Susser Enters Next Phase of 'Big-Box' Growth Strategy

Accelerates new-build pace, prepares for slower returns

Steve Holtz, Editor in Chief, CSP Daily News

CORPUS CHRISTI, Texas -- Susser Holdings Corp. will ramp up its new-store construction in 2012 in an effort to gain market share in some markets and to take advantage of the success of its current "big-box" Stripes Convenience Store format.

"Our new stores are performing extremely well," CEO Sam Susser said on an earnings conference call yesterday. "Within three years of opening, our new stores have been producing two to three times the cash flow of our smaller legacy stores."

The "big-box" stores are typically 4,900 to 6,800 square feet, twice the size as Susser's legacy models.

"We opened six new big-box stores during the fourth quarter [of 2011] for a total of 19 for the year," Susser said. "As we announced in December … we plan to accelerate new-store construction in 2012 to between 25 and 30 new stores."

(See Related Content below for previous CSP Daily Newscoverage.)

Two months into 2012, Susser has opened one new store and has six more under construction. "[We] expect to start eight more locations this quarter," Susser said. "Our real-estate team has been working diligently to build a pipeline for long-term growth. We currently have 29 sites in our land bank for future store development and another 30 sites under contract."

Noting that the company accessed $77.5 million in capital in December by issuing approximately 3.8 million new shares of common stock, Susser said a major goal for that cash is to accelerate the store-growth program.

"The priorities for us are maintaining our store base, [then] building our new big-box stores," he said. And third, "if we see any opportunities to pay down some debt … we want to have the flexibility to do so."

Susser underscored the quick success of the chain's new stores.

With the big-box sites, "we typically lose some money in the first month or two of operation with training and labor inefficiencies and grand-opening expenses," he said. "In the first 12 months after that two-month startup period, we have been historically EBITDA-positive. The first full year of operation, past the first month or two, is typically a 10% or 12% unlevered cash-on-cash return.

"We have enjoyed returns in the mid-teens in the second year, and across the portfolio of nearly 120 big boxes that we've built over the last few years, we're producing unlevered cash-on-cash returns that are in excess of our 20% target."

Susser also admitted the chain is expecting more conservative growth out of some of the stores it will build this year.

"We are developing in some areas where we don't have quite as high market share at this time," he said. "In our experience [with similar cases], the ramp up period takes a full three years as opposed to if we built something in the middle of Laredo. There, people know our brands and know what to expect so sales and profits ramp up very quickly. But we have a lot of experience in these markets that we're talking about. We think the real estate is excellent, and we think that a three-year ramp is in line [with our goals]."

At the same time, the chain continues to grow its land bank for future expansion.

"The population is still growing like crazy in this part of the world, and there isn't anything on the horizon visible to us that makes us think that trend is going to change," he said. "We plan to continue to add to the land bank, and our plan is to continue to accelerate growth, but organizationally we know we couldn't go from 25 or 30 [stores] to 95 or 100 in a year's time. We do not have that capability, and we're not thinking along those lines at all. We want to build sustainable growth for the long term."

Corpus Christi, Texas-based Susser Holdings is a third-generation, family-led business with approximately 1,100 company-operated or contracted locations. The company operates more than 540 convenience stores in Texas, New Mexico and Oklahoma under the Stripes banner.

Steve Holtz, CSP/Winsight By Steve Holtz, Editor in Chief, CSP Daily News
View More Articles By Steve Holtz