORIAL

60 84 FEATURES 60 | Category Captains Saluting 10 suppliers that show leadership in c-store category management.

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

CATEGORY MANAGEMENT FOODSERVICE

72 | Asian Reimagined Savvy c-store operators are experimenting with new flavors and fusions. FOODSERVICE

73 | Still Cooking C-store retailers expect continued growth of foodservice sales, according to 2015 CSNews Foodservice Study. TOBACCO

80 | A Choice Segment Cigars prove resilient as more flavors and sizes offer smokers variety. SERVICES

84 | Suds Up Retail car wash activity is the best it’s been in years.

DEPARTMENTS VIEWPOINT

3 | A Team Greater Than the Sum of Its Parts Our “A Day in the Life” series shines a light on fast-growing CST Brands. 8 | CSNews Online

6 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

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

EVENTS • MEDIA • RESEARCH • INFORMATION UNITED STATES MARKETS Convenience • Grocery/Drug/Mass Store Brands • Specialty Gourmet Multicultural • Green

CANADIAN MARKETS Convenience Pharmacy Foodservice

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 Director of Events Ken Romeo (224) 632-8181 kromeo@stagnitomail.com Director of Digital Strategy Matt McGuire (224) 632-8244 mmcguire@stagnitomail.com

CONVENIENCE STORE NEWS AFFILIATIONS 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. (3Q)

THE ORIGINAL

click

squeeze

change

PREMIUM MENTHOL VOLUME GROWTH LEADER

5 Y EAR S RU NNI NG

*

CARRY ALL FOUR STYLES

CIGARETTES

*Distributor Shipment to Retail data provided by MSAi, 2010-2014


CSNEWS.COM ONLINE EXCLUSIVE

TOP 5 Daily News Headlines The most viewed articles online.

Do You Know Who Uses Your Loyalty Programs?

1 | GasMart USA Files for Chapter 11 Bankruptcy The operator of 108 convenience stores and gas stations in the Midwest filed for Chapter 11 voluntary bankruptcy protection, listing debts of almost $14 million. 2 | Wawa CEO Chris Gheysens Helping Plan Pope’s Visit The c-store chain’s leader was one of 35 delegates in Rome, Italy, recently to hammer out logistics in advance of Pope Francis’ visit during the World Meeting of Families, taking place Sept. 22-27 in Philadelphia. Wawa will be a corporate sponsor of the event and donate food to volunteers, as well as 1 million bottles of water to attendees. 3 | Obama’s Overtime Proposal Raises Retailer Concerns The retail industry believes the President’s new overtime proposal could have unintended consequences.“We are very concerned with the impact that such a dramatic increase in the salary threshold may have, particularly in lower-cost-of-living areas. Undoubtedly, this is yet another regulation that will put more of a squeeze on many small businesses’ ability to grow and expand,” stated Jon Taets, director of government relations for NACS, the Association for Convenience & Fuel Retailing. 4 | America’s Richest Families Include Five C-store Dynasties Included in Forbes’ second-annual ranking of America’s Richest Families are the Haseotes family of The Cumberland Gulf Group (No. 73, $3.9 billion net worth), Sheetz family (No. 134 in a fiveway tie, $1.9 billion worth), and RaceTrac Petroleum’s Bolch, QuikTrip’s Cadieux and Wawa’s Wood families (part of a 12-way tie at No. 179, $1.3 billion worth).

POLL

5 | 7-Eleven Wins Trademark Infringement Suit vs. Super-7 Store A federal judge approved an agreement ending the trademark infringement battle 7-Eleven Inc. waged against Super 7 Food Mart LLC, a mom-and-pop York County, Pa., convenience store. The court-approved agreement forbids local store owner Asfand Khan from using anything that even remotely resembles 7-Eleven’s well-known logo.

Which product category has the best vendor relationships and support?

34%

30%

Packaged beverages

Tobacco

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

Recently, BP announced it was simplifying its rewards programs to allow customers to choose from three different cards based on their needs and wants. In short, BP realized that consumers wanted “more bang per buck and ease of use” when it comes to loyalty cards. Retailers, whether purveyors of food, merchandise or sporting goods, likely do not find this news earth-shattering. However, before they can figure out which programs are most successful and desired by customers, retailers must first understand who uses the rewards programs. For more exclusive stories, visit the Special Features section of www.csnews.com.

PRODUCT HIGHLIGHT

The most viewed New Product online.

OREO Thins

Mondelez International Inc. introduced OREO Thins, a crisp, delicate cookie that delivers the OREO taste. The serving size for OREO Thins is four cookies for 140 calories compared to three original OREO cookies for 160 calories. OREO Thins became available nationwide as a permanent addition to the OREO line starting July 13 and come in Original, Golden and Mint flavors at a suggested retail price of $4.59. The product launch will be supported by a 360-degree marketing campaign that includes a “Thinvitation” to fans on OREO social channels, giving them a code for a free taste while supplies last. Mondelez International Inc. Northfield, Ill. (855) 535-5648 www.mondelezinternational.com

16% Malt beverages

13% Candy

7% Other


LOOK WHO’S ON A ROLL.

And

A MUFFIN.

And

A CRUMB CAKE.

INTRODUCING PILLSBURY MINIS IN 4 CRAVEABLE VARIETIES Pillsbury® Minis deliver the homemade appeal your customers crave right to your packaged bakery set. And 96% of consumers agree that Pillsbury Minis would be easy to eat on the go*. So give them the quality baked goods and fresher look they want, in a resealable container that’s perfect to grab and go.

D I S C O V EPILLSBURY R P I L L S BMINIS U R Y AT M I N I S AT DISCOVER

generalmillsconvenience.com *Pillsbury Packaged Baked Goods Study, Base = total respondents (n=202), April 2015. ©2015 General Mills


INDUSTRYROUNDUP FAST FACT

Ninety-three percent of convenience store chains offered some type of foodservice promotion in the past year. The top promotional activities around this category are social media (cited by 53.5 percent of chains), loyalty programs (46.5 percent) and paper coupons (27.9 percent). Source: Convenience Store News 2015 Foodservice Study

QUOTABLES

“I wake up excited every day for what’s just around the corner for Corner Store. We’ve got a great team and we’re having fun.” — Kim Lubel, CST Brands Inc.

Succession Plan Takes Shape at Casey’s President Terry Handley will take over top post when CEO Bob Myers retires next year

C

asey’s General Stores Inc. Chairman and CEO Robert J. Myers will retire from the chief executive post when the convenience store retailer’s 2016 fiscal year ends April 30. Casey’s board of directors has tapped Terry W. Handley to be president and CEO upon Myers’ retirement. Handley is currently Casey’s president and chief operating officer. Myers, 68, will continue to serve on Casey’s board. “It has been a privilege and an honor to be part of the great Casey’s family for the past 26 years and to serve as CEO for nearly a decade,” Myers said. “While I am proud of all we have accomplished together, I am equally excited for the future and watching Casey’s continue to expand its presence throughout the Midwest. I am extremely confident that under Terry’s leadership as CEO, Casey’s best days are ahead.” William C. Kimball, Casey’s lead director, thanked Myers for his “extraordinary contributions” during his past nine years as CEO of the c-store retailer.

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

“During his tenure as CEO, Bob has overseen significant and profitable growth as Casey’s has built and acquired nearly 500 stores, while enhancing the performance of our existing stores through strategic remodels, customer-oriented initiatives and new product offerings. Under Bob’s leadership, total shareholder return has increased more than 330 percent — triple that of the S&P 500 — and has positioned Casey’s favorably for future growth and value creation,” Kimball said. Handley has worked for the Ankeny, Iowa-based retailer for the past 34 years. During that time, he’s served Casey’s in a variety of roles, including director of marketing, store operations regional manager, vice president of foodservice and senior vice president of operations. “I am grateful to the board for its vote of confidence and to Bob for his mentorship over the years,” Handley said. “I look forward to working closely with the board, our talented management team and employees to continue to drive shareholder value.”


INDUSTRYROUNDUP

Retailers Get More Time to Comply With Menu-Labeling Rules Food and Drug Administration delays start until Dec. 1, 2016

T

he Food and Drug Administration (FDA) delivered good news to convenience store retailers on July 9. The agency announced it would push back the deadline to implement new menu-labeling requirements by one year. Convenience stores, restaurants and other qualifying establishments now have until Dec. 1, 2016 to comply with the new federal menu-labeling rules. The FDA extended the deadline after restaurants and retailers stated they needed more time to put the new rules into place. The ongoing process includes training workers, installing menus and menu boards, and developing software for more efficient and specific calorie label displays. The new rules require caloric information be listed

on menus and menu boards in chain restaurants, similar retail food establishments and vending machines with 20 or more locations to provide consumers with more nutritional information about the foods they eat outside the home. Multiple food retail industry organizations applauded the deadline extension, including the Food Marketing Institute (FMI). FMI plans to continue working with both the FDA and Congress to address business challenges with the implementation of restaurant menu labeling in food retail stores, though. The trade group’s president and CEO Leslie Sarasin said H.R. 2017, the Common Sense Nutrition Disclosure Act of 2015, is still among the critical pieces of legislation pending for the food retail industry.

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eye on growth n Energy Transfer Partners LP (ETP)

dropped down 100 percent of Susser Holdings Corp. to Sunoco LP for approximately $1.94 billion in cash and stock. The transaction, which closed July 31, consists of Sunoco LP paying ETP $970 million in cash, as well as issuing 22 million units of its stock. n CrossAmerica Partners LP closed

its acquisition of the Charleston, W.Va.-based One Stop convenience store network on July 1. The master limited partnership paid $183.9 million in cash, which came from its credit facility. n Fuel USA LLC made its first foray into the conve-

nience store industry by acquiring all the assets of Workman Oil Co. The deal included 52 c-stores in Virginia and Kentucky. Workman Oil was also a wholesaler to 19 dealer locations in Virginia. n Love’s Travel Stops &

Country Stores opened its second Love’s Storage Solutions facility in Texas. It will open six more facilities in the next few years. Two are scheduled to open in Las Vegas and one in Bridgeton, Mo., by next summer. n Weigel’s is expanding its footprint beyond Knoxville,

Tenn., for the first time, with new stores planned for the Chattanooga area. The first store is slated to open in the spring. Company officials are looking at putting up four stores in the area initially.

GoCubes™

fresh at its best Placon’s Fresh ‘n Clear™ GoCubes take the classic square container and give it a look that will draw customer attention and keep foods looking better and tasting fresher, longer. Use GoCubes bases alone or add the universal three-compartment insert tray to eliminate the need for weighing and measuring ingredients, reducing prep time and providing endless opportunities to mix and match foods. They’re stylish, versatile and—best of all— sustainable, made with up to 100% postconsumer PET from bottles and thermoforms.

Available in five clear-base sizes from 12 to 36 ozs.

For FREE thermoformed and injection molded food container samples, visit us at NACS booth #3354 or online at www.placon.com.

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


INDUSTRYROUNDUP

getting to the core C-store Shoppers & Health There are many ways to slice the “better-for-you” trend

T

wenty percent of convenience store shoppers say “low calorie” is the most important characteristic among “better-for-you” food options, but almost as many cite “low fat” (19 percent), “low sodium” (17 percent) and “sugar-free” (16 percent) as important features of healthier products. The results of a recent study conducted by Carbonview Research, a sister company of Convenience Store News, shows c-store shoppers have different ideas of what constitutes a healthier choice. The research — the first in a new series of c-store reports that will be provided exclusively to CSNews by Carbonview Research — was conducted among 505 adults who shopped at a convenience store in the past six months. One thing is apparent from the results: Age is a huge purchasing indicator for “better-for-you” products.

Which characteristic is most important to you when choosing a “better-for-you” product? 20.2%

Low calorie

19.4%

Low fat

17.0%

Low sodium

15.6%

Sugar-free

10.9%

Added vitamins/minerals

3.6%

Gluten-free

2.0%

Calorie-free Base: 505 total respondents

“Better-for-You” Purchases at C-stores vs. Supermarkets PURCHASED AT CoNvENIENCE SToRE

Sugar-free Low calorie Low fat Calorie-free Added vitamins, minerals Low sodium Gluten-free

25.7% 22.6 21.2 16.4 16.2 13.3 7.3

PURCHASED AT SUPERmARkET

46.1% 56.0 53.7 39.0 45.0 48.1 25.9

HAvE NoT PURCHASED

47.5% 38.8 38.2 55.2 49.9 47.1 71.1

Age is a big indicator of “better-for-you” purchasing: Those aged 18-24 were most likely to purchase each of these types at a c-store with the exception of gluten-free, where 25- to 34-year-olds were highest.

Men are more likely than women to cite “low fat” as an important characteristic.

23%

16%

Base: 505 total respondents

Which of the following would influence you to try a new foodservice item at a convenience store? Free sample Price discount Coupon Want to collaborate and share expertise with your peers? The Council of Retail Experts (CORE) is an exclusive network of convenience store retail leaders who do just that. For more information on how to join CORE, please visit www.cvcoreinsights.com.

16 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

Bundled discount with other products

59.2% 52.3% 37.8% 19.8%

Base: 505 total respondents

Responses from men and women were similar concerning price-based influencers. However, when it comes to free samples, women are more likely to respond (63 percent vs. 55 percent).


IMPROVES SIGHT

© 2015 McLane Company, Inc. All rights reserved.


IMPROVES INSIGHT

THE McLANE LAB STORE: POWERFUL INSIGHTS, PROVEN RESULTS. The McLane Lab Store combines the knowledge of our experienced category managers and supplier partners with McLane’s extensive data warehouse to provide you with objective sales data and market insights down to the zip code level in order to determine the best product mix scenarios and key selling opportunities for your stores. The McLane Lab Store allows you to: replace low-selling products with topselling products, get a real-time view of the latest and most efective ways to merchandise key categories, create a year’s worth of planograms in one visit and experience category sales increases, in some cases, by double digits. To learn more visit, mclaneco.com/goto/labstore


INDUSTRYROUNDUP

Improve your productivity, increase sales revenue and improve margins through enhanced automation and reporting.

retailer tidbits n Ricker’s Convenience Stores raised

its entry wage to $9 per hour on July 1, with hourly pay increasing to $10 after successful completion of one year of employment. It will also make managerial team member wage adjustments as part of the initiative.

Store

n Kwik Trip Inc. celebrated its 50th

anniversary at its support center on July 10. President and CEO Don Zietlow said Kwik Trip has grown larger than he ever expected when it began five decades ago — reaching $4.8 billion in sales last year.

www.addsys.com

800.922.0972

sales@addsys.com

n GasMart USA Inc. and

its 42 Jumpin’ Jimmy’s convenience stores and gas stations will continue to operate during the bankruptcy process thanks to a $1.55-million loan. It filed for Chapter 11 voluntary bankruptcy protection, listing debts of almost $14 million. n BP has reached an $18.7-billion

settlement with five Gulf Coast states. The pact brings to a close a legal battle stemming from the company’s 2010 Deepwater Horizon accident. n Shell Oil Co. is considering drop-

ping the word “oil” from its name. The proposal comes as Shell focuses more on natural gas and other alternative fuels. n Kum & Go LC’s new downtown

Des Moines headquarters will be be constructed for LEED certification and feature glass on all sides to provide transparency and light throughout the building. The retailer expects to break ground this fall.

20 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM


Cover Story

A Day in the Life of

CST Brands

CSNews editors fan out across two countries for unparalleled access to North America’s second-largest, publicly-traded fuel and convenience retailer By Don Longo

W

e pulled into the parking lot of CST Brands Inc.’s Corner Store in Boerne, Texas, at around 8 a.m., where we were greeted by the company’s director of communications, Lisa Koenig, and regional operations vice president, Dave Mock. Convenience Store News was on hand this hot, humid Texas morning to see what for most companies would be an unusual sight: the CEO of a nearly 2,000store retail colossus working behind the counter sideby-side with hourly employees. Kim Lubel, chairman, president and CEO of the young convenience store chain that was spun off from Valero Energy Corp. in May 2013, was doing her Corner Store Time, a program in which all office employees have to work in stores twice a year, while leadership executives like Lubel must spend five days a year working in the stores. Corner Store Time helps the office leadKim Lubel ers better appreciate the fundamentals of the business and the people at the stores who are critical to the company’s success. For this year’s CSNews “A Day in the Life” of a

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

c-store retailer series, CST Brands, the second-largest, publicly-traded fuel and convenience retailer in North America, gave CSNews editors unparalleled access to interview and shadow top executives and key managers across all the company’s far-flung divisions: from Montréal, to central New York, to Allentown, Pa., to the retailer’s central service center in San Antonio. Our day in the life of CST Brands started off with a firsthand look at one of the retailer’s recently introduced core values: servant leadership. We spent the morning with Lubel, watching her interact with associates and customers, and perform such tasks as squirting cream filling into Corner Store’s signature Whoopie Pie Bites dessert cakes, while also talking about the retailer’s growth plans, the company’s spirit of collaboration, and the effort to establish the Corner Store brand across North America. One of her main goals is to cultivate a separate identity for Corner Store from the Valero fuel legacy. Lubel told CSNews that CST’s recently acquired Timewise convenience stores in Texas — most of which sell Shell fuel — are being rebranded as Corner Stores so the company will see how consumers react to a Corner Store that doesn’t sell Valero fuel. CST purchased the 22 Timewise c-stores in Texas from Landmark Industries in early 2015. This branding initiative is supported by research initially conducted in the Houston market that unveiled two key conclusions: Corner Store has very low name recognition, but when customers shop Corner Store, they keep coming back more often than to competitors.


“If I can bring more people into the store for their first visit, I know we can retain them for future visits,” Lubel said about the research that revealed Corner Store’s weaker brand recognition but strong customer retention rates and loyalty. Growth & InnovatIon

The current model for CST’s new-to-industry stores dates back to 2006. The Boerne store we visited is 4,650 square feet. The retailer also operates a larger model of 5,500 square feet, and one of its largest stores — across from the University of Texas at San Antonio — is 7,000 square feet and contains a full sitdown Subway franchise. The company also operates more than 800 smaller legacy stores that Lubel insists are still very important to the company. Growth plans for 2015 include adding 35 to 40 more new-to-industry stores in the United States this year. Across North America, CST expects to open between 45 and 52 stores this year, representing an accelerated expansion from the 60 new stores opened the previous two years and the total of 42 stores

opened during the five years prior to that. The company’s leaders are currently working on what the Corner Store of the future will look like. From top to bottom, everything is under review. They hope to debut their first store of the future in 2016. “We still have more work to do on building the brand,” said Lubel, but she feels a lot of progress has been made in a short time. Through the core value of servant leadership, Lubel hopes to accelerate building the brand while spreading best practices and nurturing the spirit of collaboration throughout the retailer’s widespread network from Southwest U.S. to Eastern Canada. “We’re not taking over; we’re coming together” is the message Lubel emphasizes to each of the companies acquired by CST Brands. Whether an idea comes from Corner Store Time in the field, from one of the recently acquired companies or from one of the numerous employee roundtables conducted around the continent, CST is learning and enacting numerous changes in an amazingly nimble way for a company its size. For example, Lubel was

WWW.CSNEWS.COM | AUGUST 2015 | Convenience Store News 23


Cover Story

visiting a store when she saw the food manager make miniatures of Corner Store’s signature Whoopie Pies for customers to sample. Customers loved the small, sample-sized dessert, but some commented that the full-sized item was too big. “I said, ‘Why don’t we sell this smaller-sized item for people who think the full-size Whoopie Pie is just too much.’ So, we created Whoopie Pie Bites, a smaller version of the Whoopie Pie.” Whoopie Pie Bites are baked and filled in-store and have been such a hit with customers that they have surpassed the full-size Whoopie Pies in sales. Whoopie Pie Bites come in various flavors, the newest being peanut butter-chocolate. Lubel said Corner Store sold more than 2 million Whoopie Pie Bites and Whoopie Pies last year, which is still less than the 5.5

million kolaches (a meat-filled pastry popular in Texas and a Corner Store specialty) that were baked in the stores and sold last year. One acquisition, Nice N Easy Grocery Shoppes, has proven to be a breeding ground for ideas that Lubel would like to try around the continent. “Jack Cushman from Nice N Easy is leading an effort to build the Nice N Easy kitchen concept into five new-to-industry stores we are building in the San Antonio area. The first is expected to open in October,” Lubel said. The company is also drawing on Nice N Easy’s experience as it incorporates more of a fill-in grocery mentality into its Corner Stores. The opportunity for bread, milk, edible and non-edible grocery is huge for c-stores, many of which have gotten away from grocery as they focused on improving their foodservice

Organizationally Speaking CST Brands employs more than 14,000 team members at nearly 1,900 locations throughout the Southwestern United States, New York and Eastern Canada. The company is based in San Antonio, but also operates out of three other corporate locations.

CST U.S. Service Center San Antonio No. of employees: 450 About this location: CST established its Service Center in May 2013 when it spun off from Valero Energy Corp. This campus serves as the central headquarters for CST’s network of more than 1,000 U.S. convenience stores in 10 states, primarily operating under the Corner Store banner.

CST Canada Service Centre Montréal No. of employees: 250 About this location: CST’s operations in Eastern Canada are led from this campus in Montréal. The company has more than 860 retail sites located in six Canadian provinces: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and Québec. Stores operate under the Corner Store banner in English-speaking provinces and the Dépanneur du Coin banner in French-speaking provinces.

CrossAmerica Partners Allentown, Pa. No. of employees: 88 About this location: CST acquired 100 percent of the membership interests of the general partner and 100 percent of the outstanding incentive distribution rights of CrossAmerica Partners, a master lim-

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

ited partnership, in October 2014. This partnership has doubled the size of CST’s footprint and provided a strong wholesale fuel supply business and vehicle for growth. CrossAmerica Partners distributes fuel to more than 1,100 locations and owns or leases nearly 750 sites in 21 states.

Nice N Easy Canastota, N.Y. No. of employees: 28 About this location: CST purchased Nice N Easy Grocery Shoppes, a chain of 32 company-operated and 45 franchised stores in upstate New York, in November 2014. The acquisition marked the first joint transaction between CST and CrossAmerica. The 77 stores continue to operate under the Nice N Easy banner.


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Cover Story

over the past several years. CST wants to meet that need, especially among millennials who shop more often and buy closer to need than older consumers. Examples of the stepped-up grocery merchandising were on display at the Boerne store. Three full freezer doors of frozen food — consisting of assorted entrees from meatball dinners to pizzas — is new for the retailer. Edible grocery was expanded from a 3-foot section to 9 feet, and a coffin cooler at the front of the store contains assorted packaged luncheon meats, lettuce, sausage links, brisket and cheeses. Regional Operations Vice President Mock also pointed out that the retailer, which self-distributes the majority of its inventory to its Texas stores from its central distribution center (operated through an agreement with Core-Mark), has also begun to boost its grocery selection with products delivered directly to the stores from local vendors. These include a popular line of jerky from Oma’s Choice, based in Schulenburg, Texas, and other specialty items like packaged habanero peppers, jalapeño eggs, pickled quail eggs and pickled okra. Cultural ShIftS

Another idea borrowed from Nice N Easy’s late founder, John MacDougall, is reflected on CST’s most recent anniversary T-shirts, which bear MacDougall’s noted business philosophy: “Be Nice, Have Fun, Sell Stuff & Be the Best.” The black tees also sport CST’s four core values of servant leadership, strategic thinking, entrepreneurial spirit and innovation. Creating a culture across the entire organization has been a key priority from the beginning for Lubel. A change in dress code was an early cultural shift. Under Valero, the dress code was rather formal, especially at the service center. However, now the company feels it must think like a retailer and has loosened the code. In fact, associates are allowed to wear jeans as long as they wear a company-logoed shirt. “A key piece of our culture change is that we realize that faster is better in retail,” said Lubel. The company’s core values of innovation and entrepreneurial spirit reinforce the need to be nimble and adaptable. A typical day for Lubel starts at 5 a.m. with a morning workout and school drop-off for her 14-year-old son, arriving at the office at 7:30 a.m. Of course, every day is different for a CEO, but the days when the mother of four is at the San Antonio service center are filled with meetings. There’s usually a daily meeting with her executive team. “There have been a lot of meetings about branding strategy

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CST’s Four Core Values CST Brands’ mission is to “Delight More Customers Every Day.” Four core values are at the heart of how it strives to conduct business, manage people and interact with partners. Here’s an abridged description of those core values. Servant Leadership We lead by example and empower our employees. As servant leaders, we are compelled to lead through our service to our company, our employees and our customers. As both role models and servant leaders, we are committed to the growth of our teams, learning from one another and growing our business. We are all servant leaders who support our communities where we work and live and believe in building strong communities with our time and talent. Strategic Thinking We challenge ourselves to see the bigger picture strategically and approach each aspect of our vision purposefully. We stay informed on business and market trends and align resources within the organization’s strategic business plans. Entrepreneurial Spirit We encourage the spirit of entrepreneurship throughout our organization. Exploring new ideas, embracing change, identifying opportunities for our business and our people, assessing risks and taking action are not only desired, they are encouraged and supported. Innovation We embrace the spirit of creative thinking and celebrate the innovative products and services it generates. Innovation is the value that enables us to look beyond accepted boundaries and to find new ways to grow our business and Delight More Customers Every Day. Beyond celebrating new ideas, innovation requires thoughtful execution of those ideas.

lately, and yesterday we had a meeting on our store of the future,” she said. She also regularly hosts roundtables with both office and store employees. These meetings usually involve about 10 employees providing feedback to Lubel on what’s working and what’s not. Recently, she began holding monthly new employee breakfasts, dubbed “Kolaches with Kim,” at the home office. “I wake up excited every day for what’s just around the corner for Corner Store. We’ve got a great team and we’re having fun,” Lubel said.


Managing ‘Fast & Furious’ Growth

COO Tony Bartys has a real appreciation for store-level challenges By Don Longo

T

ony Bartys, CST Brands’ senior operations vice president and chief operating officer, spends at least 50 percent of his time in the field. In recent months, much of the travel has involved the integration of the company’s numerous acquired stores from a series of deals consummated over the past 12 months. Bartys’ day starts early — really early. He rises between 3 and 3:30 a.m. and usually meets CST’s Chief Marketing Officer Hal Adams and Chief Financial Officer Clay Killinger at the CST gym in the central support center, where they work out together. He’s in his office by 6:45 a.m. to go over the morning’s fuel reports, particularly checking out crude oil prices and the direction of the value of the dollar. “I look to see where the dollar is going because that will tell me what’s going on with the price of crude,” said Bartys. “I try to see where the margin is going to be today and what it’s going to be down the road.” Bartys pointed out how technology has changed the job. “Store managers used to do the fuel pricing at the store based on surveys of the competition. Now, it’s all done electronically, right here from the office. We can change prices automatically three or four times a day,” said the executive, noting that CST utilizes PriceAdvantage’s fuel pricing software and LED store signs by Skyline Products. During the day, Bartys will have meetings with the executive team (CEO Lubel and CMO Adams) and two of his regional vice presidents who are based in San Antonio. He keeps tabs on all his regional vice presidents by phone at least once or twice a week. Out in the field, Bartys gets to as many stores as possible. “I look to see how we are treating the customers,” he said. And he doesn’t give the stores a lot of advance notice of his visit. “I like to see how things really are.” At the time of our interview, he had just returned

from visiting Nice N Easy stores in Syracuse, N.Y. “We’re getting ready to turn them over fully to our CST operations group,” he noted. “I wanted to see them to be sure we preserve all the good and unique things they are doing.” As part of the executive team of a new public company, Bartys also spends more time than in the past on meetings with investor groups. “I have to schedule my time around earnings calls, disclosure meetings and investor calls,” he explained. Bartys is quick to add that he actually enjoys Tony Bartys these financial meetings. “I used to be an accountant, so I like talking about our company and reviewing P&Ls and category margin reports.” The executive observed that even with the record fuel margins experienced by CST and many other petroleum retailers last year, “we’re working to move more of our gross profit dollars to the store side. We actually produce more gross profit dollars from store sales than from fuel sales now.” Bartys is also heavily involved in CST’s Store of the Future meetings. “We’re just starting the journey,” he said about the future store design plans for Corner Store, but he definitely foresees alternative fuels playing a role. “We have 50 to 60 stores selling E-85 now. “I see alternative fuels growing, especially in new stores off freeways,” continued Bartys. But he’s quick to add that diesel and gasoline are still going to account for 90 percent of CST’s fuel sales for the “foreseeable future.”

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Cover Story

An important part of his job is “to make our store people’s jobs as easy as possible.” His mindset is to serve CST’s store employees. “That’s why we focus on technology a lot. The constant improvement with technology takes the burden off the store managers so they can serve our customers better,” he said. From Accounting to operAtions

So, how did a former accountant gain such an affinity for the people and operations at store level? Well, according to Bartys, he was born to operate retail stores. “My personal traits are in line with what this job is all about,” he said in his office during a break in his busy day recently. “I love the interaction with people. I’m in stores as often as I can and I like seeing what the customer is buying.” After serving in the U.S. Navy and graduating from college with an accounting degree, Bartys went to work for what was then one of the Big Eight accounting firms, Peat Marwick Mitchell (now KPMG). He quickly realized he was not suited for sitting behind a desk working on ledgers. “I thought it would be more fun generating debits and credits than recording them,” he said. In 1985, he left the accounting firm and got a job as head of operations for a start-up company called Fuelman, a fleet fuel organization in New Orleans, which is now known as FleetCorTechnologies Inc. and listed on the NYSE. While hoping to take the company public after five years, Fuelman was acquired by a private company that decided to grow the business through franchising.

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

At Fuelman, working with partners who were in the c-store business, Bartys acquired a great appreciation and respect for what a c-store manager has to do. “They have to be experts in so many different disciplines — fuel systems, food, age-restricted products, human resources, management, merchandising. There’s a lot of complexity inherent in the job, as well as dealing with outside regulatory pressures.” Bartys noted that store managers then were “jacks of all trades,” while today’s newer, bigger and more foodservicefocused stores require greater specialized skills. “That’s one of the biggest changes in the past several years,” he noted. After seven years with Fuelman, Bartys said he got bored with the franchising routine. In 1991, he joined Ultramar in California, which eventually merged with Diamond Shamrock in 1996 to form UDS. He became a vice president of operations for the Western Region. Diamond Shamrock purchased National Convenience Stores in 1995 and then UDS bought the U.S. assets of Total in 1997. Store counts grew to as many as 2,200 stores before being rationalized down to 900 of the best stores from 1997 through 2007. In 2002, Valero Energy acquired UDS and Bartys became the VP of retail operations. In 2004, the Diamond Shamrock brand was changed to Valero, while the stores remained Corner Store. Bartys describes his years working at Valero as “great.” “While store sales were an important part of our business, we were part of the largest refining company in North America and selling fuel was a priority,” he recalled. “While we worked very hard to be the best, I feel like I was sleepwalking at Valero compared to the pace we are working at now,” he added. “We may have been financially immaterial to Valero, but that is not the case today. Now, every decision we make at CST matters. It’s like my early days working for a start-up and it is truly, very, very exciting.” Bartys’ biggest challenges going forward are managing the chain’s expansion and finding the right people to work at the growing company. “Growth is coming fast and furious,” he said. “We have to look forward, but at the same time, we can’t drop the ball on managing the core stores of our company.”


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Crafting a Culture

CMO Hal Adams embraces the chance to build the Corner Store brand from the ground up By Angela Hanson

W

hen CST Senior Vice President and Chief Marketing Officer Hal Adams entered the working world after graduating from the University of California, Santa Barbara, he expected to pursue what he considered his calling and become a teacher. Instead, he started on a different career path by chance and is living out a different calling to this day. “I took a job as a night manager, which was a nice title for graveyard clerk,” he said. “I did it while I was deciding my strategy on how to find a job out of college, and never looked back.” After just three months with Stop N Go convenience stores — a subsidiary of a company later acquired by CST Brands predecessor Diamond Hal Adams Shamrock — Adams was already a store manager and eventually worked his way up the chain while discovering he had an interest in merchandising and a knack for making stores look appealing. Today he’s a c-store industry veteran, yet two years since Corner Store spun off from Valero Energy, Adams is just getting started in many ways. Prior to the spinoff, “we were a small portion of a large company. Our goal was simply to help the refining company move fuel,” he said. Today, “everything we do matters. Particularly everything we do inside the store matters because as we grow our organization, we want the store, which represents stability and growth, to be the growth engine of the company.” Adams regularly wakes up at 4:45 a.m. to hit

30 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

the gym before arriving in the office by 7 a.m. Approximately 30 percent of his time is spent on the road, making visits to operations ranging from New York to Montréal to CST’s home operations in and around San Antonio. “I’m a fanatic about being in the stores. So, as much as I can be in a different market, that’s good for me,” he said. Three STepS To SucceSS

Adams’ duties during the day fall into what he envisions as three concentric circles: running the business, growing the business and strategic leadership. On a given morning, he might meet with the “well-seasoned” category management and merchandising teams, “[discussing] what’s coming up in the future or any specific issues or challenges they may be facing for the business. We might look at the forecast for what our business looks like in the coming month and the coming quarter, and we might make some adjustments to what the current business looks like.” Current plans for growing the business involve developing the company’s store of the future, which is intended to serve as a prototype for the next 10 years. The company is also at the end of a yearlong study of the Corner Store brand centered on creating a new value proposition for what the company wants the brand to stand for. “What’s the personality that Corner Store is going to have in the future?” Adams asked. “What do we want customers to think of us, and how do we want to behave?” These questions are part of creating a new culture for a new company post-spinoff, he explained, something Adams fully supports. When CST was part of Valero, the culture was more formal and cautious, but retailers are able to make quicker decisions and take more risks than refiners. He also credits CEO Lubel


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with pushing for a more casual Corner Store-branded dress code, as well as regular team bonding. “We may not celebrate with black-tie dinners and champagne, but we have kolaches for breakfast with each other once a month,” Adams said. “They seem like really frivolous and fluffy things, but they’re very strategic in putting a large company like ours together in who we want to be and what we want to stand for.” The newness of the company is also one reason why all internal and external communications fall within Adams’ purview, which he acknowledges is somewhat unusual for a marketing officer. By keeping the message and tone consistent, it reinforces Corner Store’s culture of clear and direct communication. Adams and other executive team members make a point of avoid-

viding constant feedback on what works well and what needs improvement. While many of the company’s ideas cross regional boundaries, he estimates that around 15 percent apply only to certain areas — such as poutine, which is a required item in CST’s Montréal footprint but virtually unknown in California. “We need regional people in those markets to tell us about those and to slap our hands when we forget,” Adams said with a laugh. “Having those local folks on the ground keeping you honest is really important for a centralized organization.” The executive team will also be piloting some new initiatives in response to the brand study, which provided new insights on how consumers view Corner Store. “What we found people were looking for was this connection with a human being,” Adams said. “Although Corner Store didn’t have really broad awareness at the beginning, when Corner Store was visited, we had much higher than normal retention rates. People came back to us much more often and we have begun to realize it’s because of our great people in our stores and the way they treat our customers.” One somewhat surprising result was the fact that while millennials have an image of being too busy to care about their interactions with store employees, they rated among the highest of those who want to be noticed and have a connection with A yearlong corner Store brand study underscored the importance of store employees. someone inside the store. These “connected enthusiasts,” as well as food seekers who want to try big tastes and new things, ing multipage memos and keep in mind that if they are among the customers Corner Store is targeting with can’t say what they want to say in less than one or a test program that adds numerous grocery fill-in items two paragraphs, it’s probably too complicated. at several stores. “When you have over 13,000 employees out in The biggest opportunity that Adams and the rest the field, it’s important to communicate below the of the Corner Store team faces is growth, as CST goes store manager. We need to get targeted messages to from status quo to an organization focused on expandthem,” he said. “The more we connect directly to the ing through acquisitions, organic growth and increasing people that are serving our customers, and the more same-store sales. Adams is looking forward to tackling we let them know how important they are, the better bigger goals at a faster speed than ever before — and engaged those employees are going to be.” fixing whatever mistakes are made along the way. “Every once in a while, we have to remind ourselves, ‘Hey, we’re not in the old culture anymore. This Forging connecTionS is a new culture.’ Eighty percent but fast is probably As Corner Store enters its third independent year, better than 98 percent and slow,” he said. “We can Adams is excited about crafting the future of the adjust perfect. We can never recoup time we’ve lost, so brand. His operations and merchandising teams work let’s move faster.” closely together on implementing programs and pro-

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Cover Story

Finding the Right Fit

Stéphane Trudel’s mergers and acquisitions team attracts assets into the CST network By Lauren Earle

S

téphane Trudel has only been in his position as senior vice president of mergers and acquisitions (M&A) at CST Brands since last year, but he and the rest of his team have already found great success, thanks in part to their firsthand knowledge of business integration. CST spun off from its Valero parent company in May 2013 and in October 2014, acquired Lehigh Gas Partners LP, which became CrossAmerica Partners LP. Now, CST and CrossAmerica have formed not only a partnership, but also an M&A team of four members based in Montréal, Allentown and San Antonio. Centered in Montréal, Trudel leads the team, which has completed several deals since the CST/ Stéphane Trudel CrossAmerica partnership was formed: the acquisition of Nice N Easy in New York, Timewise in San Antonio, Erickson Oil in Minnesota, and One Stop in West Virginia.

A Perfect PArtnershiP

“Once a week, I meet with the leadership team of CrossAmerica and CST and we go through the highlights of the week in M&A. This allows me to get a good feel for where people stand on each deal we’re working on,” said Trudel. “Lehigh Gas had a great reputation as an acquirer and CST has a great reputation as an operator, and marrying the two is unique, I think,” he added. “Being able to tell a seller what we’re going to do, and being able to keep to our word all through the process and execute what we’re trying to do is key.”

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Trudel said all acquisitions will be made through the joint lenses of CST and CrossAmerica going forward, because while there are two different companies, there’s only one M&A team. Growth is a top priority at CST, whether through increasing in-store sales, building new-to-industry sites or through acquisitions, with a goal of $150 million-$200 million of acquisitions a year. Trudel’s team frequently works with accounting, environmental, legal, operations and human resources, and CST even has a dedicated integration and development operations team to ensure the integration process goes as smoothly as possible. When he’s not in the Tuesday morning meeting, Trudel said he and the rest of his team spend most of their time on the phone talking to sellers and getting data, and evaluating businesses and their financial models. it All comes Down to trust

Trudel graduated with a degree in management information systems and started his tenure at CST in the IT department. He learned a lot about the inner workings of the business from this position. When he realized a move from IT was required to contribute to the company’s growth, he moved into the heating oil business, and then on to the construction/real estate group. This strong business acumen helps Trudel better understand the dynamics of potential sellers. He knows it’s not just about money to a lot of owners, who typically run family convenience businesses and want to see their core values maintained throughout the process. “We have a lot of respect for sellers, and we have a lot of respect for what they’ve built, and we want to ensure we don’t destroy that. We try to understand what makes that group special and make sure we maintain that,” he said. “When you reach that point where you feel it’s a


cst’s mission is the same in every language: Delight more customers every Day.

win-win, to me that’s the most rewarding part. And finding a company that adds something to CST is also rewarding,” he continued. the iDeAl Acquisition

There’s no shortage of acquisition opportunities in the North American c-store/petroleum market, so how does Trudel’s team hone in on the right deals? “We’re looking for as much synergy as we can with our existing business,” he explained. “We’re looking at expanding our geography with companies that lead in their location. We’re really looking anywhere in North America.” With such a strong growth strategy in place at CST, Trudel’s M&A team plays a very integral role to the future success of the company. “I think what acquisitions gets us is exposure; not only will it grow our bottom line and bring us talent, but it also opens new markets for us. We won’t necessarily go into a market and start from scratch,” he said. “Everything works together, we’re not in our own silo. When we look at networks, we always evaluate the potential of eventually building stores in that market.” cst is the PlAce to Be

Trudel said he couldn’t be happier to be part of CST during this growth period, especially when it means only positive things for the Canadian side of the business. “You feel you can contribute to the growth of the company, you feel there will be growth, and there are signs of this growth. This is the beginning of something big,” he said. “Canada is 40 percent of the bottom line of this new company. We used to be a smaller part of a large company, and Canadian retail was so small. Now to be able to lead M&A for the whole company, to me that’s an incredible opportunity.”

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WWW.CSNEWS.COM | AUGUST 2015 | Convenience Store News 35


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In His Element

Director of Foodservice Jack Cushman loves the learning curve of his new role By Linda Lisanti

A

s a professor for many years before delving into the world of convenience foodservice, Dr. Jack Cushman has always had a passion for teaching and learning. So, he couldn’t be happier for the education opportunities in his new role as director of foodservice for CST Brands following its acquisition of Nice N Easy Grocery Shoppes, his former employer. The 16-year Nice N Easy veteran, who previously served as executive vice president of foodservice and led the development of Nice N Easy’s signature Easy Street Eatery concept, is now tasked with taking the best offerings and practices from Dr. Jack Cushman Nice N Easy to CST’s Corner Stores in the U.S. and Canada, including the Dépanneur du Coin stores in Québec, and integrating them across the organization. “How do we leverage the strengths?” is the question Cushman works to answer each day. CST’s Corner Stores in the U.S. have a mature, successful offering in the morning, consisting of coffee, doughnuts, breakfast tacos and kolaches (a Czech pastry). Nice N Easy is strong at all three dayparts, including its coffee, fresh-baked muffins, made-toorder sub sandwiches and pizza. CST’s Canada stores are less robust in foodservice, but do a good business in coffee and fresh-baked muffins. Nice N Easy’s food program is one of the things that attracted CST to acquire the Canastota, N.Y.based chain, according to Cushman, noting that Easy Street Eatery is a well-established concept that’s been

36 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

around for roughly 10 years. CST leaders believe in the program so much so that they’ve decided to open five new-to-industry prototype stores in Texas with similar made-to-order offerings. The goal is to have these prototype stores up and running before the end of this year. While it’s unlikely the concept will be called Easy Street Eatery in Texas (a name was still being decided as of press time), the items on the menu will largely be the same, incorporating the morning daypart successes in Texas with the lunch and dinner successes of Easy Street Eatery. “As you move into lunch, people expect personal service and the ability to customize,” Cushman said, touting the advantages of made-toorder during the lunch and dinner dayparts. He is delighted that the program the Nice N Easy team created will now reach beyond the central New York region Nice N Easy serves. “I always knew this business model would take off coast to coast,” he said. “CST is young, smart, aggressive enough and has the capital to invest. It’s exciting for me. I’ve been waiting for this kind of opportunity. I know we can enhance the overall business model at CST.” Other examples of ways CST is “cross-pollinating” under Cushman’s guidance include Nice N Easy’s adoption of Corner Store’s Texas pecan coffee and signature Whoopie Pies. Of course, integration is not without its challenges. Since assuming the director of foodservice role at CST, Cushman has spent countless hours educating himself on the differences between operating in Canada vs. the United States. He has made many drives across the border, stopping at quick-service restaurants and other c-store chains along the way to learn. “Every time I travel, I explore,” he said. “I like to learn. I have an intellectual curiosity. This is fun for me, dealing with different procurement models, menu items, competition and customers.”


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• Some equipment used in Canada stores must have the Canadian ULC certification, which means certain equipment used in U.S. stores must be designed to meet Canadian specifications. • Some products used in U.S. stores are also available in Canada, but some are not and it is a challenge finding purveyors to ensure ingredient consistency. • Salami is a very popular pizza topping in Montréal, along with many other nuances. Along with being a team builder, Cushman understands the complexity of bringing layout and design, construction, procurement, operations and marketing Elements of the Easy Street Eatery concept are being rolled out to select Corner Stores. together to formulate success. He is building teams in various markets to achieve the Among the challenges of operating in both Canada objectives. He considers himself the “resource guide” and the U.S.: to see other people become confident and successful. • Canada is a huge country with a small popula“Kim [Lubel] talks a lot about servant leadership and tion, making distribution networks challenging. I have always believed in this philosophy, too,” he said.

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Always Plugged In

Jared Sturtevant is passionate about engaging CST’s customers in the digital realm By Linda Lisanti

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ery rarely will you see Jared Sturtevant, CST’s supervisor of digital marketing, without some type of screen in front of him, be it his computer screen in the office, his smartphone screen while on the go, or his iPad screen while at home. The first thing Sturtevant does each morning and the last thing he does each night — and pretty much all the hours in between — is monitor CST’s social media platforms, which include separate brand presences for Corner Store and Nice N Easy Grocery Shoppes. Among the social media platforms CST utilizes are Facebook, Twitter, Instagram, Google+ and YouTube. Sturtevant is also responsible for the company’s various websites, mobile apps, as well as its text messaging and email marketing efforts. It’s a lot for his two-man department to handle, but what certainly helps is that Sturtevant is passionate about digital marketing and its potential, and he truly enjoys his job. He can’t wait to see the comments pour in when he knows a social media post is going to get a good response. “We are always looking for that magical formula that resonates. Something that people relate to. Something that’s fun, engaging and gives a compelling reason to interact,” he said. The 19-year Nice N Easy veteran, formerly director of marketing for the chain prior to CST’s acquisition, has been a champion of digital marketing since he first set up Nice N Easy’s Facebook page in 2009 from his iPhone while attending the NACS Show that year. Digital marketing, however, is relatively new at CST, so the first part of this year Sturtevant spent working with his supervisors to set up a foundation for how the department would function within the overreaching marketing department. “We’re after engagement primarily [on social

media] because that’s what is going to drive interactions and ultimately drive people into our stores,” Sturtevant explained. He estimates that about 40 percent of his time is spent executing across the various platforms — social media and the apps, predominantly — and the other 60 percent is spent on the planning and strategy piece. Since the acquisition, he has been traveling to the CST Service Center in San Antonio every three weeks to meet with the rest of the marketing team. “We spend a lot of time on internal meetings, conference calls, meeting with vendors, reporting, analytics, website, SEO, local search, online display advertising, campaigns/ sweepstakes, exploring employee engagement opportunities, training, Jared Sturtevant coupons, admin, new tech, the company integration, and the list goes on,” Sturtevant said. “It really varies based on the need at the time.” On the day of CSNews’ visit to Nice N Easy’s Canastota headquarters, he was busy moderating Corner Store’s “Share a Hero” contest, a 100-day campaign that encourages customers to share stories about their personal heroes and awards one $100 Corner Store gift card every day. To enter, customers simply take a selfie photo pointing to a Coca-Cola product at a Corner Store and share it on Instagram, Twitter or at www. ShareaHero.com with the hashtag #shareahero. Entrants can feature Coca-Cola cans or bottles in their selfies labeled with the names of everyday

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Tips From a Social Guy Sturtevant shares his take on the best social media sites to use

Why You Should Use Facebook: Because it’s the largest platform with the highest percentage of people actively using it. You are able to reach new targeted audiences, large audiences beyond your page, and even competitors’ audiences. The advertising cost is still low in comparison to other marketing avenues. The analytics available are plentiful, useful and easy to access.

heroes such as “Mom,” “Dad” and “Better half.” Coca-Cola is not an official contest sponsor. One hundred people will win a $100 Corner Store gift card over the course of the campaign. Customers can enter three times per day, once on each social network, and their entry will have a chance to win every day for the duration of the Share a Hero contest. “This campaign is going to create a lot of stories that are worth sharing on social media. We can leverage the stories created by our audience to drive traffic to our stores to buy Coca-Cola, while building our audience and growing engagement,” said Sturtevant. While Corner Store’s social media audience is burgeoning, its greatest reach right now is through its mobile app where the primary target audience is millennials. “They are digital natives, they’ve been brought up with technology and they are the selfie generation,” he noted. The beauty of apps is that “app customers, like social, are people who have already committed to liking you,” which makes them a receptive audience, according to Sturtevant. For the marketing exec who graduated from college with a degree in sculpture, the creative side of digital marketing is what he finds most rewarding about his job. He admits to getting downright “giddy” when he posts something on social media that he knows is going to take off. A recent post that hit the “giddy” mark was tied in to Coca-Cola’s Share a Coke campaign and asked fans to comment with a name they cannot find on a

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Why You Should Use Twitter: Love it or hate it, it cannot be ignored. It’s great for reputation management. It’s also highly searchable and helps you reach an audience that may not be on Facebook. Twitter tends to be a less-engaged audience that scrolls more while reading a live newsfeed; that is part of what makes it difficult to get this audience to take an action (favorite, reply or retweet). Analytics and ads are a bit clunky, but they are available and useful. Why You Should Use Instagram: Instagram is a younger but broadening audience. It’s great for engagement because these scrollers tend to be quick to a post just because they like what’s in the picture and oftentimes hoping to get a ♥ back on their posts. This audience tends to be very needing of attention: follow for follow, like for like. Instagram is also highly searchable, making it easy to find and interact with posts of our Whoopie Pie truck or #CountryRun2015. Analytics and ads aren’t readily available, but third parties can provide some measures.

Coca-Cola bottle. On Nice N Easy’s Facebook page, the post got 935 comments, 172 likes and 29 shares. On Corner Store’s page, the same post got 2,370 comments, 1,184 likes and 95 shares. “Social is fast-paced, new and exciting. And it’s rewarding to see consumers engage with our brands via social media,” said Sturtevant.


A People Person

Zone Manager Tonjalia Green cultivates employees’ potential at the 74 stores she oversees By Angela Hanson

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ny Corner Store customer who happens to bump into Zone Manager Tonjalia Green on a summer afternoon is unlikely to realize that the 32-year veteran of the convenience store industry has already worked a long day, often leaving her house before 5 a.m. The selfdescribed “people person” has a way of projecting positivity to customers and employees alike as she travels from store to store. “I like working with people and developing them to their full potential, and I’m a talker,” Green said. “I enjoy this business. I enjoy the customers.” With full profit and loss responsibility for the operation of 74 Corner Store locations, Green has plenty of customers to enjoy. Seven area managers report to her on behalf of a work team made up of approximately 675 employees, but Green doesn’t rely only on secondhand information about the status of Tonjalia Green her stores that span from southeast Houston to southern Louisiana. On an average day, she is on the road visiting multiple locations. “I try to talk to everyone at every store,” said Green. She spends a lot of time listening as well, to learn what she can do to help the store and what employees need to be able to do their jobs better and more efficiently. Green isn’t just focused on numbers and the bottom line. “I like to make sure everybody’s happy and they’re enjoying their work environment,” she added. “If there’s something I can do to change that and

make that a positive environment, then that’s what I’m there for.” Green’s expertise comes from her longtime experience in positions ranging from an entry-level customer service representative to her current role. While she started out as a cashier for Diamond Shamrock, which was later acquired by CST Brands predecessor Valero Energy, she began training for management almost immediately. “I didn’t start out thinking it would be a career for me,” she recalled. “But once I got into management, I saw that I had a lot to offer, and things just worked out that way.” Today, the advancement process is slower but more thorough. Corner Store’s 90-day training program for managers focuses on on-the-job training as well as inoffice modules, and covers everything from profit/loss statements to the company’s food programs. At the same time, there’s room for less structured development. Green is known for mentoring store employees at multiple levels and doing what she can to cultivate their potential, whether that means encouraging them to train for the next level of store management or putting together a development plan that will help them become an area manager. She also organizes fun team-building activities like bowling outings for the people who report directly to her. “We often do activities where we have to count on each other to win. That brings the team closer together and breaks the monotony of them being out in the field so much,” said Green, one of this year’s Convenience Store News Top Women in Convenience honorees in the Mentors category. “We tend to talk a lot about business. My guys talk about what they’re each doing within their areas.” StandardS & Support

While she works hard to support those who work

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Green expects a lot from her team, but she is always willing to roll up her sleeves and pitch in where needed.

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under her, Green doesn’t cut corners when it comes to performance. All employees are expected to meet her high standards and if they come up short, she rolls up her sleeves and helps them get to where they need to be. “I am easy to work with, but I hold people accountable,” she said. “I love them and they would tell you I am there for them, but they will also tell you that you need to be doing everything you are supposed to do.” One of the biggest challenges Green faces is recruiting the right people who will live up to the expectations of a Corner Store employee. In an industry with lots of competition, it takes extra effort to find people who are capable of acting as the face of the company when interacting with customers. Customer service is key for Green, as is Corner Store’s food program. She keeps herself up-to-date on training so that she can personally walk employees through the process if they need to work on making a particular product. Details matter, down to the shine of doughnut glaze that appeals to customers, but Green also believes that “you can tell if food is cooked with love” and that it will bring people back again and again. “When you enjoy what you’re doing, you’re happy there,” she said. “If [employees] are happy, then we have happy customers. It kind of goes hand in hand.” Even when she’s not on the clock, Green is often still hard at work. She volunteers regularly for the Miracle League at the Langham Creek Family YMCA of Greater Houston, a sports program for children with disabilities, and has recruited some of her employees to join her. She also puts in time for the YMCA Duncan Dragons swim team and the Seabrook Lucky Trail Marathon, a benefit for The Bridge shelter for battered women. When she’s not helping others, Green focuses on self-improvement through a commitment to a nutritious diet and exercise, which was sparked by her struggle with diabetes. This lifestyle change and the ensuing positive results prompted Corner Store to name her a Wellness Warrior for its health initiative. Though she doesn’t consider herself a runner, she intended to cross the finish line at the Corner Store Country Run 5K race in Katy, Texas, on July 25. While Green is happy in her current role at Corner Store, she is excited to take on any new opportunities that might arise and become more of an asset to the company. “I really enjoy what I do every day and I’m excited to do more,” she said. “My goal is to contribute to success as much as I can.”


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A Smooth Transition Jeremy Bergeron relishes move from CST Brands to CrossAmerica Partners By Brian Berk

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here is no doubt San Antonio-based CST Brands and Allentown, Pa.-based CrossAmerica Partners will work closely together in the future. In fact, Jeremy Bergeron, who had been CST’s treasurer, has taken the reins as president of CrossAmerica. CST bought 100 percent of the general partner interest in CrossAmerica on Oct. 1, and CST CEO Kim Lubel immediately thought Bergeron was the right choice because he had already successfully set up and led a new department at CST Brands to manage the integration and development operations for CST and CrossAmerica retail acquisitions. “Our first deal was Nice N Easy,” he said. “We also purchased Jeremy Bergeron 22 Timewise locations from Landmark Industries in south Texas. Through that process, I got to work closely with the CrossAmerica team, including Joe Topper. At the same time, I was coordinating our efforts with San Antonio to ensure a successful transition for the newly acquired organizations.” Despite the prospect of facing the Northeast’s harsher winters, Bergeron is truly excited for the opportunity to lead CrossAmerica, classified as a master limited partnership (MLP). Of course, moving a family (Bergeron is married with twins, one boy and one girl) 1,735 miles — the distance from CST’s headquarters to CrossAmerica’s home — is never simple, but Bergeron said his family

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fully supported the move. “It’s a tremendous opportunity,” he said. “In eastern Pennsylvania, you are surrounded by so many wonderful locations and so much history. There is an abundance of things to experience and it’s an exciting adventure for our family. We are all thrilled to be here.” On the day Convenience Store News visited Bergeron in Allentown, it was just his second full day there. One might expect unpacked boxes to be scattered across the floor considering the situation, but Bergeron’s fifth-floor office did not show even one speck of dust. This new role for Bergeron may have never arisen if CST Brands didn’t purchase the general partner interest in CrossAmerica, then known as Lehigh Gas Partners LP. “Once we closed on the transaction to acquire Lehigh Gas, I started working more and more with the CrossAmerica leadership team,” he explained. “We bought a company that was not only one of the largest wholesalers in the United States, but also a very aggressive acquirer. We saw an opportunity for both organizations to continue that growth.” Expect CrossAmerica to acquire plenty more convenience store assets in the future. “The convenience store industry is still extremely fragmented and is ripe for further consolidation,” Bergeron relayed. “You still see the remnants of the major [oil companies] getting out of the space. Also, the MLP space is creating another avenue for growth. With our favorable capital structure here, we can get deals done.” Companies looking to shed c-store assets are interested in selling to CrossAmerica and CST because they know “we will treat their employees fairly and with the utmost respect. That makes us an attractive acquirer,” Bergeron added. As for the type of assets CrossAmerica will look to


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acquire, they must be positive additions for both the MLP and CST Brands. “There are many assets up for sale, but some really benefit both companies extremely well,” he said. “We often like either an existing market where we can further grow our footprint or an adjacent market where we want to grow further out. “However, we also still consider areas where we have no presence, but where we see it as a strong, growing market,” he continued. “We also look for opportunities to expand store sales with our offerings and leverage our buying power that can grow earnings at the stores.” Although CrossAmerica and CST will also continue to build new-to-industry, large-format stores, Bergeron acknowledged it’s difficult to build such stores in areas where the company does not already have a presence. “It’s a lot easier to acquire into that market, build around it and further grow that way,” he said. GROWING TOGETHER

Since Bergeron is still so new to the job, it’s difficult to say what his average day will be like.

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The day of CSNews’ visit was the first time he drove into the office as opposed to walking to the company headquarters from across the street at a nearby hotel. Bergeron did stress that CrossAmerica and CST will “grow together,” something that will benefit both companies. “Culture is something that binds an organization,” he said. “Joe and Kim have done a great job of instilling what they think the cultures should be. Hopefully, I can just continue that.” Bergeron knows his first year at CrossAmerica will be a learning opportunity, and he looks forward to it. “Following the announcement of my new role, I hosted roundtables and met with everyone within the CrossAmerica organization,” he recalled. “What I told them is, ‘I’m not coming in here to get you all to do things the CST way. One of the reasons CST acquiring CrossAmerica made sense for us was to leverage the strengths of both companies. Lehigh had the reputation of a strong, serial acquirer and a respected wholesaler. We came here to learn from you.’” He will get help along the way from Lubel and Topper, who will be retiring from the company in September, as well as many other employees at both CrossAmerica and CST. “Joe Topper did a tremendous job building this organization. He hired great people, many of whom have been in the industry for numerous years, and gave them the support and opportunities to flourish in their roles,” said Bergeron, who himself has served the fuel industry since he graduated from college. “What I hope to do is continue the excitement and success at CrossAmerica and share the resources and strengths CST has to offer. I didn’t come here saying I want to do this or that. It’s about me wanting to be an advocate for the team here and be of service to the whole organization.” Regarding Lubel, Bergeron said he has known her for many years and recalled when both relocated to San Antonio in 1997 to work for Valero Energy, which spun off CST in 2013. He always speaks to her on a weekly basis, and sometimes even on a daily basis. “She’s a tremendous lady; she’s extremely smart and has a passion to succeed that is felt by everyone in the company,” concluded Bergeron. “Her drive and commitment to her employees is greater than anyone else I’ve known. She wants to make sure each and every employee in the organization is valued and supported.”


A Steady Supply of Support

Wholesale Fuel VP George Wilkins loves working with station operators and his staff By Brian Berk

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rossAmerica Partners is in many ways similar to the city in which it resides: Allentown. Over the course of recent years, Allentown has experienced tremendous growth culminating in the opening of the PPL Center, a concert and sports arena, as well as the Renaissance Allentown Hotel, located adjacent to the arena and across the street from CrossAmerica’s headquarters. In fact, it is clear Allentown is no longer the bluecollar city Billy Joel sang about in 1982. CrossAmerica Vice President of Wholesale Fuel George Wilkins has seen the new Allentown buildings go up from his fifth-floor office, as well as all the growth at the master limited partnership since its initial public offering as Lehigh Gas Partners in 2012. Wilkins has held various positions within the fuel industry for 18 years. Following his graduation from Drexel University, his career began in 1997 in Mobil’s leadership training program where he learned to manage all aspects of a gas station over the course of 16 months. “As I look back at my career and decide what’s truly important, I realize that it always begins and ends with the customer buying experience within the stations. Having that 16-month experience managing the station really afforded me the opportunity to learn the fundamentals of the business and what makes a station a true success,” said Wilkins. In addition to working for Mobil, he has been employed by several other industry heavyweights including ConocoPhillips and Lukoil. These experiences have provided Wilkins with his own ideals of what best serves this industry. More than three years ago, the father of two boys and one girl was recruited by CrossAmerica CEO Topper and David Hrinak, executive vice president

and chief operating officer, to work for Lehigh Gas, which was renamed CrossAmerica Partners in 2014. He was initially hired as wholesale general manager when the company was much smaller. “It was an inspiring opportunity to go from working for Big Oil to someone like Joe Topper, George Wilkins who is a true entrepreneurial individual who created this company from the ground up,” said Wilkins. Now, as one of two vice presidents at CrossAmerica, Wilkins oversees 546 gas stations and convenience stores, approximately half of which are company controlled, while the other half are strictly supply relationships. Ten salespeople and a brand manager report to him. The key aspect of Wilkins’ job is developing the people he works with. This entails ensuring people are in the right positions. “People are the foundation of any business,” he said. “The No. 1 priority for me is to identify the strengths and weaknesses of people; utilize their skills and experience to further our business; provide training and guidance in areas of weakness to promote employees to their maximum capabilities; and encourage collaboration to ensure that the sum of the parts are greater as a whole. My goal is to create an environment of support for everyone, at every level, and provide the tools necessary to further our enterprise in a cohesive manner.”

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Wilkins, who recently earned a master’s of business administration from Villanova University, also focuses on business consultation on a daily basis. “We have a network of individuals that call on our locations,” he said. “One of their main jobs is to really engage their dealers.” One of his favorite aspects of the job is interacting with small businesses. “It is exciting to realize that you have the opportunity to make a difference,” said the exec. “Because of my prior retail experience, I have the utmost respect for the operators at our locations and I take their success personally. A tremendous aspect of my job is to ensure our territory managers and sales team understand that concept and fosters those imperative relationships.” On a weekly basis, the Mount Laurel, N.J., resident visits CrossAmerica sites. He also meets with Hrinak, Topper and new CrossAmerica president Bergeron to discuss a variety of topics, including what’s “hot” in the business, people, site operations and organizational objectives. “We have an open dialogue. If there are issues that need to be addressed, we nip them in the bud as they arise,” said Wilkins. “To have effective management, you need to have those conversations.” Monthly leadership calls with CST CEO Kim Lubel have also been added to the docket. “Our company has extraordinary leadership who are engaged and actively involved with creating solutions,” Wilkins noted. Thus far, CrossAmerica’s game plan is working. The plan has three main tenets: “We work hard, we care, and we make good decisions through a winning mindset,” he said.

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PLENTY OF PLENTI

Wilkins is also heavily involved with the Plenti program via CrossAmerica’s Exxon- and Mobil-branded gas stations. Plenti is a cross-platform loyalty program that allows consumers to earn points at one retailer and redeem them at another. For example, a consumer can fill up their tank at an Exxon station and once enough points are accrued, they can use their loyalty bonus at a participating Macy’s or Rite Aid location. Launched by CrossAmerica in early May, Plenti is currently in place at 330 locations. “The customer response has been amazing,” noted Wilkins. “Over the course of just a few months, we already experienced tremendous growth in the program’s enrollment and activity.” Plenti changes the mentality of consumers when they shop, according to the exec. “With many other loyalty programs, it takes months to earn loyalty rewards. But with Plenti, the idea is to ‘earn and burn.’ So, you earn points in the morning and burn them at night. The goal is to have enough retailers in different industries involved with Plenti so that consumers can essentially utilize those points every day.” In addition to making customers happy by delivering loyalty rewards, CrossAmerica’s Exxon- and Mobil-branded stations also gain a lot from Plenti as they can track consumer behavior. Analytics in managing data is such a critical component of establishing a personal relationship with the customer in business today. “The data allows you to see customer behavior and predicts future trends,” Wilkins stated.


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Building a Strong Brand New sites and a fresh foodservice program spell success for Mario Sauvé and CST Canada By Lauren Earle

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veryone at CST Brands is focused on growth and its Canadian division is no exception. While acquisitions have gotten a lot of attention in the U.S. market, CST Canada has been taking the more organic approach to growth with Mario Sauvé, vice president of operations in Canada, at the helm. In Canada, the plan for 2015 is to open 12 newto-industry (NTI) sites, complete three raise-andrebuild sites and remodel 20 sites, focusing on renovations and integrating more foodservice. “It’s around $60 million of investment, just in Canada, so it’s something,” said Sauvé at CST Canada’s head office in downtown Montréal. “We’ve never had that kind of money in the past Mario Sauvé for Canadian operations.” Sauvé became vice president of Canadian operations after Ultramar spun off from Valero in 2013 and became part of CST. He’s in charge of the corporate-owned network, which consists of 294 stores in Ontario, Québec and Atlantic Canada (New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador). These stores all fall under the Corner Store/Dépanneur du Coin brand, with the Transit Café proprietary foodservice program and Ultramar gas pumps. Sauvé started with the company 20 years ago as an area manager. His responsibilities recently expanded to include operations for the Nice N Easy network based out of Canastota, N.Y.

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GettinG the StrateGy riGht

With 3,000 employees under his wing, there’s plenty to keep Sauvé busy. Mondays are chock full of strategic meetings. The day starts with the fuel pricing meeting, which is integral to profits in the Canadian business. Then, it’s time to talk about growth. “In the afternoon, we have what we call the growth meeting. It’s regarding all the capital we’d like to invest in the network, so we’re talking about NTIs and the pieces of land we’d like to buy. Growth is part of our strategy in Canada, like in the U.S. We talk a lot about building new sites, especially in the Greater Toronto Area (GTA) because the population there is growing very fast,” said Sauvé, adding that while the GTA is the focus, they’re still building new sites in Québec and Atlantic Canada. Sauvé also has other meetings throughout the week, including regular calls with San Antonio, and he spends a lot of time on the road visiting sites and talking to employees and customers. Culture ChanGe

“It’s been really different since the spin with Valero and since we became CST. We used to be a refinery company and the retail business in the P&L was one line called ‘Other,’ just to give you an example. And now we’re the core business, and I love that,” said Sauvé. “The customer wasn’t our priority at that time, but now the customer is No. 1. Well, we say the employee is No. 1 and the customer is No. 2. The customer is very important, but to serve and delight customers, you need great employees.” Working with CST in San Antonio has been another positive change for Sauvé, who said he’s already established good relationships with his American counterparts. “They have a lot of respect for our culture.


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We’re working very closely with them and it’s going very well. My boss Tony [Bartys] in San Antonio spent the entire week this week in Canada, so he’s very close to our market and he understands our market very well now.” FoCuSinG on FoodServiCe

To boost in-store sales, CST Canada plans to expand its foodservice program with help from the cross-border collaboration. They look to tap into the expertise of Nice N Easy’s Cushman, who now heads up the Canadian foodservice team. “We’re working on a big foodservice project,” said Sauvé. “The objective is to take a certain number of sites here in Canada and implement the Nice N Easy food offer under the Transit Café brand, including

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the breakfast program, lunch program and also what they call the sub and melt program.” Convenience competition is fierce in Canada, and the Corner Store/Dépanneur du Coin brand will only benefit by diverging from the rest of the pack. That’s where this new foodservice program comes in. “We need to find something different and with Nice N Easy, we have the answer. They’re very strong in foodservice,” said Sauvé. With a new network to manage, NTI sites underway and a fresh foodservice program, there’s never a dull moment for Sauvé and the rest of his CST Canada team. “The environment is very positive because we’re growing as a company. When I wake up in the morning, I’m always very happy to go to work,” he said with a smile.


Putting Customers First CST Canada’s Sophie Provencher is working to enhance the in-store experience By Lauren Earle

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ophie Provencher started out on the supplier side of the Canadian c-store/petroleum industry, but since her move to Ultramar (now CST Brands) three years ago, she’s been honing her skills on the retailer side, working to create the ultimate in-store experience for customers at CST’s Corner Store and Dépanneur du Coin sites across Canada. Provencher graduated with a degree in marketing, and worked for packaged goods companies in merchandising or managing teams for retail sales. Ultramar was one of her customers, and that’s how she ended up coming to work for the company as a zone manager in Québec. Now, as the director of merchandising and marketing for CST Canada, Provencher manages 10-15 people on the merchandising team and three on the marketing team. Based in Montréal, she starts out her day by looking at sales and catching up on any news so she’s up-to-date on what’s going on in the market. Communication is also a huge part of her job description. “I’m constantly in communication with the marketing agency, with the U.S. team and with the Canadian team. A typical day would be for me not to be at my desk most of the day,” she said. “I like to go to retail, too, as much as possible, just to make sure everything we do makes sense and is relevant to the customer, because that’s the entire goal.” GivinG Customers What they Want

The convenience-gas market in Canada is a challenging one, but Provencher knows that offering the ultimate customer experience will help set Corner Store and Dépanneur du Coin stores apart from their competitors. “When you look at our business environment, there’s lots of competition out there, so the big challenge for me is just to make sure we offer the right

products at the right price, and we have the right location,” explained Provencher. Collaboration with her American counterparts at CST in San Antonio helps solidify this strategy for engaging Canadian customers. “What’s amazing about this team is we’re all about sharing best practices. It might seem cliché, but we really do that. We’re very good at it! I’m new in this position, and I’ve been traveling to the U.S. and I’ve been asking them to share what they’re doing and their initiatives,” she said. This means the Canadian and U.S. sites can share merchandising strategies when applicable. Sophie Provencher Provencher said with such clear direction yet flexibility, the in-store environment can also change from one part of Canada to the next, even within the Atlantic provinces, to meet specific customer needs. GoinG BiG on ProPrietary Brands

In Canada, strong foodservice programs are essential to bringing in loyal customers. While some sites are testing different franchises, including Pizza Pizza at a new-to-industry site in Brossard, Québec, the focus is on growing CST’s proprietary brand. “We’ve done some tests with franchises, but moving forward, we’re really looking to embrace our own food concept,” Provencher said. CST Canada brought private-label U Force Energy and U Force Sport drinks from the U.S. into Canada a year ago, with great success. Now, the push is on to

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Cover Story

bring more of these products into Corner Store and Dépanneur du Coin sites. “We’re so pleased with the results that there are many other projects on the table. We’re looking to deploy private-label products within Canada that are going to be Canadian-specific private label products,” noted Provencher. ConneCtinG With the Community

Provencher said the Country Run, which took place in Montréal June 20, is a clear indicator of CST’s culture. While Provencher was dressed as a popcorn person at last year’s event, she was excited to participate in the 5K run with her family this time around. “It’s always great to be involved in events like these that are all about family and community, and giving back,” she said. “It’s really the reflection of who we are and what we do. That’s our day-to-day life at CST, and it’s a great place to be.”

Ranks 277 among Fortune 500 companies.

STATS REPORT

Sold 2.9 billion gallons of motor fuel directly to the public in 2014.

Generated nearly $12.8 billion in revenue in 2014, making it one of the largest publicly traded fuel retailers in the U.S.

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Employs more than 14,000 team members.

Expanded branded fuel oferings in the U.S. include Shell, Exxon and Phillips 66.

Through wholesale and retail network, supplies Valero, Exxon, BP, Shell and other fuel brands to nearly 3,000 locations in the United States and Eastern Canada.


Cover Story

Sprinting to Success The Corner Store Country Run 5K series returns for a second year of fun and fundraising

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ultivating a separate identity for Corner Store from its Valero fuel legacy is a goal of CST Brands, and one of the ways Corner Store is making its mark in the communities it serves is through its signature fundraising event, the Corner Store Country Run 5K series. Now in its second year, the Country Run added two more locations this year for a lineup of 10 cities: Montréal (June 20); Denver (July 11); Katy, Texas (July 25); Syracuse, N.Y. (Aug. 8); Lehigh Valley, Pa. (Aug. 22); Fort Worth, Texas (Sept. 26); Round Rock, Texas (Oct. 11); Little Rock, Ark. (Oct. 17); Phoenix (Oct. 24); and San Antonio (Nov. 14). Net proceeds will once again benefit the donor- and volunteer-supported mentoring network Big Brothers Big Sisters, along with local children’s charities in each market. In the 5K series’ inaugural year, the Corner Store Country Run raised a net total of $1 million. Convenience Store News was on-hand for the 2015 Country Run kickoff in Montréal.

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Each Corner Store Country Run 5K has a farm-themed course, and participants are encouraged to dress the part in Western wear, overalls and cowboy hats. After each run, there’s a free country fair with food, live music and free sponsor swag.

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Saluting 10 suppliers ppliers that show leadership in c-store category management By Susan Durtschi, President, Past Times Marketing

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oday’s hyper-competitive retail environment has brought new interest to category management among both convenience store retailers and their product suppliers and distributors. Research shows the average shopper spends only three minutes in a convenience store. That means retailers must be laser-focused in their category management skills, and with the aid of leading suppliers — or Category Captains — they must take advantage of every opportunity to improve asset utilization, customer loyalty, gross margins and volume. Suppliers and distributors that effectively manage the sales and profitability of their categories are held in high esteem by their convenience store retailer partners. In its second year, Convenience Store News’ Category Captains awards recognize companies for

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their category management prowess, demonstrated through their partnerships with c-store retailers. We want to share their most innovative partnering programs with c-store retailers. From foodservice to packaged beverages, the 2015 Category Captains continue to demonstrate their understanding of retailers’ needs to address shopper demands and the execution of solutions. Dissecting categories and digging deep into SKU management is the key to cultivating a flourishing customer base. Our winners, chosen based on information they supplied, know category sustainability is less about whose name is on the package and more about what’s inside and how they can deliver solutions to customers. This year’s Category Captains honorees are helping c-stores capture more than their share of the consumer’s attention and dollars.


alternative snacks: kellogg’s specialty channels

Beer/Malt Beverages: anheuser-Busch

At the Intersection of Health & Wellness

Scoring Homers by Hitting Singles

Kellogg’s wellness effort bears fruit for category growth

A-B’s twist on the two-fer strategy drives growth in profitable single beer sales

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esearch shows 61 percent of consumers believe convenience stores should carry more healthy foods, according to a March 2014 study by Mintel. Additionally, a Mintel snacking occasion study found that millennials, aged 18-34 — a key consumer demographic for convenience stores — are more likely than older consumers to eat a snack to fuel physical activity, and snacks that are formulated to boost energy and contain protein and vitamins would appeal to millennials. These research findings present an interesting challenge to manufacturers and retailers as views about what is considered healthy shift from weight management (low in calories) to overall wellness (local/natural/organic). The Kellogg Co., from its inception in 1906, has always been about helping consumers eat healthier and better. To meet today’s evolving wellness need, Kellogg relaunched its Bear Naked Granola offering in c-stores in January 2014, along with trail mixes in on-the-go formats. At the same time, Bear Naked Energy Bars were launched exclusively in the convenience channel to gain trial, and were made available in all outlets in March 2014. Then in January 2015, Bear Naked Layered Granola Bars were launched, adding to the total category growth attributed to Kellogg’s Health & Wellness Innovation. With more than $1 million in energy bar sales after the first six months in the channel, Bear Naked products help retailers meet the needs of active consumers and millennials by offering delicious snacks that provide energy from ingredients including granola, dried fruits and nuts. Bear Naked reaches its core audience of millennials where they are: on-the-go, through social media and events, and also supports sustainability efforts that further enforce the overall wellness goals of the brand. In convenience, secondary counter displays, merchandisers and promotions support the line. Through marketing support, on-trend flavors and convenient on-the-go food, Bear Naked is poised to satisfy consumers and increase total category sales for retailers.

he increasing number of new breweries and brands has made the beer cooler more complex for consumers who want a quick and convenient purchase. With SKU proliferation at an all-time high, retailers need to ensure they are providing a clear, concise message to their shoppers in order to drive sales and increase loyalty. In 2014, Anheuser-Busch refined the traditional two-fer merchandising tactic to deliver proposed strategies to grow the entire single-serve section. The singles mix of total beer continues to grow year after year, growing 12 percent since 2010. Singles typically have 10 percent to 15 percent higher margins than multipacks and have traditionally been a competitive advantage for the convenience channel, which currently sells 80 percent of total single-serves. To maintain this competitive advantage, Anheuser-Busch realized the channel needed to evolve. To ensure that convenience stores continue to drive singles-beer shoppers to their stores, a seamless, quick experience was needed for those loyal consumers. Convenience shoppers want to get in and out of the c-store without difficulties, so complexity at retail can confuse the shopper and drive them away from the purchase. Shelf tags are often difficult to read and do not break through the clutter when shopping the beer cooler. A-B advised its retailer customers to be innovators in merchandising to directly impact shoppers at the point-of-sale. For example, where legal, retailers can merchandise singles to the target consumer in a more impactful way and take advantage of growth through incremental purchases with A-B’s “2 for” recommendation. The “2 for” strategy establishes a clear and consistent point-of-sale communication across all single-serves by identifying stair-step price points with the ability to mix and match within each price point. Retailers can merchandise shelves to create single price points on each shelf (a “bucketed price point strategy”) and then utilize a clear point-of-purchase sign, such as 2 for $2, 2 for $3, 2 for $4, or 2 for $5. The original price of a single will be 10-15 percent more when purchased alone, which entices most consumers to purchase two (the industry average take

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When it comes to choice, the diference is night and day. And midmorning. And afternoon.

More varieties – another reason Little Debbie is #1. Little Debbie has the fresh and delicious snacks your customers crave every hour of the day. Whether it’s breakfast, a midday treat, an afternoon pick-meup or an evening dessert, our wide selection never stops working to boost your sales. Our range of suggested price points and excellent profit margins make us a perfect fit for your store too. To learn more, call (866) 483-4664 or visit LittleDebbieCStore.com.


rate is 70 percent). To achieve maximum benefits, the messaging needs to be clear and consistent. Each shelf should follow the same pricing bucket, with parallel signs on each shelf. Implementing “2-for” price points can deliver up to a 10-percent increase in singles sales. Additionally, implementing the strategy across all single segments, with clear and consistent merchandising, can potentially deliver an additional 10 percent sales on top of the original “2-for” delivery. Other benefits include reduced complexity, increased co-purchases, balanced promotions, and the ability to mix and match. Consistent “2-for” messaging also allows convenience retailers to target the diverse behaviors of each type of shopper and positively impact singles beer sales across all segments. To assess the effectiveness of its “2-for” recommendation, Anheuser-Busch analyzed the efficacy in 30 convenience stores across one market with positive results. The participating stores followed these recommendations: • Simple communication of pricing using point-ofcommunication material at the shelf; • Optimized assortment of styles and brands within the door to maximize shopper purchase; • Mix-and-match “2-for” buckets across all brands; and • Promotions for each beer segment to distinguish multiple price points, i.e. premium or import. The “2-for” merchandising strategy approach not only improved single-serve trends, but also total beer trends. Some overall results of the 30 stores included: • Total beer dollar sales up 7.6 percent; • Total singles dollar sales up 18.7 percent; • Out-of-stocks were reduced; • Value segment sales improved 41.7 percent; • Flavored malt beverage segment showed a 21-percent improvement; and • Premium-plus segment showed a 13.2-percent gain. Between the 30-store analysis and the overall simplicity of the “Good, Better, Best” platform, the “2-for” singles program is being recommended to convenience store retailers across the country and has been well-received as an initiative to help grow the total beer category.

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candy: the Hershey co.

Data Drives Category Leadership Frontend strategy helps c-store retailers fuel growth

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he Hershey team has leveraged Nielsen research to create what it calls a “Power Strategy” to drive sales to the confection/candy category. The supplier believes strongly in working collaboratively with convenience store retailers on solutions to help grow their business in an environment with consistently declining shopping trips. The category captain in candy built its category growth strategy around several key data-supported consumer trends that are impacting c-stores. First, trips to c-stores have declined for the past three years, dropping 4.8 percent in 2012, 3.7 percent in 2013 and 6.6 percent in 2014. At the same time, the volume of gasoline sold — typically the largest trip driver in the convenience channel — has risen to 1998 levels after several years of declining consumption due to cars getting better gas mileage

and flat miles traveled in the U.S. over the past few years. Since 69 percent of consumers buy only fuel at convenience stores, this means only 31 percent step foot inside the store. Of that 31 percent, research shows only 33 percent shop the center of the store. The rest go straight to the counter to pay for their fuel, cigarettes and maybe buy a lottery ticket and leave. This means only 10 percent to 11 percent of consumers truly shop inside convenience stores, creating a big opportunity to improve sales. By converting “fuel-only” customers inside the store, the convenience store industry can increase sales by approximately $3.4 billion for each additional percentage point of consumers who shop inside, according to The Hershey Co., which has been looking for simple, turnkey solutions to help convenience stores profitably operate in an environment challenged by trip declines. While retailers cannot always control trips, they do have an opportunity to maximize them by increasing the basket. According to the company, the best way to address this is by focusing on under the counter (UTC) transactions. Hershey’s Front End Team has been capturing insights on the


best way to optimize the UTC space in convenience stores. The insights indicate there are four “Power Categories” convenience stores need to drive to have the greatest results with UTC: candy, energy shots, general merchandise and snacks. These are the four categories consumers indicated they expect to find at the front of a convenience store. These items are highly impulsive, have high household penetration and are purchased with high frequency. To further support retailers, Hershey has developed a proprietary Front End Benchmark tool to determine the optimal assortment for UTC. The company recommends the following UTC space allocation for the Power Categories: • Confection: 40-45 percent (75 percent candy, 19 percent gum, 6 percent mints) • Energy shots: 25-30 percent • General merchandise (i.e. lighters): 20-25 percent • Snacks: 10-15 percent Hershey has partnered with multiple convenience store retailers to implement UTC racks in more than 30,000 stores. Through Hershey’s total store solutions and insights, retailers leveraging UTC are driving highly profitable growth of 10 percent to 18 percent through improved shopper conversion. These results are not limited to just confection, but include all of the Power Categories.

FOOdservice/FUll PrOgraM: Mclane co. Foodservice

Turnkey Foodservice at Retail McLane Kitchen platform provides right solution for every c-store need

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uilt on the pillars of premier food safety standards, cold supply chain integrity and training for excellence, the McLane Kitchen platform ensures that every foodservice at retail program sourced through distributor McLane Co. Inc. is executed to exacting standards that help ensure the long-term success of foodservice programs for retail customers. The foundational pillars are merely one chapter of the story, however. Every McLane Foodservice at Retail program starts in the McLane Kitchen. More than a cookie-cutter foodservice at retail offering, McLane Kitchen is an ever-evolving resource

dedicated to the sustainable success of McLane’s foodservice at retail customers. Comprised of a wide variety of foodservice at retail offerings, the platform covers alll dayparts with a variety of equipment-based programs. All levels off operational execution from thaw-and-serve programs to expanded d foodservice offerings are also addressed. Utilizing a variety off proprietary tools such as the McLane Kitchen Menu, McLane Kitchen Program Manual, Recipe Builders and Labor Profitably tools, the McLane Kitchen platform helps each customer craft a unique, category management-based foodservice at retail program that meets the operator’s specific foodservice at retail goals. Additionally, McLane Kitchen ensures that program recommendations are destined for success by matching the program with c-store operators’ foodservice capabilities. McLane Kitchen education materials are routinely refined and published to help operators establish and/or expand existing foodservice at retail operations in a smart, safe o and effective manner. a It is important to note tthat no two McLane Kitchendeveloped foodservice at d retail programs are alike re because no two c-store be operators are the same. op By utilizing McLane Kitchen’s category management Ki ttools and capabilities, c-store operators are equipped to grow their share of foodservice dollars. Through McLane’s premier standards of service, the c-store operators can focus on retail execution, knowing the product will arrive on time and within temperature requirements specific to each item. McLane customers are not confined to the McLane Kitchen portfolio, but rather encouraged to explore and innovate with the help of McLane Kitchen as well as supplier partners.

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FooDServiCe/PrePareD FooD: advancePierre Foods

New Items Equal Record Growth Award-winning new sandwiches fill c-store need for variety in prepared food

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dvancePierre Foods (APF) credits a focus on customer service and innovation as the key drivers for its record 2014 net sales of approximately $1.6 billion, a 6-percent increase over 2013 results. APF has also increased volume and margins in what has been a difficult year for the food industry by keeping pace with rapidly changing trends and record protein inflation. With 2 million sandwiches produced each day and nearly 2,000 associates dedicated to sandwich making, APF expanded its sandwich production by 25 percent in 2014. The company’s full-service, value-add capabilities — which encompass making the protein, baking the bread, assembling, packaging, distributing, securing retail presence and marketing the product — enhance operational and commercial excellence while ensuring APF ingrains innovation and quality through every step of the process. The efforts have resulted in numerous product accolades, including a recent Best New u Products Award designation by Convenience P Store News for its Fast Choice S hand-wrapped sandwich line. h In early 2015, APF earned another accolade for a Product of the Year from P Automatic Merchandiser and VendingMarketwatch. com for its BIG AZ Chicken Bacon Cheddar Club. APF was also named a Food Processing Magazine large company R&D Team of the Year. The company’s 48-member team, which includes a dedicated consumer insights group, completed nearly 230 new projects and 171 new SKUs in 2014, with more than 11 percent of APF’s 2014 sales coming from products on the market less than two years. Inside the convenience division, its top brands like BIG AZ have flourished. This success has been attributed to successful launches of new sandwiches such as the BIG AZ BaconAddict and the Angus Cheddar Cheeseburger.

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Other APF sandwich brands, such as the butcher-wrapped Hot’n’Ready line, have been a source of innovation with new offerings in the Better-for-You category, like the Canadian Bacon, Egg White and Cheese on Pretzel Flatbread. AdvancePierre’s commitment to c-stores is seen in the quality, taste and value of the company’s offerings.

HealtH & Beauty Care: lil’ Drug Store Products

Data-Driven, Proven Performance Lil’ Drug Store Products provides unbiased insights to manage the HBC category

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il’ Drug Store Products states it has become the No. 1 supplier of health and beauty care (HBC) products to the convenience channel because it provides a combination of insight, innovation, adaptability and access. In its 40-plus years of convenience industry HBC experience, Lil’ Drug has developed a turnkey category management program that utilizes category insights and data analysis to deliver customized resources for participating convenience channel customers. The company’s extensive experience, proven performance and long-time relationships with convenience retailers, wholesalers and distributors gives Lil’ Drug the context to develop unique solutions to meet the needs of customers in this channel. The Lil’ Drug Store Products Category Management Team simplifies the category manager’s job and achieves measurable results by providing: • Data-driven, unbiased insight based on retail-level and national syndicated data, HBC trends, category SWOT and pricing analyses, and proprietary consumer research; • Full HBC planogram review, including gap analysis and retail pricing recommendations; • Outstanding service targeted to customers’ specific category objectives; and • Complete, turnkey solutions resulting in total HBC category profit growth.


Lil’ Drug continues to invest time, energy and resources into its category management program to allow its customers to see continued growth in total HBC sales and profits year after year. In late 2014, Lil’ Drug launched a consumer attitudes and usage study with Frank N. Magid & Associates to better understand the convenience HBC shopper. With this consumer research as context, Lil’ Drug also partnered with Nielsen and Affinnova to conduct a study that tested millions of retail scenarios with convenience HBC consumers to determine the best mix of products in four key HBC subcategories: pain, cold/sinus, allergy and gastrointestinal. With these consumer insights added to Lil’ Drug’s category management data arsenal, the supplier can now better predict and understand convenience trends to make smart, unbiased recommendations to grow HBC sales and profits for its retail and wholesale partners. Within the convenience channel, 19 of the top 25 retailers (including multi-division retailers such as Circle K, Kroger and GPM Investments) utilize Lil’ Drug as their Category Captain for HBC and rely on the Lil’ Drug Category Management Team to manage their entire HBC set. In fact, more than 100 of the top convenience store chains depend on Lil’ Drug for HBC category management analysis and recommendations. Lil’ Drug takes a unique, holistic approach to category management, analyzing the products, pricing and merchandising of all items in the HBC set to achieve a balance that maximizes sales and profits — no matter who the manufacturer is. Retailers rely on its data-driven decisions and unbiased insight to manage their HBC category and deliver measurable positive results.

OtHer tOBaccO PrOdUcts: swisher international inc.

Certified Excellence Swisher’s highly trained category management team helps grow OTP sales

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ategory management has always been critical to the success of Swisher International and its trade partners. The foundation of its efforts has been a balanced portfolio approach, with an intense focus on innovation, analytics and execution of winning strategies focused on the success of the entire other tobacco products (OTP) category. One of the key pillars of category management is people. Swisher provides highly trained individuals, including certified national account managers, to develop proven category recommendations that are actionable for retailers. Swisher was one of the first companies in OTP to become involved in category management certification. Utilizing MSAi insights, programs and planograms are customized to meet specific customer goals and adult consumer demands. Swisher’s Partners in Profit program is a perfect example of the execution of that strategy. The supplier provides its partners with revenue-generating products and promotions in all of its OTP lines, with the objective to grow not only Swisher sales, but the full OTP category in every store. One of the most significant challenges in the OTP category over the last two years has been the expansion of blends and pre-priced items in the large cigar segment. The Swisher category management team worked proactively to understand these tasks from both an analytical and channel perspective. The Swisher category management and analytics team completed detailed analysis of the data to determine proper space allocation by segment in this changing environment. Despite competitive pricing, the overall category has delivered healthy growth on the strength of the “Right Items in the Right Stores” approach. Swisher has incorporated both a detailed and high-level approach to assist retailers in analyzing adult consumer preferences and purchase patterns. By utilizing distributor-to-retailer data, the supplier has been able to develop specific, tailored

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analytics for its retail partners in an immediate fashion. In October 2013, Swisher Sweets launched its inaugural limited-edition line of large cigars with a goal to create unique and creative blend profiles, and generate adult consumer excitement in the category. Due to the popularity of Sticky Sweets (peach/caramel blend) and Summer Twist (lemon/mango blend), Swisher Sweets has continued the trend of releasing new and intriguing blends including Dulce de Leche and Calypso Cream (blueberry orange cream). Most notably, on Jan. 1, 2015, Swisher released unsweet Swisher Diamonds. Just three months in, Swisher had introduced 19 million unsweet cigars into the market. The OTP market is cluttered with multiplying SKUs and squeezed by tight margins and tax compliance issues. It’s a challenge for even the savviest marketers. However, Swisher is seeing rewarding results from its focus on quality products and category management. For the 26 weeks ended March 7, 2015, large cigar category volume grew 4.5 percent vs. a year ago, while Swisher’s large cigar volume delivered 22.2-percent growth. Category management is guided by education and certification. Blaine Ross, executive vice president of global sales and marketing for the Category Management Association’s Certification Board, commented that: “Swisher International Inc. is the first tobacco company to provide certification for their key account teams. Swisher has taken a very proactive approach by investing in the personal growth and development of their associates in order to provide value-added solutions for their retail partners. Swisher’s investment in certification is a commitment to excellence and demonstrates their leadership position within the convenience channel, and their ability to better understand consumer needs.”

Packaged Beverages: the coca-cola co.

Retailers Share in Success of ‘Share a Coke’ Innovative campaign increased c-store beverage sales across brands

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n June 2014, Coca-Cola launched its “Share a Coke” campaign across the U.S., allowing consumers to find their names — and the names of family members, friends and coworkers — on bottles of Coca-Cola, Diet Coke and Coke Zero. True to its mission of sharing moments of happi-

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ness, Coca-Cola replaced three of its iconic logos on 20-ounce bottles for the 250 most popular first names among American teens and millennials. Shareable 1.25- and 2-liter bottles sported group names like Family and Friends, while colloquial nicknames like BFF, Star, Bestie, Legend, Grillmaster, Buddy and Wingman appeared on 12-ounce cans. Share a Coke packaging debuted nationwide in June and remained on shelves through August. The campaign came to life online and via social media as consumers personalized virtual bottles and shared them with friends on Facebook, tumblr, Twitter and Instagram. Share a Coke was a No. 1 global trending topic in July 2014, with nearly 700,000 posts across all social platforms. By using the #ShareaCoke hashtag, consumers shared their stories and photos for the chance to be featured on interactive Coca-Cola billboards across the country. Online, ShareACoke. com received nearly 7 million visits over the course of the campaign and more than 965,000 virtual Share a Coke bottles were made. Additionally, a 500-stop, cross-country Share a Coke tour featuring traveling kiosks enabled fans to customize more than 1 million Coca-Cola mini cans for themselves and a friend. Throughout all channels, retailers saw huge growth and success with the campaign. Share a Coke drove significant sales, increasing overall volume and revenue by 11 percent and growing share 1.6 points vs. the prior year. In the 20-ounce package, the Coca-Cola brand saw the largest year-over-year growth in its history — more than 19 percent. The campaign also produced strong performance for 12-pack cans, growing volume by 18 percent. Within the convenience retail channel specifically, Coca-Cola saw tremendous growth in velocity across the category during the campaign, but did not appear to cannibalize other beverage brands. During the Share a Coke campaign, Coca-Cola increased its velocity growth by more than 20 percent, Coke Zero increased by 3 percent and Diet Coke grew by 7 percent. During the first month alone, retailers sold more than 10 million incremental units. Convenience retailers that supported the launch with branded share bins, secondary displays and point-of-sale materials experienced total category results nearly double the market trend. Those who activated the campaign in their stores saw a 25.9-percent increase in volume in July for the Share a Coke 20-ounce bottles. Due to its overwhelming success and engagement from consumers, Share a Coke has returned in 2015 with more than 1,000 names in the program and more ways to share through additional retailer activation opportunities.


Packaged sWeet snacks: Mckee Foods corp.

A Sweet Deal McKee’s shopper marketing objectives help retailers increase total category sales

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t McKee Foods, the category insights team works with retailers to help them grow the entire baked sweet goods category. They are a team of analysts, space management, merchandising and category management personnel dedicated to support retail partners in the maximization of the category. Their goal is to provide an objective view of the category and bring insights to the retailers that they may otherwise overlook. This is provided by using both qualitative and quantitative data to develop insights, trends, observations and analysis to grow the category. They also provide retailer support through merchandising, planogram and shopper marketing programs. Over the past year, McKee Foods has: • Built thousands of planograms to help c-store partners maximize their sales and optimize their product mix in the category; • Provided quantitative data-based category analysis to help retailers understand how their category is performing both internally and compared to the rest of the market and channel; • Provided retailer-specific analysis to objectively show category performance; • Worked with one chain to develop an Every Day Low Cost (EDLC) model that led to an overall 12-percent lift in yearover-year sales; • Shared industry trends with c-store partners to help them develop category strategies; and • Developed targeted shopper marketing programs to drive category sales and bring new customers into the category. The supplier’s category management team provides retailers with near-future insights into the baked sweet goods category, such as the growth of Hispanic-oriented products; the potential growth opportunities for domestic brands from acculturated Hispanic cus-

tomers; the importance of variety and uniqueness; the importance and growth of millennial consumers; and the need for brands to reduce costs to drive margin for demanding retailers. Meanwhile, McKee’s shopper marketing objectives help retailers increase total category sales by targeting customers based on shopping patterns, past purchases, affinities and daypart solutions. This type of sophistication earned McKee a 2015 Category Captains award.

Wine & liQUOr: e.&J. gallo Winery

Millennials Meet Merlot E.&J. Gallo’s Good, Better, Best selection puts c-stores in the wine game

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merica is the No. 1 wine-consuming country in the world. Wine shoppers in the U.S. have changed the way they view and buy wine. Convenience stores are seen as neighborhood stores and often offer a quick one-stop shopping experience for wine purchasers. According to Nielsen Homescan Panel data, convenience dollar growth is up 3 percent vs. the prior year, outpacing all other channels. However, c-stores are only retaining 7.1 percent of their wine shoppers’ dollars, meaning these shoppers are buying wine elsewhere the majority of the time. Millennials make up 26 percent of the shoppers within the convenience channel. They also account for 25 percent of the U.S. population and are the largest over-21-year-old population group. As more are reaching the legal drinking age (all will be 21 by the end of 2015), making more money and trending toward consuming more wine, it is important to cater to their unique shopping styles to increase convenience retention and become profitable within the category. Millennials demand convenience and embrace trial; however, approximately 47 percent of millennials who drink wine say they are a novice and know very little about the drink. So, offering a well-crafted wine selection presents a great opportunity for retailers. A year ago, E.&J. Gallo took on a new endeavor partnering with Murphy USA to launch the c-store retailer’s entry into the

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wine category. Murphy USA and Gallo saw that entering the category would drive incremental sales within the store and capitalize on targeting the millennial customer. Murphy USA previously offered wine in only 47 of its 350 alcohol-eligible stores. In order to ensure a successful wine category launch, Gallo gathered additional data through qualitative research to further understand convenience store shopping needs and habits. The research yielded four main barriers deterring shoppers from the channel: overall awareness, selection, merchandising and pricing. Knowing that one-size-fits-all would not work for the target convenience shopper and that c-store shoppers have only a limited amount of time to shop each category, Gallo planned its go-to-market strategy around an innovative solution calling out a “Good, Better, Best” wine selection. The developed solution directly addresses the barriers listed above and limits the wine knowledge required to make a quick, smart purchasing decision. Original signage along with strategic shelf flow make up the core of this program for both the dry shelf and cold box. Murphy USA launched the Good, Better, Best wine program in 2013 and 2014 by targeted test stores with high wine demand, and made sure to also address each flagged barrier. To improve overall awareness, Gallo created internal buzz with sales management and gave Murphy store associates goals and incentives for the category. For the launch, wine was crosspromoted with craft beer to piggyback on this already strong segment with the millennial consumer within the convenience channel. The cross-promotion included displays at the front of the stores and a cross-merchandising coupon opportunity. Convenience stores need to satisfy any wine occasion but must do it in a small amount of space. By offering a limited but focused selection, Murphy USA offers diversity while not overwhelming the shopper. Items for Murphy USA were preselected using market data and demand for each store to cater to the shoppers in the area. Along with helpful merchandising, the customer is no longer looking at an overwhelming wall of wine as in typical grocery. Point-of-sale was produced to put the words “Good, Better, Best and Everyday Wines” right in front of the consumer on the stores’ wine shelving. Signage was also produced for the cold box racks following the same guidelines. The simple language helps the shopper identify the wines that meet their shopping occasion so they can quickly and confidently make their selec-

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tion. For example, a shopper looking for an everyday wine to have with dinner that night can select from the value options on the bottom shelf (Everyday or Good), while the shopper looking to impress can confidently purchase something a bit more premium from the top shelves (Better and Best). In order to offer a selection that satisfies any occasion, Murphy USA has chosen to offer a range of price points. When evaluating items, a price range of $3 to $15 was used. This range caters well to millennials who typically spend between $5 and $14 on wine. Additionally, when categorizing items into the Good, Better, Best buckets, the demand of each store was taken into account to cluster like stores together. Stores with a high-performing wine index are allocated more Best items and inversely stores indexing higher in popular-priced wines are weighted heavier in the Good section. Murphy USA’s 2013 launch saw wildly successful results. In regards to the launch, John Deichler, category manager for alcohol at Murphy USA, said: “With Gallo’s universal and consistent plan, we really maximized our opportunity within the category.” Murphy USA was so pleased with the test results that the retailer, with Gallo as a partner, set out to launch wine into 150 stores in 2014 with plans to expand into just over 250 stores by the end of 2015. When just looking at the test stores from 2013 to early December 2014 (not including Christmas, one of wine’s largest volume holidays), the wine trend was up 19 percent. In fact, most of the stores are seeing double-digit growth since their launch in 2013. Adding wine into their stores has helped increase overall wine sales by 49 percent. CSN

Methodology The Convenience Store News 2015 Category Captains competition applauds the outstanding category management initiatives implemented in the convenience channel over the last 12 months. Entries were judged based on product innovation; creativity in merchandising, marketing, promotion and advertising; use of consumer insights; innovative and dynamic category management tools; demonstrated commitment to meeting retail customers’ specific needs; effectiveness at lifting sales for a brand’s products in the category; effectiveness at lifting an entire category’s sales for a retailer or retailers; and fact-based evidence of marketspecific or account-specific sales results. CSNews partnered with Past Times Marketing, a consumer research firm, for the 2015 Category Captains competition. For more information, go to www.pasttimesmarketing.com.


FOODSERVICE

Category Trends + Insights from

TRENDSIGHTS

Asian Reimagined Savvy c-store operators are experimenting with new flavors and fusions

A

sian flavors and ingredients are on trend, and savvy convenience store operators are experimenting with new ways to profile the cuisine and appeal to adventurous, on-the-go diners. Operators are reimagining Asian options into unique, attention-grabbing dishes that spotlight trendy ingredients or preparations, and fuse flavors from other global cuisines. According to Technomic’s most recent Flavor Consumer Trend Report, consumers are increasingly more interested in ethnic flavors and cuisines. This same report found that more than half of consumers (54 percent) now prefer hot or spicy sauces, dips or condiments. On foodservice menus, spicy Asian flavors like Sriracha and wasabi appear in By Donna Hood Crecca everything from sandwiches to bite-sized Senior Director, snacks. For example, c-store branded Technomic Inc. dcrecca@technomic.com turnkey foodservice provider Hot Stuff Pizza recently rolled out Sriracha Chicken Bites, an Asian-inspired snack option. Highlighting spicy Asian sauces and condiments allows operators to combine the growing consumer interest in both ethnic cuisines and next-level spiciness into a single item. C-store operators are even taking this trend to the next level by marrying Asian flavors with other

I Am More Interested In Was A Year Ago

Than I

By age, top two box = agree and agree completely

Base: 1,500 consumers aged 18-plus Consumers indicated their opinion on a scale of 1–6, where 1=disagree completely and 6=agree completely Source: The Flavor Consumer Trend Report, Technomic, 2013

72 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

cuisines. In the same Flavor Consumer Trend Report, Technomic found there is consumer interest in combination flavors when it comes to ethnic cuisine, particularly among younger consumers. Roughly two out of five consumers in both the 18–24 (39 percent) and 25–34 (41 percent) age ranges like dishes that feature a fusion of flavors from more than one type of cuisine. Looking at a recent c-store example of this trend, QuickChek Corp. launched limited-time eggrolls in two varieties, Buffalo Chicken and Cheesesteak, which combine the typical Asian preparation of eggrolls with American ingredients. Beyond flavor fusions and spicy flavors, c-store operators are utilizing the strategy of shock value to draw attention to Asian-inspired items. Giant Eagle Inc.’s GetGo division offers a prime example of this tactic with its limited-time The General, a sub featuring chicken fingers in General Tso sauce, crispy eggrolls and spicy Sriracha sauce, all served on a sesameseed roll. Surprising combinations and over-the-top indulgence are menu development strategies that have proven to bring attention to menus at both restaurants and convenience stores. The key for c-stores is to introduce limited-time offers that spotlight these trendy, ethnic flavors and preparations, while remaining true to the affordability and convenience consumers seek.

How Much Do You Agree or Disagree With the Following Statements? By age, top two box = agree and agree completely

Base: 1,500 consumers aged 18-plus Consumers indicated their opinion on a scale of 1–6, where 1=disagree completely and 6=agree completely Source: The Flavor Consumer Trend Report, Technomic, 2013


FOODSERVICE

FOODSERVICE STUDY

Prepared Food + Hot, Cold, Frozen Dispensed Beverages

Still Cooking C-store retailers expect continued growth of foodservice sales, according to 2015 CSNews Foodservice Study By Melissa Kress

B

y now, every convenience store retailer knows that foodservice is a primary driver of success in the channel, and 2014 turned out to be a good year for the category. In the new Convenience Store News Foodservice Study, 83 percent of c-store chains reported their foodservice sales increased last year and the same number said they expect 2015 to be another improved year for sales. Conversely, only 2.1 percent of c-store chains indicated their foodservice sales decreased in 2014, with the same expecting similar results this year. The majority — roughly threequarters of chain retailers — saw their foodservice profits grow as well in 2014 and expect to see a profit increase this year, too. On the other end of the scale are the 4.3 percent of chain retailers who saw foodservice profits dip last year. However, a smaller number — 2.1 percent — are bracing for another decrease this year. The amount of space c-store retailers are devoting to foodservice in the store highlights its importance. The allotted space — including selling/preparation space, dry/ storage space and refrigeration/ freezer space — averages 912 square feet per store when factoring in both chains and single stores,

challenges operators must work to overcome. In the latest CSNews Foodservice Study, when asked what the biggest challenge to running a foodservice program is, retailers hit on several common elements: competition, food costs,

or 33.1 percent of the total store. For c-store chains alone, the numbers come in at an average of 985 square feet per store, or 29.9 percent of the total store. As with all product categories, foodservice comes with a set of

Foodservice Sales

The majority of convenience store retailers expect to see an increase in their foodservice sales this year. The level of optimism is in line with 2014 results. ToTal

Single SToreS

ChainS

2014 Increased Decreased Stayed the same

64.5% 6.5 29.0

50.0% 10.0 40.0

83.0% 2.1 14.9

2015 (expected) Increase Decrease Stay the same

65.4% 6.5 28.1

51.7% 10.0 38.3

83.0% 2.1 14.9

Source: Convenience Store News Market Research, 2015

Foodservice Profits

Just about three-quarters of c-store chains saw their foodservice profits rise last year, and nearly the same amount expect improved profits again this year. ToTal

Single SToreS

ChainS

2014 Increased Decreased Stayed the same

60.2% 8.3 31.5

49.2% 11.5 39.3

74.5% 4.3 21.2

2015 (expected) Increase Decrease Stay the same

62.0% 7.4 30.6

53.3% 11.7 35.0

72.9% 2.1 25.0

Source: Convenience Store News Market Research, 2015

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FOODSERVICE

Prepared Food + Hot, Cold, Frozen Dispensed Beverages

personnel issues and labor costs. With a total of 6.4 employees working in the foodservice program per store, the mean percentage of labor costs as a percentage of foodservice sales is 24.5 percent for the

total industry, and a little less for chains at 21.9 percent. That’s no surprise. The average hourly wage for these employees was $9.34 for the total industry and a slightly higher $9.46 for chains — $2 more

Category Analysis: Prepared Food Frozen treats saw the biggest growth in average sales per store in 2014. Though still a small piece of the pie, this segment could be an opportunity for c-stores. average SaleS per STore 2014

Sandwiches Hot dogs Pizza Chicken Bakery Salads Hamburgers Soup Frozen treats All other prepared food TOTAL

$36,202 23,901 23,320 17,296 9,690 5,650 4,895 3,473 2,578 13,750 $140,754

% Change

7.8% 5.4 8.2 7.2 6.4 5.5 8.6 4.4 11.3 7.5 7.2%

induSTry ToTal (in millionS) 2014

$5,421 3,579 3,492 2,590 1,451 846 733 520 386 2,059 $21,077

% Change

9.5% 7.1 9.9 8.9 8.0 7.2 10.3 6.1 13.1 9.2 8.9%

Source: Convenience Store News Market Research, 2015

Category Analysis: Hot Dispensed Beverages Hot dispensed beverages continued to cool off last year. However, hot tea had a good year. average SaleS per STore

Coffee (including flavored) Cappuccino/specialty Hot chocolate Hot tea All other hot beverages TOTAL

induSTry ToTal (in millionS)

2014

% Change

2014

$32,617 7,487 1,868 1,129 721 $43,821

-0.9% 0.8 -1.0 1.4 -2.5 -0.6%

$4,884 1,121 280 169 108 $6,562

% Change

0.7% 2.4 0.6 3.0 -1.0 1.0%

Source: Convenience Store News Market Research, 2015

Category Analysis: Cold Dispensed Beverages Cold dispensed beverages didn’t fare too well in 2014. Non-carbonated fountain drinks were the only bright spot, posting a slight sales increase. average SaleS per STore 2014

Fountain carbonated $13,797 Fountain non-carbonated 1,202 Fountain sports drinks 267 All other cold dispensed beverages 755 TOTAL $16,021

induSTry ToTal (in millionS)

% Change

2014

-0.8% 1.8 -4.0 -0.7 -0.7%

$2,066 180 40 113 $2,399

Source: Convenience Store News Market Research, 2015

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

than the federal minimum wage of $7.25 per hour. With increasing competition in the foodservice business, c-stores may feel the need to up the ante when it comes to employee pay. The biggest competitors, the survey found, are still other c-stores (cited by 68.2 percent of all retailers and 76.2 percent of chains). However, this year’s tally puts McDonald’s in the No. 2 spot with chain sandwich shops (previously No. 2), other national/regional quick-service restaurants and coffee shops rounding out the top five. McDonald’s recently announced starting wages at its companyowned restaurants in the United States will be $1 over the locallymandated minimum wage. The wages of all employees up to restaurant manager will be adjusted accordingly based on tenure and job performance. By the end of 2016, McDonald’s projects that the average hourly wage rate for employees at its company-owned restaurants will be in excess of $10.

% Change

0.7% 3.4 -2.4 0.9 0.9%

MAKING AN IMPACT

Yes, there are challenges, but there are also opportunities. Retailers participating in this year’s study indicated that adding new food items like pizza and chicken, installing new equipment and putting more emphasis on targeted dayparts has positively impacted the category. Beefing up food menus is a smart move on the part of c-store operators, as average sales per store of prepared food reached $140,754 in 2014, a 7.2-percent increase over 2013. Leading the pack were sandwiches, with $36,202 in average sales per store (up 7.8 percent). Other top-selling segments were hot dogs ($23,901),


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FOODSERVICE

Prepared Food + Hot, Cold, Frozen Dispensed Beverages

Types of Foodservice Items Sold

All c-store chains offer prepared food, and they report that more than half of their foodservice sales come from this segment. ToTal % of companies offering program

Hot dispensed beverages Cold or frozen dispensed beverages Prepared food

Single SToreS

% of sales derived from program

100.0% 89.0% 96.3%

20.9% 25.5 53.5

% of companies offering program

ChainS

% of sales derived from program

100.0% 85.2% 93.4%

20.9% 26.9 52.1

% of companies offering program

100.0% 93.8% 100.0%

% of sales derived from program

20.9% 23.7 55.4

Source: Convenience Store News Market Research, 2015

Daypart With Biggest Sales Growth in Past Year

Lunch was cited by 38 percent of c-store retailers as the biggest growth daypart in 2014 compared to 22.6 percent of retailers the previous year. This may indicate that c-stores paid closer attention to the hours between 11 a.m. and 2 p.m. ToTal

Breakfast (6 a.m.-8:59 a.m.) Morning snack (9 a.m.-10:59 a.m.) Lunch (11 a.m.-1:59 p.m.) Afternoon snack (2 p.m.-3:59 p.m.) Dinner (4 p.m.-6:59 p.m.) Evening snack (7 p.m.-9:59 p.m.) Late night (10 p.m. or later)

37.0% 5.0 38.0 4.0 10.0 6.0 0.0

Single SToreS

ChainS

31.5% 5.3 31.6 7.0 15.8 8.8 0.0

44.2% 4.7 46.5 0.0 2.3 2.3 0.0

Source: Convenience Store News Market Research, 2015

pizza ($23,320) and chicken ($17,296). Of course, success can only come with the right equipment to prepare the items. The most ubiquitous piece of foodservice equipment found in c-stores is a coffeemaker (92.3 percent of all c-store retailers and 93.1 percent of chains have them). Other dispensed beverage equipment — for hot chocolate, fountain drinks and frozen drinks — are also widely found in c-stores, as are microwave ovens for food preparation; ovens including conventional, convection, impinger and speed-cook; roller grills; and pizza-making equipment. Strength in different dayparts can influence the equipment needs of retailers. Tackling dayparts has been an increasing focus for c-stores, and that focus

is reflected in the 2015 study results. According to the CSNews Foodservice Study, 38 percent of all industry retailers (and nearly half of chains) report the biggest sales growth in lunch (between the hours of 11 a.m. and 1:59 p.m.). That’s compared to 22.6 percent who reported the biggest bump in this daypart in 2013. This is not to say the other dayparts are waning. A nearly similar number of retailers — 37 percent of the total and 44.2 percent of chains — said their biggest sales growth in the past year has been in breakfast (from 6 a.m. to 8:59 a.m.). However, dinner (from 4 p.m. to 6:59 p.m.) is still slow to gain traction — 10 percent of all retailers and a mere 2.3 percent of chains report dinner as the daypart with the biggest growth in the last year.

76 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

These growth statistics are reflected in the overall percentage of foodservice sales by daypart as well. Breakfast accounted for 27.6 percent of 2014 foodservice category sales (30.5 percent for chains), lunch accounted for 33 percent (29.6 percent for chains) and dinner accounted for 13.1 percent (11.8 percent for chains). Both breakfast and lunch ticked up from 2013, taking share from dinner, which dropped from 14.7-percent share the previous year. And c-store customers are not just eating during the traditional meal times. All snacking dayparts saw share growth in 2014. The morning snack (9 a.m. to 10:59 a.m.) accounted for 10.3 percent of foodservice category sales (11 percent for chains), afternoon snack (2 p.m. to 3:59 p.m.) accounted for 8.8 percent (9.3 percent for chains), and evening snack (7 p.m. to 9:59 p.m.) accounted for 4.9 percent of sales (4.7 percent for chains). Only late night saw no share growth year over year, according to the study. BACK TO BASICS?

As convenience store retailers hone in on expanding their foodservice offerings and boosting traffic across the various dayparts via new items, some of the basics are taking a hit. Hot dispensed beverages and cold dispensed beverages are two such examples. Hot dispensed beverages remained


relatively flat in 2014 vs. 2013, with average sales per store dipping 0.6 percent. All segments hovered around a hardly noticeable dip — hot chocolate and coffee — or a hardly noticeable increase — cappuccino/specialty and hot tea. The cold dispensed beverages segment told a similar story, with average sales per store remaining pretty much flat at a 0.7-percent decrease. According to the study, 100 percent of c-store chains offer hot beverages and 93.8 percent offer cold or frozen dispensed beverages; each accounts for less than a quarter of retailers’ foodservice sales. Prepared food, which all chains offer, makes up 55.4 percent of sales.

previous year. Of those retailers that do offer full-touch programs, 82.8 percent operate a proprietary program, 24.1 percent operate through a

branded provider, and 6.9 percent offer a combination of both. The numbers for chains are in line with the total industry. As for where food is prepared,

HAVE IT YOUR WAY, OR NOT

The past year saw convenience store retailers switch up the types of prepared food programs they offer. A little more than half of all retailers said they operate full-touch or made-to-order programs, which equaled 32.6 percent of foodservice sales. By comparison, 62.9 percent of all retailers offered full-touch in 2013, which equaled 42 percent of foodservice sales. This year’s research also found that less retailers are operating some-touch programs, including assembled on-site, thaw-and-serve and roller grill. Notably, 62.6 percent said they offer this type of program compared to 66 percent last year. As for percentage of foodservice sales, some-touch accounted for 22.3 percent vs. 25.9 percent in 2013. That leaves the lion’s share of retailers (80.4 percent) offering no-touch programs like grab-andgo and prepackaged items. This is a boost from 68.8 percent the

WWW.CSNEWS.COM | AUGUST 2015 | Convenience Store News 77


FOODSERVICE

Prepared Food + Hot, Cold, Frozen Dispensed Beverages

88.7 percent of all retailers prepare 74.6 percent of items at the store (85.9 percent of chains prepare 63.3 percent of items). Nearly half of all retailers prepare a quarter of their food items off-site (62 percent and 36.7 percent, respectively, for chains). When it comes to foodservice beverages, only 12.6 percent of all c-store retailers (11.6 percent of chains) currently offer made-to-order beverages. UP FOR PROMOTION

Having a foodservice program, though, is not enough to spell success. Customers need to know what each store has to offer. To that end, 36.6 percent of all retailers increased their foodservice promotions in the past year. That number is closer to half for chain stores. Percent of c-store Conversely, only 4 percent chains that promoted of the total and 7 percent foodservice via social of chains decreased their media last year promotional activity. Overall, 93 percent of all chains offered some type of foodservice promotion in the last year. The top activities ranged from social media (53.5 percent), to loyalty programs (46.5 percent) to paper coupons (27.9 percent). At the bottom of the list are billboard and text messaging (both at 25.6 percent), and television and email (both at 18.6 percent). Some retailers also employ handouts, in-store specials, store signage and pumptoppers. In addition to promotions, convenience stores feature other related services to boost their foodservice programs. For example, 79.4 percent of all retailers (85 percent of chains) have microwave ovens for customers to use. In addition, 61.8 percent of all retailers (62.5 percent of chains) allow customers to order ahead — by phone being the most offered, at just about two-thirds. Seating is also key, with 61.7 percent of all retailers (63.3 percent of chains) offering in-store seating and 27.5 percent of the total (28.3 percent of chains) offering outdoor seating. Surprisingly, despite consumers being touchscreen addicted, mainly because of their smartphones, only 3.6 percent of all c-store retailers offer some form of touchscreen foodservice ordering. This number increases a bit to 6.9 percent for c-store chains. CSN

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TOBACCO

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

A Choice Segment Cigars prove resilient as more flavors and sizes offer smokers variety By Melissa Kress

A

ll customers want a choice when it comes to the goods and services they spend their hard-earned dollars on, and it’s no different when it comes to cigar customers. The good news for cigar smokers is they now have more options to choose from than ever before. The cigar segment has seen an explosion of new brands, sizes and flavors, according to Chris Beaulier, director of retail operations at Cigaret Shopper, a chain of tobacco shops operating throughout the state of Maine. Beaulier joined with Keith Canning, managing partner at Winthrop, Maine-based distributor Pine State Trading Co., and Jeff Rossi, senior director of trade marketing and category management at Jacksonville, Fla.-based Swisher International, for a presentation at the 2015 NATO Show, which took place April 21-23 in Las Vegas. When it comes to cigar sizes, the trend is leaning toward cigarillos. And looking at flavors, sweet, tropical and pineapple are among the fastest-growing options, Beaulier noted. The most popular buys at his chain are the twofor-99-cents pouches and five-pack regular cigars. Multi-stick foil pouch cigars also grew by 33 percent in the past six months, he said.

Each package size offers good and not-so-good advantages, according to Beaulier. For example, foil pouches provide a wide assortment of flavors and are popular with young adult tobacco consumers. On the other hand, the sheer number of SKUs available and constant new product innovation add to the challenge of managing the cigar segment. As for five-packs, they are staple items — typically high-volume items that withstand the test of time and appeal to the mature adult tobacco consumer. However, their downside is that in higher-tax jurisdictions, these packages carry a higher price point, he explained. What is the key to finding the sweet spot? The answer is to take cues from customers and follow the trends. Becoming obsolete as a retailer will “drive your customers to the competition,” Beaulier noted. “All customers, regardless of base size, want choice. There is no way to know what the customer is looking for. The only way to know is to ask them; get their feedback.” For its own cigar business, Brewer, Maine-based Cigaret Shopper dedicates 8 feet to the segment in all 19 of its stores, carries an average of 82 SKUs and sees fivepacks as its volume driver. Overall, the chain has posted double-digit growth, on average, the past two years.

POUCHES VS. FIVE-PACKS

Pouches • Wide variety and assortment of flavors • Popular with today’s young adult tobacco consumer • Available in both HTL and natural leaf wrappers

Pouches Five-Packs • Staple items; typically high volume and have withstood the test of time • Very consistent volume • Mature adult tobacco consumers typically purchase out of this segment

80 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

Five-Packs • Higher-tax jurisdictions make this package too expensive for many consumers

• Sheer number of SKUs available • Constant new item introductions • Possibility of obsolete inventory due to the latest “flavor of the month”


For Trade Purposes Only

www.dutchcigars.com CONTACT YOUR ITG BRANDS, LLC SALES REPRESENTATIVE OR CALL 1-888-781-9100 FOR INFORMATION AND MARKETING MATERIALS ON DUTCH. ©2015 ALTADIS U.S.A. INC.


TOBACCO

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

“Customers see our name on the door and know it will be a consistent set,” Beaulier said. Swisher International’s Rossi agrees with Beaulier’s best practices.

Recent growth drivers have been innovation and “the flavor blast,” foil pouches to ensure freshness, and value pricing, he cited. Swisher is a leading manufacturer of cigars, fil-

82 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

tered cigars and smokeless tobacco. The total cigar segment is up 3.6 percent, according to Rossi, and MSA (Management Science Associates Inc.) data predicts cigars could reach 19 billion units globally by 2019. Resiliency is what makes the cigar business “really exciting,” added Pine State Trading’s Canning, who’s been in the business 31 years. “There was a time when people would have said cigars are down and out. These are not those times.” Adding to the excitement is the level of information available to all the stakeholders in the business. The challenge, however, is getting the available data to them, he said. “Give the data the level of integrity it needs so you have the desired effect at retail,” Canning encouraged. “If we align ourselves with what our manufacturers’ objectives are and focus on what the retailers’ objectives are, we can capture the tobacco consumer.” As for cigar competition behind the back bar from other tobacco products, such as fast-evolving electronic cigarette and vapor products, Canning says to “bring it on.” “I was thrilled when e-cigarettes and vapor came into the marketplace. Why? Retailers had become complacent; many had decreased their tobacco space. The excitement [around vapor] led to retailers looking at their total tobacco space,” he explained. Cross-channel competition also has been a good thing for cigars and the total tobacco category, he noted. “Dollar stores in cigarette/ tobacco is not having the impact we thought it would have, but it did force us to look at how we could help our retail partners be competitive with them.” CSN


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SERVICES

Car Wash + Lottery + ATM + Prepaid + Financial

Suds Up Retail car wash activity is the best it’s been in years By Renée M. Covino

I

s your convenience store running a clean machine? The drive for car washes has shifted into high gear within the last year, making it an ideal time for the convenience channel to boost sales with bestpractice promotional tactics. “The last six to nine months has been incredibly good for car washing,” said Eric Wulf, CEO of the International Carwash Association (ICA). “If you trail back over the last year, it might be the best it’s been in 10 years for car washes. It’s difficult to quantify, but I haven’t heard the number of positive reports on the health of the retail car wash business like we’ve been hearing lately in a long time.” Another positive indicator from Wulf’s perspective is the fact that attendance at the annual ICA trade show in April was up 22 percent. “We have not had an increase in attendance like that in recent years,” he reported. “So those kind of dramatic results point to the health of the industry.” What’s behind the healthy boost? The improved

84 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM

economy is one factor cited by Wulf. The timing of weather — both good and bad weather — is another factor he said has helped. “You have to have bad weather for cars to get dirty, and you have to have good weather for people to want their cars washed. And you have to have those both happen at the right times of the week,” he explained. Generally speaking, Monday-Wednesday are the slower days for car washes, while Friday-Sunday are the busiest. So, if more frequent snow and ice storms occur at the beginning of the week and more clearing weather occurs on the weekends, it’s the best possible scenario. Still, a savvy suds business does not rely solely on good weather patterns. In fact, it’s when the weather is at its best that retailers in the car wash business can benefit the most from considering the latest promotional tactics and industry trends: Subscribe to a subscription program. The “Netflix model for car washing” is not a new idea, but what


SERVICES

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is new is the technology behind it, according to Wulf. Thirty years ago, car washes were familiar with the idea of offering unlimited car washes for monthly subscribers, but now automated terminals with RFID technology that records cars the way toll roads do in many states is changing the practice for retailers and customers. “It takes weather out of the equation,” said Rob Deal, vice president of international and corporate sales for Innovative Control Systems Colored chemicals can enhance the car wash experience. (ICS), a car wash solutions provider based in Wind Gap, Pa. “And it is also giving operators a lot more conGet sweet on a tools suite. Car wash system providtrol, while giving customers an unlimited program they ers are also helping the industry give rise to a trend can easily use. It creates a lot of loyalty.” of monitoring chemical usage, water usage, electric Such programs are also leveling out the revenue usage and more. “We help them manage operational stream for operators, with Deal calling it “the best costs,” Deal explained. “Our suite of tools will handle change” to the car wash industry in the last six years. employee management, time clock, payroll service, The company knows about this firsthand because it expenses, utilities and more.” has benefitted from a subscription program in its own Dashboard applications and mobile apps are giving corporate car wash locations. According to Deal, it operators fingertip control of all their car wash sites doubled its volume in four years after initiating a suband helping them run them more smoothly on a dayscription program in 2009, and its corporate car wash to-day basis. volume is still growing year over year. For instance, Deal relayed that ICS’ WashConnect While Wulf and Deal both acknowledge there’s program gives operators “network visibility” and always going to be customers who abuse the subscripallows them to take immediate action in areas where tion program, the technology factor behind the service there are issues, monitored regularly by red, yellow now has more operators switching their thinking from and green “lights” that pop up on the dashboard. “How do I stop the abuse?” to “How do I get more Make it theatrical. An ongoing marketing trend in car customers to sign up to the program?” and ultimately washes centers on “theater-based” entertainment for kids recognizing that the practice not only increases revand customers who view car washes as an experience. enue, but also better predicts and stabilizes revenue. Chemicals can be colored or made to appear like hot foam or lava boiling over as the car moves through the mechanics. These chemicals and foams are more costly for the operator, but can be recouped through the higher price points customers seem willing to pay for the experience. Use self-service payment kiosks. Customers from all walks seem to like automation more than they like people, and it’s no different at the car wash. Hence, self-service kiosks are gaining in popularity. “We’re seeing customers rating the experience 15-18 points higher and spending a dollar more per sale in customer interactive payment methManagement systems are available to help car wash operators monitor usage, ods,” Deal noted. CSN expenses, utilities and more.

86 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM


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HOTPRODUCTS Special Advertising Section

Rust and Corrosion

88 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM


HOTPRODUCTS Special Advertising Section

iPunch Rewards/Loyalty APP

For Sale

WWW.CSNEWS.COM | AUGUST 2015 | Convenience Store News 89


CLASSIFIED Services

90 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM


CLASSIFIED Credit Card Processing / Merchant Services

WWW.CSNEWS.COM | AUGUST 2015 | Convenience Store News 91


CLASSIFIED POS/Equipment/Supplies

92 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM


CLASSIFIED ATMs

ATMs

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


CLASSIFIED Air Vacs

Pre-Paid/Cellular Products

94 Convenience Store News | AUGUST 2015 | WWW.CSNEWS.COM


CLASSIFIED Air Vacs

Age Verifier

1-800-542-3336 Back Offce Software

Age Verifer / POS

WWW.CSNEWS.COM | AUGUST 2015 | Convenience Store News 95


CLASSIFIED Services

Plastics

Petroleum/Equiment

Mobile Marketing

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


CLASSIFIED Financial Services

Scales

General Merchandise

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Equipment / Supplies

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Wholesale Refrigeration

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 Add Systems

www addsys com

20 71

AdvancePierre Foods

www advancepierre com

Altria Group Distribution Company/NuMark

www insightsc3m com

Anheuser- Busch

www anheuser-busch com

Anthony International

www anthonyinternational com

Bake N Joy

www bakenjoy com

Breathe eCig

2 100 33 37 82

Cash Depot

www cdlatm com

CB Distributors

www 21stCenturySmoke com

17

Cheyenne Intl

www cheyenneintl com

57

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

14

Del Monte Fresh Produce

www freshdelmonte com

31

Fit Crunch Bars

sales@fitcrunchbars com

40

General Mills

www generalmillsconvenience com

Global Tobacco LLC

888 597 6653

GMPI

www gmpicompany com

20

Hatco

www hatcocorp com

53

Heineken

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

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

9 51

Kevin McKay Western Regional Sales Manager 224-632-8246 kmkay@stagnitomail.com

25,29

Imageworks Display

www imageworksdisplay com

45

InLine Plastics Corp

www inlineplastics com

77

Innovative Control Systems

www icsCarWashSystems com

ITG Brands

85 CV1,13,21,81

Logic Technologies

www logicecig com

McCain Foods USA

www mccain4cstores com

McKee/Little Debbie

www littledebbiecstores com

62-63

McLane Co Inc

www mclaneco com

18-19

MillerCoors

www millercoors com

5

Motion Technology Inc

www mtiproducts com

35

Placon

www placon com

15

ProFoods/Champs Chicken

www champschicken com/CSN

78

The Procter & Gamble Co

10-11 75

99

R J Reynolds Tobacco Company

www engagetradepartners com

Society Insurance

www societyins com

Swisher

www swisher com

Tillamook Country Smoker Inc

www tcsjerky com

Universal Merchant

www nynab com

White Castle

ordings@whitecastle com

Kim Hansen Midwestern Regional Sales Manager 847-726-1590 khansen@stagnitomail.com Rachel McGaffigan Northeast Regional Sales Manager 508-385-2524 rmcgaffgan@stagnitomail.com Steve Lichtenstein Vice President/Southeast Regional Manager 201-855-7613 slichtenstein@stagnitomail.com

7 87 Regional 38-39,83 47 Outsert

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

79

Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by Stagnito Business Information, 570 Lake Cook Rd Deerfeld, IL 60015 Copyright Š 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 Deerfeld, IL, and at additional mailing offces POSTMASTER: Send address changes to Convenience Store News, P O Box 1842, Lowell, MA 01853

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

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55% of ATC will go to another store if their regular brand of tobacco is not available

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45% of ATC are very likely to consider buying a tobacco product mentioned by a store clerk

74% of ATC are very likely to consider switching stores for lower everyday tobacco prices

Source: 2014 Retail Experience Study (Altria Client Services) Š2015 Altria Group Distribution Company For Trade Purposes Only


Editor’s Note

The

Dawn of a

New Era

Innovation is no longer a luxury, but a necessity

E

lectronic cigarettes, personalized vapor products, low nicotine. Any way you slice it, innovation around harm reduction has gripped the tobacco industry as companies look to meet changing consumer demands and balance out declining traditional cigarette volumes. While not new, the idea of harm reduction has been a hot-button issue in the industry this year. In fact, the topic was a key element of the recent Tobacco Merchants Association’s Centennial Celebration & Conference, held in May.

While not new, the idea of harm reduction has been a hot-button issue in the industry this year. Citing World Health Organization numbers, Scott Ballin, director of the Alliance for Health, Economic and Agriculture Development, noted during the conference that there are more than 1 billion smokers globally. While this number is staggering, the world is entering “a new era” for tobacco products with an opportunity to rewrite the rule book, he said. Science, technology, innovation and new players entering the tobacco industry are all taking key roles in the new era of harm reduction. “Today, it is less important who made the product [and more important] what the product is,” Ballin pointed out.

Leading the charge in favor of harm reduction has been the electronic cigarette industry. However, many segment players have admitted this year that the right e-cig product to fully satisfy consumers is not on the market yet. Part and parcel to this harmreduction movement is Modified Risk Tobacco Products (MRTP). In August 2014, Swedish Match North America became the first company to submit a MRTP application to the Food and Drug Administration (FDA). The maker of General snus is still waiting Melissa Kress , Senior Editor on a decision from the agency. Word could come soon. Lars Dahlgren, president and CEO of Swedish Match, said during the company’s second-quarter earnings call on July 17 that Swedish Match expects to hear back from the FDA late in the summer or during the fall, and remains confident that its application provides all necessary support for modified risk status for General snus. More movement in the area of MRTP is sure to come. As part of its alternative tobacco product pact with The Altria Group Inc., Philip Morris International is on track to apply during the course of 2016 for its heat-not-burn iQOS product to be approved as a MRTP. In any industry, it takes time — think decades, not months — for new products or disruptive products to take hold. It will be interesting to see what will come down the tobacco pike. Convenience Store News will be along for the ride. CSN For comments, please contact Melissa Kress, Senior Editor, at (201) 855-7618 or mkress@stagnitomail.com.

WWW.CSNEWS.COM | Guide to Tobacco 3


Contents

3 | Editor’s Note

The Dawn of a New Era

8 | Cover Story

Under Construction

A new tobacco arena is being built with such building blocks as harm reduction, modified risk, heat-not-burn and electronic nicotine devices.

SEGMENT SNAPSHOTS

16 | Cigarettes 22 | Smokeless Tobacco 26 | Cigars 30 | Electronic Cigarettes 32 | Pipe & Loose Tobacco 34 | Tobacco Accessories

6 Guide to Tobacco | WWW.CSNEWS.COM

HOW TO SELL MORE

20 | Cigarettes 24 | Smokeless Tobacco 28 | Cigars 31 | Vapor Products 33 | Pipe & Loose Tobacco 36 | Tobacco Accessories 38 | Expert’s View

Three Keys to Profitably Growing Electronic Nicotine Devices Focus on innovation, collaboration and evaluation.

40 | What’s New in Tobacco


*based on STW compounded annual growth rate for all NAS cigarette styles from 1999-2014

CIGARETTES ©2015 SFNTC (3)


Cover Story

A new tobacco arena is being built with such building blocks as harm reduction, modifed risk, heat-not-burn and electronic nicotine devices A Convenience Store News Staff Report

H

ammers are banging, saws are buzzing and men are at work. A new tobacco arena is being constructed of new and improved materials with names like harm reduction, modified risk, heat-notburn and electronic nicotine devices. And the word from industry insiders is: This is just the start of a work in progress for years to come. Consider some of the recent expert buzz: • The world is entering “a new era” for tobacco products with an opportunity to rewrite the rule book, according to Scott Ballin, director of the Alliance for Health, Economic and Agriculture Development. He believes science, technology, innovation and new players entering the industry are all taking key roles in the new era of harm reduction. • “We have long believed technology will play a pivotal role in shaping the future of the tobacco

8 Guide to Tobacco | WWW.CSNEWS.COM

industry,” stated Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC. • Reduced-harm or modified-risk tobacco products (MRTPs) “will likely be the lifeblood of the industry,” said Jim Dillard, senior vice president of regulatory affairs and chief innovation officer of Altria Client Services. • When health consulting company Pinney Associates recently aligned with Reynolds American units Niconovum USA and R.J. Reynolds Vapor Co., PinneyAssociates CEO John Pinney said it was Reynolds’ commitment to invest in reduced-harm products that convinced the health


WWW.CSNEWS.COM | Guide to Tobacco 9


Cover Story

firm to enter into the partnership. This new tobacco arena is being erected as traditional combustible cigarettes continue to retreat. Cigarette volumes are expected to keep declining at the same rate as in the past — about 3 percent — and promotional activity is likely to be lower, according to Nik Modi, managing director of RBC Capital Markets. Meanwhile, the latest numbers show electronic cigarette use and vaping is on the rise, which experts agree is at the forefront of harm reduction.

Vapor Rising A recent Reuters/Ipsos poll of almost 6,000 adults found that about 10 percent of them vape, with nearly 70 percent of vapers picking up the habit in the last year, and 40 percent saying they were motivated by the ability to vape indoors and the lower cost over time. Eighty percent believe the devices are “a good way to help people quit smoking.” The recent vaping rate represents a significant rise from 2013, when the U.S. government estimated that 2.6 percent of Americans used e-cigarettes. Regarding the convenience channel, a Wells Fargo Securities survey of 12,500 c-stores found that: overall vapor category sales growth was a “solid” 8 percent in the first quarter of 2015, but decelerated compared to 17.4-percent growth in the fourth quarter of 2014 as continued heavy promotions on both Vuse and MarkTen drove unit momentum but not dollar sales; vapor displaced about 3 percent of combustible cigarette volume in Q1 2015, down from about 4 percent in both Q4 and Q3 2014, but remained flat year to year; repeat vapor purchases accelerated to more than 65 percent in Q1 2015, steadily increasing sequentially from 40.5 percent in Q2 2014; and the e-cig subcategory registered about 8-percent growth in Q1 2015, slower than the 15-percent growth in Q1 2014, but up from 5-percent growth in Q4 2014. While Wells Fargo Securities has taken a cautious stance on the segment short-term due to slowing growth and regulatory uncertainty, it maintains a “bullish” outlook for the long-term as consumption of vapor and other non-combustibles such as heatnot-burn could surpass consumption of combustible cigarettes by 2025. Furthermore, Wells Fargo Securities reported that consistent with its previous surveys, retailers remain excited about innovation, particularly second- and third-generation products being launched in the market, which they believe could be a new “catalyst for growth.” The way the majority of the surveyed retailers see it, the heat-not-burn concept has a lot of potential

10 Guide to Tobacco | WWW.CSNEWS.COM

Only the Tip of Innovation While current technology is predicted to only be the tip of the iceberg when it comes to harm reduction, modified risk and electronic nicotine devices, here are some innovative products making their way into the market now: Second-, third-, fourth-generation and beyond electronic smoking devices. Traditional e-cigs and mod vapor devices continue to make room for improvement. New generations of e-vapor products are expected to be continuously introduced to the market, with many newer devices having the ability to control the temperature to minimize the generation of harmful or potentially harmful constituents (H/ PHCs), according to industry analysts. Heat-not-burn sticks. These products are slender, tubelike devices that give users as much nicotine as a traditional cigarette by heating, not burning, tobacco, so say the Big Tobacco companies who make them such as Philip Morris International and Reynolds American Inc. The main distinction between them and e-cigarettes, which use liquid nicotine, is that heat-not-burn devices contain real tobacco. Scientific studies are underway and early reports show there is far less cell damage with heat-not-burn devices than with cigarette smoke. Sprays and tablets. The heat-not-burn initiative has also given way to other innovative ideas such as an inhalable nicotine spray marketed by British American Tobacco, which late last year won approval from British drug regulators. Specialty pharmaceutical company Ross Myles Health also launched Nicofi, described as a U.S.-made, patented, fast-acting dissolvable nicotine tablet intended for use as an alternative to smoking that has been “clinically proven to deliver nicotine [about as quickly as] smoking a cigarette.” Nicofi is placed under the tongue and releases a solution of nicotine directly into the bloodstream through the lining of the mouth. One Nicofi tablet offers the equivalent to the nicotine delivered from one cigarette.

because it’s a bridge from combustible to vaping; however, they also acknowledge it will take a lot of consumer education for such products to take off.

Education From the Inside Out Education is also needed within the industry itself, according to experts like Gal Cohen, head of scientific and regulatory affairs at vaporization technology company Pax


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Cover Story

Labs Inc. He believes as new-generation e-cig products replace early technologies, e-cigs need to be “assigned a proper place in the market and an appropriate role in the world of public health.” Harmful or potentially harmful constituents (H/ PHCs) in e-cig vapor are “reduced by 90-99 percent relative to a cigarette,” Cohen noted in HealthWorks Collective. And he suggests there should be a Cochrane Review, a systemic review to be updated annually, of the latest evidence on e-cigarettes’ potential for harm reduction. E-vapor products provide the “most realistic opportunity” to displace cigarette use in hardened smokers, Cohen said, although he recognizes some questions still need to be addressed on issues such as e-cigs’ long-term health impact in order to make them “even safer” and governed by fair regulation. If there were a Cochrane Review of the latest evidence on e-cigs, it would find that the chemical composition of e-vapor is preferable to smoke and that long-term use of e-cigs may result in harm reversal, he speculates. Cohen acknowledged, though, that getting a complete picture will require decades of data analysis. In regards to harm-reduction strategies, Cohen noted that such an approach is commonly used in patients who engage in potentially risky behaviors or have undesirable addictions whereby a less harmful product replaces or mitigates a more harmful one, such as through abuse-resistant opioids, methadone and HPV vaccines. “The e-vapor industry and the public health establishment can (and should) work together to bring an end to cigarettes and smoking, and e-cigs may play a key role with more research, innovation and responsible marketing,” he concluded. Carl Phillips, scientific director of the Consumer Advocates for Smoke-Free Alternatives Association (CASAA), envisions that low-risk products, including e-cigs and smokeless tobacco, will in a few decades be as widely used as cigarettes when they were at their peak. The way he sees it, predicting how many people will consume low-risk products is much easier than predicting the products they will use, but the trend will eventually leave cigarettes as “more of a niche product like big

14 Guide to Tobacco | WWW.CSNEWS.COM

cigars, not the mass-market staple they are today.” To combat the negative press and declining public perception of vapor, the CASAA Research Fund is seeking funding for a proposed study that will analyze scientific studies that include claims that e-cigs and other “reduced harm” products are a gateway to smoking, and also review “gateway” arguments made in websites, blogs and other media by influential institutions and individuals to trace the sources of these claims. CASAA said the budget for the research project is $15,000. Since it will be matching every dollar donated one-for-one up to $7,500, CASAA needs $7,500 in earmarked donations to proceed with the study. Another advocate of harm reduction, Jeff Stier, senior fellow at the National Center for Public Policy Research, recently wrote to members of the Massachusetts Joint Committee on Public Health to support HB1943, which would direct the health department to study the use of harm reduction as a way to reduce smoking and smoking-related death, disease and health care costs. He called it a “marker of our incremental progress” in changing minds on an emotionally charged topic. Stier explained that the risk analysis division of the National Center for Public Policy Research believes proper regulation of the “reducedrisk” products currently available, like e-cigs and snus, can save more lives than new taxes, warning labels or public service campaigns. He also called attention to the Food and Drug Administration’s (FDA) national longitudinal study, Population Assessment of Tobacco and Health (PATH), which includes evaluations of how people are using e-cigs. He said Massachusetts should rely on this federally-funded science instead of requiring the state’s public health department to do its own “more limited” study. In making his case to the Joint Committee on Public Health, Stier additionally quoted FDA Center for Tobacco Products Director Mitch Zeller, who has said “there’s an opportunity for FDA to come up with what I’ve been calling a comprehensive nicotine regulatory policy that is agency-wide and that is keyed to something that we call the continuum of risk: that there are different nicotine-containing and nicotinedelivering products that pose different levels of risk to the individual.” CSN


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Cigarettes

2014 Cigarette Sales & Units

The terrain was even and flat across the overall cigarettes category for 2014, virtually unchanged in dollar sales (up 0.1 percent) and slightly down in unit volume (by 1.5 percent). Premium brands, still very much the lion’s share of sales ($40.5 billion), very closely mimicked the overall category’s changes in dollar sales and unit volume vs. 2013 (up 0.3 percent and down 1.2 percent, respectively). The next largest subcategory, branded discount ($7.3 billion), also stayed similarly flat with 0.2-percent and 1.5-percent declines. Looking at the other smaller subcategories, larger declines were seen, especially in imports (down 6.8 percent and 6.4 percent). Subgeneric/private label and fourth tier also experienced single-digit downturns. DOLLAR SALES (in millions)

Premium Branded discount Subgeneric/private label Fourth tier Imports TOTAL

$40,497.8 7,287.6 2,452.3 218.8 1.6 $50,458.0

Percent change

0.3% -0.2 -3.3 -4.5 -6.8 0.1%

UNIT VOLUME (in millions)

6,309.4 1,342.4 450.0 39.0 0.2 8,141.0

Percent change

-1.2% -1.5 -4.4 -1.0 -6.4 -1.5%

Source: Nielsen Scantrak Convenience

2014 Cigarette Segment Share

2015 Cigarette Segment Share (First Five Months)

Premium brands were back on the upswing in segment share, making up 80.3 percent of the dollar share pie in 2014 (up from 80 percent the year prior) and 77.5 percent in unit share (up from 77.3 percent). Naturally, this equated to slight share losses in other segments — branded discount, subgeneric/private label and fourth tier all lost a tenth of a percent in dollar share. Imports continued to be off the map in terms of share. Premium Fourth tier

Branded discount Imports

Premium continues to inch up its cigarette segment share, now at 80.4 percent in dollar share and 77.7 percent in unit share for the first five months of this year. Once again, premium’s gain came from tenth-of-a-percent dollar share losses in branded discount and subgeneric/private label. Fourth tier gained a tenth of a percent in dollar share.

Subgeneric/private label

DOLLAR SALES

Premium Fourth tier

DOLLAR SALES Jan.-May 2015

UNIT VOLUME

0.4%

5.5%

4.9% 14.4%

0.5%

0.5% 4.8% 14.3%

16.5%

7 77.5%

80.3%

Source: Nielsen Scantrak Convenience

2015 Cigarette Sales & Units

(First Five Months) Based on the first five months of 2015, sales are looking up across all cigarette subcategories, as the overall category saw gains of 4.1 percent in dollar sales and 2 percent in unit volume. Once again, premium was pretty parallel to those gains, at 4.5 percent and 2.1 percent, respectively. The big gainers so far this year are fourth tier (up 13.9 percent and 22.2 percent) and imports (up 11.4 percent and 6.5 percent). Branded discount was on the plus side, too, up 3.3 percent and 1.7 percent. The only segment experiencing a decline so far is subgeneric/private label, which was flat in dollar sales (0.3 percent), but down in unit volume (by 1.4 percent). DOLLAR SALES (in millions) Jan.-May 2015

$18,782.2 3,345.4 1,112.5 108.3 0.8 $23,349.2

Source: Nielsen Scantrak Convenience

16 Guide to Tobacco | WWW.CSNEWS.COM

Percent change

4.5% 3.3 0.3 13.9 11.4 4.1%

UNIT VOLUME (in millions) Jan.-May 2015

2,881.9 608.3 199.9 20.0 0.1 3,710.2

Percent change

2.1% 1.7 -1.4 22.2 6.5 2.0%

Subgeneric/private label UNIT VOLUME Jan.-May 2015

5.4%

0.5%

16.4%

80.4%

Source: Nielsen Scantrak Convenience

Premium Branded discount Subgeneric/private label Fourth tier Imports TOTAL

Branded discount Imports

7 77.7%


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Cigarettes

2015 Cigarette Share by Region (First Five Months)

Regionally speaking, cigarettes are struggling the most in the Northeast (the only area slightly down in dollar share and unit share). The South not only continues to hold its large share of the c-store cigarette business, but it also experienced upticks in dollar and unit share for the first five months. The Midwest declined slightly in unit share yet stayed steady in dollar share. The West experienced the same steadiness in dollar share, but increased slightly in unit share. South

Midwest

Northeast

DOLLAR SALES Jan.-May 2015

2015 Cigarette Competitive Channel Market Share (First Five Months) The convenience channel remains the clear destination for cigarette purchases, and it even picked up two percentage points in unit share (now at 89.5 percent) and more than two percentage points in dollar share (now at 88.2 percent). It is no surprise that this comes at the expense of the drug channel’s share loss, mostly attributable to CVS Health Corp. exiting the tobacco business last year. The supermarket channel also benefitted from that, experiencing a slight share uptick in both dollar sales and unit volume.

West

UNIT VOLUME Jan.-May 2015

12.5%

12.7% 15.3%

18.9% 42.5% 4

46.7% 4

Convenience Food Drug

25.4%

26.1%

DOLLAR SALES Jan.-May 2015

DOLLAR SALES Jan.-May 2014

88.2% 6.8% 5.0%

86.1% 6.7% 7.2%

UNIT VOLUME Jan.-May 2015

UNIT VOLUME Jan.-May 2014

89.5% 5.9% 4.6%

87.5% 5.8% 6.7%

Source: The Nielsen Co. Source: Nielsen Scantrak Convenience

Cigarette Sales & Units by Month (Percent Change)

Monthly changes in sales and units track closely for the cigarette category. The largest jump came in April 2015 on both sides, with a 4.3-percent increase in dollar sales, while units gained 5.9 percent, vs. the previous month. Lows are consistently found at the beginning of the year, with relatively deep drops reported for January 2013, 2014 and 2015.

Source: Nielsen Scantrak Convenience

18 Guide to Tobacco | WWW.CSNEWS.COM

06/0615

05/09/15

04/11/15

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n Sales n Units

1/19/13

6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6


Cigarettes

How to Sell More Cigarettes The bad news is industry analysts predict gross profit margins on cigarettes will continue to decline, along with overall cigarette volumes, thanks to legislation from all levels of government and harsh regulation. The good news is the convenience channel is going to remain the primary destination for cigarette smokers, strengthened further as more supermarkets, drugstores and big-box chains are expected to pull out of the category. So, how can c-stores optimize cigarette sales? It’s a tough question, but there are some logical moves:

Have options outside and around cigarettes. It might seem strange to talk about the “other” tobacco categories when talking about cigarettes, but it’s imperative for c-stores to recognize that the buying habits of tobacco customers are evolving, mostly on account of regulation. The channel must adjust with options outside cigarettes to ultimately keep cigarette customers happy. Whereas a customer may have purchased two packs of cigarettes previously, now he may be buying one pack of traditional cigarettes and an electronic cigarette. Consumers like options more than ever before and c-stores must oblige.

• Keep SKUs lean and mean. A basic practice of good cigarette merchandising in these times is to put the emphasis on top sellers and the brands customers want most. Trying to drive the business with 150 different cigarette SKUs just won’t work in today’s environment. • Be selective with manufacturers. “Make sure that the products you carry come from reliable manufacturers who are knowledgeable about the industry’s legislative issues and are willing to partner with you as a retailer,” advised Jessica Fratarcangelo, marketing director for Cheyenne International. “Carry a variety of brands to ensure you have differentiation in the category, but be selective.” • Don’t forget your congressmen. Tobacco products constitute about 37 percent of in-store revenue dol-

20 Guide to Tobacco | WWW.CSNEWS.COM

lars for convenience stores, according to R.J. Reynolds Tobacco Co., and so “it’s vital that retailers build and maintain relationships with elected officials at all levels of government and make their opinions known on issues that can impact their business,” relayed Dave Riser, R.J. Reynolds’ vice president of external relationship marketing. “It’s important to remember that you can be part of shaping the legislative landscape, or it will be shaped for you.”

Think naturally. Found predominantly in tobacco shops and tobacco outlets, natural leaf tobacco is growing its presence in convenience stores thanks to consumer demand. Today’s consumers are looking for more natural, untreated products across all categories, including tobacco, and they’re willing to pay a premium for such items. Suppliers recommend that c-store retailers take all the natural brands and cluster them together to create awareness for consumers because there are more people looking for these products than they may realize.


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© 2015 Scandinavian Tobacco Group Lane Ltd.


Smokeless

2014 Moist Smokeless Sales & Units

The smokeless segment is not one for bad news — it has witnessed a steady stream of growth for at least the last five years, and 2014 was no different. Dollar sales were up more than unit volume (5.1 percent vs. 0.9 percent), indicating a move away from discount brands. Dollar sales (in millions) Unit volume (in millions)

2014

2013

$4,672.0 1,088.8

$4,447.2 1,078.7

2015 Moist Smokeless Share by Region (First Five Months)

Percent change

5.1% 0.9%

While the South holds about half the share of moist smokeless tobacco across the country, it is slipping a bit, relinquishing some share in the first five months of this year to the Midwest, which saw an uptick in both dollar and unit share — now over 25 percent in each.

Source: Nielsen Scantrak Convenience

2015 Moist Smokeless Sales & Units (First Five Months)

South

The momentum around smokeless continued in the first five months of this year, with industry research indicating mid-priced brands are experiencing the strongest gains in both dollar sales and units sold. Overall, the smokeless segment was up a healthy 6.6 percent in dollar sales and 2.3 percent in unit volume so far this year. Dollar sales (in millions) Unit volume (in millions)

Jan.-May 2015

Jan.-May 2014

$2,237.3 505.4

$2,098.7 493.9

Midwest

Northeast

DOLLAR SALES Jan.-May 2015

West

UNIT VOLUME Jan.-May 2015

13.6%

15.4%

10.3%

11.4% 47.8% 4

Percent change

6.6% 2.3%

50.2% 5 25.9%

25.4% %

Source: Nielsen Scantrak Convenience Source: Nielsen Scantrak Convenience

Moist Smokeless Sales & Units by Month (Percent Change) The monthly trends in sales and units resembles a kiddie roller coaster: lots of small up-and-down movement, but only one scary drop per year. That drop shows up every January, as sales decline by about 3 percent and units decline by about 4 percent in each of the three years posted here. After the January decline in 2015, monthly dollar sales have increased for each four-week period to date. 4 n Sales n Units

3 2 1 0 -1 -2 -3 -4

Source: Nielsen Scantrak Convenience

22 Guide to Tobacco | WWW.CSNEWS.COM

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Smokeless

How to Sell More Smokeless Tobacco Smokeless tobacco continues to lead the other tobacco products category for c-stores with a smokin’ 60.6-percent share of dollar sales. Dubbed “the little train that could” by industry analyst David Bishop, managing partner at Balvor LLC, the smokeless segment still appears to be benefiting and moving forward in direct contrast to some of the negative press surrounding combustibles. “The headwind for combustibles becomes the tailwind for smokeless,” Bishop has stated at several industry events. Obviously, c-store retailers are doing a good job in the subcategory, and here are some top tips to help keep it up:

Moist snuff still deserves more shelf space. Moist snuff continues to grow at a steady rate of approximately 2 percent and is trending toward 1.5 billion cans for 2015, according to figures from the MSAi Database and Swisher International. “Topperforming moist retailers are seeing growth in the category and continue to dedicate more shelf space to it to meet customer needs,” even in light of other growth such as electronic cigarettes and vapor, advised Jeff Rossi, senior director of category management and trade marketing for Swisher.

• Moist snuff perhaps deserves prime retail space. For those who see moist snuff outpacing cigarettes, even more prime retail space might be in order. Resets have taken place by some in the convenience channel to position moist snuff directly behind the main register and not off on the end, reportedly resulting in even stronger sales. •

Remove what’s not working. With all the talk about c-stores devoting more space to smokeless, they should not forget that they still need to delete slower items more quickly, especially since “freshness dates” are a key purchase motivator in smokeless. When freshness dates are older, product will most likely sit on the shelf.

24 Guide to Tobacco | WWW.CSNEWS.COM

• Seize promotional opportunities. Major manufacturers in the smokeless segment are running with the growth ball, offering to help promote their products with custom-made point-of-sale materials and price promotions. Savvy c-stores in the smokeless game are taking advantage, knowing such efforts produce multiple sales and more overall category awareness. •

Don’t be snus-discouraged. While many c-stores report a slow customer hold with snus, this is not reason for abandonment by any means. According to Bishop, “demand for snus is growing as the segment expands.” And with the increased emphasis on alternative options and modified-risk products, some c-store customers are reportedly eager to try new options. R.J. Reynolds Tobacco Co. provides retailers with “little coolers” to better merchandise snus in.


Cigars

2014 Cigar Sales & Units Solid gains in unit volume prevailed in cigars last year, specifically a 5.6-percent increase with a corresponding dollar-sales gain of 1 percent. This is indicative of the healthy growth in lower-priced pouches that’s being seen in the convenience channel lately. Reportedly, three-for-two pouches help to drive up retail sales. Dollar sales (in millions) Unit volume (in millions)

2014

2013

$2,157.8 1,364.4

$2,137.0 1,292.0

2015 Cigar Share by Region (First Five Months)

Percent change

The South loves its tobacco, particularly cigars. It leads with the greatest regional share, claiming roughly 59 percent in unit share and nearly 54 percent in dollar share so far this year. Both these figures were an uptick from the same period last year. The West also increased its dollar and unit share, although it is still the smallest share region. The Northeast experienced some challenges in cigar sales, as it lost share in both dollars and units.

1.0% 5.6%

Source: Nielsen Scantrak Convenience

2015 Cigar Sales & Units

South

(First Five Months)

Convenience retailers continue to carry significantly more variety in the pouch segment and the numbers reflected that for the first five months of this year. Dollar sales gained 3.5 percent while unit volume was up a strong 8.8 percent. Intense manufacturer competition in pouch deals is said to be driving these gains, along with a slight shift toward higherretail single cigar SKUs. Jan.-May 2015

Dollar sales (in millions) Unit volume (in millions)

Jan.-May 2014

$1,008.2 663.6

Midwest

West

UNIT VOLUME Jan.-May 2015

12.5%

12.0% 11.3%

14.7% 53.6%

Percent change

$973.8 609.7

Northeast

DOLLAR SALES Jan.-May 2015

58.9% 5

17.8%

3.5% 8.8%

19.2%

Source: Nielsen Scantrak Convenience Source: Nielsen Scantrak Convenience

Cigar Sales & Units by Month (Percent Change) Aside from a large spike for the four-week period ending March 15, 2014 — where sales and unit increases topped 8 percent — cigar sales changes by month generally stayed within a range of +/- 2 percent in 2013 and 2014. This trend appears to have changed in the early part of 2015, with several months of larger growth recorded for March and April. 10 8

n Sales n Units

6 4 2 0 -2

Source: Nielsen Scantrak Convenience

26 Guide to Tobacco | WWW.CSNEWS.COM

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Cigars

How to Sell More Cigars Cigar volume growth is up in the high single-digits so far this year, which is excellent considering how flat the segment was last year. Driving the growth has been foil pouch cigars, new product innovation and smart retailing efforts like the ones offered here:

Be victorious with pouch variety. It’s logical for retailers to beef up variety in the area where the vast majority of growth is coming from: foil pouch cigars. Pouch assortment has expanded, on average, by more than 20 percent vs. 2014, whereas the other cigar segments all contracted on a SKU count basis in the channel, according to David Bishop, managing partner of Balvor LLC, a sales and marketing consultancy in Barrington, Ill.

Change with the times. Retailers that change it up — change their mix of cigar products across the board on a regular basis to keep up with the innovation in the category and with shifting consumer demand — are more likely to keep growth strong, according to Sandy Fowler, spokesperson for Swedish Match.

Don’t get too attached to those programs. Tied in to changing it up is avoiding over-reliance on manufacturer cigar programs — especially programs with cigar companies that have steady volume declines, warned Fowler. “Some brands and some manufacturers are keeping up with the times and contributing to growth, while others are falling behind,” she said. “The result is that the cigar category has been getting increasingly concentrated into just a few manufacturers.” The overdependency on programs can “tie up valuable space for items with no track record of consumer acceptance and little chance of success. Creating too much ‘dead space’ in a cigar department can rob it of incremental sales.”

28 Guide to Tobacco | WWW.CSNEWS.COM

• Know your top five — and keep them alive. Avoiding out-of-stocks on the top items that are driving the cigar segment is a key best practice for retailers, according to Jeff Rossi, senior director of category management and trade marketing for Swisher International. Five SKUs account for 25 percent of the total cigar volume nationally, he said, citing the MSAi Database and Swisher International figures for the 24 weeks ended June 13. “Out-ofstocks on these items are missed sales that you will never recover,” Rossi said. •

Align marketing plans with promotional activity. “Like many CPG [consumer packaged goods] categories, the cigar category is growing using seasonal items that create excitement and trial of new shapes and blends by adult consumers,” Rossi explained. “Limited items and new innovations account for approximately 17 percent of large cigar volume.”


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NATURAL LEAF CIGARILLOS

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Electronic Cigarettes

2014 E-Cigarette Sales & Units The phenomenal triple-digit e-growth of recent years scaled back to double-digit growth in 2014, with analysts giving mixed reasons for the slowdown, including the fact that public perception of the harmful effects of e-cigarettes and vapor is confusing at best. 2014

Dollar sales (in millions) Unit volume (in millions)

2013

$628.5 60.7

2015 E-Cigarette Share by Region (First Five Months)

All regions of the country have caught the vape craze. The South held steady at about 38-percent share in dollars and units for the first five months of this year. The Northeast lost some share over the same period, now at 27 percent and 22 percent, respectively. The Midwest made good share gains to 21 percent and more than 23 percent, respectively. Finally, the West was steady in dollar share at over 16 percent, but declined in unit share to 17 percent.

Percent change

$537.0 49.1

17.0% 23.7%

Source: Nielsen Scantrak Convenience

2015 E-Cigarette Sales & Units

South

(First Five Months)

As more convenience stores dive into vapor products and better manage their e-cigarette sections, stronger double-digit increases were seen for the first five months of this year compared to the gains seen for all of last year. Dollar sales were up more than 25 percent during this period and unit volume increased by nearly 62 percent. Jan.-May 2015

Dollar sales (in millions) Unit volume (in millions)

Jan.-May 2014

$330.6 37.3

Northeast

West

UNIT VOLUME Jan.-May 2015

16.4%

17.0% 37.8% 3

37.8% 3 21.8%

26.8%

Percent change

$263.6 23.1

Midwest

DOLLAR SALES Jan.-May 2015

25.4% 61.7%

21.0%

Source: Nielsen Scantrak Convenience

23.4%

Source: Nielsen Scantrak Convenience

E-Cigarette Sales & Units by Month (Percent Change) After relatively flat month-to-month changes in 2013, the e-cigarette category showed some volatility in 2014 and early 2015. Summer months appear strongest for these products — witnessed by jumps in sales and units of 22 percent and 30 percent, respectively, for the four weeks ending September 27, 2014. On the other hand, some of the largest declines have come in cold-weather months, including November 2014 and February 2015. 35 n Sales n Units

30 25 20 15 10 5 0 -5

Source: Nielsen Scantrak Convenience

30 Guide to Tobacco | WWW.CSNEWS.COM

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How to Sell More Vapor Products The electronic cigarette and vapor explosion of the past few years quickly flooded the market and the convenience channel with, in some cases, poorly developed products and burdensome inventory. This caused some retailers to lose confidence in the segment and led to a lot of consumer confusion. Here are some tips for streamlining vapor products and getting back to the segment’s hopefully bright future in the convenience arena.

• Walk the e-cig walk. “All too often, e-cig merchandis-

ing in the channel is nothing more than adding another SKU mixed in with the cigarettes,” said Josh Kimmel, founder and CEO of Breathe Ecig Corp. “And when there is a display, it is simply that — a display.” He believes truly effective e-cig merchandising includes explaining the features of the product, as well as promoting reputable e-cigarettes as a cigarette alternative. “In short, helping to truly educate the consumer.”

• Start with sales associates. Can your associates

answer: What is an electronic cigarette? They should be able to, and it starts with retailers taking the time to train them, according to Miguel Martin, president of Logic. He also believes all sales associates should know one or two differences between the e-cig products sold in the store, which takes continually updated training efforts, even something as simple as an instore newsletter to employees.

• Promote, promote, promote. “Always have a promotion on e-cigs. Almost half of adult smokers have not tried an e-cig in the last six months,” Martin cited. • In other words, treat it like a category. Provide dedi-

cated space and place like products together, regardless of brand, advised Chris Mitchell, vice president/chief marketing officer for iSmoke. “There should be an e-cig section where the e-cigs go — clearly identifiable between disposables, starter kits and refills; an area dedicated for e-juice — clearly identifiable between flavors and strengths; and a section for vapor devices.”

• Make pricing prominent. “There is a significant

pricing advantage [convenience stores have] over vape shops that often consumers don’t appreciate about the c-store environment,” Mitchell added. “Make them appreciate it.”

• Have a logical fixture configuration. C-stores that

want to be serious about e-cigs should have a “topdown fixture next to [traditional] cigarettes, carrying four or five of the top brands,” Martin recommended.

• Offer variety across product type. Less is more within product type. However, where variety is good for a c-store is across product type, said Will Squier, vice president of marketing for Tryst Group. This means having the breadth of items, such as e-cigs, e-cigars, e-hookahs, disposables, rechargeables, refillable liquid systems, etc.

WWW.CSNEWS.COM | Guide to Tobacco 31


Pipe & Loose Tobacco

2014 Pipe/Loose Tobacco Sales & Units

With some drugstores out of the tobacco business, convenience stores had an opportunity in pipe and loose cigarette tobacco last year, but they did not seize it. Dollar sales were down nearly 5 percent and unit volume was down more than 9 percent. 2014

Dollar sales (in millions) Unit volume (in millions)

2013

$91.0 17.2

2015 Pipe/Loose Tobacco Share by Region (First Five Months)

Percent change

$95.6 19.1

Regionally speaking, the high cigarette tax states of the Northeast are still making strides in this segment. Despite the overall downturn, the Northeast experienced steady gains in dollar share and unit share last year. The South, although a much smaller piece of the pie, also grabbed more share on both sides. The Midwest and West both gave up share.

-4.9% -9.6%

Source: Nielsen Scantrak Convenience

2015 Pipe/Loose Tobacco Sales & Units (First Five Months)

South

Although the declines weren’t as significant for the first five months of this year as they were for the entire last year, the convenience channel is still not realizing its pipe and loose tobacco potential. Dollar sales during this period were down 2.4 percent and unit volume was down 6.2 percent. Generally speaking, c-stores are significantly more focused on other forms of other tobacco products, mainly smokeless and e-cigarettes/vapor devices. Jan.-May 2015

Dollar sales (in millions) Unit volume (in millions)

Jan.-May 2014

$40.4 7.4

Midwest

Northeast

DOLLAR SALES Jan.-May 2015

West

UNIT VOLUME Jan.-May 2015

13.2%

23.2%

15.8%

28.0% 25.4%

20.8%

Percent change

$41.4 7.9

-2.4% -6.2%

35.4%

38.2% Source: Nielsen Scantrak Convenience

Source: Nielsen Scantrak Convenience

Pipe/Loose Tobacco Sales & Units by Month (Percent Change) Mid-February through mid-March appears to be the cruelest time for the pipe and loose tobacco segment, with both sales and unit declines most significant during this period for each of the three years shown. In 2015, however, sales and units managed to rebound nicely, posting increases of about 3 percent in the next four-week period.

Source: Nielsen Scantrak Convenience

32 Guide to Tobacco | WWW.CSNEWS.COM

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n Sales n Units

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6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6


How to Sell More Pipe & Loose Tobacco Now more than ever, pipe tobacco represents an incremental opportunity to get consumers to step away from the fuel pump and into the c-store. Nearly 400,000 pounds of tobacco — about $20 million in sales — has left the drug channel over the past two years, according to industry statistics. As a result, consumers have to seek out their favorite brands in alternative channels. They will go online or to tobacconists if they have to, but like most consumers today, they ultimately want convenience. So, here are some ideas for c-store operators to consider:

• Don’t think big. You don’t need to dedicate a lot of space to this segment to be in it, according to Leonard Wortzel, vice president of marketing and product development for Scandinavian Tobacco Group. “Two or three slots dedicated to the leading national brands will let convenience store customers know you are in the business,” he relayed.

does require attention to detail and continuous managing to reflect current trends. Experts advise retailers to keep abreast of which brands are trending in higher volume, and stock them. It is difficult for convenience store operators today to be everything to everybody, hence the reason to rationalize SKUs and concentrate on the biggest volume movers.

• Consider your store/stores’ region relative to humidity. C-stores looking to sell pipe tobacco should take their location into consideration for the purpose of selling/displaying the product, as well as advising customers on how to store it. If the c-store is in a region with high humidity, the tobacco will stay moist longer than in regions that are dry and arid.

• Let them know you’re in it. Once you’ve got this segment neat and managed properly, customers need to know about it, so signage is important — and on that signage should go competitive pricing. Stores that want to be in pipe and loose tobacco should do their homework and competitively price it against others selling it in their area, including tobacco stores.

• Know the proper RH. The relative humidity (RH) of pipe tobacco is only in the range of 10-18 percent, according to industry standards, so it doesn’t need to be very moist in the store or on display. Actually, too much moisture or humidity will encourage mold growth. • Category manage. Pipe and loose tobacco isn’t for every convenience retailer, but for those who carry it, they are in effect saying they are a “destination stop” for more tobacco products than the typical gas stop. And so, if they want to set themselves apart that way, the segment

WWW.CSNEWS.COM | Guide to Tobacco 33


Tobacco Accessories

2014 Tobacco Accessories Sales & Units

2015 Tobacco Accessories Share by Region (First Five Months)

After showing decent single-digit dollar sales growth in 2013, accessories flattened out last year in dollar sales and unit volume, with gains of only 0.8 percent and 0.4 percent, respectively. 2014

Dollar sales (in millions) Unit volume (in millions)

2013

$529.1 334.1

While the South and the Northeast slipped a little in tobacco accessories share for the first five months of this year, the West eked upward. Meanwhile, the Midwest maintained its share compared to the same timeframe last year.

Percent change

$524.8 335.5

0.8% 0.4%

Source: Nielsen Scantrak Convenience

South

2015 Tobacco Accessories Sales & Units (First Five Months) For the first five months of this year, accessories sales were back up nicely and more in line with the trends of higher price-point lighters, more upscale designs and the rise in e-cigarette/vape device add-ons. Dollar sales and unit volume each saw a gain of 4.1 percent. Jan.-May 2015

Dollar sales (in millions) Unit volume (in millions)

Jan.-May 2014

$245.7 155.0

Midwest

Northeast

DOLLAR SALES Jan.-May 2015

West

UNIT VOLUME Jan.-May 2015

20.5%

19.6%

11.8%

11.4%

46.3%

47.7%

Percent change

$236.2 148.8

4.1% 4.1%

21.3%

21.4%

Source: Nielsen Scantrak Convenience

Source: Nielsen Scantrak Convenience

Tobacco Accessories Sales & Units by Month (Percent Change) Monthly changes in sales and units for the tobacco accessories segment have tended to stay within a percentage point of each other over the past several years. Strong increases topping 4 percent in both sales and units for the four-week segment ending March 14, 2015, followed by smaller but steady gains in subsequent months through early June, have given the accessories segment solid success for the first part of 2015. 12 10 n Sales n Units

8 6 4 2 0 -2

Source: Nielsen Scantrak Convenience

34 Guide to Tobacco | WWW.CSNEWS.COM

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Tobacco Accessories

How to Sell More Tobacco Accessories Shifting customer desires and outside legislative forces are affecting consumer purchasing decisions in the tobacco arena. Retailers are also keenly aware that tax increases are occurring all around the country, mostly still targeting cigarettes over other products. As a result, retailers who diversify to a wider range of tobacco products and accessories beyond their cigarette offerings are better serving their customers’ needs and better paving the way to store profit. Here are a few ways to hone the accessories category:

• Go front and center with lighters. Lighters continue to be a highly profitable, unplanned and fast-turning frontend item, driving incremental sales with tobacco customers. “The category’s positive growth is fueled by retailers effectively merchandising a variety of designs and licenses that appeal to consumer trends,” said Mark Funderburk, trade marketing manager, lighters, for BIC Consumer Products USA. He recommends taking advantage of lighter displays, such as the BIC Powerhouse Displays that can accommodate six or nine traps of various special-edition and licensed design series lighters. Lighter displays at the frontend are expected in c-stores, he noted. “They improve product visibility and make it convenient for consumers to shop for their favorite lighter designs.” • Lightbulb idea: Put lighter accessories next to lighters. “One of the strongest things a retailer can do to maximize add-on tobacco sales is to display lighter accessories next to the lighters,” said Don Lenny, Zippo’s director of North American sales. “This seems very obvious, but some retailers don’t do this.” Lenny cited statistics from point-of-sale scan data from several retailers showing that Zippo lighter fluid, flints and wicks sell at a rate of 230 percent higher when placed next to Zippo lighters, as opposed to an area outside of the lighter area and customer view. Zippo lighter accessories include premium

36 Guide to Tobacco | WWW.CSNEWS.COM

lighter fluid, lighter pouches, and replacement flints and wicks.

• RYO items making a comeback, but choose quality. Ever since the big roll-your-own (RYO) machines were forced off the market, RYO and its accessories have been making a comeback. Items such as cigarette rolling papers and personal handheld cigarette rolling machines are “it” items. “Quality is key with these products as it is a widely segmented marketplace,” said Brittani Cushman, a spokesperson with National Tobacco Co. • Consider new product offerings in accessories. Cigar wraps are one accessories item growing in popularity, according to National Tobacco. “These products come in a wide variety of styles and can be used with makeyour-own cigar tobacco to allow customers to personalize their cigar smoking experience,” Cushman said.


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Expert’s View

Three Keys to Profitably Growing Electronic Nicotine Devices Focus on innovation, collaboration and evaluation

W

hile the sales growth engine of electronic nicotine devices (ENDs) is fluctuating due to growing competition, shifts in sales mix and changes in distribution across the retail industry, the fuel driving the engine is the intense amount of product innovation in the segment. New products that better align with consumer preferences are vital for building the base business in a more sustainable way. According to Balvor analysis, new products generate nearly 60 percent of this segment’s sales, which is amazing considering that new products in the cigars and By David Bishop, smokeless segments contribute around 20 Balvor LLC percent and 10 percent, respectively. Innovation will continue to close the performancesatisfaction gap, which means collaboration among trading partners will also be extremely important. Although speed-to-shelf is important, rationalizing and removing the less productive assortment more quickly is paramount to make room for new products. In the disposable END segment, Balvor found that the top six SKUs contributed 85 percent of the sales for that segment even though retailers may have had twice the number of SKUs on the shelf. Resolving this issue in a win-win way is necessary to maximize the value derived from new, more promising products whether in that segment or another that may not even exist in the store today. This makes the evaluation phase of retail planning

38 Guide to Tobacco | WWW.CSNEWS.COM

even more critical, whether it’s assessing a new product to carry or evaluating the current assortment. Although syndicated data providers are challenged to keep up with all the new brands and products, no one data set provides the complete picture as each may serve a different purpose for those companies. Therefore, leveraging a range of data sources can provide a more accurate view of the retail business, leading to better decisions and results. CSN Editor’s note: David Bishop was one of the presenters in the recent Convenience Store News webcast, “OTP & E-Cigs: Maximizing Category Profitability.” Go to http://tinyurl.com/OTP-Ecigs for a replay of the webcast. David Bishop is the managing partner of Balvor LLC, a sales and marketing firm that provides analytic, consulting, research and sales support services to retailers, product suppliers and other organizations across the foodservice and retail classes of trade. In tobacco, he has extensive experience working with manufacturer sales and marketing teams across the cigarettes, electronic cigarettes, smokeless tobacco, cigars and roll-your-own/make-your-own segments. Retailers interested in learning more about how they can leverage Balvor Retailer Composite data and insights can contact Bishop at davidbishop@balvor.com.


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What’s New in Tobacco

ACID Premium Cigarillos

Green Smoke Products Green Smoke Inc.’s vapor products are now available at select convenience store locations. Up to now, Green Smoke products have mostly been found online. In April 2014, The Altria Group Inc.’s Nu Mark’s LLC subsidiary completed the acquisition of the electronic vapor business of Green Smoke Inc. and its affiliates. The Altria Group Inc. Richmond, Va. (804) 274-2200 www.altria.com

Swisher International and Drew Estate collaborated to bring ACID Premium Cigarillos to market. The infused cigarillos come in three experiences: Mellow ACID Blue with a light natural-leaf wrapper, Bold ACID Red with a dark natural-leaf wrapper, and Untamed ACID Green with a natural Candela leaf wrapper. ACID Premium Cigarillos are packaged one cigarillo per pouch, which are either pre-priced at 99 cents or have no marked price. Swisher International Jacksonville, Fla. (800) 874-9720 www.swisher.com

Wave Cigarettes New Packaging JT International U.S.A. Inc. introduced new packaging for its Wave line of cigarettes. The new design features a tactile feel. Existing Kings and 100s size in all five Wave styles — Full Flavor, Menthol, Menthol Green, Blue and Silver — have the new packaging available. Wave is a premium quality, American blend cigarette with a smooth finish. JT International U.S.A. Inc. Teaneck, N.J. (800) 436-7833 www.jti.com

blu PLUS+ Xpress Kit This recent introduction from blu eCigs offers PLUS+ technology at an entrylevel price. The blu PLUS+ Xpress Kit includes two blu tanks in the Classic Tobacco flavor, one blu PLUS+ battery and one USB charger for a suggested retail price of $14.99.  ITG Brands LLC Greensboro, N.C. (877) 703-0386 www.itgbrands.com

40 Guide to Tobacco | WWW.CSNEWS.COM

DjEEP Stars n’ Bars Lighters Kretek International Inc. launched the DjEEP Stars n’ Bars Lighters collection, a new patriotic series of lighters that features symbols representing the USA. The new lighter collection is part of DjEEP’s other upscale collections, including the Marilyn Monroe, Black Leatherette and Denim series. Kretek International Inc. Moorpark, Calif. (800) 358-8100 www.kretek.com


What’s New in Tobacco

Game Watermelon Cigarillos Swedish Match’s Game Watermelon cigarillos are a refreshing twist on the company’s traditional Game cigarillos, according to the maker.

Available as of July, the limited-time variety combines watermelon flavor with Game’s natural leaf wrapper. Game

Watermelon cigarillos are available in two price-point formats: two for 99 cents or “Save on 2” FoilFresh pouches. Swedish Match North America Inc. Richmond, Va. (804) 787-5100 info@smna.com www.swedishmatch.com

OCB Organic Hemp Cigarette Papers Republic Tobacco LP introduced OCB Organic Hemp Cigarette Papers nationwide. The chlorine-free paper is 100-percent organic with 100-percent natural Arabic gum. The product is ultra-thin to give smokers a slower-burning, full-bodied cigarette with minimal ash. Packaging is printed with vegetable inks on recycled cardboard. OCB Organic Hemp Cigarette Papers are available in 1-1/4, Single Wide and King Size slim sizes. The 24-leave booklets will initially be offered as a 99-cent pre-priced consumer offer. Republic Tobacco Glenview, Ill. (847) 832-9700 www.ocb.net

BIC Special Edition Millennial Series As a part of the “Pick Your BIC” Facebook promotion, fans voted on their favorite lighter designs to create the BIC Special Edition Millennial Series, shipping this summer. The eight lighters feature quirky designs like a taco, and a dinosaur riding a scooter. Made in the USA, each Special Edition Millennial Series lighter has a suggested retail price of $1.89. BIC Consumer Products USA Shelton, Conn. (800) 546-1111 www.biclighter.com/home.aspx 42 Guide to Tobacco | WWW.CSNEWS.COM


With innovative designs and industry-leading quality, BIC Lighters are just what you need to take your profits to the next level. Visit BICLighter.com

Select Lighter Series

© 2015 BIC USA Inc., Shelton, CT 06484

*BIC® Full Size Lighter Only

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CSN - August 2019  

CSN - August 2019