CSN - Sept 2014

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VIEWPOINT By Don Longo, Editorial Director

It Takes Two – or Three, or More Collaboration is key to reducing costs in cumbersome c-store industry supply chain


ur cover story this issue (see page 30) is on distribution in the convenience store industry. C-store distribution has always been different from other retail channels — and more difficult, too — due to the nature of making frequent deliveries of relatively small quantities of merchandise to numerous geographically dispersed small stores. “Chaotic” is how one consultant describes the convenience store distribution channel. Bill Scott, president of StoreReport LLC, told our editors: “The convenience store industry [supply chain] needs to be reinvented. It is just wrong. They are never going to get anywhere unless they change the way they do things.” The fact is there are many different ways in our industry that goods get from the manufacturer to the store and eventually to the consumer. There are vertically integrated retailers, which try to control as much as possible of the manufacturing, warehousing and trucking of the products they sell. Others operate their own distribution centers or subcontract their warehouse operations to experts. But predominantly, most c-stores get their goods through broadline wholesale distributors (see our Top Wholesalers report on page 50) and direct store delivery (DSD). Compare this mishmash to the military-like distribution efficiency of giant retailers such as Walmart

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 Profle, August 2012 2008 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2007

and it’s easy to understand why some c-store retailers complain they pay a “convenience channel premium” for products that are sold more cheaply to big-box formats. That perception may not be reality, especially for many of today’s technologically advanced companies, For comments, please contact Don Longo, Editorial Director, however what is clear is that at (201) 855-7606 or the convenience store indusdlongo@stagnitomail.com. try’s retailers, wholesalers and suppliers must work more closely together to eliminate the barriers and chokepoints that increase the cost of doing business across the entire supply chain. Our cover story helps explain the way distribution works in the c-store industry and offers some thoughts and insights on the future of distribution, with retailers, wholesalers, suppliers and other experts discussing how things are likely to change due to competition, technology and industry consolidation. If all constituents in the supply chain can get on the same page, I am confident they will find ways to reduce costs and help convenience retailers compete with and win in today’s retail market. It is nothing short of a survival issue. CSN

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 2007 Silver Ozzie Award, Folio: magazine Best Use of Typography, November 2006

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 | SEPTEMBER 2014 | Convenience Store News 3




30 | COVER STORY Supplying Change

Consumer demand for fresh products is altering supply chain dynamics in the c-store industry.

INDUSTRY ROUNDUP 14 | CST Brands Begins March Across the U.S. 16 | Suddenly Seeking a CITGO Buyer 16 | CSNews’ Linda Lisanti Takes Reins as Editor-in-Chief | Eye on Growth 19 | Competitive Watch 20 | Retailer Tidbits 22 | Supplier Tidbits 24 | People on the Move


3 | It Takes Two – or Three, or More Collaboration is key to reducing costs in cumbersome c-store industry supply chain.

120 | New Era Brings New Opportunities As preferences shift and new trends emerge, data could be a c-store retailer’s best friend. STORE SPOTLIGHT

12 | Online TOC 26 | New Products

124 | Modeled After the Military Kangaroo Express went directly to the source to design its first military-themed store.



114 | Playing Politics SIGMA members hit Capitol Hill looking for support on key concerns.

| Are You Ready for Hurricane Season? Be the last to close and first to reopen using a timed-phase approach.

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 © 2014 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 | SEPTEMBER 2014 | WWW.CSNEWS.COM















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


50 | Adding More to the Mix Amid a pause in acquisitions, wholesalers find growth in new product categories. SPECIAL TECHNOLOGY SECTION

96 | Taken With Technology CSNews’ 2014 Top Tech Executive Avsha Klachuk works to change the future of fueling. | An Award-Winning App Flash Foods earns the 2014 CSNews Outstanding Tech Implementation Award for its loyalty-focused mobile app. 102 | Connecting at Conexxus PCATS rebrands at annual conference in an effort to better accomplish its mission. NACS PREVIEW

110 | Already Breaking Records More than 23,000 attendees are expected at the 2014 NACS Show.


BRAND MANAGEMENT Group Brand Director (201) 855-7610

Michael Hatherill mhatherill@stagnitomail.com

EDITORIAL Editorial Director (201) 855-7606 Editor-in-Chief (201) 855-7608 Managing Editor (201) 855-7614 Senior Editor (201) 855-7618 Field Editor (201) 855-7619 Assistant Editor (201) 855-7629 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 Samantha Negraval snegraval@stagnitomail.com Renée M. Covino reneek@aol.com Tammy Mastroberte tmastroberte@gmail.com Michael Escobedo mescobedo@stagnitomail.com Debra Chanil dchanil@stagnitomail.com

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


56 | How to Choose the Right Foodservice Equipment | C-stores Grab for a Bigger Slice of the Pizza Market Several convenience chains have recently debuted more upscale pizza options. TOBACCO

72 | Black Market Leaves a Black Mark The illicit cigarette trade is becoming a more serious problem. COLD VAULT

| Glass Half Empty or Half Full? CSNews 2014 Beverage & Beer Retailing Summit examines positive and negative forces at play. | Cider Fever This segment is harvesting sales thanks to new products and major supplier involvement. CANDY & SNACKS

92 | The Front-Row Ticket By focusing on in-store hot spots, c-stores can boost candy sales at the front end and elsewhere.

President & CEO Harry Stagnito Chief Information Officer Kollin Stagnito Vice President & CFO Kyle Stagnito Senior Vice President, Partner Ned Bardic Chief Brand Officer Korry Stagnito Vice President/Custom Media Division Pierce Hollingsworth (224) 632-8229 phollingsworth@stagnitomail.com Production Manager Anngail Norris Human Resources Manager Sandy Berndt Strategic Marketing Director Bruce Hendrickson (224) 632-8214 bhendrickson@stagnitomail.com Vice President, Events John Failla (914) 574-5709 jfailla@stagnitomail.com Director, Conferences & eLearning Amy Walsh (781) 856-8381 awalsh@stagnitomail.com Audience Development Director Cindy Cardinal Director of Digital Media John Callanan (203) 295-7058 jcallanan@stagnitomail.com


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. 10 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM



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CSNEWS.COM TOP 5 Daily News Headlines


The most viewed articles online.

Outsourcing Pays Off for Flyers Energy

Several 7-Eleven retailers are joining with an area franchise association, FOAGLA Inc., to fight 7-Eleven Inc. over claims of racial discrimination. 7-Eleven denies the claims, standing by its record of diversity.

Alimentation Couche-Tard Inc. will acquire 55 Super Pantry convenience stores and related assets from Tri Star Marketing Inc. via its Mac’s Convenience Stores LLC subsidiary. Fifty-one of the stores are in Illinois and the remaining four are in Indiana. 3 | QuikTrip Doles Out $1.5M in Discrimination Suit QuikTrip Corp. paid more than $1.5 million to 47 disabled people for discrimination at its stores and gas stations, according to the U.S. Department of Justice. The payments were made under a previously agreed upon consent decree in which the 47 individuals experienced discrimination at QuikTrip locations in multiple states, violating Title III of the Americans with Disabilities Act. The violations have since been corrected. 4 | Hess Retail Sale Expected to Close by Year-End Hess Corp. expects the sale of its 1,256-store retail division to close by the end of this year, CEO John Hess stated July 30 during the company’s 2014 fiscal second-quarter earnings call. This retail division sale marks the final hurdle Hess needs to clear before transitioning to a pure-play oil company.


Speedway LLC plans to spend $9.1 million to expand its headquarters prior to its acquisition of Hess Corp.’s retail division. Along with enhancing its existing Enon, Ohio, headquarters, Speedway intends to purchase a 55,572-square-foot office building in Springfield, Ohio.

Dayparting is becoming increasingly important to generate strong sales. Which daypart is most important to your business?



12 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM


Flyers Energy LLC, operator of 54 convenience stores throughout central and northern California and fuel distributor to a couple hundred dealer operations in California and Nevada, recently completed a 10-month test of a new outsourcing program that handled all store operations, from customer service to merchandising to human resources. General Manager Rick Teske said the test program, developed with Temple, Texas-based Convenience Management Systems Inc., “did a great job in guest service, inventory control and housekeeping, while maintaining in-store sales at the two test stores.” For more exclusive stories, visit the Special Features section of www.csnews.com.

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CST Brands Begins March Across the U.S. San Antonio-based retailer is acquiring Lehigh Gas and Nice N Easy interests More than 70 percent of convenience store shoppers don’t walk down the candy aisle, making secondary displays around the store very important for maximizing sales in the category. Chocolate in particular generates high lift in response to secondary merchandising. Source: Mars Chocolate/ Wrigley C-Store Front End Best Practices Study (page 92)


“I was always fascinated by technology, since I was very young. I am still fascinated by it.” — Avsha Klachuk, Convenience Store News’ 2014 Top Tech Executive (page 96)

By Melissa Kress


ST Brands Inc. may have its foundation in the southwest United States and Canada, but there is a lot of map in between that the San Antoniobased company is looking to fill in — starting with the Northeast. On Aug. 6, CST Brands announced it will purchase 100 percent of the membership interests of Allentown, Pa.-based Lehigh Gas GP LLC, the general partner of Lehigh Gas Partners LP. CST will pay approximately $85 million in the transaction, including $17 million in cash and 2.044 million shares of CST common stock. The deal will provide CST Brands with access to capital through a growth-oriented master limited partnership (MLP) vehicle to execute its long-term strategic plan. It will also provide drop-down asset sales to Lehigh Gas Partners and an expanded set of external opportunities to drive cash-flow growth for CST Brands. Two weeks after announcing the Lehigh Gas acquisition, CST Brands again grabbed the retail world’s attention with news that it is acquiring the convenience store assets, franchisor rights and associated trademarks of Canastota, N.Y.-based Nice N Easy Grocery Shoppes Inc. The upstate New York chain has 77 stores — 33 company operated and 44 franchisees. CST Brands will retain the Nice N Easy name and begin exploring sites for the brand’s expansion. “One of the views we have is to grow our footprint really across America,” CST

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Brands CEO Kim Bowers told Convenience Store News. “The industry itself is ripe for consolidation. It is a very fragmented industry. Teaming up with Lehigh Gas gives us access to the MLP capital that will let us grow faster and move more quickly.” CST Brands is still evaluating how Nice N Easy will be integrated into its plans for Lehigh Gas. “The deal is not conditioned on the Lehigh Gas transaction itself, but assuming all goes as planned on both sides, we likely would have the MLP purchase the assets outright,” Bowers explained. It’s hard to believe that four months ago, CST Brands marked its one-year anniversary as an independently operated company. It spun off from Valero Energy Corp. on May 1, 2013. “We definitely would like to continue to look for other networks that present like Nice N Easy does. They have great customer loyalty, great employees, strong store sales, strong fuel sales. Then we can grow organically around those networks and increase our footprint that way as well,” Bowers said. “Strong chains like the Nice N Easy chain are terrific. Chains of 10 are terrific; chains of 100 are terrific. We are looking for the right set of assets. As we focus on building up additional footprint, the Northeast makes sense [because] then we can bring more scale to our operations,” she added. “There are a lot of areas. We’ve got the Southeast and now the Northeast. There are plenty of areas in between to continue to focus on.”

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Suddenly Seeking a CITGO Buyer Venezuelan parent company will sell if the price is right Venezuelan state oil company Petróleos de Venezuela S.A. (PDVSA) will sell its CITGO Petroleum Corp. division for the right price, according to Petroleum Minister Rafael Ramirez. PDVSA reportedly won’t accept less than $10 billion for its Houston-based CITGO division, which has a host of refining and marketing assets in the United States. CITGO operates three U.S. refineries in Lemont, Ill.; Lake Charles, La.; and Corpus Christi, Texas, capable of handling 749,000 gallons of fuel per day. CITGO also sells motor fuels via nearly 6,000 U.S. gas stations. Industry insiders told Reuters that it may be dif-

ficult to find a single buyer for all of CITGO’s assets because two of the refineries run heavy crude oil from Venezuela and U.S. refiners seek cheaper light crudes. PDVSA first put CITGO up for sale in a July 29 bond prospectus. According to the prospectus, CITGO had sales of $42.3 billion last year. As for why PDVSA is seeking the sale of CITGO, Venezuela President Nicolas Maduro wants to sell foreign refineries in order to boost oil exports to China, raise cash and reduce the risk of having assets seized if it loses international lawsuits brought by former oil partners, according to a July 31 client report issued by GlobalSource Partners.

CSNews’ Linda Lisanti Takes Reins as Editor-in-Chief She is now responsible for the brand’s day-to-day editorial operations Convenience Store News, the c-store industry’s leading media brand, is pleased to announce the promotion of Linda Lisanti to editor-in-chief. In August, Lisanti marked her ninth year with Convenience Store News. After working as a reporter for several daily newspapers, she joined the brand as a staff writer in August 2005 and held senior writer and senior editor positions before becoming executive editor in May 2011. In her new role as editor-in-chief, Lisanti is responsible for the day-to-day editorial operations of both Convenience Store News and Convenience Store News for the Single Store Owner, including the brands’ varied print and online properties. She

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also assumes a key role in staff development, retailer and supplier relationship building, industry speaking engagements, and content development and retailer recruitment for events. Lisanti continues to report to Editorial Director Don Longo, who will now devote more time to new projects in the events, digital and custom growth areas, while continuing to direct overall editorial strategy. Lisanti has a bachelor’s degree in communications/ journalism from Rowan University in Glassboro, N.J. Convenience Store News and Convenience Store News for the Single Store Owner are brands of Stagnito Business Information, the only complete provider of retail industry information, insights and strategic communication programs for consumer packaged goods retailers and suppliers.


eye on growth n Tesoro Corp. closed on its acquisition of 15 conve-

nience stores and gas stations in the Salt Lake City area. This acquisition will help drive further growth at the company’s retail division. n Petrogas Group Ltd. is extend-

ing its Applegreen convenience store chain to the United States. The Ireland-based company recently purchased two gas station sites in Hicksville and Plainview, Long Island, N.Y. CEO Bob Etchingham is reportedly scouting other sites on the East Coast and Applegreen will likely open two to three more U.S. locations this year. n GPM Investments LLC reportedly plans to add about 200

more stores to its holdings. CEO Arie Kotler, though, has not elaborated on the plans. The news comes one year after the company acquired the Southeast Division of the

VPS Convenience Store Group, adding 263 companyoperated stores and 33 dealer sites to its portfolio. n Western Refining Inc. (WNR) President and CEO Jeff

Stevens said the company will “seriously consider” purchasing more of Northern Tier Energy LP. In 2013, WNR bought 100 percent of the general partner interest and 38.7 percent of SuperAmerica parent Northern Tier Energy for a total consideration of $775 million. n Alimentation Couche-Tard Inc. put to rest rumors that it is

one of several companies looking to take a minority stake in China’s Sinopec Sales, the world’s largest fuel retail network. The Canada-based convenience store chain issued a statement Aug. 19 saying: “Couche-Tard has no plan to invest in the Sinopec placement at this time. Furthermore, should Couche-Tard have material information to communicate, it would be timely circulated through a press release disclosing the news to the market.”

LET’S TALK SEASONS. 18 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

competitive watch n Target Corp. will extend the

operating hours of more than 50 percent of its U.S. stores. Under the new hours, stores will operate until 11 p.m. or midnight Monday through Saturday and until 10 p.m. or 11 p.m. on Sundays. Hours will vary by store, and some will only extend hours on the weekends. n Bigger isn’t always better.

Same-store sales at WalMart Stores Inc. supercenters declined 0.3 percent year over year during its 2014 fiscal second quarter. Same-store sales increased by 5.6 percent at its 400 Neighborhood Market smaller stores. n CVS Caremark Corp. executives confirmed that the

company’s decision to stop selling tobacco products could cost it $2 billion a year. The company reported front-end sales at CVS stores, where cigarettes are sold, dropped 0.4 percent in the second quarter. n Burger King Worldwide Inc. is phasing

out its lower-fat Satisfries French fries at approximately two-thirds of its restaurants in the United States and Canada. They will remain as a permanent menu item at 2,500 locations. Burger King introduced the reduced-fat fries in September 2013. n McDonald’s USA LLC is partnering with Kraft Foods

Group Inc. to expand the manufacturing, marketing and distribution of the McCafé brand by packaging its signature coffee for sale in grocery stores and other retailers across the U.S.

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WWW.CSNEWS.COM | SEPTEMBER 2014 | Convenience Store News 19


retailer tidbits n Circle K Stores Inc. broke ground

for its new prototype store in San Jacinto, Calif. The 4,500-square-

fuel islands, is slated to begin in spring 2015. Wawa plans to open the new store by spring 2016.

n Tedeschi Food Shops Inc. is add-

ing fresh fruits and vegetables to its convenience stores under a new produce program. A produce

n Pilot Flying J and Cinnabon Inc.

celebrated their 100th opening of a Cinnabon bakery inside

foot convenience store will feature a Mobil gas station with eight fuel pumps and a self-serve car wash. n Wawa Inc. will close the first store

it ever opened to make way for a Super Wawa under development nearby. Construction of the fouracre site, which will feature six

the Mebane Pilot Travel Center on Aug. 1. By the end of 2015, approximately 150 Pilot Flying J locations are expected to carry Cinnabon products.

wholesaler will bring in fresh produce three times a week. The retailer’s program also includes a new ordering system and a new supplier that packs the produce in smaller pack sizes. n 7-Eleven Inc. held an open house

for potential franchisees of 39 West Virginia stores. The available stores are a portion of the 72 locations the company purchased from Prima Marketing LLC two years ago. n Enmark Stations now carries United

Natural Foods Inc. (UNFI) organic products at 25 stores in order to offer customers healthy snacking options. The retailer plans to add UNFI products to its remaining locations in the near future. n Family

Express Corp. recently completed a comprehensive energy efficiency initiative, retrofitting the entire chain with advanced technologies. To do so, the company partnered with seven manufacturers with individual areas of expertise.

20 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

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supplier tidbits n The Coca-Cola Co. is taking a

16.7-percent ownership interest in Monster Beverage Corp. for $2.1 billion. Coca-Cola will transfer ownership of its worldwide energy business to Monster. In turn, Monster will transfer its non-energy business to Coca-Cola. Coca-Cola will become Monster’s preferred distribution partner globally and Monster will become Coca-Cola’s exclusive energy play.

sale prices on many of its instant consumable, multipack, packaged candy and grocery lines. n Cardtronics Inc. is buying Welch

ATM for $160 million. Upon completion of the transaction in the third quarter, the combined company will support a global portfolio of 109,600 ATMs, including 92,500 retail ATMs in the United States. n TMC Holdings acquired Tri-Mart

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n Gilbarco Veeder-Root and

VeriFone Systems Inc. announced a partnership to offer next-generation forecourt payment solutions and to create the largest at-pump,

Corp. The transaction closed July 25. TMC believes there is an opportunity to consolidate several distributors in the Midwest into one platform that can compete effectively with national distributors. n The Dos Equis brand will run the

latest incarnation of its most interesting “Masquerade” program at retail

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interactive digital media network worldwide. The companies will collaborate on future fuel-dispenser payment platforms, to be developed and supplied by VeriFone. They will also offer at-pump media advertising and entertainment. n Core-Mark Holding Co. Inc. will

open a new distribution center in Glenwillow, Ohio. The company expects to serve approximately 1,000 new stores and transfer 1,000 existing stores from other Core-Mark divisions by the end of the 2015 first quarter.

and on-premise Sept. 15 through Oct. 31. The brand is partnering with Casa Sauza to provide instant redeemable coupons and mail-in rebate offers on the purchase of Sauza Family Brand Tequila and a 12-pack of Dos Equis. n Zippo Manufacturing Co. (ZMC)

n In the company’s first price

increase in three years, Mars Chocolate North America raised its prices by approximately 7 percent. The move came after The Hershey Co. instituted a weighted average price increase of approximately 8 percent in whole-

22 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

received a temporary injunction against Cygnet UK Trading Ltd., a Lorillard Inc. subsidiary, preventing Cygnet from using the “blu” brand name for its electronic cigarettes sold in Germany. ZMC holds the trademark to BLU in the European Union Community.

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people on the move n Tesoro Corp. is adding two new


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members to its executive team: Steven Sterin as executive vice president and chief financial officer, and Cynthia “CJ” Warner as executive vice president, strategy and business development. Scott Spendlove, who has served as the company’s CFO since May 2010, is leaving to pursue other interests. n Leo Vercollone,

president of VERC Enterprises, has been named president of the New England Convenience Store Association. Vercollone has served numerous organizations, including as a member of the board of directors of the South Shore Chamber of Commerce, and on the Dealer Advisory Council for both Mobil and Gulf. n Kum & Go LC hired Pleasant Hill,

Iowa, Mayor Sara Kurovski as the company’s sustainability manager. Kurovski will continue to serve as mayor, which is a part-time position. n Elizabeth “Betsy” Hosick, general

manager for downstream, midstream and services for Chevron Corp., has been elevated to board chair of the Network of Executive Women. She previously served as vice chair. n Target Corp.’s board of directors

named Brian Cornell as its new chairman and CEO. He picks up the reins from interim boss John Mulligan, and is the permanent replacement for Gregg Steinhafel, who left the post in May. Cornell BM109 | ©2014 Nu Mark LLC. For T . MarkTen and related design marks are trademarks of Nu Mark LLC.

24 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

most recently served as CEO of PepsiCo Americas Foods. n Molson Coors CEO and President

Peter S. Swinburn will retire from the company and its board of directors effective Dec. 31. The board selected Mark R. Hunter, currently president and CEO of Molson Coors Europe, to succeed Swinburn. n SIGMA: America’s Leading Fuel

Marketers announced Executive Vice President Kenneth A. Doyle has left the organization to pursue other opportunities. SIGMA has formed a transition committee to identify Doyle’s successor. n NOCO Energy

Corp. promoted Jim DeFilippis to general manager of its 36-store NOCO Express division. He most recently served as director of merchandising and marketing for the family-owned convenience store chain that serves western New York. DeFilippis brings nearly 40 years of retail industry experience to his new role. Prior to joining NOCO, he served as director of fresh food for Acosta Sales & Marketing. He also held several key leadership positions in the supermarket industry, including vice president of operations at Tops Markets; director of produce/ floral at Kings Supermarkets; director of operations at Inserra Supermarkets; and director of produce and operations at GIANT Food Stores. In addition, DeFilippis owned and operated several businesses that included fresh food markets, and catering and wholesale salad businesses.




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*Living Beyond Breast Cancer ® is a registered trademark of Living Beyond Breast Cancer, Inc. The makers of 5-hour ENERGY® will donate $.05 for every pink lemonade flavored bottle of 5-hour ENERGY® bearing the Living Beyond Breast Cancer ® Marks sold in the United States from March 15, 2014 through December 31, 2014 with a minimum donation of two hundred thousand dollars ($200,000.00) to Living Beyond Breast Cancer.® For more information visit www.lbbc.org. Living Beyond Breast Cancer ® does not endorse any brand or product. No portion of the purchase price is tax-deductible. † Individual results may vary. See www.5hourenergy.com for more details. ©2014 Living Essentials Marketing, LLC. All rights reserved.


Help us once again support Special Operations Warrior Foundation. Thanks to so many participating retailers we were able to donate over $270,000 to Special Operations Warrior Foundation (SOWF) in 2014. But the families of fallen heroes still need our help. So in 2015, we are doing it again. For a limited time in 2015, a portion of each sale of Cherry flavored 5-hour ENERGY will benefit SOWF. With its great taste, proud patriotic packaging and important cause, Cherry flavored 5-hour ENERGY is sure to be a hit with your customers again. ®

Cherry flavored 5-hour ENERGY 120 Count Floor Stand ®

Call 866-960-1700 www.5hourenergy.com/trade


Cherry flavored 5-hour ENERGY Counter Display


† These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure or prevent any disease. † Individual results may vary. See www.5hourenergy.com for more details. *Special Operations Warrior Foundation is a registered trademark of Special Operations Warrior Foundation, Inc. Makers of 5-hour ENERGY® will donate $.05 for every bottle bearing the Special Operations Warrior Foundation Marks sold in the United States from May 1, 2015 to July 31, 2015 with a minimum donation of two hundred thousand dollars ($200,000.00) to Special Operations Warrior Foundation. For more information visit www.specialops.org. Special Operations Warrior Foundation does not endorse any brand or product. No portion of the purchase price is tax-deductible. ©2014 Living Essentials Marketing, LLC. All rights reserved.

NEWPRODUCTS Matador Chili Lime Beef Jerky

Newcastle Werewolf Blood-Red Ale

Matador Beef Jerky added Chili Lime to its bold line of products. The new favor provides a hot and tangy crescendo paired with tender and savory beef. Matador Chili Lime requires no refrigeration and is conveniently packaged in a 3-ounce bag. Each serving contains 10 grams of protein, is low in calories and 95-percent fat free, according to the company. Matador Chili Lime Beef Jerky is now available at retailers nationwide with a suggested retail price of $6.99.

Newcastle is resurrecting its Werewolf Blood-Red Ale this fall. Like the nocturnal man-beast that serves as its namesake, Newcastle Werewolf has something of a split personality, according to the brewer. Newcastle Werewolf tastes of sweet berry fruit with roasted caramel notes up front, followed by a bite from Fuggle and Golding hops at the fnish. It is brewed with rye malts, making it naturally blood-red in color, and has a 4.5-percent ABV.

Jack Link’s Beef Jerky Minong, Wis. (715) 466-2234 www.matadorsnacks.com

Newcastle Brown Ale White Plains, N.Y. (877) 522-4577 www.newcastlebrown.com

Nakhla Hookah Tobacco Chester’s Ready-Made Sides Chester’s International is streamlining favorite southern dishes by introducing a lineup of ready-made side options, including Baked Beans, Mashed Potatoes & Gravy, Cole Slaw, Green Beans and Mac & Cheese. All of the side dishes were created using Chester’s family recipes, are easy to prepare and ready to serve in minutes, according to the company. Chester’s International LLC Birmingham, Ala. (205) 949-4690 www.chestersinternational.com

Following the Japan Tobacco Group’s acquisition of Nakhla, JTI International U.S.A. Inc. is now selling the brand in the United States through its Los Angeles-based distributor Karabetian Import & Export Inc. Nakhla hookah tobacco, also known as shisha tobacco, is available in select markets in fve favors: Two Apples, Mint, Peach, Zaghloul and Mizo Watermelon. All favors are available in 50-gram and 250-gram cartons, while Two Apples is also available in a 1-kilogram tub size. JTI International U.S.A. Inc. Teaneck, N.J. (800) 436-7833 www.jti.com

VitaminFIZZ Level 5 Beverage Co. Inc., a subsidiary of Minerco Resources Inc., introduced VitaminFIZZ to retailers in California and New York City. VitaminFIZZ is a lightly sparkling, naturally favored, vitamin-enhanced beverage available in three initial favors: Lemon-Lime, Mango-Orange and Strawberry-Watermelon. All three favors contain 100 percent of the recommended daily intake of Vitamin C, Vitamin B6 and Vitamin B12. VitaminFIZZ is a healthy and refreshing alternative to heavily sweetened carbonated soft drinks and is intended to target young people who are weight and health conscious, according to the maker. Level 5 Beverage Co. Inc. Houston www.vitamin-fizz.com

26 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM




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The most convenient way to grow your category.

NEWPRODUCTS COMBOS Sweet & Salty Flavors

Shake Shop Express

Opposites attract with COMBOS’ new sweet and salty favor combinations. COMBOS Baked Snacks Caramel Crème Pretzel delivers the nostalgic taste of caramel crème candy and a salty pretzel crunch, while COMBOS Baked Snacks Vanilla Frosting Pretzel brings together the favors of salty pretzel and vanilla frosting. Both varieties will begin shipping in November, with an in-store launch planned for January. Each 6-ounce bag will have a suggested retail price of $2.29.

The Hershey Creamery Co., manufacturer of Hershey’s Ice Cream, introduced Shake Shop Express, a selfserve frozen drink blending machine. Shake Shop Express is a quick way to get consistently delicious, portion-controlled milkshakes and smoothies on the go, according to the company. Available favors are Vanilla, Chocolate, Strawberry, Peanut Butter Cup, Green Mint Chip, Cookies & Cream, Brownie Batter and Cake Batter, all made with real Hershey’s Ice Cream. New ice cream favors, including Mocha Chocolate Chunk Blenjava, as well as Strawberry Banana and Wildberry Fresh Fusion smoothies, will soon join the mix. The Hershey’s Creamery Co. is not affliated with Hershey’s chocolate.

Mars Chocolate North America Hackettstown, N.J. (908) 852-1000 www.combos.com

The Hershey Creamery Co. Harrisburg, Pa. (888) 240-1905 www.hersheyicecream.com

Little Debbie Single-Serve Premium Muffns

Insightics Software

McKee Foods is rolling out Little Debbie Single-Serve Premium Muffns in September. The muffns are available in the brand’s two most popular favors: Banana Nut and Blueberry. The single-serve muffns are made specifcally for the needs of the convenience store shopper looking for an on-thego snack, according to the brand.

Insightics is an innovative cloud-based software solution from First Data Corp. intended for small and medium-sized businesses (SMB). Insightics gives SMB merchants the ability to monitor key metrics affecting their business, better understand customers to engage effectively, and derive more value from marketing and loyalty programs to grow revenue. The software analyzes payment, point-of-sale and customer data for every merchant alongside data from millions of other merchants.

McKee Foods Collegedale, Tenn. (800) 522-4499 www.littledebbie.com

First Data Corp. Atlanta (800) 352-3428 www.firstdata.com/en_us/smallbusiness/insightics.html

Nature Made Salad Bowls, Fresh Fruit & Protein Snacks Del Monte Fresh Produce N.A. Inc. expanded its fresh-cut fruit and vegetable product offerings to include complete meal/single-serve salad bowls, as well as fresh fruit and protein snack packs under the Nature Made brand. The salad bowl range includes Caesar Salad with White Chicken; and Turkey & Bacon Cobb Salad. The new snack pack product range features a Turkey & Swiss Snack Pack that includes red grapes, red apple slices, turkey slices, Swiss cheese and crackers; and a Turkey Sausage Links & Pancakes Pack that contains grapes, buttermilk pancakes, apples, turkey breakfast sausage and syrup. The new products are available initially in the South Central and Midwest regions of the United States, but will soon expand to other markets. Del Monte Fresh Produce N.A. Inc. Coral Gables, Fla. (800) 950-3683 www.freshdelmonte.com

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Supplying Change Consumer demand for fresh products is altering supply chain dynamics in the c-store industry

A Convenience Store News Staff Report


ew convenience store retailers have the size, resources and expertise to handle distribution of product directly from the manufacturer to their stores. Chains such as Sheetz Inc., Kwik Trip Inc. and CST Brands Inc. control their own supply chains and reap numerous benefits. They either buy directly from manufacturers or make, bake and process their own fresh goods and act as their own distributor, shipping the products — in some cases, on their own trucks — from their own warehouse to their stores. However, most convenience store chains, large and small, rely on broadline wholesale distributors for the majority of their goods (see our list of the top 30 wholesalers on page 52), supplemented by several direct-store-delivery (DSD) distributors for such products as dairy, salty and sweet packaged snacks, soft drinks and beer. Recent years have seen more complexity added to the c-store industry distribution supply chain as consumer demand for fresh products has driven many c-store retailers to rely on commissaries, specialty distributors and, in some rare cases, restaurant industry distributors to grow their foodservice and fresh-food business. In an ideal world, every convenience store operator would be able to compete on even footing with big-box retailers and have their own

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WWW.CSNEWS.COM | SEPTEMBER 2014 | Convenience Store News 31

Nice N Easy relies on multiple wholesalers because of its expansive foodservice and grocery offerings.

warehouse and distribution network. But c-store retailers live in the real world. Matt Paduano, vice president of category management for Nice N Easy Grocery Shoppes Inc., admits he would prefer that the Canastota, N.Y.-based retailer have its own warehouse, but it doesn’t make sense considering the retailer’s size. Nice N Easy (soon to be acquired by Corner Store parent CST Brands) is a chain of 77 stores across central New York State. The company operates 33 of those stores, he explained, adding that “a small group like us having our own warehouse is not feasible.” Instead, the retailer relies on Gardiner, Maine-based Pine Street Trading Co. for traditional c-store products like tobacco and candy, plus four or five specialty wholesalers for its foodservice and grocery offerings. For example, it receives deliveries from Olean Wholesale, a grocery co-op based in Olean, N.Y., and River Valley Foods based in Syracuse, N.Y. Nice N Easy needs multiple wholesalers because its expanded foodservice program offers items traditional c-store wholesalers cannot accommodate. In addition, some of its locations are more like smaller grocery stores than convenience stores, Paduano explained. “With our expanded grocery items, the traditional c-store guys can’t handle what we need,” he said. “You need to go where the experts are and most c-store wholesalers are not experts in foodservice.” Multiple wholesalers, however, mean multiple deliveries and that adds up to challenges at the store level. During the average week, a Nice N Easy store receives 50 to 60 deliveries, which equal roughly eight trucks coming in and out of the parking lot each day, Paduano said. The number of daily deliveries not only takes up valuable space in the parking lot, but also takes personnel off the sales floor as they pack out items.

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Nice N Easy found a partial solution to the problem by switching its Pine State deliveries to off-peak hours, between 6 p.m. and 6 a.m. The retailer made the switch four years ago. “It makes it easier for them. There is less traffic; they are able to get in and out and they don’t have to fight [for space] with other vendors,” Paduano said. “Now, we schedule accordingly. If we know they are coming at 2 a.m., we schedule labor so as soon as the delivery is made, the items are put away.” Nice N Easy has tried to get its other wholesalers to make the switch, but they either aren’t equipped to deliver off-peak or they don’t have the infrastructure. Industry talk about consolidating distribution is great in theory, Paduano said, but high-volume stores cannot get by on one or two deliveries a week. “You almost need four or five a week.” CONSOLIDATING DELIVERIES

The nation’s largest c-store chain has been testing

7-Eleven has been testing consolidated deliveries from multiple vendors.

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It’s Not Warehouse vs. DSD “Holistic category management” is what consultant Kit Dietz believes the convenience store industry supply chain needs to embrace for the benefit of all its players. The principal of Ohio-based Dietz Consulting LLC, which focuses exclusively on improving the convenience industry supply chain, said this will require wholesalers and DSD suppliers putting aside their own self-interests for the good of the whole supply chain — not an easy task at the moment. “It shouldn’t be warehouse vs. DSD. It should be what’s best for the categor y,” said Dietz, who has conducted multiple studies on the c-store supply chain, dating back to 1999. “Instead of warehouse and DSD competing for space, both sides need to step back and ask: ‘Is there a better way?’ It will mean breaking down the existing systems.” Right now, with wholesalers and DSD suppliers at odds, c-store retailers end up with sub-optimized product categories, according to Dietz. “The planning, instead of being a categor y plan, ends up being separate plans for the DSD and warehouse products,” he explained. Under the current system, c-store operators often end up with non-strategic duplications of product — for instance, three nut suppliers or four meat snack suppliers. This isn’t necessary and only serves to dilute the category profitability for retailers, the consultant noted. “Many times, we don’t have room for new items. But if we look at duplications and profitability, there’s a whole lot of room that can be found by managing duplications,” he said. Dietz considers retailers the key to pioneering holistic category management. He believes it’s up to them to challenge their warehouse and DSD suppliers to embrace the holistic approach. The retailers “own” the opportunity in this case. Because of self-interests, “I don’t think anyone is going to volunteer to come to the table unless the retailer drives it,” he said. If the convenience industry supply chain does not evolve, Dietz warns that it will impact the profitability of all involved over the long term. As cigarettes become a smaller part of the distribution mix — and are less able to subsidize other categories that are more costly to distribute — the industry’s wholesalers will have no choice but to increase prices for retailers. Cigarettes, other tobacco products and candy contribute more than 130 percent of a distributor’s profitability, according to Dietz’s research, and that absorbs the cost to distribute other categories. “The channel needs to be open to thinking long term. There needs to be openness among all the players to at least explore new opportunities and consider going to a more consolidated distribution system. They don’t have to commit; just be open-minded to explore,” he urged. “If we can get DSD and warehouse to blur the lines and just look at how we can most effectively distribute products to convenience stores at the lowest cost, everyone will benefit.”

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consolidated deliveries from multiple vendors, and it’s questionable whether even 7-Eleven Inc. has the size and clout to pull it off. Christy Clinger, vice president of logistics and demand chain at Dallasbased 7-Eleven, told the website Supply Chain News last year that the majority of product gets to its stores via wholesale distributors, while the rest comes from direct-store deliveries from some vendors, such as soft drink and beer suppliers; deliveries from 7-Eleven’s own trucks for the chain’s growing assortment of fresh food items that are delivered daily; and center-store items that are delivered as often as twice a week. As a result, individual stores could get as many as 50 deliveries per week, with each delivery disrupting operations at the store level. In an effort to reduce that disruption and save on delivery costs at the same time, Clinger told Supply Chain News the retailer has been using a different model on the West Coast over the past couple of years. In this model, 7-Eleven moves some former DSD products into its distribution centers (DCs) and then delivers all DSD, fresh food and center-store products on a single truck three times per week. This has cut weekly deliveries to some stores by more than half, to just 17 or 18 per week, according to Clinger. Executing this strategy on a national scale has its obstacles, though. For example, laws in some states guarantee the rights of local soda and beer bottlers to deliver products to retailers within their territories. Attempts to get bottlers to deliver product to the chain’s DCs proved too challenging, Clinger said, so instead it began buying Coke and Pepsi products from the wholesale club Costco by the truckload, bringing them into its West Coast DCs and then picking those products for store delivery along with other items ordered by the stores, according to the Supply Chain News report. “As retailers get bigger, there is

The Many Sides of C-store Distribution

Retail Stores

Wholesale Distributor

Retailer Warehouse




definitely a threat to traditional wholesalers that these retailers will take over their own product distribution,” Edward Davidson, a former, longtime 7-Eleven executive, told Convenience Store News. Davidson feels “it isn’t right” that Walmart — a direct competitor to c-stores — can sell motor fuel for less than the cost to a c-store retailer. C-store retailers have to make difficult decisions about what products, or even product categories, they should sell if they can’t be price-competitive, he noted. CONVENIENCE DOESN’T COST MORE

Tom Joyce, vice president, global customer and industry affairs at The Hershey Co., describes the perception that customers must pay slightly higher prices in exchange for the luxury of convenience as just that — a perception, not reality. “Traditionally, convenience stores have had higher prices on products than a traditional grocery store,” he told CSNews. “But in today’s world, the convenience store retailer has very competitive prices with the other retailers like grocery stores and dollar stores.” One reason for this is that convenience is no longer the only major benefit the channel can offer, according to Joyce. As c-stores have expanded the variety and

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quality of the products they offer, as well as their quality of service, customers are more likely to seek out their favorite locations. “It’s almost a destination for some customers.” Hershey utilizes wholesale distributors for the vast majority of its c-store customers. Certain chains, such as Sheetz, buy directly from Hershey, but in these cases, the c-store chain acts as its own distributor, shipping the products out from its own warehouse to its stores. The use of wholesale distributors instead of direct store delivery has been a key part of Hershey’s development into a candy category leader, according to Joyce. “Distributors started selling cigars and tobacco to corner stores and shoppes over 100 years ago. Some salesman convinced them to put candy bars on their cart. I don’t know who it was, but they should build a monument to him,” he said. “When he went in to deliver his tobacco, he asked the owner if he wanted some candy. ... He took in the box of candy and put it by the cash register. That certainly helped establish our company because it increased our distribution to many locations.” Since then, and in the years since Joyce joined Hershey nearly 40 years ago, the world of wholesale

distributors has seen increased consolidation, but there are still a “tremendous” number of distributors in operation, he said. Those that remain have had to adapt to a changing marketplace. “Not only have the distributors become more sophisticated; the distributors have done a good job trying to figure out how to increase their growth with less tobacco sales because tobacco is declining,” Joyce said. Keeping up with advances in technology is also crucial for all parts of the industry, he said. “Everybody has to grow with technology in order to be efficient and to survive.” DEMAND FOR FRESH

Still, the biggest impact on wholesale distribution during the past five years has been the need to keep up with consumers’ changing tastes, according to Christopher Hobson, senior vice president for CoreMark Holding Co. Inc. Today’s consumer seeks products that are either freshly prepared on-site or ones with limited shelf lives.

“This new consumer demand has expanded the amount of refrigerated product a retailer must carry and a distributor must deliver,” said Hobson. “The expansion of refrigerated products has placed many challenges on the distributors servicing the smallformat stores. Today’s broadline distributor must possess the ability to handle multi-temperature platforms in the warehouse as well as on the delivery vehicle. In addition, a broadline distributor must ensure the integrity of the products moving through each stage of the supply chain.” The investment needed in cold-chain assets is very costly, into the millions of dollars, Hobson added. “It is essential a retailer partners with a distributor who is or has been willing to invest in the cold chain,” he said. “Today’s c-store supply chain has come a long way over the past decade. But with that said, it is still highly inefficient compared with other retail formats a c-store must compete with for shopper spending.” Steve Montgomery, president of b2b Solutions LLC, a consultancy that specializes in working with retailers


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and suppliers in the convenience retail and petroleum marketing industry, also sees the demand for fresh products as one of the biggest challenges facing distributors today. “In order to deliver ‘fresh’ items, a distributor has to be at the store at least twice per week,” Montgomery told CSNews. “This raises the cost as the per-stop invoice declines. We are already noted to be a high-costof-delivery industry.” Pointing out that retailers with one to three stores comprise a large portion of the industry, he said another challenge is finding a profitable way to service the independent retailers who tend to buy their goods at warehouse clubs or cash-and-carries.

CST Brands owns its own distribution center, but contracts the operation to wholesaler Core-Mark.



McLane is grateful for the customers, teammates, suppliers and industry leaders who have supported us for the past 120 years. We look forward to another 120 years of doing great business together.

© 2014 McLane Company, Inc. All rights reserved.

WWW.CSNEWS.COM | SEPTEMBER 2014 | Convenience Store News 39

“This results in [retailers] often having too high an inventory per item, wear and tear on their vehicles, time out of their stores, etc.,” Montgomery explained. Bill Scott, a convenience store consultant and president of StoreReport LLC, agrees that c-stores carry too much inventory. Through his studies and data analysis dating back to 2009, he said c-stores have twice as much inventory in their store than they need to meet customer demand. “Inventory specialists at the distribution centers were used to putting inventory in grocery stores so they just adopted the same kind of method of supply-

ing convenience stores. A culture evolved,” Scott said. “First thing we need to do is reduce the amount of inventory in the stores and get suppliers to cooperate. If we can do that, we are on the way to real success in the stores.” To achieve this, Montgomery believes there are big challenges on the distributor side, specifically the vast amount of items they must carry in order to meet the needs of their customers. “I have seen studies done that indicate the sales breakdown goes far, far beyond the 80/20 rule, even excluding cigarettes,” said Montgomery. “On the other

Associations Address Fresh Produce Distribution Consumer demand for fresh food and how to distribute fresh product is an issue that NACS, the Association for Convenience & Fuel Retailing, is actively addressing. In June, NACS teamed up with the United Fresh Produce Association to create a new partnership aimed at significantly increasing fresh produce sales in convenience stores. A new task force comprised of members of both groups met during the United Fresh 2014 convention in Chicago. The task force will identify best practices that can be shared across the industry to assist c-store operators in developing their own fresh produce supply chains and in-store management. “The biggest change that we have seen over the past five years is increased consumer demand for fresh product,” Jeff Lenard, NACS’ vice president of strategic industry initiatives, told CSNews. “Our consumer surveys show that consumers want to see more fresh items in the stores, and we have even seen a significant shift in consumer attitudes over the past year in our surveys. At the same time, retailers are seeing an increase in sales of fresh items.” There are more than 151,000 c-stores across the United States and they are increasingly seen as a convenient destination for consumers to buy fruits and vegetables. In 2013, convenience store produce sales increased by 16.7 percent to $328 million, more than doubling the overall 7.3-percent growth rate of produce in the U.S., according to NACS. “Consumers are increasingly seeking grab-andgo, convenient options for their produce needs. Convenience stores present a tremendously underdeveloped source of produce sales in communities,” added NACS President and CEO Henry Armour. “We are excited to work with United Fresh to

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give retailers the tools to affordably acquire merchandise and sell produce in their communities as part of our broader nutrition initiative.” Both groups believe sales can increase dramatically over the next five years from the task force’s efforts. “The business opportunities for convenience stores that manage fresh produce well are vast, for direct sales as well as enhancing the image of stores as a provider of fresh and healthy food options,” said Tom Stenzel, United Fresh’s president and CEO. “Fresh-cut fruit and vegetables, ready-to-eat meals and snack products, and even whole commodities can deliver attractive margins and new customer segments to retailers.” At its initial meeting in Chicago, the task force reviewed current challenges in supply chain management, in-store handling and merchandising, and other barriers to fresh produce success for convenience retailers. This initial meeting was followed with conference calls and the establishment of working groups. “Over the next few months, we intend to further this work and announce deliverables that can address current challenges related to produce sales, including distribution,” Lenard said. The committee also began to identify best practices in meeting each of these challenges with the goal of learning from those retailers and produce suppliers that are finding the greatest success today. The associations plan to develop tools and services to share these best practices with the broader memberships of NACS and United Fresh. “I think the Fresh Convenience program is one of the best examples of retailers and distributors working together,” Lenard added. “Everyone involved sees the opportunity before us.”

side, we have seen retailers who carry items that have minimal movement. Working together, distributors and retailers do a far more effective job of SKU rationalization.” David Bishop, managing director of the c-store consultancy Balvor LLC, agrees with both Hobson and Montgomery about the impact of changing consumer needs. The same market factors influencing retailer strategy are impacting how wholesalers go to market. The decline in cigarette volume and margins has spurred retailers to shift to fresh-food sales for the revenue growth, higher margins and ability to differentiate, accord- Keeping up with the changing tastes of consumers is the biggest challenge for c-store wholesalers such as Core-Mark. ing to Bishop. “Fresh food has been challenging for wholesalers,” he said. “An increasing number tion route was the opportunity to accelerate the conof chains are investing in their own distribution. solidation of vendors and eliminate as many separate Some have their own infrastructure, like Kwik Trip truck deliveries to its stores as possible. and Sheetz, while others own their own distribution “We had delivery trucks for bread, milk, pastries, center but outsource management to a third party.” two different soft drink companies, newspapers — every day or several times a week from each of them,” Adams told CSNews. All these deliveries represented THE PROS OF DOING IT YOURSELF real and hidden costs to process invoices, stop and CST Brands, the 1,000-plus convenience store operator based in San Antonio, is a hybrid of sorts when it comes count the product upon delivery, large trucks taking up customer parking spaces, etc. “By consolidating to distribution. CST owns its own distribution center in those deliveries onto fewer trucks, we could reduce Texas, but it contracts the operation of the warehouse back-office and unseen costs.” to a more experienced wholesaler — Core-Mark. The retailer also saw benefits from more regular “We don’t have any dreams that we could have done this on our own,” said Hal Adams, chief market- deliveries of fresh and perishable food to its stores, ing officer of the fast-growing retail chain. Adams said supporting its strategic push into foodservice. And, by being so intimately involved in its own supply chain, the retailer’s initial reason for going the self-distribuCST learned to do a better job of controlling the amount of inventory it holds at the store level. “We’ve “Instead of warehouse brought down inventory levels, the stores look cleaner and we have better turns on shelf-stable, non-perishand DSD competing for able products as a result,” Adams said. Owning its own DC “enables us to get into the space, both sides need P&L [profit and loss statement] more deeply,” he to step back and ask: ‘Is added. “Maybe what you’re seeing is that retailthere a better way?’ It will ers who self-distribute think more globally about logistics and understand logistics better. They mean breaking down the think differently.” The pros of self-distribution are easy to understand existing systems.” as retailers can control their own supply chain, noted — Kit Dietz, Dietz Consulting LLC Hobson of Core-Mark. They can carry the products

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they want and make as many deliveries as they desire to their stores. But he stressed that self-distribution comes with one major negative: cost. “The broadline distributor has the ability to spread the fixed costs associated with being a distributor over all of the customers it services. … In addition to cost, broadline distributors have developed systems, technology, processes and a talented pool of individuals to ensure their operations are as efficient and economical as possible. A retailer who chooses to self-distribute will normally not have Sheetz Inc. is one of few convenience store retailers that self-distribute. these resources in-house and will have to outsource these needs.” Being transparent and agreeing on proper returns on ery. “DSD can be an expensive route to market, but the assets deployed for each party are the best ways the we have the scale to make it a powerful advantage convenience store industry can work together to improve for our convenience retail customers,” said Jay Ard, supply chain efficiencies in the channel, said Hobson. vice president, convenience retail channel for The This would take price off the table and allow the focus to Coca-Cola Co. shift to strategic components of the supply chain. Speed is the key difference and advantage of DSD “We could then build the most efficient consumerdistribution. After an account manager visits a store built distribution platform,” Hobson continued. “It to discuss business-building opportunities, checks the would serve all our needs, but more importantly, it in-outlet presentation of products and writes an order would be focused on consumer demands, desires and for product replenishment, the order is processed and wants, which would be the secret sauce. The supply delivered within 48 hours. chain we have today was built without strategy or Coca-Cola also works with customers that have well-thought-out plans and that is why it does not the ability to send electronic purchase orders. “This serve its constituents terribly well. It basically gets by process typically happens once a week, but it can be in an ‘adequate’ mode.” more or less depending upon consumer demand at the outlet,” Ard said. As a major supplier, Coca-Cola has the resources DEFENDING DSD to provide a professional team with the experience Size does matter when it comes to direct store delivand expertise that many smaller format retailers lack. The DSD model is used “Not only have the distributors for most Coca-Cola products, but some of its chilled juice products use the become more sophisticated; warehouse route to market due to the need for a temperature-controlled supply the distributors have done a chain, Ard noted. good job trying to fgure out In his view, the greatest impediment to a smooth supplier-retailer-DSD relationhow to increase their growth ship is a lack of quality data regarding with less tobacco sales bec-store sales. When store operators are able to provide accurate data on a daily cause tobacco is declining.” basis, their needs and the needs of their — Tom Joyce, The Hershey Co. customers are much easier to meet.

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“The biggest thing retailers can do to help improve service levels and supply chain efficiency is to provide DSD suppliers with their point-of-sale scan data,” said Martha Buffington, vice president, customer solutions, Coca-Cola Refreshments. “Coca-Cola is using this real-time data to become more demand-driven, meaning that orders and deliv-

“Instead of looking for distributors to fx our problems, we need to look at what costs or practices we could change to make it easier to serve us.” — Hal Adams, CST Brands Inc.

eries are based on actual consumer pull rather than on forecasts.” Predicting demand allows the company to flex delivery frequency, thus improving in-stock rates while optimizing inventory for its customers. THE FUTURE OF DISTRIBUTION

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greatly reduced out-of-stocks, increased inventory turns and better capital utilization. Montgomery of b2b Solutions anticipates more consolidation within the industry. He foresees larger distributors purchasing local warehouses to extend their reach and/or increasing their volume through their existing facilities. Balvor’s Bishop noted that some retailers might look more closely at self-distribution, but he feels it is more

“Working together, distributors and retailers do a far more effective job of SKU rationalization.” — Steve Montgomery, b2b Solutions LLC

48 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

likely that through advanced technology, retailers will help develop and execute more efficient supply chain practices, and that as they invest in this technology, the cost savings will be shared across the supply chain. Finally, Adams at CST Brands acknowledges that self-distribution “is not for everyone,” but he does put the responsibility for lowering supply chain costs on the retailer. “Instead of looking for distributors to fix our problems, we need to look at what costs or practices we could change to make it easier to serve us. Do we have restrictions on delivery times? Do we allow electronic invoicing or XML processing of invoices? Do we force suppliers to go through a lengthy check-in process when they deliver to our stores?” Adams noted that if retailers could work more closely with their wholesalers and suppliers, they could bring down the cost of goods. Retailers should be thinking about: “What can I do to make it less expensive for that guy to do business with me?” Adams concluded. CSN




Adding More to the Mix Amid a pause in acquisitions, wholesalers find growth in new product categories By Debra Chanil


perators in this year’s Convenience Store News Top Wholesalers report reached sales of $65.8 billion during their last fiscal year. This 5.6-percent increase is slightly less than the 6.7-percent gain posted in last year’s report.

Top Wholesalers Summary TOTAL SALES (Percent change vs. year ago) Top 30 wholesalers $65.8 billion (+5.6%) Top 10 wholesalers $57.3 billion (+6.5%) AVERAGE SALES PER Company Retail location Warehouse Full-time employee

$2.193 billion $368,340 $466 million $2.196 million

PERCENT OF SALES Chains Single stores

49.7% 50.3%

Source: Convenience Store News Market Research, 2014

Sales per Retail Location Served McLane Co. Inc. Liberty USA Team Sledd Imperial/Harrison Super Regional Cooper-Booth Wholesale Co. Southco Distributing Co. Henry’s Foods Inc. Core-Mark Holding Co. Inc. Charles C. Parks Co. S. Abraham & Sons Inc.

$718,067 500,000 422,727 418,182 405,625 395,918 372,000 325,600 325,000 314,505

Source: Convenience Store News Market Research, 2014

The top 10 wholesalers accounted for $57.3 billion in sales, an increase of 6.5 percent, beating their 6.2-percent gain from last year. The 30 companies on the 2014 CSNews Top Wholesalers list are all repeat players from last year, although some rankings have shifted. McLane Co. Inc. continues firmly in first place with sales of $31.9 billion, a 10-percent increase year over year. Core-Mark Holding Co. Inc. once again follows in second place at $9.8 billion in sales and a 9.9-percent jump. Eby-Brown Co. and H.T. Hackney Co. also retain their ranks, with sales of $5 billion and $4 billion, respectively. The first change in ranking is Harold Levinson Associates Inc.’s move into fifth place with sales of $1.3 billion, a 3.6-percent increase. In addition to McLane, other companies posting double-digit growth year over year include S. Abraham & Sons Inc. at 14.9 percent, and Southco Distributing Co. at 22.2 percent. This is Southco’s second year of such growth, with both years driven primarily by its acquisition of Coastal Wholesale Grocery in April 2013. As a result, the company has risen to a rank of 17th in this year’s Top Wholesalers report, compared to No. 20 in 2013 and No. 22 in 2012. TOP TRENDS

After several years of acquisition activity across the convenience wholesale industry, no further acquisitions were reported during the past year. Among the top 30 convenience wholesalers, Continued on page 54

50 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM


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EstImAtEd sAlEs


2014 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Company/Headquarters McLane Co. Inc., Temple, Texas 2 Core-Mark Holding Co. Inc., South San Francisco, Calif. Eby-Brown Co., Naperville, Ill. H.T. Hackney Co., Knoxville, Tenn.

Chief Executive Grady Rosier Thomas B. Perkins

latest FY1 (millions) $31,852 9,768


Previous FY (millions) $28,955 8,892

% change 10.0% 9.9

Thomas & Richard Wake William Sansom

5,000 4,000

4,900 4,000

2.0 0.0

Harold Levinson Associates Inc., Farmingdale, N.Y. AMCON Distributing Co., Omaha, Neb.

Edward Berro




Christopher H. Atayan




S. Abraham & Sons Inc., Grand Rapids, Mich. 3 Farner-Bocken Co., Carroll, Iowa

Alan Abraham




Dean Onken




Imperial/Harrison Super Regional, Elmwood, La. 4 Consumer Product Dist. Inc., Chicopee, Mass. 5 GSC Enterprises Inc., Sulphur Springs, Texas Garber Bros. Inc., Stoughton, Mass. Chambers & Owen Inc., Janesville, Wis. Liberty USA, West Mifflin, Pa. Cooper-Booth Wholesale Co., Mountville, Pa. Atlantic Dominion Distributors, Virginia Beach, Va. Southco Distributing Co., Goldsboro, N.C. Team Sledd, Wheeling, W.Va. Tripifoods Inc., Buffalo, N.Y. Pine State Trading Co., Augusta, Maine Stephenson Wholesale Co. Inc., Durant, Okla. 6 Harbor Wholesale Foods, Lacey, Wash. Topicz Inc., Cincinnati7 Resnick Distributors, New Brunswick, N.J. 8 Richmond-Master Distributors Inc., South Bend, Ind. Charles C. Parks Co., Gallatin, Tenn. Thomas & Howard Co. Inc., Columbia, S.C. Allen Brothers Wholesale Dist. Inc., Philadelphia Henry’s Foods Inc., Alexandria, Minn. Mountain Service Distributors, South Fallsburg, N.Y.

John D. Georges




Jeffrey Polep




Michael J. Bain




Harold Garber John K. Owen Gary F. McGuirk Sr. Barry Margolis Robin D. Ray

695 685 650 649 486

695 n/a 700 615 486

Sherwin Herring


Robert M. Sincavich Gregory G. Tripi Charles F. Canning Jr. Tammy Cross

trading Area 50 states 50 states

locations deliveries served per Week 44,358 55,114 30,000 n/a

Eastern half of U.S. AL, AR, FL, GA, MS, NC, SC, TN, LA, TX, KY, OH, PA, VA, WV, MD, IN, MO, IA 50 states

21,000 20,000

21,000 n/a

















0.0 n/a -7.1 5.5 0.0


2,400 n/a 1,300 1,600 2,100

3,100 n/a 1,200 1,251 1,600






465 458 400 395

460 458 400 395

1.1 0.0 0.0 0.0


1,100 2,750 5,000 1,634

1,250 2,970 n/a 2,165

Justin Erickson Marvin H. Schwartz Steven Resnick Patrick A. Carrico

334 334 310 300

305 313 300 300

9.5 6.7 3.3 0.0


2,500 1,070 2,000 1,400

1,600 1,230 1,609 810

Charles C. Parks III Jeff S. Leischner Jeff B. Allen

260 250 242

275 250 240

-5.5 0.0 0.8


800 1,500 1,688

1,100 2,300 893

Brian Eidsvoler Stephen Altman

186 148

186 140

0.0 5.7


500 500

750 700

Footnotes: 1

FY = fscal year


Consumer Product Dist.Inc. dba J. Polep Distribution Services


McLane corporate parent is Berkshire Hathaway, Omaha, Neb.


Stephenson Wholesale Co. Inc. dba Indian Nation Wholesale


S. Abraham & Sons Inc. corporate parent is GRAD, Grand Rapids, Mich.

7 Topicz


Imperial/Harrison Super Regional corporate parent is Georges Enterprises LLC, Elmwood, La.


Source: Convenience Store News Market Research, 2014

52 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

Inc. corporate parent is Novelart Manufacturing Co., Cincinnati

Resnick Distributors corporate parent is Plainfeld Tobacco and Candy Co.





# of Warehouses

97% 50

3% 50

21 30

70 n/a

30 n/a

7 28





sq. Feet (thousands) 11,715 n/a

Full-time Part-time

PROdUCtIVItY RAtIOs: sAlEs PER sales

12,235 5,600

47 n/a

209 700

sq. Foot (thousands) $2,719 n/a

Employee (thousands) $2,603 1,744

location (thousands) $718 326


2,500 n/a

2,200 n/a

0 n/a

400 n/a

2,000 n/a

2,273 n/a

238 200

238 n/a











































































60 50 65 15 65

40 50 35 85 35

1 1 1 1 2

200 265 160 110 180

246 280 200 240 120

2 0 100 0 2

50 37 60 16 21

3,475 2,585 4,063 5,900 2,700

2,825 2,446 3,250 2,704 4,050

290 n/a 500 406 231

224 n/a 542 519 304












50 92 55 1

50 8 45 99

1 1 5 3

200 250 246 205

250 210 445 293

0 48 6 24

30 12 106 59

2,325 1,832 1,626 1,927

1,860 2,181 899 1,348

423 167 80 242

372 154 n/a 182

66 10 45 30

34 90 55 70

2 1 1 5

312 132 100 210

280 160 135 184

12 0 14 6

40 17 4 18

1,071 2,530 3,100 1,429

1,193 2,088 2,296 1,630

134 312 155 214

209 272 193 370

60 47 47

40 53 53

1 3 1

160 300 65

131 300 77

2 20 4

12 50 14

1,625 833 3,723

1,985 833 3,143

325 167 143

236 109 271

5 33

95 67

1 2

165 85

170 47

5 22

21 12

1,127 1,741

1,094 3,149

372 296

248 211

$578 n/a

WWW.CSNEWS.COM | SEPTEMBER 2014 | Convenience Store News 53


an average of 74 percent of their sales are derived from cigarettes, followed by 8 percent from other tobacco products (OTP), 6 percent from candy, 4 percent from foodservice, 3 percent from grocery, 2 percent from salty snacks, 1 percent from general merchandise, and less than 1 percent each for gourmet and all other categories. The majority of wholesalers on the list indicated expansion into new product categories over the past year. Most often mentioned were vaping products (including vapor equipment and e-liquids). Fresh foods were second, including farm-fresh categories, as well as more attention to local, natural and gluten-free products. Prepared food was also mentioned among areas of expansion. No wholesalers mentioned eliminating any categories in the past year. Several wholesalers noted that increases in foodservice and fresh-food categories were helpful in offsetting margin losses in the cigarette category, which continues to decline. In fact, the decline of cigarettes and the con-

Sales per Warehouse Square Foot

current rise of OTP (including electronic cigarettes and vaping products) and foodservice were cited by some as the biggest trend currently impacting their business. Topping the trends list, though, was government regulation, particularly health care, minimum wage increases and tobacco. Second on the list were issues involving transportation, specifically the supply of qualified drivers, costs, transportation fees and regulations. In third place was margin pressure, especially in the cigarette category. Other business-impacting trends cited included competition and consolidation within the manufacturing sector. METHODOLOGY

Cooper-Booth Wholesale Co. Liberty USA Allen Brothers Wholesale Dist. Inc. Garber Bros. Inc. Resnick Distributors Consumer Product Dist. Inc. Imperial/Harrison Super Regional McLane Co. Inc. Atlantic Dominion Distributors Chambers & Owen Inc.

$5,900 4,063 3,723 3,475 3,100 2,969 2,731 2,719 2,700 2,585

Source: Convenience Store News Market Research, 2014

Number of SKUs Carried Core-Mark Holding Co. Inc. McLane Co. Inc. Harold Levinson Associates Inc. AMCON Distributing Co. GSC Enterprises Inc. Imperial/Harrison Super Regional Farner-Bocken Co. S. Abraham & Sons Inc. Team Sledd Eby-Brown Co. Source: Convenience Store News Market Research, 2014

54 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

Rankings for the Convenience Store News Top Wholesalers report are based on sales from the last full fiscal year for each company. Data for this report was gathered through a survey conducted among the largest wholesalers primarily servicing c-stores that derive a majority of their annual sales from tobacco and candy products. Additional data was obtained through company reports and other public sources of financial data. In some cases, estimates have been made by Convenience Store News based on historical data and current industry trends. CSN

Sales per Delivery per Week 53,000 46,300 17,000 16,000 14,000 13,000 13,000 12,900 12,000 12,000

McLane Co. Inc. Liberty USA Cooper-Booth Wholesale Co. Harold Levinson Associates Inc. Imperial/Harrison Super Regional Team Sledd Richmond-Master Distributors Inc. Southco Distributing Co. S. Abraham & Sons Inc. GSC Enterprises Inc. Source: Convenience Store News Market Research, 2014

$577,929 541,667 518,785 429,000 386,916 372,000 370,370 352,727 350,966 319,200


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How to Choose the Right Foodservice Equipment By Maureen Azzato


he menu — as is true with almost everything in foodservice — should drive the type of equipment convenience store operators purchase. However, some experts on the Convenience Store News How To Crew suggest operators take it a step further by mapping out food preparation processes and workfow before making expensive foodservice equipment investments. Operators should be able to visualize and document the steps needed to produce each menu item in the store, according to Larry Miller, principal of Miller Management & Consulting Services and a member of the CSNews How To Crew. “With that laid out, hopefully several menu items follow the same basic process flow, and then operators can identify what types of equipment are correct for their operation.” Of course, space is typically a constraint in most c-store remodels. By mapping the preparation processes in the allotted space available, operators can verify they have the space to place the equipment and the room to accomplish the desired preparation. Then, you can “begin by categorizing all of the components that make up each menu item into how it will be utilized and at what safe temperature it will be served to the consumer,” Miller said. “You want to know what items will be served at a refrigerated state vs. ambient temperatures or at food-safe hot temperatures.” For example, you may have to decide whether you will be buying

56 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

Call tO aCtIOn: Foodservice 101

• Do your homework and don’t be persuaded by what everyone else is purchasing. Buy what is appropriate for your business plan. • Ask for references from those who have purchased and used the equipment, and call them. • Utilize outside help to choose the right equipment (foodservice equipment distributor or consultant). • Calculate return on investment on every piece of equipment purchased, which will ensure you buy the right equipment for your business type and volume. • Keep it simple and buy equipment that is not complex to operate and maintain.


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The Pros & Cons of Leased vs. Used Equipment Leased and used equipment have their place in the convenience store foodservice world, but it may not be right for all equipment purchases or appropriate for all types of retail operations. Two Convenience Store News How To Crew members – Mathew Mandeltort, corporate foodservice manager of Eby-Brown, and Larry Miller, principal of Miller Management & Consulting Services –– offered the following pros and cons to consider.

lEaSED EquIpmEnt • Makes market entry easier for new foodservice operators and keeps monthly fiscal outlay steady. • Enables operators to keep pace with emerging and changing technology. • Short-term leases allow operators to evaluate whether the equipment fits their long-term needs. • Maintenance may be included in the lease, saving additional costs. • Operators may realize a potential tax advantage because lease or rental payments may be fully deductible. (Consult with your tax accountant prior to signing a lease.) • Can provide an exit strategy if your program rollout is not successful and you want to change course.

• Higher overall equipment cost because you are paying over time with interest. • Lease agreements can be complex documents. Read the fine print or have an attorney review it before signing. • Can limit your ability to upgrade or change equipment until the term of the lease is up. • You’re committed to paying the entire term of the lease, even if you are not using the equipment. • You do not own the equipment until the end of the lease term (you do not build equity along the way).

uSED EquIpmEnt Dealers typically purchase used equipment for pennies on the dollar during bankruptcy auctions. They, in turn, refurbish the equipment if necessary and then sell it for approximately 80 percent to 85 percent of the cost of a new version of the equipment. Retailers can buy used equipment from auctions, direct from dealers, or on the Internet. Most operators do not recommend used equipment for new stores, but say it can be appropriate for existing stores adding foodservice. • Some cost savings (15 percent to 20 percent). • Can be more appropriate for backroom equipment that the customer does not see.

• High risk. You could be buying someone’s poorly maintained or damaged equipment. • Equipment may not be as current and lack some new necessary features. • Unlike a car, it’s difficult to assess how much the equipment was used, for how long and how well it was maintained. • Most used equipment does not come with any warranties.

tIpS • Do your homework and find out how long the dealers you plan to do business with have been brokering equipment. What is their track record? • Buyers beware, especially for Internet purchases, and remember you have to pay the freight. • Make sure there are guarantees about how the equipment is packaged for shipping so it’s not damaged in transit.

58 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

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shredded lettuce or shredding it yourself. Will deli meats and cheeses come to the store already sliced and packaged in preportioned servings, or will the associates in the stores do all the slicing as needed? “In each instance, the answer will drive a decision on workflow, the equipment needed and, of course, the labor required for preparation,” Miller said. The process flow also allows operators to clearly identify which menu items need to be cooked or rethermalized to bring them to proper temperature, and which will be assembled and served cold. This helps determine the type of holding and merchandising equipment required. Joseph Chiovera of XS Foodservice & Marketing, also a member of the CSNews How To Crew, concurs. He also believes that it’s imperative to understand functional intent. “What are you trying to achieve with your customers and your product? This has a tremendous effect on what type of equipment you specify. If you are looking to do made-to-order food, your choices as far as what equip-

ment to spec becomes somewhat easier, but your execution becomes harder and more demanding,” he said, noting that the focus will be on flash or intense-rethermalization equipment. “If you are looking for extended shelf life and grab-and-go capabilities, the equipment you specify becomes a little more complex, while your execution becomes relatively easier.” Chiovera added that in a hot grab-and-go, or what he calls “heat-hold” model, slow rethermalization equipment is needed, but most important is good holding and merchandising equipment that minimizes

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product degradation. It is much simFoodservice 201 pler to map out the workflow processes • Evaluate ease of use for store employfor a new store and ees. If it’s not easy to use, the proplace equipment gram and profitability will suffer. exactly where it is • Visit quick-service restaurants for most functional, great ideas on good quality equipwhereas remodeling ment. In most cases, they have locations can presalready done their research. ent more challenges • Even though the business becomes since it may not more complex as you advance your always be possible foodservice practice, don’t get talked to put equipment into overly complex equipment. in ideal locations. Existing stores adding foodservice may have to rethink their entire floor plans to make way for optimum foodservice equipment and efficient in-store preparation processes. Once functional intent and workflow processes are mapped out, operators can then make a focused list of the type of equipment they need and establish their budget. That’s when the comparative shopping begins. Several CSNews How To Crew members suggest working closely with foodservice equipment distributors such as Fortier, Legacy or Holt and/or foodservice consultants, especially at the beginner and intermediate levels, to identify the best type of equipment to achieve specific product results. Advanced foodservice operators should primarily purchase direct from manufacturers, where they can leverage the size and scale of their operations to negotiate the best price. How much operators should expect to spend on foodservice equipment depends entirely on the scope of their foodservice program and growth plans. “Customer counts drive everything. If a store has a high customer count, it will drive the need and the budget,” said foodservice consultant Dean Dirks, another member of the CSNews How To Crew. But as a rule of thumb, beginner foodservice operators investing in roller grills and heat-and-hold equipment can expect to spend $1,500 to $4,000, while a deli setup may cost between $5,000 and $8,000. When they graduate to the intermediate level and want to add impinger ovens or high-speed ovens, they can expect to add $6,000 to $8,000 to their budgets, plus $15,000 to $30,000 for hot merchandising cases, freezers and cool-

Call tO aCtIOn:

62 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

ers. For advanced operators, the tab can run between $50,000 and $100,000, depending on the operation’s level of sophistication. EValuatIng EquIpmEnt

Operators should seek equipment that is versatile and can be used for preparing multiple menu items. For example, an impinger oven can be used for pizza, hot sandwiches and entrees, while a waffle iron would be used to prepare just a single item. In this case, most experts recommend adjusting the menu to exclude items that require single-use equipment, which will reduce equipment costs and conserve space. In addition to versatility, most experts agree that durability, ease of use and maintenance, and cost are critical criteria to consider as operators narrow down the equipment style and brand choices. For several of the retailers on the CSNews How To Crew, ease of use is paramount. “For example, a high-speed oven might be able to cook a pizza in 30

seconds, but if it’s complicated for employees to use, it may not be the right choice,” one retailer said. Durability and repair rate is a close second. “Down time means lost money,” said Mathew Mandeltort, corporate foodservice manager for Eby-Brown and a CSNews How To Crew member. Another consideration often overlooked is a store’s power constraints. “A lot of older stores may not have enough power to hold high-amp, dedicated-breaker

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pieces of equipment,” one expert warned. Physical appearance of the equipment, while not the most important criteria, was mentioned by most experts as somewhat important, especially for equipment that will be on the sales floor and visible to customers. Ultimately, the trick when buying foodservice equipment is balancing price and performance. Most experts recommend reading independent equipment reviews and reaching out to industry peers for reviews and recommendations. Once the choice of equipment is Foodservice 301 narrowed to two, • Buy direct from manufacturers to trial both styles leverage volume and size and get the to see which perbest prices. forms better. • Fully test new and innovative equip“I am always ment before purchasing and rolling it a fan of putting out chainwide. equipment in the stores and testing it for 90 days,” one How To Crew expert said. “This way, you can see if one outperforms the other. Sometimes, one will look much better on paper, but in the store it won’t work out as well.” Convenience store operators typically have a set protocol for rolling out new in-store products that begins with a single store and then gradually increases product exposure to multiple stores before full-chain rollout. Retailers should take the same approach with equipment. “How equipment performs in the ‘lab’ may be different than how it performs in the field. Give it a stress test. Have staff use the machine. Have them clean the machine. If it’s difficult, it’s going to be a problem,” Mandeltort said.

Call tO aCtIOn:

maIntEnanCE & lOngEVIty

Operators should reasonably expect a piece of foodservice equipment in a high-volume setting to last between five and 10 years, but some retailers report equipment that has lasted longer, especially if it is properly maintained. Most CSNews How To Crew experts recommend purchasing service contracts on foodservice equipment that is “business critical” — if they don’t have their own internal maintenance department — to minimize down time, loss of profits and disappointing customers. In reviewing service contracts, make sure it is clear when the contract begins and ends and if it covers the entire product or only major components. Also note

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if there are any deductibles applied to service calls or any hidden charges. If the contract covers preventative maintenance calls, be sure to understand exactly what is included and the frequency of those services. Most experts say not to wait until equipment starts breaking down frequently and reaches the end of its lifecycle before upgrading or replacing it. It’s best to cycle in new equipment on a graduated schedule. CSn

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

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FOODSERVICE Category Trends + Insights from


C-stores Grab for a Bigger Slice of the Pizza Market Several convenience chains have recently debuted more upscale pizza options


any convenience store operators today are featuring upscale and highquality fatbreads and pizzas, and moving away from the traditional varieties served from rotating heating racks on c-store counters. This shift signals an overall trend of upgrading foodservice offerings to better meet the changing expectations of on-the-go consumers and compete with quick-serve concepts. Pizza is a growing foodservice category By Donna Hood Crecca for c-stores. According to Technomic’s Senior Director, Technomic Inc. MenuMonitor data, appearances of pizzas dcrecca@technomic.com on convenience store menus have grown 17 percent, from 94 listings to 110 listings, in the latest yearover-year period.

Fastest-Growing Pizza Ingredients at C-stores Olives Beef












Base: 94 menu items at 17 c-stores (Q2 2013) ; 110 menu items at 18 c-stores (Q2 2014) Source: MenuMonitor, Technomic Inc.

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This growth indicates significant opportunity for operators to test new varieties and preparations, such as pies topped with some of the fastest-growing ingredients on c-store pizza menus, including olives and beef. These toppings are also trending at restaurants, where about 50 percent of consumers consider ordering ground beef as a topping on pizzas, while 45 percent consider ordering black olives. Both of these ingredients are often featured as a 80.0% topping option on create-your-own pizzas and on specialty pizza varieties like taco and hamburger. Several c-store chains have recently debuted more upscale pizza options. This quarter, Casey’s General Stores Inc. introduced flatbread pizzas systemwide. Customers can now order any of Casey’s large single-topping or specialty pizzas on the new flatbread crust. The chain originally tested the flatbread option at its inaugural Casey’s Pizza Express location, a pizza-only concept that opened last year. Also this quarter, Speedway LLC

FOODSERVICE Category Trends + Insights from reformulated its pizza slices, making them 33 percent bigger with new pizzeria-style crust and 100-percent mozzarella cheese. In addition, Maverik Inc. started getting creative with its pizza toppings, launching the BonFire BBQ Chicken Ciabatta Pizza, a small-format pizza made with barbecue sauce, chicken pieces and a blend of cheeses on a ciabatta roll-style crust. As consumers continue to seek out more convenient foodservice options, c-stores have an opportunity to make their pizza offerings more appealing. By upgrading their toppings, introducing creative varieties and revamping existing pizza recipes, convenience stores can better establish their offerings as a true competitor to quick-serve pizza concepts. CSN

Pizza Topping Preferences at Restaurants Which TYPES OF MEATS would you consider ordering for your pizza at a restaurant?

Pepperoni Bacon Ground beef Pork sausage Ham Canadian bacon

72% 58% 50% 49% 49% 46%

Which VEGETABLE OR FRUIT TOPPINGS would you consider ordering for your pizza at a restaurant?

Mushrooms Onions Green peppers Tomatoes Garlic Black olives

62% 61% 52% 49% 46% 45%

Base: 1,500 consumers aged 18-plus Source: The Pizza Consumer Trend Report, Technomic, 2014

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Black Market Leaves a Black Mark The illicit cigarette trade is becoming a more serious problem By Melissa Kress


n March, Washington, D.C.-based The Tax Foundation released a report highlighting the illicit cigarette trade in the United States. Shortly after, New York Gov. Andrew Cuomo announced a new Cigarette Strike Force — comprised of state, local and federal agencies — to crack down on illegal tobacco traffcking and sales in the Empire State. A few months later, Winston-Salem, N.C.-based Reynolds American Inc. (RAI) launched a special website called the “New Tobacco Road” to draw attention to cigarette smuggling and the issue’s seriousness for the tobacco industry and all its players, including convenience store retailers and wholesalers. While the black market trade of cigarettes is not a 21st century problem — it has been around for decades, in fact — the situation is getting more serious. This problem “has been around since the late ‘70s when there were studies and research done about this issue. But we have seen it become a more serious issue as organized criminal enterprises look at illicit cigarette trade as part of their portfolio,” explained Bryan Hatchell, director of communications at RAI. “It is

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becoming the currency of organized crime.” The “New Tobacco Road” refers to Interstate 95 along the Eastern Seaboard and the website is specifically meant to point out this issue. Along the I-95 corridor, criminals are taking advantage of the opportunity to make huge profits from the illicit sale of tobacco products, Hatchell said. “Reynolds American is taking the lead on this position. This is something we think is absolutely critical to our company and our industry. The cigarette black market undermines one of our company’s main objectives and that is to keep tobacco products out of the hands of minors,” Hatchell added. “People who are selling cigarettes illegally don’t ask buyers for identification. They sell to anyone with money, including kids.” RAI is not the only tobacco company taking aim at this problem. Combating the illicit trade also has been a major part of Richmond, Va.-based The Altria Group Inc.’s corporate responsibility platform for several years. “At the end of the day, it’s a concern for our business; it’s a concern for law enforcement and state and local regulatory agencies; and wholesalers and retailers,” said Brian May, senior manager of communications at Altria, the parent company of Philip Morris. The Brand & Trade Channel Integrity Department within Altria’s law department works toward an end. Its efforts include communicating to trade members that distribute Altria’s products at wholesale and retail; maintaining

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a system to monitor compliance and address violations of the terms of trade programs; supporting law enforcement and regulatory agencies at all levels; and investigating those involved in importing and selling illicit cigarettes. “Those are some big-bucket things we do as a company to protect our business and the legitimate cigarette distribution system,” May said. The Bigger PiCTure

When thinking about the illegal cigarette trade, the image of a regular guy living in New York traveling down south to load up his car with cartons of cigarettes at cheaper prices comes to mind. However, all involved stress that the problem is much more serious than that. “More and more, we are finding organized crime, ethnic street gangs and even terrorists getting into the game because it’s the new currency for the criminal. It’s more profitable than narcotics,” said Rich Marianos, a retired assistant director with the federal

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Cigarettes are the new currency of organized crime.

Bureau of Alcohol, Tobacco, Firearms and Explosives. “It’s a $5.5-billion loss to this country a year in tax avoidance, tax evasion and just plain old stealing from the American taxpayer.” Marianos, who now works with RAI on the New Tobacco Road, said he feels bad for the convenience stores and other retailers that are being hurt by the illicit trade. “These convenience stores [and] gas stations play by the rules, pay their taxes and buy all their products legally, and the black market comes in and undercuts the nonsense out of them and hurts their overall profit,” he said. “This is their livelihood. They are part of the community. They are staples where you can get milk late at night or whatever you need. These illegal traffickers are putting them right out of business.” The black market for cigarettes is not just an East Coast problem, either. It is happening on the Southwest border, on the New York-Canadian border, and in Los Angeles across the Mexican border. It’s also happening in the Miami area where counterfeit cigarettes are coming off ships. However, when you look at the illegal sales of legitimate cigarettes, I-95 is one of the best examples, according to Marianos. “You have places like the Carolinas, Georgia [and] Virginia where they can

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purchase a ton and use that artery right up to New York State or Massachusetts,” he pointed out. As Marianos noted, the pervasiveness of the illicit trade is making it difficult for c-stores and other tobacco retailers to compete. RAI’s Hatchell agrees. “It is incredibly hard for legitimate retailers to compete in an environment where illicit cigarettes are being sold. They cannot competitively compete with those prices,” Hatchell said. “It is up to retailers to contact their local legislators and law enforcement [officials] and let them know this is an important issue that is hurting their business, hurting their ability to maintain their jobs and for the safety of their employees.” Altria’s May added that retailers can also protect their businesses by making sure they are buying from reputable wholesalers and that these wholesalers are buying from either other reputable wholesalers or

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manufacturing the product themselves. This way, retailers can ensure the products they are carrying and selling are in full compliance and legitimate, and that the appropriate taxes are being paid. FighTing Fire

The black market cigarette trade does not have to be the new normal, though, according to Scott Drenkard, economist and manager of state projects at The Tax Foundation. There are several efforts underway to combat the problem, he said, including: • Banning common carrier transportation of cigarettes; • Implementing harder-to-counterfeit tax stamps; and • Increasing security on highways, especially I-95. “These have had some effect, but the underlying issue still remains. If the profit motive is there, entrepreneurs — whether above ground or below ground — will sell products to move profit,” he said. “The real solution here is lowering the tobacco taxes to justifiable, rational levels.” With $5.5 billion on the line, tobacco industry insiders believe there needs to be a three-pronged approach: more support for law enforcement; stricter penalties for the traffickers; and more awareness by the legislators. “$5.5 billion: this is what we lose in illegal tobacco trafficking a year. Can you imagine what we could fund with that? It could fund preschool care in the entire United States. I try to put it into terms people can grasp,” Marianos said. “It’s got to be combined: local, state and federal. A lot of the cases lead to major criminal organizations and the states can’t deal with that. This is not an indictment against state authorities, but they can’t go interstate. It has to be looked at as a national approach,” he continued. Although they cannot go interstate, some states are taking bold

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steps within their borders. For example, earlier this summer, Rhode Island Gov. Lincoln Chafee signed into law legislation that increases fines and imprisonment periods for illegal cigarette sales by as much as 20 times and reclassifies violations as felonies, according to The Tax Foundation. In New York, the Cigarette Strike Force in its first six months seized nearly $1.7 million in contraband

The New Prohibition

and cash. The task force also took hold of 2.7 million cigarettes and cigars. The seizures included 12,236 cartons of untaxed cigarettes, 254,873 cigars, 2,061 pounds of loose tobacco and 24,773 counterfeit cigarette tax stamps. In addition, Gov. Cuomo last year signed legislation authorizing New York’s Tax Department to impose a penalty of up to $600 for each carton of unstamped or unlawfully stamped cigarettes seized. This change increased the penalty from $150 per carton.

A frequent candidate for political office in New York City often draws chuckles with his catchphrase, “The rent is too damn high,” but change that to “The cigarette excise tax is too damn high” and you won’t find many people laughing. According to Scott Drenkard, economist and manager of state projects at Washington, D.C.-based The Tax Foundation, there is a correlation between higher cigarette taxes and cigarette smuggling. “A great example is in North Carolina and Virginia [where] the taxes are relatively low: Virginia is 30 cents a pack; North Carolina is 45 cents a pack,” he said. “It is very profitable for a cigarette smuggler to load up the trunk of a car, or maybe the bed of a truck, with crates filled with cartons of cigarettes and sell them in a state with a high tax rate like New York.” The problem is so prevalent that The Tax Foundation estimates 56.9 percent of the entire cigarette consumption in New York in 2012 was of smuggled cigarettes. “Our message is: There is a problem with the tax policy. If taxes are so high that there is an arbitrage incentive — buying low and selling high — you have a totally broken tax code and you are disproportionally leaning on one item,” Drenkard explained. “That’s not healthy. This has all the same economic effects of prohibition and it’s a de facto tax prohibition on cigarettes.” Typically, when you push people out of one market, they will move to another, but that’s not the case with cigarettes. “If you raise the price of a product, the law of demand tells us that people will buy less of it,” the economist said, “but what we are seeing is that people are just buying less of it in the jurisdiction where the price is higher.” Adult tobacco consumers are moving their consumption to where the price is lower and they are bringing it in through illegal means. This includes “regular people” casually smuggling cigarettes by picking up a carton or two when they travel through Virginia, or purchasing cigarettes on Native American reservations. “I understand the gut reaction to increase the price of a product so people will buy less of it. And it’s true, but we’ve crossed the line [to] where this is no longer rational because the taxes are so high,” noted Drenkard. “We need to start asking ourselves more fundamental questions. Is it the job of the tax code to dictate personal choices and to help people live a healthier life?” He argues that the tax code is supposed to be for collecting revenue for government services and it’s when we move away from the central purpose of the tax code, we run into problems. “This one is a very explicit, acute problem where we have black markets springing up because we are taxing one product at such large rates,” he concluded.

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nOT A ViCTimless Crime

The seriousness of this issue is not being oversold, industry players emphasize. “It’s not just somebody coming down and buying 100 cartons from somewhere in a low-excise-tax state and taking them back to New York. It’s often very sophisticated criminal organizations and even organizations that are associated with terrorist groups,” explained May of Altria. “The cost to society cannot be underestimated. It is and can be a very significant problem.” RAI’s Hatchell added: “Lost tax revenue, the law enforcement challenges, there are many, many elements to this problem. Criminals are adding cigarettes to their portfolio, if you will, of illicit drugs, firearms, prostitution. When these criminal enterprises come to town, they bring a lot of bad elements with them. It is much less risky to smuggle cigarettes than it is to smuggle drugs.” Given all these elements, the black market cigarette trade is far from a victimless crime. “The victim is the store owner. The victim is the poor community these bad guys go into to buy cigarettes and set up shop. The victims are the under-resourced police officers who have to do more with less. There are victims left and right,” Marianos said. Csn






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

Glass Half Empty or Half Full? CSNews 2014 Beverage & Beer Retailing Summit examines positive and negative forces at play By Angela Hanson & Melissa Kress


everages — whether packaged, alcoholic or fountain — continue to be a key driver for the convenience store industry, although shifting consumer preferences and outside forces such as the weather are not making it easy. The Convenience Store News 2014 Beverage & Beer Retailing Summit took a closer look at the overall beverage marketplace, bringing retailers and suppliers together June 5-6 at the Renaissance Schaumburg Hotel and Convention Center in Illinois. The Summit was sponsored by Anheuser-Busch, Red Bull North America, WhiteWave Foods, Grindmaster-Cecilware, Nestlé Waters North America and Sparkling ICE. In broad terms, the convenience channel is benefiting from consolidation, demographics, time-sensitive consumers and a shift to higher-margin foodservice. At the same time, the channel is facing several challenges, including the ongoing swipe fee battle, health care reform, higher minimum wages and channel blurring, said Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC. Still, beverages remain a bright spot — even if the category is undergoing a metamorphosis of sorts. In packaged beverages, consumer preferences are shifting away from carbonated soft drinks (CSDs) and toward healthier products such as water and functional beverages, including Keynote speaker Bonnie Herzog of Wells energy drinks and teas. Fargo Securities called beverages a “bright Non-carbonated bevspot” for c-store retailers this year.

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C-store retailers actively engaged in frank, interactive breakout sessions at the 2014 Beverage & Beer Retailing Summit.

erages are taking share away from CSDs and driving growth in the category. “Bottled water has driven incremental growth in beverage volume, but the category has the lowest average price per case with low margins,” Herzog explained, adding that she expects to see innovation across the various water subcategories because of the low margins in “plain” water. CSDs, on the other hand, have lost 12.5 percent of total packaged beverage volume since 2003, and Herzog expects the segment to continue to shrink over the next five years. Diet CSDs are under significant pressure and saw total declines in 2013 of approximately 7 percent — what she termed the “diet downturn.” “Consumers are leaving the [diet segment] for alternative options: health and wellness products, the energy category and regular CSDs — just less,” she said. That doesn’t mean the convenience channel should count out CSDs, however. They are losing share, but are still the largest segment, she pointed out. In the good news department, Wells Fargo Securities’ Beverage Buzz survey for the 2014 Memorial Day weekend found that beverage sales were up 4 percent during this year’s holiday weekend compared to the 2-percent

Dispensing Profits Foodservice has been considered an extremely important part of the convenience store industry’s growth for some time now, and dispensed beverages aren’t just a side component of that. In fact, they’re a critical part of foodservice sales, according to Timothy Powell, vice president of strategy for brand strategy and experience design firm Big Red Rooster. In 2013, c-store foodservice sales reached $12 billion, but prepared food only made up 46 percent of that figure. The rest came from hot dispensed beverages (31 percent), cold dispensed beverages (20 percent) and frozen dispensed beverages (3 percent).

Dean Zurliene of Anheuser-Busch said a balanced strategy is needed in the beer category.

increase seen during the 2013 Memorial Day weekend. Greater beverage promotions and favorable weather drove most of this year’s upturn, according to Herzog. ENERGY BOOST

The continued growth of energy drinks, which are forecasted to outpace overall beverage growth, is another positive for c-store operators, but the target market isn’t what many people expect, said Jim Sleightholm, director of category management for Red Bull North America. The common perception is that consumers who buy energy drinks are all young men into extreme sports and loud music. The reality is that while energy drink consumers are generally young, more than half are over the age of 34 and 36 percent are women. Several major factors will fuel further growth of energy drinks, according to Sleightholm. Improved consumer penetration is expanding the customer base and on a generational level, Gen Y is highly engaged with the segment. Yet, spending on

What’s more, dispensed beverages make a good entry point into foodservice for novice operators, as the majority of prepared food purchases include a drink. That doesn’t mean all beverages are created equally, though — carbonated dispensed beverages have been struggling for some time and have been a drag on c-store foodservice growth as a result, Powell acknowledged. Still, consumer research shows that stocking a wide variety of beverages has a positive effect on the perception of a c-store chain, and dispensed beverages drive profitability due to their high gross margins, making them important regardless of the ups and downs of individual dispensed beverage segments. C-stores looking to expand their dispensed beverage volume should consider how they can convert light users, who tend to be female, Caucasian and age 45 and up. They’re the key to future growth, but at the same time, there is no substitution for keeping frequent customers satisfied. Heavy/moderate users tend to be male, age 24 or younger and skew slightly Hispanic. C-store retailers also must recognize certain realities. With less than 20 percent of c-stores employing dedicated foodservice staffers, beverage equipment that is self-serve, foolproof and reliable is essential. And convenience retailers aren’t only competing with other c-store operators. Primary foodservice and beverage competition includes national and regional quick-service restaurants, chain sandwich shops and coffee shops such as Starbucks. A winning value proposition comes from delivering consistently solid basics, including a solid flavor profile; and offering points of differentiation that resonate, such as menu desirability, a good store atmosphere and hospitality that is more than just a meal and generic server/customer interaction, Powell advised. Customers need a reason to drive past the competition. Other considerations when developing a dispensed beverage program include remembering that the gas pump functions as a billboard; being willing to stick to the basics; staying aware of developing trends, such as the current resurgence of iced tea; and knowing both one’s limitations and competencies. These competencies will change as retailers progress from the novice level to intermediate to advanced programs, and the implications for c-stores will shift accordingly. More advanced dispensed beverage programs can deliver more sophisticated flavors and customization, but retaining solid fundamentals will let c-stores make the most of this category.

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

energy drinks is up the most among non-Millennials since 2009. Usage occasions are also expanding as energy drinks become an enabler instead of a crutch and offer consumers an easy pick-me-up. “The need for energy is universal,” Sleightholm said. Energy drink innovation has also removed standard barriers to entry by improving taste and offering lowcalorie and low-sugar varieties. Sleightholm also noted that while energy drinks do need to be promoted by retailers, they don’t compete heavily on price. Consumers don’t tend to wait for them to go on sale before making a purchase. BALANCING BEER

When it comes to winning in the beer category, convenience store retailers often take one of two approaches: focus on craft or focus on the core. And neither one is the right approach. A balanced strategy is the most successful, Dean Zurliene, senior director of category management for small format at Anheuser-Busch, told attendees of the Summit. “A good beer store is typically a good beer store across all segments: craft, import, premium, value and [flavored malt beverages],” he explained. “If you don’t have the right assortment in one segment, you can affect another.” To drive this point home, Zurliene noted that a cusJim Sleightholm of Red Bull cited tomer who buys a six-pack of several factors that will drive craft beer also buys a 30-pack continued energy drink growth. of value beer. “Assortment is key because people like variety,” he said. “But there is a tipping point and the key is finding that tipping point.” The premium segment still holds reign over the beer category and more often than not, if a store does well in premium, it probably does well with craft beer and imports. While beer delivers lower margins than other products — only cigarettes have a lower margin inside the store — the category is up almost 5 percent in the convenience channel nationally, Zurliene stated. Beer, on average, typically represents 10 percent of inside space and 14 percent of in-store revenue.

Mike Adams represented BP/ampm at the event.

In addition to assortment, cold beer is the rule of thumb for c-stores. Ninety-two percent of all beer in a convenience store is sold cold, according to the Anheuser-Busch executive. “Convenience and cold are two of the things you have to do right,” he stressed. COMPETITION HEATS UP

With other retail channels moving into the “convenience” territory, c-store retailers have to up their game to stay a step ahead. According to The NPD Group’s Warren Solochek, vice president of business development, foodservice, approximately 50 percent of the population hasn’t visited a c-store in the last year. On the upside, this leaves retailers with a lot of potential to get new people into their stores. “You as operators have to tap into new sources of growth,” he said. There are currently two types of c-stores: the “haves,” which offer a diverse, sophisticated merchandise mix and engage in multiple foodservice occasions; and the “have nots,” which Technomic’s Heidi Keathly discussed the are gasoline depenshifts happening in alcoholic beverages. dent and have minimal foodservice capability and willingness. The “haves” are going to survive, Solochek cautioned. Beverages make up the most important part of the foodservice menu mix, with NPD data showing they are included in approximately three-quarters of all Continued on page 86

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

The Alcohol Evolution Up Close The adult beverage landscape is constantly changing, driven by shifts in not only consumer tastes, but also product innovation. Even with the changes, though, the overall industry total for adult beverages is holding relatively steady. Spirits and wine are up, although their growth rates have slowed a bit. Beer is down, but still commands an 82.6-percent share of the adult beverage category, according to Heidi Keathley, director of research and consulting services at Technomic. Keathley presented findings from Technomic’s online DRINK resource during the Convenience Store News 2014 Beverage &

ed to rapid changes in consumer tastes and heated competition from wine and spirits as chief factors. In broad strokes, domestic light and domestic are down, imported and craft beer are on the rise and cider is seeing “explosive growth.” According to Keathley, craft is relevant, offers more taste, tends to be local in production and tells a great story. The craft segment has seen five years of double-digit growth, increasing 14 percent in 2013. Still, it only accounts for 7 percent of the total beer category. Cider saw 88-percent growth in 2013, but only accounts for

Beer Retailing Summit. As for channel share, off-premise has been the story for years, she noted, with off-premise accounting for 75.9 percent of volume and on-premise taking the remaining 24.1 percent. Taking a look at dollars, however, paints a more closely matched picture, with off-premise at 51.5 percent and on-premise at 48.5 percent. On-premise dollars rose due to premiumization, yet volume was down as consumers pulled back on visits to restaurants and bars, she explained. “Overall in adult beverage, we see a very challenged environment. Volume is down and dollars are up. If you take out inflation, then both on-premise and off-premise are relatively flat,” Keathley said. To win the adult beverage dollar, it is “important to know who the consumer is and target them further,” she told Summit participants. Millennial consumers, who can be considered the “It” demographic, are more knowledgeable than previous generations. They are more connected to their origins, understand taste profile and understand the production process behind adult beverages. In addition, Millennials are shifting to premium products — notably choosing craft over domestic beer. Taking a deeper dive into beer, Keathley said the category is still an important driver of convenience store sales; however, “it is not a pretty picture at all.” Beer has continued its downward trend into 2014, dipping 1.7 percent in the first quarter of this year. She point-

0.5 percent of the overall category. Despite these small pieces of the pie, convenience store retailers are taking notice. “Convenience stores are starting to clear their shelves for these segments,” Keathley said. “They are newsworthy but generate small share of beer volume. However, they offer big potential.” How big? The Brewers Association estimates that it’s possible they will hit 20 percent share of the beer category by 2020, she cited. According to Technomic data, three in 10 consumers report drinking craft beer at least once a month or more, while one in five consumers report drinking cider at the same frequency. “We will continue to see craft and cider grow,” she predicted, and that could be good news for those c-stores that are expanding their selection. Thirteen percent of consumers say they make an adult beverage purchase every time or nearly every time they visit a convenience store, according to Technomic’s numbers. Aside from beer, spirits grew at retail by 1.7 percent in 2013. While Millennials are embracing spirits, it is not a big category for the convenience channel because not every c-store can carry the products. Even so, opportunities exist for those that can. For example, consumers are shifting from several flavor profiles to more complex offerings. In addition, whiskey offerings are outpacing non-whiskey, Keathley reported. “Spirits are shifting to the dark side,” she said, pointing to the decline in vodka and rise in American whiskey. Irish whiskey is also enjoying a rise in popularity, increasing by 14.6 percent in the first quarter of this year. As for wine, the category grew about 2 percent in volume at retail in 2013 and is projected to continue that upward arc this year with domestic table wine driving the growth. In addition, sparkling wine is the fastest-growing segment at 4-percent growth in the first quarter. Keathley noted that Millennials are adopting wine much earlier than previous generations and Merlot continues to be the top choice for at-home consumption.

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

quick-service restaurant (QSR) meal/snack occasions. Notably, c-stores have increased beverage servings over the long term, while beverage incidence and

servings have declined at traditional QSRs. Beverage variety is also generally better developed at c-stores. C-stores can effectively compete with QSRs by capitalizing on the

convenience they offer and focusing on the top-growing foods in the c-store market, which are different from the top-growing foods for QSRs. They include salty snacks, breakfast sandwiches and pizza. Combos or bundled offers are other key c-store tools for boosting order size and the average check. THE WEATHER FACTOR

Weather conditions are a primary driver of consumer needs and buying decisions, but they also create risks, opportunities and disruptions, said Eric Symon, senior vice president of Planalytics Inc. It’s important for c-store operators to “weatherize” themselves and understand the impact weather can have on a store’s performance, while leveraging weather opportunities to increase sales and customer engagement, he noted. Because favorable weather in some markets can balance unfavorable weather in others, its impact can go unnoticed at the headquarters level, according to Symon. On a store level, operators should be aware that individual serving sizes are more sensitive to weather changes than bulk sizes. Water, soft drinks and sports drinks are the most sensitive segments; juices and energy drinks are least sensitive. Although temperature does make a difference in beverage sales, very high or very low temperatures don’t necessarily mean a sharp change in sales will result. “Extreme” temperatures are based on what a region is accustomed to. Still, at a market/week level, demand swings due to weather can range from plus or minus 40 percent to 60 percent or more, and swings in demand pre-, during and post-major weather events can reach into the positive or negative triple digits. CSN

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Convenience Store News 2014 Beverage & Beer Retailing Summit The 2014 Beverage & Beer Retailing Summit, hosted by Convenience Store News, brought together convenience store retailers and suppliers from across the nation to discuss the latest refreshment trends. The event took place June 5-6 at the Renaissance Schaumburg Hotel and Convention Center in Illinois. RETAILER ATTENDEES Mike Adams, BP/ampm Chris Borota, GPM Investments LLC Bob Cavanaugh, Wesco Inc. Krisanne Flamini, Wawa Inc. Carolynn Hieb, SuperAmerica Charles Iszard, Hess Corp. Matt Lachut, Giant Eagle Inc. Steve Lunderborg, Holiday Stationstores

Mary Mamalakis, RaceTrac Petroleum Inc. Christina Maurer, BP/ampm Kathy Mejia, BP/ampm Rich Mione, GPM Investments LLC Joe O’Conner, Holiday Stationstores Kevin Platt, Cumberland Farms Inc. Dan Powers, Tedeschi Food Shops Inc. Kevin Quigley, Wawa Inc. Jared Scheeler, The Hub Convenience Stores Jack Trebilcock, Millers Neighborhood Market Ben Wales, Mid-Atlantic Convenience Stores Robin Wright-Broughton, Chevron North America Products

Eric Symon, Planalytics Inc. Dean Zurliene, Anheuser-Busch


PRESENTERS Bonnie Herzog, Wells Fargo Securities LLC Heidi Keathley, Technomic Tim Powell, Big Red Rooster Jim Sleightholm, Red Bull North America Warren Solochek, The NPD Group Emre Sucu, IRI Consulting

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

Cider Fever This segment is harvesting sales thanks to new products and major supplier involvement By Renée M. Covino


he apple of malt beverage suppliers’ and consumers’ eyes is hard cider. Even more than craft beer, cider is being hailed as the fastest-growing segment of the malt beverages category. In 2009, hard cider was a $35-million market in the United States. Last year, it exploded into a $172-million market and the segment is continuing to grow at a rate “way ahead” of craft beer, according to Chicago-based market research company SymphonyIRI Group. Hard cider is certainly not new — our country’s forefathers like John Adams reportedly drank it every day — but it is recently enjoying a new phase of nationwide and global resurgence. Consider that dollar sales of hard cider grew nearly 200 percent in convenience stores for the 52 weeks ended March 23, reaching $53.07 million, according to IRI’s Infoscan Reviews. Major supplier

involvement is adding to the subcategory’s excitement and momentum. The leader in hard cider brands is, far and away, Angry Orchard from The Boston Beer Co., which IRI data shows as currently accounting for nearly 68 percent of the total cider market in c-stores. In fact, Angry Orchard is the company’s hottest brand, outgrowing even its beer brands. However, the largest mass-market brewers have recently started getting in on the apple action, too. Anheuser-Busch last year introduced Stella Artois Cidre and this April, launched Johnny Appleseed Hard Apple Cider. Meanwhile, MillerCoors added Smith & Forge Hard Cider, which is targeted at men, and Heineken became marketer of the Strongbow cider brand. Convenience Store News recently caught up with executives from three of these key players — George Ward, director of off-premise national accounts for Angry Orchard; Royce Carvalho, brand manager of Smith & Forge; and Alejandra de Obeso, Heineken USA brand director for Strongbow — to dig deeper into the hard cider phenomenon. Here are their takes and tips on this growing niche. Convenience Store News: How would you describe the recent growth of the hard cider category? Is it comparable to craft beer in any way?

Ward: We’ve been making cider for 15 years and it’s great to see the recent growth of the category. Compared to a year ago, retailers are approximately doubling their space. For example, where there were once two to three brands of hard cider, there are now about six brands. Relating cider to craft beer, it took almost 30 years for craft beer to become what it is today and it is still only approximately 9 percent of the U.S. beer market. In the U.S., cider is only 0.6 percent of the beer market, whereas in England, it’s closer to 20 percent. So, we have a long way to go until American drinkers recognize cider and are as knowledgeable about it as they are

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about beer. But we think cider and craft beer drinkers share similar tastes. They appreciate high-quality ingredients and experimenting with new flavors. Carvalho: The hard cider market looks to be developing a lot like the broader beer market. There is a large mainstream segment with a lot of volume potential, imports make up a fair share as well, and then there is the high-end with craft and artisanal ciders, which is also growing. The mainstream segment, in terms of opportunities, is experiencing major growth right now. This is where our hard cider, Smith & Forge, plays. In mature cider markets, like the United Kingdom, you’re starting to see the types of differentiation and segmentation in cider that you see in U.S. craft beer. de Obeso: There are three important trends driving the growth of cider: the demand for variety and natural alternatives to beer and other adult beverages; the growth of upscale products; Angry Orchard is the best-selling hard cider and the increased brand in convenience stores. demand for refreshment. Cider is unique in its ability to offer all three of these qualities. As a result, hard cider has emerged as a strong beverage alternative among consumers.

Smith & Forge, from MillerCoors, is targeted at men.

In contrast to the beer category, cider appeals equally to both men and women. Furthermore, cider draws its consumers from other categories outside of beer — specifically wine and spirits. Cider is gaining awareness and traction as a viable adult beverage alternative with growth rates that mirror craft beer growth in its emerging stages. CSN: From your perspective, how is hard cider faring in the convenience store channel? Are you seeing more c-stores making room? How can the channel best merchandise the category and maximize sales potential?

Ward: Cider is tiny with a 0.3-percent volume share, but there is a lot of excitement around the segment. C-stores can best merchandise the category by focusing on lead brands to drive trial and repeat purchases. They should position it on the shelf with other similarTop 10 Alcoholic Apple Picks priced, high-end items like The leader in hard cider brands is, far and away, Angry Orchard from The Boston Beer Co., craft beer and imported but the big mass-market beer brewers are now getting in on the apple action, too. Below are the top 10 brands by dollar sales in convenience stores for the 52 weeks ended March 23. beer. They should group DOLLAR SHARE OF all ciders together to create DOLLAR DOLLAR SALES DOLLAR SHARE TOTAL CIDER % BRAND SALES (millions) % CHANGE VS. YA OF TOTAL CIDER CHANGE VS. YA a section that is easy for Angry Orchard $35.96 371.01% 67.77% 25.23% the customer to spot, and Woodchuck 8.30 25.08 15.64 -21.33 consider utilizing merchanMike’s Hard Smashed 1.56 75,180.57* 2.95 2.93 dising tools like shelf strips, Michelob Cider 1.47 -7.55 2.77 -6.08 cooler stickers or internal Strongbow 1.29 1.29 2.42 1.91 POP (point-of-purchase) to Stella Artois Cidre 1.28 n/a* 2.41 2.41 call out the section. Crispin 0.61 31.12 1.14 -1.43 Also, we see some Hornsby’s 0.54 9.99 1.01 -1.70 retailers merchandising McKenzie’s 0.33 41.08 0.62 -0.67 Angry Orchard Crisp Magners 0.32 2.67 0.60 -1.13 Apple 12-packs of both * Abnormally large percentage changes typically indicate a product was a new introduction toward the end of the year-ago cans and bottles together sales period. Similarly, no percentage change indicates the product is a new introduction in the current sales period. Source: Infoscan Reviews, Information Resources Inc. (IRI)

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

to capitalize on the increased consumption during the summer selling season, especially around key summer holidays. Also, we see that 16-ounce singles are driving trial and are typically priced to be promoted in a “two-for” bundle. Carvalho: MillerCoors got into cider because we saw a major opportunity: No one in the cider category was speaking to legal-drinking-age Millennial men. We see c-stores as our brand’s biggest opportunity, and we built the brand with c-stores specifically in mind. It’s why we’re in cans and offering both 16-ounce and 24-ounce packages. Guys come to c-stores looking for refreshment. For merchandising, Smith & Forge works great in a cooler as a multipack or a single. From a brand perspective, we have some great suction cup racks that are proving to be incredibly effective at getting guys to try our cider. We’re doing so much TV and digital marketing that guys are really coming to the store seeking out the brand. de Obeso: As hard cider is growing at an accelerated rate, c-stores are becoming increasingly more important as part of the off-premise footprint for the category. Per Nielsen FDCM+ (food, drug, convenience, mass and other outlets), 27 percent of off-premise cider volume is now sold through c-stores, four times more than it was in 2010. In terms of space, we’re now seeing that the average number of hard cider SKUs in the store is also growing, although there is significant upside in assortment. CSN: Who is the typical hard cider consumer? Please share any insights as to how retailers can best target this market.

Heineken recently became marketer of the Strongbow brand.

Ward: Angry Orchard’s hard ciders appeal to drinkers who look at cider as an alternative to beer, wine and spirits. Cider drinkers are a lot like craft beer fans. They are looking for a great-tasting but refreshing beverage crafted with quality ingredients. We’ve found that cider appeals to both men and women equally, whereas beer typically skews 80-percent male. Consumers

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Growing by the Bushel Hard cider dollar sales have grown nearly 200 percent in convenience stores recently. Here are the latest category numbers from c-stores for the 52 weeks ended March 23. • Dollar sales: $53.07 million • Dollar sales change vs. year ago: 195.65 percent • Case sales: 1.47 million Source: Infoscan Reviews, Information Resources Inc. (IRI)

looking for gluten-free options also gravitate to hard cider since it’s made with fermented apples and is a flavorful but refreshing, unique alternative to beer that also offers a variety of styles. Carvalho: The typical hard cider consumer is changing on a monthly, and almost weekly, basis. Before cider started growing at this incredible rate, this consumer was essentially a small niche in the total alcohol consumer market. What we’re seeing with Smith & Forge is that we’re bringing in a completely different consumer to cider for the first time; it’s broadening the base. We’re seeing guys come into cider in a real and meaningful way. We’ve got packages (cans) that speak to guys and how they like to enjoy alcohol beverages. We’ve also got a lot of media and advertising, getting his attention for the brand. We’re seeing he’s actually looking for us at retail. We see posts on our Facebook page, on Twitter and on Instagram, where guys are asking us where to find the brand at retail. These guys are looking for the brand on the shelf, so one of the best ways to target this guy is to just be available and on-shelf in the cooler door. de Obeso: Today’s Millennial consumers are always on the hunt for what’s new and increasingly seek out variety, flavors and innovation from the alcohol beverage category. Many consumers are turning to cider as their preferred beverage because it’s less filling, sweeter and seen as a more natural and gluten-free alternative to other alcohol beverage options. Retailers can capitalize on the exploding growth of cider by educating their customers through dedicated warm and cold cider sections, standalone displays, cross-merchandising offers and tastings that will drive engagement, traffic and ultimately, increase sales and profits. CSN



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

The Front-Row Ticket By focusing on in-store hot spots, c-stores can boost candy sales at the front end and elsewhere By Angela Hanson


lthough candy may not be classifed as health food, data provided by the National Confectioners Association shows the category itself continues to be robustly healthy. 2013 saw a 2.5-percent increase in candy category sales, upholding a multiyear trend of growth. Still, category health only goes so far and in a time when other segments are struggling, convenience store retailers must do whatever they can to maximize sales. To accomplish this with candy, the Mars Chocolate/ Wrigley C-Store Front End Best Practices Study was conducted in order to determine which categories belong at the front end, establish which merchandising elements are most effective and identify the locations of “hot spots” inside a convenience store.

The front end of a convenience store is exposed to 100 percent of shoppers, making it an ideal place to merchandise candy.

Hot spots are high-priority locations inside a store where it’s possible to use high-visibility secondary displays to interrupt routine shopping behavior and significantly increase chocolate basket penetration to grow category and brand sales. “We learned that in c-stores, only one in three shoppers buy items at the front end, and most of

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them purchase tobacco and lottery tickets,” Larry Lupo, vice president of sales for the convenience and drug channels, Mars Chocolate North America, told Convenience Store News. “We wanted to determine which categories — in addition to these destination categories — would be the ‘power categories’ to generate the most sales and profitability.” Along with candy, the study showed power categories in the convenience channel include meat snacks, sweet snacks, energy shots, fresh fruit and bakery. The research also found that most consumers’ “gaze time” occurs between the register and the card swipe. “The biggest purchase barrier is that shoppers simply aren’t thinking about confections, and they don’t see it in the store,” Lupo explained. More than 70 percent of consumers don’t walk down the candy aisle, and more than three-quarters of consumer buying decisions are made at the point-of-purchase. Additionally, while customers may not go out of their way to buy candy, research shows that confectionery is extremely responsive to quality merchandising efforts, likely because 83 percent of candy category purchases are impulse purchases. Chocolate in particular generates high lift in response to secondary merchandising. “That’s why secondary displays are so important,” Lupo said. “When consumers see confections, they’re more likely to buy them.” This can come in the form of standing displays, racks or other displays as long as they’re positioned to catch a shopper’s eye. When candy is on display, future consumption has a lift of more than 70 percent, according to the study, while immediate consumption builds trial and increases household penetration. “We also found that floor displays by the checkout area encourage shoppers to make a purchase as they wait in line. We call this ‘dwell time,’ and it’s an easy way for retailers to convert shoppers into buyers,” Lupo explained.

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

chances that an unfamiliar product will become a regular purchase in the future. 76 percent of consumer buying Immediate consumption builds trial and Retailers also don’t have to wait decisions are being made at the increases household penetration for specific supplier-driven campoint-of-purchase paigns. “C-store retailers need to create new usage occasions,” Lupo Future consumption has a lift of over Over 70 percent of consumers never said. “For example, seasonal candy. 70 percent when on display go down the candy aisle C-store seasonal chocolate sales had double-digit growth last year.” In DIsPlay PrIorItIEs response, candy suppliers are offer• Promotional moments ing more seasonal single items, as • Everyday displays well as seasonal displays such as • Innovation displays counter units. Still, secondary displays in hot spots aren’t the only answer. C-store retailers must make sure their regular candy racks offer the A hot spot is a high-priority location in the store where high-visibility secondary disproducts customers want, which plays can interrupt routine shopping behavior and significantly increase chocolate basmay mean stocking a variety of ket penetration to grow category and brand sales. package sizes as well as brands. Larger sharing-size or king-size candy is popular, especially with Lobby Front End Perimeter shoppers looking to get the most • Exposure to all shoppers • 100 percent of shoppers • High traffic • More likely to purchase for • More immediate consumption • Counter-clockwise traffic flow value for their dollar. However, family/others • Reward/treat/indulgence • Shoppers moving quickly many consumers only want their • Most responsive to display • Low decision time • Near high-demand categories candy in standard size, so ideally • Last chance for • High impulse/low “impulse” purchase decision time the front end should offer both. While the front end is crucial for Source: Mars Chocolate North America boosting candy sales, retailers should also be aware of ways they can capitalize on other instore hot spots for overall optimization. TurNiNg up The heAT The lobby offers exposure to all shoppers, but in the To properly leverage hot spots in different locations of lobby, purchases are more likely to be made for other the store, convenience store retailers must understand people. It is also the most responsive many different aspects. The front end is exposed to to display. Meanwhile, the 100 percent of shoppers and offers items that reflect the desire for more immediate consumption, reward or perimeter features high traffic made of quick-moving indulgence. It also has a low decision time and is the shoppers traveling near last chance to make an impulse purchase. high-demand categories. To drive candy sales in this hot spot, Mars Placing displays along Chocolate suggests a three-step process for c-stores. the flow of consumer traffic First, they should build a portfolio of everyday disincreases the odds that cusplays, especially for popular brands and items that tomers will make an impulse candy are on sale year-round. Next, use displays to support purchase on the way to their destination. promotional moments that leverage media with conRetailers should also keep abreast of innovations in sumers. This can involve tie-ins to major events such as the Super Bowl or promotions that aren’t connected displays, as well as products. Although its major push is in the grocery channel, Mars Chocolate is testing to a single date. Finally, they should make a point of LED-lit racks in a few c-stores, which may result in a setting up displays for new items. Strong introductions brand-new way of putting candy in the spotlight. CSN to shoppers drive trial and awareness, increasing the

Why You Need & Want Merchandising

What is a hot Spot?

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Taken With Technology CSNews’ 2014 Top Tech Executive Avsha Klachuk works to change the future of fueling By Brian Berk


ship for petroleum equipment. During his 15-year tenure with that company, Klachuk participated in a variety of projects, including the development of the first PC-based point-of-sale (POS) product offered by Dresser-Wayne for the international market. This project, along with his other exemplary work, eventually led Klachuk to be hired as the vice president of marketing and sales for another distributorship in the industry. Given his many business interactions with American manufacturers of petroleum equipment throughout his career, Klachuk’s decision to join an American company was a natural progression. The move, however, would require the right opportunity, which finally presented itself in 2000 at Alon USA. “I knew Alon very well from our vendor-customer relationship,” he recounted. “One day, David Wiessman, chairman of the board of directors at Alon, invited me to a meeting at his office to discuss a job opportunity.” At that meeting, Wiessman told Klachuk that Alon was about to purchase some of Total S.A.’s American downstream assets, including a refinery in Big Spring, Texas; some fuel terminals and pipelines; a distribution network supplying more than 1,300 convenience stores with FINA-branded motor fuels; and approximately 160 stores that were directly owned and operated (these stores have since been rebranded under the ALON name and grown in number to roughly 300). In order to accept the position with Alon, Klachuk would have to move himself and his wife from Israel to Dallas, far from their two grown sons who would remain in Israel. In addition, Wiessman requested that he start the job right away, so there was little time to decide. “I told him I would talk to my wife and give him an answer later Klachuk has served as director of marketing technology for Alon USA since 2000. that evening. He told me he didn’t

ove of technology is what makes Avsha Klachuk, winner of the Convenience Store News 2014 Top Tech Executive Award, so enthusiastic about going to work every day. “I was always fascinated by technology since I was very young,” said Klachuk, director of marketing technology for Dallas-based Alon USA Energy Inc. “I am still fascinated by it.” Because he mostly works “behind the scenes,” Klachuk said he did not expect to receive this or any award. He will be recognized during a ceremony in December. The technology executive called it a “great honor” and “tremendous to be recognized by his peers.” Klachuk grew up in Israel where he fulfilled his required service in the Israeli Avsha Klachuk Air Force as an electronic engineer. After completing his service, he spent eight years with an electronics repair company managing the repair of television sets, video tapes and other electronic devices available at the time. He got his first taste of the convenience retailing and petroleum industry when a friend who had served with him in the air force called and invited him to run the service department of a large distributor-

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have much time and I needed to pack my stuff and go to Dallas immediately,” Klachuk recalled. “I made the decision with my wife that I would move to Dallas for a couple of months to see how I liked it and if it worked out well, then my wife would join me.” Considering that Klachuk has spent the past 13 years and counting as the director of marketing technology at Alon, his move to Dallas clearly worked out well. FURTHERING TECHNOLOGY

Once in Dallas, Klachuk devoted his time not only to Alon, but also to PCATS, the Petroleum Convenience Alliance for Technology Standards (now known as Conexxus), an organization dedicated to the development and implementation of technology standards for the entire convenience store and petroleum retailing

develop it at the point-of-sale and then develop it at the host.” Concurrently, mobile payments will advance in the next 10 years, Klachuk projected. Alon is one of the founding members and partners of Merchant Customer Exchange, a coalition of companies working to develop mobile payment options. “Today, there are many mobile payment applications. However, it will still be a long road to mainstream acceptance of a mobile payment solution,” he said. “Furthermore, the future will not be just about payment; it will be about identification also. It’s a challenge to confirm that the customer [as opposed to an imposter] is actually at the point-of-purchase.” There are currently multiple methods to verify a consumer’s identity — signature, PIN, even biometric options like fingerprints and retinal scans — none of which are absolutely foolproof. Increased accuracy in identifying the consumer will, in turn, further the widespread acceptance of new payment methods such as mobile payment, for which security is a concern. A NOVEL IDEA

Alon USA directly owns and operates roughly 300 convenience stores.

sector. Upon learning about its independent technology group in 2005, Klachuk quickly joined and in 20112012, served as chairman. As much as he is interested in the growth of technology, Klachuk does have one pet peeve: the over-abundance of POS systems. He said the existence of so many different systems requires different iterations of the same technology simply to interface with each system. “Unfortunately, a lack of standards in POS systems means each technological development that would be implemented at the point-of-sale cannot be widely adopted until it has been created in numerous versions in order to address variations in each POS system. This can be a huge waste of resources,” he noted. Looking ahead to other hot-button areas of technology, Klachuk predicts that Europay, MasterCard and Visa (EMV) guidelines will remain a top technology topic that will take 10 years to fully implement in the United States. “First, we need to decide what the proper EMV technology is,” he stated. “Is it chip and PIN or chip and signature? Once this is decided, we need to

Perhaps Klachuk’s greatest accomplishment, though, is Automatic Vehicle Intelligent Identification (AVII), also known as ring technology, which he helped create. Developed in collaboration with Orpak, an Alon USA vendor, the technology is designed for fleets and uses a radio frequency identification device to link the gas nozzle to a customer’s vehicle. The fuel is charged to the customer’s account through the ring device on the vehicle’s gas tank, so only fuel dispensed into that tank is charged to the customer. “AVII is unique as you can’t remove the nozzle from the gas tank without stopping the pump from dispensing fuel,” said Klachuk, who took more than three years to develop and test the technology. As a result, spillage, fraud and theft are effectively prevented. In addition to these benefits, since the nozzle is communicating directly with a car’s gas tank, customers don’t need to enter any information at the pump. The technology is already in place at more than 200 Alon-owned convenience stores, and fleets are beginning to use the AVII system. Klachuk hopes the technology will be widely used by convenience store chains nationwide.

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An Award-Winning App Flash Foods earns the 2014 CSNews Outstanding Tech Implementation Award for its loyalty-focused mobile app By Tammy Mastroberte


lash Foods Inc. began researching the possibility of launching a mobile app years ago, but the pieces of the puzzle finally came together when National Payment Card Association (NPCA) and the chain’s point-of-sale (POS) vendor, The Pinnacle Corp., teamed up on the mobile payment portion of the app, designed and developed by Zingon. “I went to NACS’ Tech Event last year where I was introduced to Zingon, and they talked to us about doing a mobile app,” recalled Jenny Bullard, chief information officer at Flash Foods, which is headquartered in Waycross, Ga., and owned by The Jones Co. “They came to our office two or three weeks later to meet with our team, and we started working on it in May.” The chain, which operates 172 convenience stores in Georgia and north Florida, launched the app in October 2013. It offers a store locator, fuel pricing, mobile coupons and mobile payment for its GoBlue loyalty credit card holders — both at the pump and in-store. “The app is centered around our loyalty program, Rewards in a Flash, and our GoBlue ACH payment card,” explained Jeannie Amerson, loyalty and advertising manager for Flash Foods. “App users can find current gas prices for each of our locations, while also accessing [each] store’s address and driving directions.

We are able to offer our customers customized promotions that specifically reach our loyalty customer base and encourage customers to shop inside our stores.” Prior to releasing it to the public, the chain betatested the app — available on both iPhone and Android devices — beginning in June 2013 with employees, friends and family to make sure it downloaded correctly and worked properly. Technology wise, it was a smooth transition, according to Bullard. “We did have to update the network interface module in each store to accept the mobile payments, but from the tech side, it was an easy rollout,” she noted. “We already had a 3D scanner to allow us to scan digital coupons.” FORm & FUNCTIONALITY

NPCA is the ACH payment processor for the GoBlue card, and worked with Pinnacle to interface with Flash Foods’ POS so that the app could accept payments instore and at the pump. Zingon created the actual app from the ground up, tailoring it to the chain’s needs and integrating it with Google Analytics to allow for customized reports. Now, Flash Foods can pull reports on demographic information to see who is in the app at any given time

The Flash Foods app includes a store locator, fuel pricing, mobile coupons and mobile payment.

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SPECIAL TECHNOLOGY SECTION — such as five people in Atlanta and three in Waycross — and it’s all real-time, Amerson said. The retailer can also measure how many customers downloaded the app, the type of phone used, how often customers are opening the app, the number of page views, and how long they stay each time. As of April, 33,000 people had downloaded the Flash Foods app, with iPhone being the dominant platform. The chain also has 65,000 existing GoBlue cardholders that now have the ability to use the app for payment. “The GoBlue more than 33,000 people have downloaded the Flash mobile payment Foods app. is only one aspect of the app. Customers can still download the app for gas prices and scan in their existing Rewards in a Flash loyalty card to receive instant discounts, build points and check their account stats,” Amerson explained. “They can also take advantage of in-app coupons.” Currently, the most popular app feature used is fuel pricing and for its GoBlue customers, the chain offered 20 cents off per gallon through April as an incentive to use the new technology. After that, the promotion dropped to 5 cents per gallon, which is available to all GoBlue cardholders whether paying via the app or not. To pay at the pump, customers go to the payment portion of the app and are recognized by their email address. They enter their PIN number and receive a seven-digit authorization code to enter into the pump, which activates it. “Each time you go log into the GoBlue mobile pay section of the app, it gives you a seven-digit token authorization code that changes with each purchase. If you don’t use it, it goes away within five minutes so there is no danger of anyone else using it,” Amerson said. Customers pump their gas and the final settlement routes through NPCA and back to the customer’s checking account, similar to writing an electronic check. The same process is used for in-store payments. “There is more security for this type of payment because there is no credit card data being passed through the network, only the authorization code, so it is completely secure for the customer and outside of

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the PCI [payment card industry] scope for us as a company,” Bullard stated. PROmOTIONS & NEw FEATURES

To promote the app, Flash Foods did something it has never done before — a television commercial. The commercial began airing in Georgia and north Florida at the end of December, and the chain also posted a video on the company’s Facebook page, which rolls into the commercials. Additionally, the retailer sent promotional materials to local colleges in an effort to reach the Millennial demographic, ran radio promotions, and had promotional materials available both in-store and at the pump. “For the customer, it’s easy to use and faster to pay, especially at the pump. But it’s also bringing brand awareness to our company,” said Bullard. At Flash Foods, the loyalty program is a huge focus and everything in the app ties back to it in some form. The app also allows the company to market the Flash Foods brand to customers outside of the store via in-app coupons launched earlier this year. “Our vendors have been very eager to support Everything in the app ties back to the these new ways retailer’s loyalty program. to reach customers, including the option of customized banner ads within the app that can take customers directly to the vendor’s website,” Bullard said. “We have some really exciting opportunities we will be introducing to our customers through the app throughout the remainder of the year.” Other new features launched this year include the ability to refer a friend to a promotion via email or Facebook, and the ability for customers to rate the app. “We have been overwhelmed by the positive comments we have received from customers, and they can give feedback right through the app,” said Amerson. In the future, the chain will continue to offer promotions and coupons through the app, and the goal is to take them down to the level whereby specific customers can be targeted, as well as offering coupons specific to a single store.


Connecting at Conexxus PCATS rebrands at annual conference in an effort to better accomplish its mission By Brian Berk


t appeared to be just a dinner capping off the secBIG ON EDUCATION ond night of the four-day Petroleum Convenience Following an unsuccessful attempt last year to combine Alliance for Technology Standards (PCATS) annu- the PCATS and NACStech trade shows in Dallas as al conference at Tucson, Ariz.’s Loews Ventana THE Tech EVENT, this year’s Conexxus Conference Canyon Resort. But April 29 was no ordinary night. returned to its roots by hosting educational sessions and Following a video retrospective during dinner, committee meetings without offering exhibitor booths. PCATS made big news by announcing it was changPayments and data security were the two hottest ing its identity to Conexxus. “Conexxus will improve topics. In a presentation on the “Future of Payments,” the financial success and viability of our industry,” Taylor told attendees that mobile payments are in for Executive Director Gray Taylor said in his speech “a bumpy ride.” announcing the rebranding. “Our vision will be creating “Something better will always come out,” he said. data exchange standards, fostering innovation, creating “Mobile payments are like the iPod. Initially, when expert communities, leveraging industry the [Apple device] came out, everyone knowledge, and advocating on behalf thought it was great. But it took seven of our industry for equitable and open years to truly make it great. Mobile paystandards and practices.” ments will undergo a similar process.” Conexxus also announced a new For mobile payments to take off, tagline: Solve forward. This tagline settlement of the transaction has to be exemplifies its work within the indusimproved significantly, added Taylor, try, according to the organization. who noted that “half of mobile payThe new identity marked the culmiment providers don’t know how to nation of a research study commissioned settle a transaction.” by PCATS that concluded the trade Speaking during the same session, group was perceived as a reliable Terence Spies, chief technology and trustworthy organization, but officer at Voltage Security, pigcarried “negative brand equity,” gybacked on the idea and said the noted Taylor. answer to settlement issues may Conexxus named four new come from an unexpected source: members to its board of advibitcoin. Despite some analyst preAt top, the prior logo for PCATS. Directly above, sors. Joining the organization dictions that the virtual currency the new Conexxus logo. as vice chairman was Gabe will die off, Spies relayed that bitOlives, Rutter’s Farm Stores’ director of fuels. In coin can settle a transaction in just eight minutes. addition, The Coca-Cola Co. veteran Jeff Toeppner Taylor agreed that bitcoin could be the “backbone of was named secretary; Bill Wade of Professional mobile payment” transactions, but said its adoption will Datasolutions Inc. was voted in as the chairman of be slow due to government involvement. “The currency the technical advisory committee; and Sue Chan of steps on too many toes right now,” he remarked. “It W. Capra Consulting became Conexxus’ chairwomalso could upset company business models.” an of standards quality assurance. The greatest roadblock standing in the way of

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SPECIAL TECHNOLOGY SECTION success of mobile payments, though, is data security, according to Taylor. The massive data breach at Target Corp. that led to the recent ouster of its CEO is proof that payments are still a long way from being considered safe from hackers. He cited Consumer Reports data that very few U.S. consumers have smartphones incorporating antivirus software, a phone finder, a PIN containing more than four digits, remote reset or encryption. In fact, 35 percent of smartphones have no security function at all, Taylor added.

Loring Perez, Jenny Bullard and Henry Armour (left to right) are the newest inductees into the Conexxus Hall of Fame.

“The research shows that 4.4 million phones were lost or stolen last year, a large increase compared to 2012,” he said. “That’s not because Alzheimer’s suddenly kicked in for a lot of people. It’s because thieves are taking the phones and easily using them to their advantage.” HIGHEST HONOR

The first night of the Conexxus show, April 28, culminated with its premier event: Hall of Fame inductions. The three inductees into the 2014 Conexxus Hall of Fame have changed so many lives in the convenience store industry that Taylor felt introducing them himself would be an injustice. Hence, he invited their industry peers to introduce the Hall of Fame inductees. Inducted first was Jenny Bullard, chief information officer at the 172-store convenience chain Flash Foods Inc., who has served Flash Foods parent The Jones Co. for the past 42 years. “Jenny is everything PCATS stands for,” Margaret Atkins, business analyst for Pilot Travel Centers LLC, said in her introductory remarks during the event, which were made before the Conexxus name change

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became official. “She has always made all of us feel like friends.” Bullard acknowledged all of the Hall of Famers who preceded her. “It’s an honor to be inducted with two friends,” she said during her speech. “Most of all, I appreciate the company I work for.” In addition, Bullard expressed appreciation for her employer allowing her to represent Flash Foods in the industry, and offered a special thank you to Bob Johnson, president of The Pinnacle Corp. “I appreciate Bob’s support and encouragement over the years,” she said. Johnson coincidentally had the honor of introducing the night’s second Hall of Fame inductee Henry (Hank) Armour, president and CEO at NACS, the Association for Convenience & Fuel Retailing. “We wouldn’t be here without Hank,” said Johnson. “NACS considered pulling its funding for PCATS in the ‘90s, but Hank led the charge to convince NACS how important PCATS was.” During his acceptance speech, Armour recalled his conversations with NACS Executive Committee members in an effort to save funding for PCATS. His dedication to the cause led to NACS voting 8-1 in favor of keeping funding for PCATS. “That’s the first initiative NACS ever committed to for more than $1 million,” said Armour, adding that he is proud of what NACS and the industry has achieved since that defining moment many years ago. “I don’t think there’s a stronger community than the technology community.” Honored last, but certainly not least, was Loring Perez, president of Chattahoochee Oil Co., a branded jobber that serves more than 225 retailers in Georgia, Alabama and Tennessee. “Loring was always considered a no-nonsense guy,” said Michael Davis, vice president of member services for NACS, who introduced Perez. “He always understood the financial implications [if we did] not have technology standards.” Perez concluded the ceremony by expressing how grateful he was to be inducted into the Hall of Fame. “I thank you from the bottom of my heart,” he said. “I remember years ago when I had my own ‘I had a dream’ speech about what we needed in the technology industry. It’s great to see all of the efforts that have been made [since]. A lot of my dreams have come true.” The 2015 Conexxus Annual Conference will take place April 27-30 at the Loews Annapolis Hotel in Annapolis, Md. CSN


Left to right: Missouri-based Save-A-Lot co-owners Paul Schnettgoecke, Matt Sauer and Wayne Sauer

All in the family


How Wayne Sauer builds profitable partnerships with his son and brother-in-law







ALL IN THE FAMILY Wayne Sauer builds proftable partnerships in Missouri with his son and brother-in-law. At age 15, Wayne Sauer was sorting soda bottles and pushing grocery carts for the Del Monte Foods store in Florissant, Mo. Although he didn’t know it at the time, the ambitious teen—who grew up in nearby Hazelwood—was embarking on a grocery career that would find him at the helm of nine successful Save-A-Lot stores some 48 years later.




“I was drafted in 1971 and served in Vietnam for one year, then came back to the grocery business,” Sauer recalls. “I could have gone in my father’s contracting business; however, that work wasn’t for me.”

Location is another important consideration, says Schnettgoecke, who is involved in the Cedar Hill, St. Clair, Neosho and Pacifc stores. “I prefer to fnd niches in the market that do not provide a low-cost grocery option for the people in these communities,” he explains. “People really appreciate a friendly, clean and low-cost option that gives them the small town feeling they used to have before the mega-store concept took over.”

Instead, Sauer worked while attending college on the GI Bill, frst back at Del Monte, then at the local Shop ‘n Save. “I moved up the ladder to store manager at Shop ‘n Save. But I always wanted to own my own business,” he says. That opportunity came in 1981, when Sauer invested in a Save-A-Lot in Camdenton, Mo. “Back then Save-A-Lot was a new company,” he says. “I bought that store with a business partner, who ended up dying prematurely, and I just kept buying stores here and there.”

Model operations Besides being ideal for the small store footprints that Sauer likes, Save-A-Lot delivers benefts such as low overhead so the store can make a proft on lower volume, he says. Being able to order almost all of the products their stores stock from Save-A-Lot distribution centers is an added plus.

Today, that “here and there” includes nine towns—Camdenton, Laurie, Cedar Hill, St. Clair, Neosho, Pleasant Hill, Sedalia and Pacifc, Mo., and Pinckneyville, Ill. “I have nine stores with nine partners,” Sauer explains. “My brother-in-law, Paul Schnettgoecke, is a business partner and co-owner of four stores; my son, Matt Sauer, has three stores with me; and Dale Holzer is also a partner in Wayne fve of the stores.” The other six business partners own minority stakes in various stores, he adds. “All of the businesses are partnerships—that is just what works for me.”

“Save-A-Lot provides 90 percent of our inventory, which keeps the back door closed more than opened. If we get most of the inventory in one or two trucks, it saves on labor and lets us run a more effcient operation,” says Sauer. “And the quality of products we purchase from Save-ASauer: Lot is outstanding.”

"I always wanted to own my own business."

A matter of size and location

Schnettgoecke concurs. “Having to deal with Save-A-Lot only, for the most part, makes it much easier on my business organizationally and [allows me] to utilize Save-A-Lot’s buying power,” he says. With nine stores in nine different cities, Sauer and his business partners have plenty to keep them busy, putting any talk of future expansion on the back burner for now.

Sauer’s newest store, which opened in June 2014 in Pacifc, was a build-from-scratch undertaking, as was the St. Clair store, which debuted in 2010. The remaining seven locations were existing stores that the business partners renovated.

“My attitude is one at a time,” Schnettgoecke says. “There is a maturation process with each store opened—to let the dust settle, if you will, to see what you have and to staff the stores effectively. We never stop looking for opportunities, but our new Pacifc location is focus No. 1 right now.”

“There are pros and cons with each,” says Schnettgoecke. “Obviously, there is more of a fnancial commitment going ground up over leasing … if there is a viable, existing building available that meets our cost model, I’m not against going this route. Our latest project just didn’t have existing property to our liking.”

If they do eventually expand again, the partners are committed to the Save-A-Lot program. “Some owners have a tendency to ‘chase’ their competition in regards to gimmicks and products, and they stray from the basic premise,” says Schnettgoecke, who advises owners to instead “follow the program, run a clean and organized store, and let your competition chase you.” GE

Whether improving an existing store or building from the ground up, Sauer and his business partners follow a similar format. “All of the stores are between 11,000 and 15,000 square feet, and most are 12,000 square feet,” says Sauer, who prefers small to mid-size markets.






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

The Save-A-Lot support advantage

Save-A-Lot by the numbers ✱ More than 1,300 stores nationwide ✱ 70% of locations owned and operated by independent licensed retailers ✱ Target neighborhoods with annual household income under $45,000 ✱ Average store size: 15,000 square feet ✱ Fewer than 2,500 SKUs per store ✱ 16 distribution centers across the country ✱ Prices up to 40% lower than conventional supermarkets



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



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The agenda for the 2014 Store Brands Collaboraton Summit is complete and is full of more ideas, more experts and more collaboraton than ever before. Featured Session: Other Sessions: Retailer Collaboraton on a Global Scale: The Alliance Boots/ Walgreens Story Beth Stller Group Vice President Retail Brands and Sourcing Walgreen Co.

• Irresistbles by LeClerc: a Collaboraton Success Story Marie-France Gibson, Vice President of Corporate Brands, Metro Inc. Frédéric Langlois, Senior Vice President, Private Label Sales, Biscuit LeClerc

• Retailer-Supplier Panel Discussion: Going Beyond the Transactonal Relatonship

Beth Stller, Group Vice President, Retail Brands and Sourcing, Walgreen Co. Kevin Broe, Vice President, Center Store Sales, Weis Markets Mark Coleman, Vice President, Retail Division, Catania-Spagna Corp. Doug Bausch, Vice President, Sales and Marketng, LNK Internatonal

• Collaborate with Suppliers in the Name of Transparency Emma Fuerst Frelinghuysen, Senior Director of Private Brands, FreshDirect

Fiona Pearson Director of Brands for Health & Beauty UK & ROI Alliance Boots

Look Who’s Atending: • • • • • •

7-Eleven A&P Ahold Alliance Boots BI-LO CVS Caremark

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Delhaize America Fresh Direct H-E-B Meijer Metro M-Industry/Migros









• • • • • •

Price Chopper Safeway Target Walgreens Weis Markets Winn-Dixie


Already Breaking Records More than 23,000 attendees are expected at the 2014 NaCS Show By Tammy Mastroberte


he 2013 NACS Show in Atlanta featured a record-setting 396,000 net square feet of expo space. This year, the show returns to Las Vegas Oct. 7-10, and it is already setting new records. The expo space will increase to 400,000 square feet and the event’s organizers are expecting more than 1,000 exhibitors. “We actually sold out our exhibitor space in the middle of March, which is faster than ever before,” Amy Ashley-Burke, director of meetings and convention services for NACS, the Association for Convenience & Fuel Retailing, told Convenience Store News. “We are projecting more than 23,000 attendees this year.”

who come on a regular basis, we always look to create opportunities to make them feel they want to come back. And for those who have never come to the show, we offer a lot of content and unique networking opportunities, including three receptions for networking.” While many big shows are seeing a decline in attendance, the NACS Show continues to increase in attendance each year, showing that the value of convenience has never been higher, according to Lenard. Suppliers know it’s a channel of choice, and retailers know they will come to the show and get great ideas, he explained. NetworkiNg galore

this year’s expo space will reach a record 400,000 square feet.

Every year, NACS Show attendees can find the best and newest products and services available to the convenience store industry, new ideas through workshops and educational sessions, and multiple networking opportunities. Whether it is an operator’s first time at the show or their 10th time, each year offers something for everyone. “Overall, as with any show, there are new opportunities for everyone there,” said Jeff Lenard, vice president of industry advocacy at NACS. “For those

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While retailers and suppliers often network while walking the expo floor and attending the morning educational sessions, NACS is offering three evening networking events this year that are much more than just your typical cocktail party. The traditional NACS Show Kickoff Party will take place Oct. 7 at TAO Nightclub, located on the popular Las Vegas Strip. In addition, a NACS Game Day Party will be held Oct. 8 and NACStoberfest is set for Oct. 9, once the expo floor closes on those days. “The Game Day and NACStoberfest will be taking place right outside the convention center in the Silver Parking Lot where the shuttles are located,” AshleyBurke said. “It’s open to everyone, and we utilize our suppliers to participate. There will be tailgating types of games for Game Day. Last year, we had football tosses, and we will have a band or DJ playing. It will have a fun, carnival-type feel.” Similar events with different themes were held at last year’s show, and the organizers are even more excited about the events planned for this year. When attendees come to the show in the morning, they will see the Game Day and NACStoberfest events being built, and then they will see the finished product as

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SHOWPREVIEW they exit the convention center for the day. “By having the games, it makes it easier to network,” Lenard noted. “You don’t have to know someone

to start interacting with them, and it adds a whole new element.” the teCh edge

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with the Directory of Convenience Stores and Marketing Guidebook More than 1,000 exhibitors are expected at the 2014 NaCS Show.

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Tech EVENT this year, as it did in 2013, one of the new additions to this year’s NACS Show is The Technology Edge. “We’ve always had technology sessions [at the NACS Show], but this year we beefed it up to offer more educational sessions and focused time together for IT professionals,” Ashley-Burke said. “We even have a reception within a reception on Wednesday night [Oct. 8] and are opening the exhibit floor on Thursday morning for them.” Anyone participating in The Technology Edge will be allowed access to the vendors on the expo floor 45 minutes before the rest of attendees on Oct. 9, plus they will have access to a catered brunch. Educational sessions on IT security, data security, standards, loyalty technology, payment technology, fuel systems and more will also be available, as well as group forums allowing attendees to learn directly from experts and their industry peers. CSN


Spotlighting major industry events

Playing Politics SIGMA members hit Capitol Hill looking for support on key concerns By Bob Gatty

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Photos by Bob Gatty


ome 60 convenience store operators and fuel marketers concerned about the implications of potential data security breaches on their businesses, as well as logistical impediments to fuel supplies and other key issues, played a little politics in Washington, D.C., this summer. SIGMA: America’s Leading Fuel Marketers hosted a legislative briefing July 15 by the government affairs firm Steptoe & Johnson, whose executives briefed attendees in preparation for their face-to-face meetings July 16 with some 200 members of the U.S. House of Representatives and U.S. Senate. In addition, a July 15 panel discussion sponsored by The Fuel Foundation focused on industry trends and financial opportuniSIGMA Summer Legislative Meeting ties. The panel consisted of Joe Petrowski, founder and & Day on the Hill managing partner, Mercantor July 15-16 Partners and former Gulf Oil Washington, D.C. CEO; Michael Johns, managing director, Food and Consumer Group, BMO Capital Markets; and Ron Gale, director, KeyBanc Capital Markets. “Congress has the authority to shape public policies that directly affect our members’ ability to compete within the motor fuel industry,” said Tom Gresham, chairman of SIGMA’s legislative committee and president and CEO of Double Quick Inc. “It was important for SIGMA members to participate in our Day on the Hill to make our positions known on issues that affect the way we do business,” he added. “Educating Congressional members about situations we face daily and offering our experience as a resource is the best way for SIGMA members to ensure our voice is heard on Capitol Hill.” Members of the trade organization met with lawmakers on their turf, and expressed their views and concerns about the following key issues: • Legislative initiatives that could place unfair bur-

Steptoe & Johnson’s Doug Kantor said SIGMA is advocating for credit card swipe fee reform.

dens on retailers for data security, including credit card information; • The need for credit card interchange transaction fee reform to reduce unfair burdens on retailers; • Logistical constraints that prevent plentiful fuel supplies from reaching the consumer; • The Renewable Fuel Standard and a proposal by the Environmental Protection Agency (EPA) to adjust the standard’s requirements; • The need for adequate funding for transportation and infrastructure improvements; • Support for a bill to increase the definition of “full-time employees” from 30 hours per week to 40 hours per week for employer-required coverage under the Affordable Care Act; and • Internal Revenue Service (IRS) gasoline equivalence standards for natural gas that are lower than those established by the National Institute of Standards and Technology. “The reason I’m here, and the reason why RaceTrac brings a team of people here, is because we have an opportunity to interface with members of Congress in a centralized, highly effective way,” explained attendee Max McBrayer, chief supply officer for Atlanta-based RaceTrac Petroleum Inc., who was joined by his colleagues AJ Siccardi and Jamie Benton.

DAtA SeCurIty

McBrayer and other SIGMA members taking part in the legislative meeting and Day on the Hill event said the issue they believe poses the biggest threat to their companies and the industry is cybersecurity, specifically potential breaches of credit and debit card data. “Debit and credit cards are a huge part of our business,” McBrayer told Convenience Store News. “Maintaining a secure credit card data environment is expected by our customers, but the problem is we are not in control of the entire chain. Our customers expect RaceTrac to keep their data secure; they don’t see it as the responsibility of the data processor or the bank.” Tim Columbus, a partner in Steptoe & Johnson’s Washington, D.C., office and a member of the firm’s Government Affairs & Public Policy Group, declared that “data security is a serious problem and it is escalating.” Several bills have been proposed to deal with the issue, and Columbus stressed that any governmental standards established must cover all components of the transaction chain, including the processing companies, card issuers and banks — not just retailers. Noting that Visa and MasterCard are “pushing” new EMV (Europay, MasterCard and Visa) smart chip technology, Columbus said retailers would be burdened collectively with roughly $30 billion in added costs for installing the necessary readers. Requiring a simple PIN code for all credit and debit card transactions instead would cut fraud by 84 percent with a “tiny” investment required by retailers. “Our big ‘ask’ of lawmakers,” said Columbus, “is that they should be aware and everybody involved,

tom Gresham, chairman of SIGMA’s legislative committee, stressed the importance of educating lawmakers on the issues.

Data security is an escalating problem, said tim Columbus, SIGMA’s government affairs counsel.

from the merchant up to the bank and back, needs to be required to do everything possible to stop these data breaches. It’s a fairness argument.” On another topic related to credit and debit cards — interchange fees — SIGMA and its members told lawmakers they object to the central “price-fixing process” of setting fees (which make them too high) and the lack of choice in accepting cards due to the market power of the card associations. SIGMA is working with the Merchants Payment Coalition for solutions to the interchange problem and to discourage any Congressional action that would undo recent debit card fee reform, according to Steptoe & Johnson’s Doug Kantor. FueL SuppLy ConStrAIntS

Legal and logistical impediments are artificially increasing the retail price of motor fuels in the United States. Even though U.S. crude oil output surpassed the production of Saudi Arabia and Russia at more than 11 million barrels per day in the first quarter of 2014, Steptoe & Johnson’s Columbus said consumers are still paying roughly 20 cents per gallon more than a year ago. New pipelines are “desperately needed,” he said, because current pipelines are at full capacity. However, the process to site and permit new pipelines is “prohibitively burdensome.” Thus, producers use rail to transport crude oil and other fuel products — a process that Columbus said adds to the price and displaces other goods from the rail lines. Another problem is the Jones Act, which requires the use of U.S. flagged vessels between U.S. ports, Columbus noted, with this adding about 7 cents per gallon to the cost of transporting product via ship. In addition, he stated that increased refining

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Spotlighting major industry events

capacity is needed. SIGMA supports H.R. 3301, the North American Energy Infrastructure Act, which would eliminate the current Presidential permit process for energy infrastructure improvements, such as pipelines. This bill was prompted by the controversy over the Keystone XL Pipeline. Another aspect of fuel supply SIGMA members addressed was the Renewable Fuel Standard. They urged support of the EPA’s proposed renewable fuels volume obligation for 2014, reducing it from the level required by the Energy Independence and Security Act of 2007. That law requires annually higher volumes of renewable fuels. As of July, SIGMA was urging the EPA to finalize its proposed regulation promptly to foster more certainty in the market. Columbus said SIGMA remains concerned about potential liabilities associated with the sale of E15 and other mid-level blends and possible voiding of vehicle manufacturer warranties, and calls on Congress to address these issues. HIGHwAy FunDInG

With the Highway Trust Fund expected to have run dry by September, Columbus said SIGMA supports proposals to increase the federal excise tax on fuel by 12 cents per gallon to restock the fund. There is a chance that Congress might approve this tax hike following the Congressional elections in November in an expected “lame duck” session. “We hope that both [political] teams will hold their nose and do it,” he said. SIGMA’s board of directors developed a consensus stating that: • If governments determine funding of highway projects must be “user based,” then all energy

representatives from racetrac petroleum were among the event’s participants.

sources must pay the same per-gallon equivalent to support vehicles powered by that source; • Whenever possible, the government should seek to broaden the base that pays for the roads from just user-based sources; • Transparency with respect to taxes is essential, and taxes should be itemized so the consumer clearly understands what he or she is paying for; and • Funds raised in the name of supporting infrastructure maintenance must be dedicated to such maintenance. 40-Hour worKweeK LeGISLAtIon

The Affordable Care Act (ACA) requires employers with 50 or more full-time equivalent employees to offer health insurance to these “full-time” employees who work an average of 30 hours or more per week. However, SIGMA and other organizations support H.R. 2575, passed by the House in April, and S. 1188, a bipartisan bill in the Senate, both of which would increase the ACA’s threshold to 40 hours per week. By increasing the requirement for coverage to 40 hours, fewer employees would qualify for coverage. Under the ACA, beginning Jan. 1, 2015, employers with 100 or more full-time equivalent employees that do not offer “affordable” health plans to provide a “minimum value” of coverage may be subject to a penalty if at least one of those employees receives a premium tax credit for purchasing coverage on one of the new Insurance Exchanges. The threshold as of Jan. 1, 2016 changes to 50 full-time equivalent employees. nAturAL GAS GALLon equIvALenCe

Cumberland Farms’ Matthew Durand (left) and Mark Howard made the trip to Capitol Hill.

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Spotlighting major industry events

compressed natural gas (CNG), which is accepted by the National Institute of Standards and Technology. The accepted standard is that 2.567 kilograms or 5.66 pounds of CNG is equivalent to one gallon of gasoline. However, the IRS defines one GGE as 126.67 cubic feet of CNG and lists the tax rates for liquid natural gas (LNG) and diesel fuel as $0.243 and $0.244, respectively. Similarly, the IRS equivocates one gallon of LNG with one gallon of diesel fuel by taxing the two fuels at roughly the same rate, even though the energy contained in liquid natural gas (as measured in

the three speakers. Petrowski shared his prediction that crude oil prices will decline over the next few years, perhaps to as low as $60 per barrel, depending on developments in the Mideast. Influencing this, he said, is the nation’s continued urbanization, reducing the numbers of cars per household in many cities; the greying of America, with older people driving less; improvements in vehicle fuel economy; and the use of alternative fuels. All of this will mean significant changes in gasoline and diesel

A panel discussion sponsored by the Fuel Foundation featured (from left to right) Joe petrowski, Michael Johns and ron Gale.

BTUs) is less than diesel. “This significant discrepancy may cause consumer confusion and lead plaintiff’s lawyers to initiate costly litigation against fuel retailers and marketers who are simply trying to comply with state requirements set by the National Institute of Standards and Technology,” SIGMA contends. The trade group believes the IRS should revise its compressed natural gas GGE definition to match that of the National Conference on Weights and Measures and should adopt the National Conference’s LNG standard when it is finalized. “In order for these fuels to achieve widespread adoption, the marketing community must be able to effectively communicate with consumers accustomed to thinking about fuel purchases exclusively in terms of gasoline or diesel per-gallon prices,” SIGMA stated. tHe FueL FounDAtIon pAneL

During the panel discussion sponsored by The Fuel Foundation, presentations regarding anticipated industry trends and financial developments were made by

118 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

consumption in coming years, so Petrowski advised convenience store operators and fuel marketers to be aware and prepare. Johns of BMO Capital Markets discussed how the credit card companies with their swipe fees are “taking a big bite out of profits” and that fuel volume is declining, even as consumers are spending more money inside c-stores. The days of “channel shifting” in cigarette sales are “in large part over,” he said, noting “best-in-class retailers are already moving away” from their traditional reliance on cigarettes as their primary source of profit. With major oil companies divesting themselves of their branded c-stores, Johns said this trend is providing significant investment opportunities. “The power seems to have shifted into your hands,” he observed. Gale of KeyBanc Capital Markets also spoke about consolidation trends in the industry, both in wholesale and retail. When it comes to managing capital and considering acquisitions, “you’ve got to have a plan,” he said. “Don’t hesitate to reach out for a consultant.” CSN

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Spotlighting major industry events

New Era Brings New Opportunities As preferences shift and new trends emerge, data could be a c-store retailer’s best friend By Melissa Kress


he convenience store industry is no stranger to challenges. Increased competition, shifts in consumer preferences and keeping up with — and finding space for — new products are just a few of the obstacles c-store retailers face on a daily basis. With the right tools in their toolbox, however, every player in the industry can find success and according to Scott Ramminger, president and CEO of the American Wholesale Marketers Association (AWMA), data is one of the most important tools needed in every toolbox. Capturing the data and knowing what to do with it were the driving forces behind the 2014 AWMA C-Metrics Convenience Industry Outlook Forum, which took place June 24 at the DoubleTree Hotel Chicago O’Hare in Rosemont, Ill. “In the convenience industry, there are new challenges 2014 AWMA and opportunities every day,” C-Metrics Ramminger said. “We have to Convenience pay attention to the doors that Industry Outlook are before us.” Forum Recognizing these doors, June 24 though, can be a challenge Rosemont, Ill. itself, he added. The convenience channel is “seeing change like never before,” Viv Penninti, president and CEO of InfoRhythm Inc. and C-Metrics, told Outlook Forum attendees. InfoRhythm partners with AWMA to present the annual forum and InfoRhythm’s C-Metrics, developed for AWMA, is a database capturing warehouse-delivered products to 28,000 convenience stores. For 30 years, the convenience channel maintained the status quo. Cigarettes were growing and “everything was hunky dory,” Penninti said. But today, the channel faces “a tremendously changing environment” where understanding the data and metrics is the key to success.

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According to Penninti, warehouse-delivered convenience retail sales year to date were projected to hit $33.5 billion as of May 17. That figure was flat vs. a year ago — the first time in the past 15 years that Viv Penninti of InfoRhythm said the convenience channel is seeing change c-store sales have like never before. been flat. Still, even with flat sales, opportunities do exist. “This channel is really embracing a new era of growth and sophistication,” stated Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC. Herzog was the keynote speaker at the Outlook Forum. C-stores are benefiting from consolidation, favorable demographics, time-sensitive consumers and a shift to higher-margin foodservice. The industry is also poised to take advantage of the population shift to warmer climates, where convenience stores take up a large footprint. Another area where some industry insiders see opportunity is in the growing popularity of vapor products. As Penninti pointed out, 9.3 percent of the adult population is visiting vape shops these days. The emerging vapor market, which encompasses e-liquids and vapor/tanks/mods (VTMs), is beginning to impact disposable electronic cigarettes and combustible cigarettes — both key segments in the convenience channel. “Vaping and vape shops could be [a] fad, but we don’t know,” Penninti told Outlook Forum attendees.

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“What we know right now is that they are pretty hot.” Vape shops present a looming threat for the convenience channel, as they have been popping up in cities across the United States, while vaping lounges are likely to double to 5,000 locations by 2015, according to Penninti’s estimates. Herzog agrees that vape shops are a growing trend to watch and she remains bullish that vapor consumption could surpass consumption of combustible cigarettes within the next 10 years. The U.S. vapor market today totals $2.5 billion, with e-cigarettes accounting for $1.4 billion and VTMs generating the remaining $1.1 billion. She also predicts vapor products will further penetrate convenience stores during the next six months. Offering a more cautious perspective, Nik Modi, managing director of RBC Capital Markets, advised all convenience channel partners to be careful and look at the whole picture before jumping in to any emerging trend. “I think there is a problem in this industry with ‘group think’ and it is costing people dollars and

Convenience industry distributors, retailers and manufacturers gathered for this year’s Outlook Forum.

cents,” he said. Pointing to what he calls the “consensus vortex,” Modi said the industry is getting “pelted with information.” He agreed with the other Outlook Forum presenters that data is important, but said retailers and their partners need to understand the “why” behind the data. For example, e-cigarettes are still making headlines even though the numbers show the segment’s growth is declining. He cautioned the same could happen with vapor products. “It is important to look at the big picture before making capital expenditure decisions,” he remarked. CSN

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Modeled After the Military Kangaroo Express went directly to the source to design its first military-themed store By Tammy Mastroberte


angaroo Express has long supported military personnel and their families, but this May, the convenience store chain took its commitment a step further with the opening of the first militarythemed Kangaroo Express store in Fayetteville, N.C., right outside Fort Bragg. The subsidiary of The Pantry Inc., based in Cary, N.C., even hosted a roundtable at the United Service Organization (USO) of North Carolina Fort Bragg Center to gather input on the store design from servicemen and women, along with their families. “The roundtable was instrumental in ensuring the store achieved its goal of becoming a welcoming and inviting place for the local Fayetteville military community,” said Gordon Schmidt, senior vice president of operations at Kangaroo Express. Kangaroo Express has more than 1,500 locations across 13 states, and more than half of the chain’s stores are within 25 miles of a military installation. In fact, one-third of the retailer’s employees have a direct connection to the Armed Forces, Schmidt said, adding that the new store is located just outside of a major

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entrance to Fort Bragg and is another way the company can show its military support and appreciation. The c-store chain already runs an annual “Salute Our Troops” campaign to raise funds for various military support organizations. From the week before Independence Day through Labor Day, Kangaroo Express invites customers to donate to the campaign at each store’s checkout. The money raised supports the American Red Cross Service to the Armed Forces, Fisher House Foundation, U.S. Veterans Corps and six state-based military support organizations. This year, Salute Our Troops marked its fourth year. “Since its commencement in 2011, the Salute Our Troops campaign has raised $8.4 million, breaking fundraising records for many of its beneficiary organizations,” Schmidt said. The 2013 campaign raised more than $528,000 for the Fisher House Foundation — the largest contributor to the construction of the new Fisher House at Womack Army Medical Center in Fort Bragg, scheduled to open in spring 2015. Salute Our Troops has also raised more than $763,000 for the USO of North Carolina over the


past three years. “For the first time, [in 2014], the summer-long initiative introduced Salute Our Troops ‘ROO Rides,’ motorcycle charity rides that drove hometown support and recognized military heroes and families in local communities along its route,” Schmidt said. A Store to CAll their own

While the military-themed Fayetteville store offers the same products customers would expect to find at any Kangaroo Express location, including Bean Street Coffee and ROO Cup dispensed beverage offerings, there were many additions made to this store’s design and services based directly on feedback received at the military roundtable. “The store features all of the great products and attributes guests expect from a brand-new Kangaroo Express, with a military theme added to the atmosphere,” Schmidt explained. “That includes classic features being rebranded, such as The Cold Canteen walk-in cooler and Wash Rack car wash. It also includes callouts to military support initiatives, such as Support Our Troops logos on the gas pumps, and a Wall of Honor recognizing hometown heroes in the area.” The Wash Rack can accommodate both civilian and military vehicles, with automatic wash, foam, rinse and wax options. The name of the car wash, which is known as Wash-a-Roo at other Kangaroo Express locations, was suggested and chosen based on a unanimous decision by the military participants at the roundtable.

The Wash Rack car wash can accommodate both civilian and military vehicles.

126 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

The Cold Canteen walk-in cooler is an example of a classic feature being rebranded to have a military tie-in.

The roundtable participants also helped select the six murals at the store that depict military men and women serving their country. “Thanks to great feedback from participants, the murals now [depict] a wide selection of military duties and prominently feature a female soldier,” Schmidt said. “In the coming months, we will be opening up these mural locations to local artist submissions.” The Wall of Honor inside the store recognizes local community members from the Fayetteville area, as well as from local military service organizations. The wall is located between the Kangaroo Express store and the adjoining Subway restaurant, which features a drivethru and seating for approximately 30 guests. Additionally, the No. 1 request made at the roundtable was offering whipped topping machines at the store, so the chain is currently testing two different whipped toppings at the location, according to Schmidt. In terms of unique promotions, the Fayetteville store will focus on the “unique travel patterns of military personnel traveling on and off Fort Bragg,” he said. “For example, a mid-day pickme-up deal may be featured on Friday afternoons as officers leave base prior to the usual afternoon drive time.” In the future, Kangaroo Express plans to open more quick-service restaurants and continue remodeling stores. More than 40 Kangaroo Express locations have received upgrades over the past year. CSn


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Are You Ready for Hurricane Season? Be the last to close and first to reopen using a timed-phase approach


early three-quarters of businesses that experience a disruption of more than three days will fail, according to the Business Continuity Institute. Would your convenience store(s) survive this type of disruption? ImpactWeather Chief Hurricane Forecaster Chris Hebert projects that this By Kevin Smith, year’s hurricane season may only churn ImpactWeather out nine named storms, four hurricanes and one category three or greater hurricane, but it just takes one tropical threat to wipe out a business or an entire community. Both independently owned stores and global chains face a variety of challenges when severe weather strikes. For many, the ultimate goal is to be the last to close and the first to open. Accomplishing this objective builds brand loyalty with patrons and supports the community’s preparation and recovery efforts. According to a team of researchers from Louisiana State University, Texas State University and Tulane University, how a business prepares for and recovers from a natural disaster directly impacts the overall resiliency of a community following the event. For example, if a store takes approximately two hours to close before a hurricane arrives, failure to shut down on time can result in placing customers and employees in danger. On the other hand, unnecessarily closing — or staying closed longer than is needed — can result in irritated customers and thousands of dollars in lost sales. Safety is also paramount for convenience stores because hurricanes never arrive alone. Destructive winds, storm surge and tornadoes can reach a location as many as 12 hours prior to a hurricane making landfall, which creates a dangerous environment for both employees and customers. Retailers have to delicately juggle between their employees’ schedules to allow them enough time to

128 Convenience Store News | SEPTEMBER 2014 | WWW.CSNEWS.COM

evacuate, while meeting customer needs to purchase necessary supplies. To make matters worse, store operators must consider the liability issues that surround severe storms. High winds can push loosely tied-down materials into other buildings, storefronts and homes, causing property damage. Flooding and storm surge can destroy equipment and supplies, leaving stores holding the bill when vendors need to be reimbursed.

Flooding and storm surge can destroy equipment and supplies.


There are reliable tools available to c-stores to address the threat of weather-related challenges. A timed-phase approach with each phase activated by a series of objective triggers, such as wind speeds, allows a business to implement a shutdown within a safe and effective timeframe. Not too surprising, a common mistake companies make while executing their response plan is to tie in their shutdown phases with a hurricane’s projected landfall, or when the eye of the storm arrives at their

EXPERT’SVIEW location. While this is routine for a variety of industries, it is especially hazardous because high winds and storm surge can arrive much quicker (up to a full day in some cases) before the body of the storm itself. An efficient way to identify a company’s shutdown timeline is by monitoring specific wind fields of the approaching storm, and when those winds could potentially affect the location. For example, if a store must cease operation by the time 35-mile-per-hour

• Communicate with key stakeholders— These are employees, vendors, corporate executives and customers who will be affected by the store’s delayed opening and/or closure. PHASE TWO (TWO TO THREE dAyS OUT)

• Confirm contact information — Store managers should have each of their employee’s personal contact information to communicate critical updates during and after the storm. • Review corporate policies — Managers should review the corporate policies for paying full-time employees, medical and disability leave and the protocol for storm damage recovery. • Continue monitoring the storm — This is the time to review a store’s worst-case-scenario in the event employees must leave early to prepare their homes and families, and possibly evacuate. PHASE THREE (LESS THAN 48 HOURS OUT)

Source: ImpactWeather, a StormGeo company

(mph) winds reach the destination, it would count down the days from when 35-mph winds are projected to arrive at its front door. To get started, below is an outline of three timed phases that can be customized to each location’s specific internal protocols. PHASE ONE (FOUR TO FIVE dAyS OUT)

• Identify resource needs — Identifying the store’s resources is an opportunity to see what employees, products, equipment and supplies the location has available or needs to address prior to shutdown. • Schedule fuel deliveries — It’s important to have enough fuel in the tanks when people are evacuating. Being prepared alleviates confusion, frustration and panic. • Inventory supplies and products — What do customers need to gird them against the approaching storm? The sooner a store can order additional supplies, the better the chances of customers purchasing from them instead of their competitors.

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• Facilitate a walkthrough — Managers can finally close stores, sell last-minute materials and cease operations. • Place vendors on standby — This is critical as vendors have multiple clients in the area, and those who have a specific protocol in place will receive services faster than those stores that are unprepared. • Evacuate — All employees and management personnel should evacuate and monitor storm conditions from a safe location. Every dollar spent on business preparedness saves $7 in recovering disaster-related economic losses, according to the Houston Area Research Center. With so many convenience stores across the country, this could add up to thousands, if not millions, of dollars in economic losses — or for those who are prepared, profits. At the end of the day, the actions of a c-store may help a community bounce back from a natural disaster by supplying food and materials in a timely manner. Don’t you want to be the hero of your community? CSN Kevin Smith is vice president of onshore corporate services for ImpactWeather, a StormGeo company. ImpactWeather (www.ImpactWeather.com) is a full-time weather department for hundreds of corporations globally, providing site-specific forecasting, monitoring, alerting and business continuity tools. For nearly a decade, Smith has directed the company’s meteorological operations team. He holds master’s and bachelor’s degrees in weather technology, and served in the U.S. Air Force for 15 years.

Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

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