Feeding the Soul
Full coverage of CSPs Outlook Leadership conference.
Sure, you could say that Outlook Leadership 2011, held in August on the gorgeous cliffs overlooking the Pacifi c Ocean, comprised three outstanding days of educational sessions and networking. And you could say that the preceding weekend, with yoga on the beach, bird-watching tours and all-around relaxation, was a wonderful way to start this conference. But you also might want to say that our industry did much more than that: Almost one-third of conference attendees helped to pack more than 50,000 meals for the CARRE Foundation’s spotlighted charity, Feed My Starving Children.
So for many of the 400 folkswho spent multiple days at the Terranea Resort in Rancho Palos Verdes, Calif., the conference meant more than just meeting and greeting and doing business. Read on for our coverage, and check out our photo album of this phenomenal event.
The Great Restructuring
Huffington, Bowles offer salvos to the U.S. financial mess
While economists say the Great Recession ended in the summer of 2009, for many Americans its effects continue to stubbornly linger. Indeed, some believe that the economy is actually undergoing a fundamental, permanent change.
“What’s happening now is we’re going through a profound restructuring,” said Rich Karlgaard, publisher of Forbes and moderator of a general session panel that brought together two Democratic heavyweights— Erskine Bowles and Arianna Huffington—to discuss the state of the economy. Bowles, former chief of staff for the White House during the Clinton administration, co-chairs the Obama administration’s National Commission on Fiscal Responsibility and Reform with former Republican Sen. Alan Simpson. Both men agree that to stimulate growth, the deficit is a priority for the country. “If the country doesn’t act now, we will face the most predictable economic disaster in history,” said Bowles. “Deficits are like a cancer—they will destroy from within.”
Bowles pointed out that 100% of all of the federal government’s 2010 revenues were consumed by mandatory spending on entitlement programs and paying interest on the nation’s debt. However, “We can’t simply grow our way out of the problem,” he said. “We can’t tax our way out of the problem. We can’t just cut our way out of the problem.”
Instead, the Simpson-Bowles commission proposed a plan that was threequarters spending cuts and one-quarter revenue increases. It would cut $4 trillion from the deficit—the minimum amount required to stabilize the debt as a percentage of the gross domestic product (GDP), Bowles said. However, there is one economic force for which the commission did not have a plan for reviving.
“It’s hard to imagine where demand will come from,” Bowles said. Consumers are highly leveraged and small businesses have no access to capital, he said. Big businesses are sitting on their money, state governments are cutting spending, and the federal government “has shot its arrow.”
Huffington, co-founder and editorin- chief of The Huffington Post, is most disturbed by what has happened to the middle class. “Middle-class families can no longer believe their children will do better or the same as them,” she said.
She also faulted banks for getting off easy in the wake of the 2008 bailout. It’s easier for banks to make money by investing in toxic derivatives, she argued, instead of creating jobs. “We’ve gone from a country that makes things to a country that makes things up,” she said.
Like Karlgaard, Bowles believes the current economic slump is not part of a cyclical recession, but that the country is going through a structural contraction. He predicts growth to remain sluggish over the next five to seven years and remain in the range of 1% to 2%, with unemployment sticking between 7% and 9%.
Huffington’s forecast was similar, while Karlgaard predicted stronger growth and a change of president in 2012. Huffington wants more leadership from the White House. She considers Treasury secretary Ben Bernanke to be a “complete and utter failure,” saying that the Federal Bank has done nothing to reverse unemployment.
sking if cutting the deficit or creating jobs is more important is an artificial question, she said: “We can’t lower deficits without creating jobs.” Huffington said Americans must look to themselves to find the basis for recovery.
“We live in a local economy, so what can we do for ourselves and our neighbors?” she asked. “If we tap into it, I believe profoundly that we can turn things around.”
A Balanced Industry Outlook
Strong foodservice numbers counter regulatory challenges “The state of the industry is pretty good,” said Jeff Miller, president of Miller Oil Co. and NACS chairman. That’s thanks in part to the adaptability of retailers in the face of strong economic headwinds, he said. Miller cited some new figures from the NACS CSX database to back up the assessment.
According to NACS CSX figures comparing January through May 2010 with January through May 2011, total c-store sales rose 22%, with fuel sales providing much of the momentum, up 28.7%. Fuel gallons rose 0.6%, a noteworthy if modest increase in light of sluggish U.S. demand. In-store sales rose 2.0%, despite a 2.4% drop in cigarette sales. Here, foodservice provided the lift, with a 6.5% increase.
On the profit side, fuel gross profits rose 7.6%, while in-store sales were up 3.7%. Again, this was despite a 4.6% dip in cigarette gross profits and because of a 9.3% jump in foodservice gross profits. In regard to the negative numbers for cigarettes, Miller said that last year at this time, the category was emerging from the effects of the SCHIP increase. “We’re coming back to a normal trend,” he said.
Examining some notable increases under expenses, credit-card fees grew 26.6%, repair and maintenance costs rose 11.5%—likely because retailers are trying to extend the life of current equipment as opposed to buying new— and supply costs grew 7.1%, possibly fed by the increase in foodservice sales.
Gross-profit dollars for prepared foods leapt 11.5%. One area of concern: hot dispensed beverages, which saw sales off 0.5% and gross profit dollars down 2.8%. Miller suggested competition from QSR heavyweights such as McDonald’s and Dunkin’ Donuts was really starting to have an effect on the channel. As an area for potential growth, he mentioned cold coffee products, which he said generate one-half of Starbucks’ sales. However, these products are typically “dressed” with whipped cream, syrup and other toppings, a tough element to duplicate in the self-serve environment of c-stores.
Miller then highlighted a few wider trends for retailers to consider, including:
- Impact of the Internet: Whether it’s online cigarette sales siphoning business from c-stores or mobile apps that enable consumers to find the cheapest gasoline in town, the Internet’s effect on this channel is only beginning to reveal itself.
- Nutrition and Foodservice: Miller said the failure to manage food waste better in the industry’s foodservice programs “is not only poor management but socially irresponsible.” He also encouraged retailers to make healthy living a part of their company culture, citing that Miller Oil pays a $500 bonus to employees who quit smoking or lose weight. If they accomplish both, they receive a 5% reduction in their health-insurance premiums.
- Tobacco Turmoil: As the FDA continues to finalize the details of its regulatory oversight of cigarettes, Miller highlighted the experience of c-store retailers in Canada who contended with not only a big increase in taxes but also the category being forced to go “dark.” As a result, 30% of cigarettes sold in Canada today are contraband, Miller said. “Tobacco is a moving target” in the United States, he said. While menthol appears to be in the clear, the fate of graphic warning pictures on packs of cigarettes is not, as a lawsuit by several tobacco manufacturers works its way into courts.
- Debit-Card Aftermath: Retailers “won a hell of a victory on swipe fees,” Miller said, pointing to the fact that the Federal Reserve’s reset of debit interchange fees will free up approximately $800 million. While the industry didn’t get the size of reduction in fees it had hoped for, it still persevered against a heavy lobbying effort by banks.
Miller said the retail industry used to be able to interrupt “bad legislation” and neutralize it before it hit the books, but this has gotten more difficult as the current administration is attempting more legislation through regulation; that is, if a legislative battle is lost, there is an effort to introduce regulations that will have the same effect. It requires retailers to be especially vocal to their government reps. “If you’re not involved, you get lost in the shuffle,” Miller said.
Find Right People, Listen—and Focus
Selecting the right employees, teaching and investing in them and listening and engaging with those employees—as well as your customers— emerged as key themes during a session on retailing excellence.
For example, Travis Sheetz, vice president of operations for Altoona, Pa.-based Sheetz Inc., said, “Finding the right people is really the basis of our business—and until you do that, you can’t do anything else.” The company interviews five people for every one person it hires, and it offers pay that is in the 90% range in the areas where it operates. Also, those hired quickly learn the meaning of TCF, or total customer focus, a company mantra.
The perspective of Adam Sparks, general manager of company-owned and -operated stores and president of San Ramon, Calif.-based Chevron Corp., comes from being primarily a large oil company, with a smaller retail business. The company gives employees a focus during their shift, such as clean pump islands, for which they are held accountable.
For Gus Olympidis, president and CEO of Valparaiso, Ind.-based Family Express, a focus for employees is on the “art of listening.” One customer went into a Family Express location, distraught because she had inserted a gas pump nozzle upside down and got gasoline all over her shiny new red car. The clerk offered her a free car wash.
Another customer, weeks later, made the same error, and was “in a terror” because of a skin condition. The same clerk later sent flowers to that customer. The situations had similarities, but the outcomes were different. Olympidis said, “The core capacity to deliver the solution was predicated on effective listening.”
Eric Chester, founder and CEO of Lakewood, Colo.-based Bring Your A Game to Work, said employers should also listen to what their employees have to say. He suggested one client add a threequestion survey to each paycheck, which increased employee retention and productivity. The questions were: What do you like about working here? What don’t you like about working here? If you could change one thing, what would that be? —Linda Abu-Shalback Zid
Getting to ‘As Good as It Gets’
While gasoline continues to be a traffic driver at many convenience stores, retailers need to learn who their customers are and appeal to their other needs, according to David Portalatin, director of industry analysis for The NPD Group, Port Washington, N.Y.
Second-quarter 2011 data from NPD shows total consumer traffic at c-stores is down 4.2% total. But stores with major oil canopies lost as much as 7% of their traffic. “You can no longer be in business just to allow gasoline to be the sole traffic driver into your retail store,” Portalatin said.
In a custom study conducted by NPD for CSP’s Outlook Leadership Conference, Portalatin segmented customers according to popular romantic comedies—fitting because c-stores are working to woo those customers, he said. Customers were asked to identify themselves by statement, as well as help identify the opportunities for retailers by describing their perfect c-store.
- “I like to shop at convenience stores and make purchases from them several times per week.” These “As Good As It Gets” customers account for 12% of the respondents. Their perfect c-store would include a drive-thru window to buy tobacco, lottery and energy drinks. Entertainment media availability would also be a nice characteristic.
- “I do not mind shopping at a convenience store, but I only shop there because it’s convenient, I am in a hurry, or if there are no other choices nearby.” The “No Strings Attached” group accounted for the majority, 58%, and therefore represent the greatest opportunity. Drive-thrus again were a “perfect” characteristic, in addition to bright lights, modern equipment and healthier food and drink choices.
- I do not like to shop at convenience stores and prefer not to purchase from them.” The “He’s Just Not That Into You” consumers (30%) said they would seek cleanliness, grocery-store prices and friendly and helpful cashiers.
Many of the respondents actually named stores like Sheetz and Wawa as their perfect convenience store. “So what that tells me is there absolutely are some retail offerings in the marketplace that do engage the consumer and establish a passionate commitment and following,” Portalatin said. —L.Z.