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If we can t be the best at it, then we take our marbles and go home. Chet Cadieux s words to retailers last October both tickled and taunted, with many in that NACS Show general session all too familiar
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If we can t be the best at it, then we take our marbles and go home. Chet Cadieux s words to retailers last October both tickled and taunted, with many in that NACS Show general session all too familiar with QuikTrip s build-anddominate M.O. After declawing his comment with a playful pout, the president and CEO of one of the industry s leading game-changers dropped another loaded tidbit its enhanced take on foodservice: Be the best at it. BY ANGEL ABCEDE & LINDA ABU-SHALBACK ZID the NEW DOMINANCE* 36 *Store count still matters, though. February 2010 CSP 37 «Defining the New Dominance «Dominance is a mindset, a motivational tool and part of a cultural DNA. Store count still matters, but dominance goes beyond brick and mortar. With scale comes efficiency. Differentiation is key. Compete With the Big Boys Newcomers need to match or exceed competitive levels of the dominant player. Strive for brands to achieve critical mass. Know where you stand in your markets. Keep a constant pulse on the customer. Small can mean flexibile. Prepare to tighten belts in markets where capital is also tight. Such domination strategies are as pervasive in convenience retail today as when the majors began building gas stations on every corner 50 years ago. But at the dawn of the 2010s, market dominance as defined by sheer store count has broken into a rain of complex shards, reflecting everything from selling the most of a category crosschannel to maximizing share of wallet. It s not all about [traditional] market dominance in our industry, says Alain Bouchard, CEO of Laval, Quebec-based Alimentation Couche-Tard Inc., one of the continent s most prolific c-store consolidators. It s a fragmented [channel]. Even when you have good positioning in a market, there s always a large number of competitors, including those from other channels. Ultimately, Bouchard, the leader of Circle K s parent company, says the game is more about critical mass and positioning yourself in the market where you can influence the world of convenience. It s an influence not exclusive to big chains. A retailer with 20 stores can dominate a mid-sized town and have an equally influential competitor with only 10. Then there are the single-store operators who exert their might both as a collective and individually corner by corner. Market dominance to us is providing a service, providing an experience, providing a product, says Sam Odeh, who heads the three-store Power Mart Corp. in Oak Brook, Ill., and recently opened a 5,000-square-foot site. [It s about] providing a differentiation that we carefully study in the [areas where we build]. Savvy retailers such as Odeh, Cadieux and Bouchard are redefining what it means to be No. 1, forcing industry players to revisit brand identity, reprioritize metrics and rethink how best to serve tomorrow s consumer. As market forces reshape the meaning of dominance, five competitive currents are gaining momentum: Renewed Swarming. Despite a trend in the past two decades to build fewer but higher-volume sites, growing store count for giants such as Dallas-based 7-Eleven Inc. remains a core strategy, as evidenced by commitments to expand anew in targeted markets. Share of Wallet. Bigger is the new norm with chains such as Corpus Christi, Texas-based Susser Holdings Corp. building fewer but larger stores to take greater share of the hypothetical convenience dollar. Food Fight. The struggle to define foodservice within the convenience space, especially with confident chains such as Tulsa, Okla.-based QuikTrip committing to the fight, will play out in the coming months. The category may also illustrate the industry s power to persevere over the fooddrug-mass collective. Jobber Reign. As local distributors capitalize on major-oil divestments and take over large metro markets, their homegrown tactics may tip the scales, but only if the transition is successful. Land Grab. The economic slump has, in many areas, made land, construction and material costs cheaper, potentially pushing a surge of both new builds and acquisitions. Big chains and independents alike may benefit, but to what extent rests largely on the availability of credit. What unifies all the evolving trends and strategies is the idea of dominance as a mindset. We re not out [for] world conquest, says QuikTrip spokesman Mike Thornbrugh. But we firmly believe that as a company, regardless of what 38 we re selling gasoline, fountain drinks, fresh pastries we want to have the dominant share of that. And QuikTrip presumes everyone holds the same position. That keeps us working every day to make sure that nobody will take away our market share, Thornbrugh says. SWARMING REVISITED Though the meaning of market dominance has fractured, store count remains a touchstone, even more so with convenience retailing today. Al Meyers, senior vice president of Columbus, Ohio-based TNS Retail Forward Inc., says a significant number of motorists will still pick a station because it s an easy right turn on their way home from work. In that case, having those numbers helps. Marketing and operations also benefit immensely, allowing the spread of advertising and management costs over a larger sales base. There s also greater brand recognition, buying power and scale to match distribution overhead. Of the nation s top chains, 7-Eleven has played the numbers card throughout its 83-year history, renewing the strategy recently with announcements to grow in more than a dozen targeted markets. Kent Schlesselman, senior consultant for Market Planning Solutions Inc. (MPSI), Tulsa, says, 7-Eleven tends to achieve their levels of performance through site numbers through sheer volume of number of sites. Indeed, in November and December the industry was bombarded with headlines of 7-Eleven s conquests: quadrupling its presence in Northern California, purchasing 13 stores in Virginia, planning 75 stores in North Texas, opening 100 stores in New York over the next five years and acquiring the remaining White Hen Pantry brand network in Massachusetts and New Hampshire. According to company spokesperson Margaret Chabris, Puget Sound, Wash.; Washington, D.C.; Baltimore; and northern New Jersey are also earmarked for growth, with other announcements coming. In terms of numbers, Chabris says the company is planning 250 more locations in 2010 and 300 to 350 in 2011, and the company intends to get to about 400 a year for the near future. At press time, the company had about 5,800 locations in the United States, with about 30 under construction. Circle K s Bouchard says the issue of numbers falls back to the chain s underlying concept. If you take a QuikTrip in a big city like Phoenix, they can cover the market there with 80 to 90 [high-volume] stores. With us, we have 350 stores in this market, he says. But our definition of the store [for that area] is different. Generally, Circle K s strategy is to focus on the market. In areas off major highways, a big-box, 4,500-square-foot store with 12 multiproduct dispensers (MPDs) and a large food offering may be appropriate. In residential areas, smaller neighborhood offerings may be a better fit. A small-format store replicated in greater numbers can reap $1 million to $1.5 million a year in sales to make the investment reasonable, according to Bouchard. A larger-format store may take $2 million to $2.5 million to achieve such profitability. The chain now has more than 3,000 stores in the United States. Hot Markets Building or acquiring in areas where the population is shifting can be one ingredient for success. Real-estate advisers suggest the following as prime-growth regions: CALIFORNIA Warm climate, barriers to entry make properties attractive. Many areas have little competition. NORTHEAST CORRIDOR From Virginia up to New Hampshire, dated sites, few-and-farbetween locations and barriers to entry add up to great potential. FLORIDA In areas that are seeing recovery, weather and population growth continue to make the state appealing. CHICAGO A business hub with a solid base of corporate entities, the area continues to command higher multiples. MID-ATLANTIC STATES WEST TO TEXAS Population growth, vibrant economies and state officials willing to woo new business with tax breaks combine for greater appeal. Source: NRC Realty & Capital Advisors F e b r u a r y C S P 39 Why People May Sell in 2010 Even when access to credit was tough, buyers seemed to outnumber sellers in Here s a few reasons why more sellers may reenter the market this year. 1. Changes in capital-gains taxes implemented while President Bush was in the White House will soon expire. 2. People who held off in 2009 still want to sell. 3. Pressures to either reinvest or sell will mount. Source: Matrix Capital Markets Group Inc. Though active in the past regarding acquisitions, Circle K s growth in 2009 came largely from a deal with Fairfax, Va.- based ExxonMobil for 43 Phoenix locations and control of its 448-store On the Run franchise. (See sidebar on p. 42.) Circle K s quieter year of acquisitions may change. Initially, the economic downturn, in Bouchard s opinion, did not depress valuations for c-stores as greatly as it did office space or other types of commercial real estate. But he says multiples, or the numbers that dictate the value of a potential c-store acquisition, are becoming more realistic, a potential sign of renewed activity. Dominance based on store count still carries competitive weight, according to Roger Woodman, managing director for Morgan Keegan & Co. Inc., Atlanta. Market domination continues to be a factor with the larger players who bring more capital to the table, deeper resources and greater buying power, he says. While still tipping his hat to the innovative, nimble independent, he says, A larger competitor can charge the same and earn more or afford to charge less and make the same. WALLET WATCH Meanwhile, as Bentonville, Ark.-based Wal-Mart has proven, big-box dominance also creates an all-powerful competitor that compels consumers to drive past the competition. You could certainly argue, says Meyers, that if you had a massive store with very low fuel prices, a clean [environment] and had a better selection of fresh foods, hot dogs and coffee, people would go out of their way to get to your facility. Susser is one company taking advantage of that strategy. The company s Stripes-branded stores have gone from a 2,400-square-foot store format to one that is 5,000 to 8,000 square feet. About 20% of our portfolio today is what we would call our larger-box format, and that s what we ve been building over the last several years, says Steve DeSutter, president and CEO of We re not out [for] world conquest. But we firmly believe that as a company, regardless of what we re selling, we want to have the dominant share of that. retail. The larger-footprint convenience store allows us to present the most options to delight our customers; it gives us the biggest variety of fountain, packaged drinks, snacks and candy and allows us the space necessary to appropriately present prepared food. That strategy is working. Susser s same-store merchandise sales for thirdquarter 2009 increased by 4%. And c- store merchandise sales from all Susser stores totaled $201.2 million, up 6.3% from the third quarter of 2008, on par with NACS industry averages. As Schlesselman puts it, Over the past 10 to 15 years the market has been consistently progressing toward larger and larger formats of c-stores. Ambitious brands that want to achieve that dominant position will be more likely to spend money on new sites where they can locate largerformat stores rather than spending money on existing facilities that may be outdated or of insufficient capacity. On the day that CSP interviewed Thornbrugh of QuikTrip, the company had just opened another location in the Dallas area five hours prior, bringing its total to 536 and 15 more are on the way by April Thornbrugh knows that s a pretty phenomenal rate. But for QuikTrip, it s not about having the store numbers. In fact, QuikTrip is known for doing what it calls scrape-and-builds on many of its stores; the company builds a new store on an existing lot and then scrapes away the old one to make space for a F e b r u a r y C S P 41 Dominance Via Franchising Two major chains Dallas-based 7-Eleven Inc. and Circle K s parent, Laval, Quebec-based Alimentation Couche-Tard have committed to growth through franchising, an effort that might lead to store-count dominance in certain markets. For 7-Eleven, the plan is to be completely franchised by At press time, 4,460 of its 5,800 U.S. stores were traditional franchises. And more than 150 had gone through the company s business-conversion plan, which allows current c-store owners to add their ranks to the 7-Eleven brand. Eventually, we expect 50% of our growth will be business-conversion locations, says Margaret Chabris, a company spokesperson. Last year, Circle K doubled its franchise base by taking over the 448- store On the Run franchise from Fairfax, Va.-based ExxonMobil. Kent Schlesselman, senior consultant for Market Planning Solutions Inc. (MPSI), Tulsa, Okla., says, ExxonMobil s sale of On the Run to Couche-Tard would appear to be the one sale that might tip certain markets in the direction of a more dominant player, certainly in Circle K markets where Couche-Tard will rebrand On the Runs to Circle K. Couche-Tard CEO Alain Bouchard says the company is reviewing what it will do with the On the Run name going into the future. larger parking lot and more pumps. Again, as Thornbrugh says, the motivation is volume. And the company is achieving that to the tune of $7.8 billion in annual revenue. It is considered formidable competition if not the dominant player wherever it hangs its hat. That s our goal: to go in and be the very best of whatever s out there, but we understand at the same time, you re not going to do it every night, and you re going to have to earn it, and sometimes it takes a while to get there, Thornbrugh says. QuikTrip has always been a very patient, very methodical company. Schlesselman expounds further on the company s success. QuikTrip is outstanding in every aspect of the retailvalue chain, which includes location, facility, merchandising, operations, price, brand and competition, he says. And while he doesn t expect the company s store numbers to increase a lot, he says, Their share will probably increase with better selection, and as their brand grows and they do what they do. If you have a good brand, if you re a bestin-class operator and invest in stores, you can influence other retailers. You become better as an industry. Alain Bouchard Alimentation Couche-Tard TODAY S DOMINANCE In that context of market share, retailers can look at dominance from two primary metrics: dollars and volume. The first deals with money spent, or what many call share of wallet. It s looking at how much customers spend at a retailer s stores compared to the competition, Meyers says. Retailers can measure this dynamic by reviewing same-store comparisons against customer or population growth. The other way to look at dominance is by volume of product sold. Similar to dollars spent, how much of a particular product or product category turned may also prove to be an element of dominance. Depending on a chain s goals, that could mean a specific category such as cigarettes or foodservice, or a collective of product groups such as convenience staples single-serve beverages, candy and tobacco. If your customer spends 10% with you and another 50% with the competition, they would be more dominant given the same number of customers each, he says. Share of wallet plus share of [volume helps determine] what portion of the total market you command, whether with a small amount of stores or [with many]. And the true picture crosses channels, Meyers emphasizes. We have to be very careful not to get hung up on our market. We re talking about convenience retailing, he says. We ve seen drug stores and dollar stores [step in]. Convenience retailing through the Internet has encroached on the niche of c-stores, so you have to make sure not to put blinders on. Arguably, the drive to be No. 1 for many chains is a motivational tool vs. a financial goal. For many at the helm, that mindset of winning as if the business were a linear, start-to-finish-line race brings a passion to the workplace. We come at everything from a value proposition, says Tom Kelso, managing director and principal for Matrix Cap- 42 ital Markets Group Inc., Richmond, Va. Everybody, even the most testosteronedriven individual, is ultimately trying to create as much value for their shareholders as possible. Market dominance, then, is just one of many business strategies designed to build value. Other companies may not have the ability to achieve the edge of store numbers, so they may achieve success by developing niche concepts, he says. So for them, it s not about the number of stores or gallons, but it s also value-driven, he says. Do everything with the idea of creating value. DEVOURING SHARE For many retailers, creating value means increasing the bottom line, an exercise that seemingly has little to do with dominating a market. Along such lines, cutting costs or selling more of something than in the previous year all fall in line with creating value. What ties the concepts together are the metrics and the function of measuring progress. The desire in some cases a cultural passion to improve upon metrics all align with the penchant to dominate, to surpass both internal goals and numbers achieved by competitors. For a company like QuikTrip, its play to win mentality now applies to foodservice, where it stands poised to execute at a level that matches its highly competitive reputation. The company has recently completed commissaries in Dallas, Atlanta, Phoenix, Kansas City and Tulsa to more than adequately cover the stores it currently has in place. That process started four years ago with the first one in Tulsa, but Thornbrugh says the company has been working pretty diligently on it for the last six to seven years. The foodservice offering includes fresh deli sandwiches, fruit cups and salads, as well as bakery good items such as fresh doughnuts, cookies and muffins. What QuikTrip knows, Thornbrugh says, is that it will take us a long time to get as good as we want to be with the fresh-food market. And we re patient; we understand we have a lot to learn. We think we have the right locations; we re The smaller you are, the more flexible, the more volatile and the more passionate to see a change. Sam Odeh Power Mart Corp. absolutely convinced we have the right people. But it s like anything else it will take us time to get as good as we want to be. It took us an awfully long time to understand and get good at gasoline. And we think we re pretty good. As for what s next, who knows? But I can tell you right now, we re focused on one thing and one thing only, and that s to get as good as we possibly can be at fresh foods. But QuikTrip is arguably a late bloomer and is approaching foodservice much differently than others. Susser, for instance, has a well-established proprietary offer called the Laredo Taco Company. Currently, the chain is converting all of its Country Cookin restaurants, acquired as part of a store Town & Country acquisition, to Laredo. At press time, about one-third of the 100 former Town & Country stores that had foodservice had been converted. In addition to core menu items served at all locations, the company regionalizes its offerings to range from a specially made picadilla or carne asada in the Rio Grande valley to a custom-flavored hamburger or specialty in West Texas, says DeSutter. Selection gives employees the chance to express regional input and take pride in the final offering. According to Charles Wetzel, president and chief operating officer for Ft. Worth, Texas-based
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