Pantry's New Forecourt Philosophy

Price optimization, Marathon supply partnership signal new fuel approach

Samantha Oller, Senior Editor/Fuels, CSP

[Following is the final installment of a three-part series examining The Pantry's transformation. Today's focus: Fuel.]

CARY, N.C. -- The cultural revolution washing over The Pantry is evident in the stores that have been transformed by the Fresh Initiative, with its emphasis on wider aisles, a fresh foodservice offering and an expanded coffee bar. And the next months will reveal whether the retailer's revamped human resource initiatives will create a higher caliber, more motivated workforce.

But the forecourt of the business is getting its own rethink [image-nocss] as well. Consider it The Pantry's effort at a "holistic approach" to fuel, one that examines its relationship to in-store sales and profits. It's an effort at taking charge of a business that, in the past, has had too much of a say in the chain's ability to make money.

"When you look at the component pieces, you can go down the path of 'I win and you lose,' in your respective groups," Keith Bell, senior vice president of fuel at The Pantry, told CSP Daily News. "When you start saying there are relationships we need to understand, and it may cause us to do things differently, whether on the fuel or merchandise side, you've taken a more holistic view. By doing that, if I do something different and it benefits in an increase in merchandise at the site, and we make more money, then we all win."

To help The Pantry in its quest at better understanding the relationship between forecourt and backcourt, the retailer has signed on with KSS Fuels' PriceNet fuel price automation and optimization software. The main goal: standardize processes and execution of fuel-price changes out to the site.

Before, a proprietary system--more a historical record of Pantry fuel prices--served as the guide on any price changes. KSS PriceNet, which will be fully implemented by the end of the first calendar quarter of 2011, creates pricing rules and automates the change.

"It's not magic," said Bob Stein, president and CEO of KSS, Florham Park, N.J., noting that the system is built on a retailer's own historical fuel price data, overlaid with a pricing strategy or goal--grow gross profits while meeting volumes, or increasing volumes while minimizing any sacrifice of margin--to create pricing models for each site in the chain. "When you have clear unique data to your operations, then you're in a much better position to say, 'If I do this, this will happen,' because you have historical basis for it. It's fact based."

The software is also able to determine the relationship between fuel gallons and pump traffic vs. in-store sales on a site by site basis, ensuring greater collaboration between the fuel side of the business and operations. "Retailers operate the fuel business and merchandise business unintentionally like two silos," said Stein. "If you can look at the data and see how fuel impacts the store--and vice versa--then you can begin to have a dialogue about how to look at the site holistically."

It also provides a way to track compliance and execution of price changes. Day-part pricing--another strategy automated by PriceNet--may also be in The Pantry's future, but will be examined on a site by site basis, depending on the competition and other dynamics.

"We're going to always look to really optimize our price--not maximize--really balancing margin as well as gallons," said Bell.

The Pantry has also grabbed the reins on supply, forging an agreement in July 2010 with Marathon Petroleum Co. LLC to supply more than 600 Pantry locations, including 285 joint-branded sites. These latter stores are an embodiment of The Pantry's new assertiveness in the fuel business.

"If you're looking at a traditional oil-company relationship, the oil company has primacy on the street sign," said Bell. "You may have the opportunity to get your name on the sign, but theirs is in 44 font, yours is in 6 font. And between the price sign and gas canopy, it dominates the view of your site."

With the Marathon partnership, The Pantry's Kangaroo Express c-store brand has primacy on the street sign, and is in the same size font as the major oil brand. The canopy bears the Kangaroo Express name on the front with Marathon on the side, and it picks up design cues from the retailer's c-store image.

"We go from a world where I'm almost nonexistent on the price sign, my store is hidden and completely overshadowed by the gas canopy, to one where I have primacy but equal size presence on the street sign, so people see the Kangaroo Express," said Bell. "From our perspective, it sets a different tone; it furthers the extension of the Kangaroo Express name in the marketplace."

Marathon has also partnered with The Pantry in markets where they have a major presence to promote the partnership through advertising and billboards.

While other suppliers bid for The Pantry's fuel business, only Marathon was willing to share such a large portion of the branding package. It's a partnership that The Pantry is confident will succeed, as it tracks sales at the co-branded sites and explores other opportunities where it and Marathon can complement each other's store network.

[Read the cover story on The Pantry in the January 2011 issue of CSP magazine.]