Hot Times in Atlanta
A Victory & Industry Resilience
The 2010 NACS Show started on a high note, with speakers elaborating on the success of new card-swipe fee legislation as well as standing ground despite the BP oil-spill disaster.
In a speech covering his tenure this past year as NACS chairman, Jay Ricker, president of Ricker Oil, Anderson, Ind., spoke of the difficulty and profits lost during the oil spill. While not the 60% drop that some retailers experienced about a decade ago with the Exxon-Valdez incident, the losses Ricker experienced, he believes, were mitigated by an active engagement with the media.
“I truly believe we have changed national conversation as an industry,” Ricker said at the opening general session. “It’s our job to communicate the industry’s voice before someone else does; and this year, I’ve seen hundreds of positive stories on our industry and fewer negative.”
Looking back the financial reform legislation that President Barack Obama signed earlier this year, Ricker described his part in the NACS effort on Capitol Hill as being “intimidating” but rewarding. “Together we can make fewer bad things happen,” he said. “And I know we can make good things happen like card-swipe reform.”
The reform addressed debit-swipe fees and will create a set of standards for “reasonable and proportional” fees, said Hank Armour, president and CEO of the Alexandria, Va.- based NACS, of the fight that took a decade. “The amount of money taken last year [from the industry] was $7.4 billion, and in the past five years it’s been $35 billion.” The reform will require several things:
Have the Federal Reserve issue standards for reasonable and proportional rates.
The Federal Reserve must also write rules on nonexclusivity, meaning debit-card issuers must offer retailers at least two processing networks as a way to introduce competition.
For debit transactions, retailers can discount for different methods of payment; initiate limits not to exceed $10 on transactions; and offer cents off per gallon, a fixedamount percent discount or loyalty points.
Retailers can charge different fees for different card brands, such as Visa or MasterCard, and with different types of rewards program within a card brand.
But Armour also issued a word of caution: “We need to make sure the legislation means real change. We’re working with the feds to make standards that will produce significant change. Banks will fight us and pull every trick. And there’s still credit fees.” —Angel Abcede
Bush on Iraq, Faith and History
In the show’s closing session, former President George W. Bush emphasized the need for personal values and believed that throughout his time in office, he never compromised his tenets on freedom and its power to “ultimately prevail.”
Citing the fact that his father, another former president, fought in a world war against Japan, the younger Bush told of his friendship with then Japanese President Junichiro Koizumi. After 9/11, the Japanese official proclaimed his country’s commitment to Bush in the fight against terrorism. Bush said the offer underscored his belief was that eventually, “enemies can become allies.”
Defending his decision to send troops into Iraq, Bush said that if Saddam Hussein were still in power, he would continue to fuel a weapons race that would destabilize the area. “Instead, you have 25 million people [allowed] to show what freedom can do,” he said.
Ultimately, Bush professed his love and passion for what America stands for: “America is great because we can worship however we want. Never should your government tell you who to worship.”
Two Leaders, Similar Philosophies
One is public, one is private. One is based in the Southwest, the other in the Midwest. But Susser Holdings and Kum & Go have much in common, as attendees learned at the general session “A Tale of Two Retailers.”
First off: strong family backgrounds. Sam Susser, president and CEO of Susser Holdings Corp., Corpus Christi, Texas, introduced the company of 500 Stripes and Town & Country stores in three states as a “family-led business,” with its origins as a few service stations operated by his grandfather. After Susser’s father grew the company into a major 7-Eleven and Circle K licensee, the exec established the company as a foodservice leader.
Kyle Krause, president and CEO of Kum & Go L.C., with 435 stores in 11 states, worked in his grandfather’s grocery store and under his father, former CEO W.A. “Bill” Krause, for 17 years. His brother Kevin heads up marketing. While they’ve all had their disagreements, “The key piece is to allow the kids the latitude to make mistakes,” he said, counting himself among “the kids.”
Another key trait: strong company culture. Kum & Go has isolated seven qualities that define the company, including caring, discipline, family, integrity, professionalism, teamwork and work ethic, and uses them to not only guide current employees but recruit new ones as well. It’s a mantra that draws more than 50,000 people a year to apply for jobs at Kum & Go.
“We just have to walk the talk to be real leaders,” said Susser, who added that “eyes are on us” to practice what company leadership preaches.
Innovation is another commonality. Kum & Go has hired a full-time socialmedia associate to oversee its activity on Facebook and Twitter. It named a manager of sustainability to oversee a LEED building initiative, which commits the company to building LEEDcertified sites wherever possible.
For Susser, foodservice has evolved into its key differentiator. The company made a commitment to ease off its reliance on tobacco; thanks to growing foodservice sales from its proprietary Laredo Taco Co. program, which has grown to $162 million in annual sales since its inception in 2001, the transition is in full swing. Foodservice now contributes 29% of Susser’s gross profits, compared to 10% for tobacco.
Inner strength such as this has helped both Susser and Kum & Go come out ahead during the recession. The Midwest region of the country did not get hit as hard as some others, and as such, Kum & Go enjoyed “wonderful sales growth” during the down economy, Krause said. The company avoided dramatic shifts in strategy, and aimed “to make fewer mistakes.”
Krause also cited Kum & Go’s precision in growth; in the past six years, 381 stores have gone into and left the company’s system. “We’re 51 years old, but we have to keep evolving,” he said. The company’s new, 5,000-square-foot Titan store model is part of that evolution, a larger footprint that will accommodate greater sales volumes. The 20 to 30 new sites Kum & Go builds each year are aimed at helping to further finance that growth.
For Susser, the growth environment is strong. With a big population boom, “We are open for business in Texas,” Susser said. Stripes didn’t begin to feel the economic malaise until late 2009. To help it stay strong, Susser Holdings shored up on liquidity and access to cash, trimmed expenses and re-examined its procurement practices.
Cash flow for Susser is driven primarily by retail, with 70% of gross profits coming from inside the store. Susser said the company has been able to drive growth in its oldest stores, typically former 7-Eleven and Circle K sites from its previous existence as a franchisee and licensee. “They’re our ticket to the right to continue to make investments,” he said. —Samantha Oller
Keep Family Businesses From Hitting Iceberg
The Titanic has become the symbol for preventable mistakes. That’s why two university scholars believe the metaphor works for family businesses that fail to plan for the future.
Statistics speak for themselves, said Priscilla Cale, program director for the University of Connecticut, Storrs, Conn.: Only 30% of family businesses succeed into the next generation.
Tying the fatal errors of the Titanic to common mistakes that occur in family businesses, David Tate, assistant clinical professor, Yale University School of Medicine, New Haven, Conn., made several points:
- Overconfidence and weak leadership. The leadership on the Titanic as well as many family businesses operate on a false sense of security, one that typically relies on experience and an unwillingness to listen to outside advice.
- Failed construction. With a ship, it’s rivets and technology. With business, it’s the lack of processes and policies to ensure a clear transition and continuing vision.
- Fragmented teams. Just as the leadership on the Titanic switched midstream and caused confusion, issues of sibling rivalry, fighting among in-laws and the inability for a retired family member to relinquish authority can all lead to disruption. To help combat these problems, the panelists suggested creating contingency plans, developing policies that articulate the company’s vision going forward and doing “fire drills” so that people know what to do in case of a real emergency.
How to Create Effective Promotions
Promotions do not always equate to pricing, said Robert Perkins, director of marketing for Rutter’s Farm Stores. Instead, it’s how you display, focus and introduce the product to the consumer. Rutter’s avoids putting foodservice on a price promotion to protect its quality appeal, and because quick-serve restaurants rarely do it. Rutter’s will, however, bundle foodservice with products in related categories to create combo deals that communicate value.
Do a post-mortem on each promotion to gauge its effectiveness, advised Mark Schumacher, corporate director of fuel management with Supervalu Inc., which operates 83 c-stores and 133 fueling centers as part of its supermarket network. “The analysis will serve as a guide for future promotions,” he said, and provide parameters for vendor negotiations, shipper usage, price points and more. Keep a promotion log to track how well it is meeting its goal, whether it be maximizing sales, gross margin, encouraging trial, or some other metric.
Direct the consumer with consistent visual cues, said Kevin Farley, vice president of marketing for GSP Marketing Technologies. Use the same graphics on the pump, window, shelf and other points to help the consumer navigate the promotion easily. Solid execution is critical for point-ofpurchase promotional material to work, he said. Managers must put signage up on time; simply by doing this, a store can see a 5% boost in sales.
A Focus on the State of Tobacco
Don Burke, senior vice president of information management at Management Science Associates, revealed the results of a retailer survey conducted by his firm and examining the two years ending July 31, 2010. The survey showed average tobacco sales of $415,000 per store, off 3.6%. Cigarettes led the drop (-5.3%), while other tobacco products (OTP) grew by 5%, with momentum provided by smokeless, little cigars and snus.
Interestingly, in Management Science’s research, the stores that enjoyed the greatest tobacco sales did not slash SKUs; they may have trimmed some, Burke said, but they replaced them with others. “Cigars are a critical point in making a store successful,” and the discount-cigarette and OTP segments are growing as well, he said.
Greg Hamilton, director of category management for tobacco for Thorntons Inc., said his company has added cigar and other OTP SKUs and seen a “pronounced” increase in sales. “Now is not the time to drop SKUs,” he said. “It’s time to hunker down.”
FDA oversight has made finding stable ground somewhat challenging. Doug Kantor, partner with Steptoe & Johnson LLP, said some of the PACT Act remains in limbo due to litigation. Also undecided: ad restrictions, the future of menthol as a tobacco flavoring, and the applying of age and advertising restrictions on Internet vendors.
Training is the biggest element that Big Apple Food Stores has had to change under FDA oversight, said Brandi Cushman, category manager. The company has examined its training to make sure it is cohesive with the latest restrictions. Hamilton of Thorntons endorsed keeping employees educated as well about the legislative and regulatory news for tobacco so that they in turn can educate the customer.
In the session “Global Best Practices: Customer Facing Technologies Making Impressions,” presenters shared how retailers can further cross-promote the fuel island and the store:
Tap flat-screen pumptoppers as prime real estate, including promotion deals with neighboring businesses. For example, a C.J. Express store outside of Kansas City promoted deals at a local movie theater. The promotions yielded a 10% lift in inside sales and helped boost sales at the theater, said Daniel Lassner of Gilbarco Veeder-Root Latin America Region.
Fuel rewards programs today are easier and deliver more utility than in previous years, said Bill Hanifin of Hanifin Loyalty LLC. He cited the success of the Shell-Kroger alliance, pointing out that 40% of American households already possessed a Kroger loyalty card and that 80% of the population lives within 5 miles of a Shell station.
In retailing, instant rewards are favored over pointaccumulation programs such as frequent-flier miles.
Mobile phones will increasingly become preferred payment tools, thus obviating current limitations associated with some POS systems. “Technology enables, but imagination wins,” Hanifin said. “You still have to have the right strategy.”
Building Strong Grass Roots
Sheetz Inc. builds up local support for its Sheetz Bros. Coffeez program with a truck that gives out samples and sometimes sells espresso-based and other beverages at community and promotional events, said Monica Jones, public relations manager. The company also has embraced Special Olympics and youth sports, but it is constantly weighing how much of its budget should be devoted to these vs. other community donations.
For Double Edge Development Group Inc., a one-store operator based in Bedford, Ind., strong grass roots begin with excellent customer service and continue into its community involvement, said owner Steve Jones. Double Edge’s 1950sthemed c-store, Johnny Junxions, sponsors and often hosts local community events, including its town’s yearly festival, a sock hop, chili cook-off, ice-cream social, classic car rallies and “ ’50s Day,” when for four hours on a Friday night, it pays a local youth group to pump gas.
Making the community part of the store is a powerful marketing tool. Sitting above Johnny Junxions’ cooler doors is the “Wall of Fame,” with pictures of local celebrities, racing legends and town landmarks. Another area of the store is called “Red Ritter Corner” after a well-known neighborhood senior who owned a nearby gas station.
The average retailer spends 80% to 90% of its marketing dollars on finding new customers, said Tom Feltenstein, CEO of Power Marketing Academy. He told attendees to spread some of the wealth to current customers, including their own employees, to help build up local support. Employee-motivation tools include providing business cards to all employees, and taking those who have just finished their first day of work out to dinner.
Harnessing the Digital Age
For Wallis Cos., increasing customer loyalty and purchase frequency in its highly competitive St. Louis market meant creating brand advocates through digital means, said Tracey Hughes, vice president of strategic planning. It did so through contests, such as a recent “summer of prizes” promotion, in which participants could win free car washes, fountain drinks and fresh food by sending a text message. Interestingly, 70% of those who register for Wallis’ contests are new members— a sign the effort is working.
Facebook is the preferred medium for Cumberland Farms, which established a corporate page focused on its Chill Zone fountain and frozen-beverage program. Launched in 2009, the Facebook page gained 30,000 “fans” after its first few months. A team including Kate Ngo, manager of marketing strategy and communication, as well as a social-media and ad agency, ramps up interest by involving Facebook fans in special promotions. One of the most famous is “Free Chill Zone Days,” in which stores offer free fountain beverages three times each year if Cumberland’s Facebook page meets set fan recruitment goals.
Cumberland Farms also involves its Facebook fans in new product development, asking them to vote for its next frozen-carbonated-beverage flavor and a cartoon character to represent it. Fountain sales have grown by double digits, even during the off-season.
One sticky issue with social media is how to deal with customer and employee complaints that pop up on Facebook, Twitter and other forums. Wallis responds to all customer complaints within 24 hours; it also has established an e-mail based system with employees to submit gripes. Cumberland Farms responds immediately to “high-level” issues, said Ngo, and send customers a free T-shirt for the feedback. Frugality, Youth Define New C-Store Consumer Base
While economists may have pegged June 2009 as the official end of the Great Recession, “consumers are still not out of the dark,” said David Portalatin, director of industry analysis for The NPD Group Inc., in a workshop on “Key Shopper Trends for 2011 and Beyond.”
When surveyed during tough economic times, consumers tended to have a worse outlook on the economy than about their own financial situation, Portalatin said. “Now we see consumer perception of their personal situation is worse than a year ago,” and that this is the first time NPD has seen this trend during a recession in its decades of consumer research, he said.
At the same time, consumers are “recession-weary,” said Portalatin, and are anxious to begin spending money again after months of doing without. However, the items they will be willing to purchase must fall under the category of a need. Other findings among consumers surveyed by NPD in May 2010:
- 52% expected economic conditions to persist
- 69% were worried about being laid off
- 63% are more likely to buy store brands
- 82% are shopping only for what they need
- 76% are more likely to buy only when items are on sale.
“We’ve taught today’s consumer that everything’s on sale,” said Portalatin. “It doesn’t have to be the lowest price point. It has to be a break, or a deal.”
Unemployment is influencing much of today’s consumer purchasing behavior, especially when it applies to c-stores. While miles driven bottomed out in May 2009, they remain relatively flat, largely because of high unemployment. The single greatest source of miles driven is the daily commute, Portalatin said. In addition, one out of every five c-store purchases is tied to the workplace: The purchase was made on the way to work, while at work, or on the way home.
While retailers may hope consumers spring back to previous purchasing patterns, they are firmly stuck at “the intersection of need and value,” said Portalatin. That said, “c-store retail can be leading the way,” he offered. The key is to capture the loyalty of the heavy shopper. In the past year, “heavies” have rebounded as a percentage of shoppers, to reach 10%. Who are they? No surprise: The heavy can best be described as male, younger, blue collar and most likely shopping in the morning. While the rebound in heavies has also included a broadening of the demographic to include more women, white-collar professionals and 50- to 64-year-olds, “if you’re going to win with the heavies, you’re going to win in the morning day-part,” said Portalatin.
A few “game changers” for winning retailers:
Fuel rewards. “Looking at 30 years of data, I haven’t seen anything that moves c-store behavior so much,” said Portalatin. For many consumers, the choice of a fuel brand has everything to do with the “magical sensation” they get when they swipe a loyalty card at the pump and see an immediate drop in price.
Price strategically. Among the top 10 reasons consumers gave for their choice of c-store, price does not show up until No. 8, according to NPD data. Convenience ranks first, followed by ability to get in and out quickly, friendly service, convenient hours, and availability of gasoline. For consumers who are price-driven, price does rise high up in the ranking. The question retailers need to ask themselves: “What role will the low-price-consumer base play in my consumer base?”
Younger consumers in particular may be shaped by the recession similar—although not as severe—to how the Great Depression influenced their great-grandparents. These “millennials,” typically between the ages of 16 and 30, are becoming even more influential as the baby boomer population wanes. “Now’s the opportunity to figure them out and embrace them,” said Portalatin, citing that today’s 16-year-old grew up without older consumers’ preconceived biases about service-station food. By capturing these consumers’ loyalty now, he said, “it will benefit you for the next 40 years.” —Samantha Oller
How to Decipher Foodservice Financials
Understanding foodservice metrics continues to be a thorn in the side of many retailers. Jack Cushman, vice president of foodservice for Nice N Easy Grocery Shoppes Inc.; Nancy Caldarola, consultant for Concept Associates Inc.; and Paul Breslin, instructor at the J. Mack Robinson College of Business, sought to ease the pain during the workshop “Foodservice for Thought: The Financials.”
According to the speakers, controlling food costs requires:
- Standardization of recipes, purchase specifications, yields and portions sizes;
- A creative menu mix with cross-utilization of raw ingredients and a broad pricing spread;
- Calculated ingredient costs and gross, and the profit margin of each menu item;
- Daily key-item counts;
- Forecasts of the amount of product to prepare based on sales history and waste logs;
- Build-to forms for each day-part, “the most important controllable in grab-and-go foods,” said Caldarola. Controlling labor cost requires retailers to:
- Schedule based on productivity vs. hourly pay levels;
- Schedule by the hour and day-part, and rotate staff in positions, days and day-parts when possible;
- Establish productivity metrics; Understand that while you must invest more in labor for a successful foodservice program, labor costs are in indirect proportion to sales. As your food sales climb higher, your labor costs will drop.
Who Is the C-store Foodservice Consumer?
During the workshop titled “What America Eats,” Kevin Higar, director of research and consulting services for research firm Technomic Inc., Chicago, shared some insights from the 2010 Convenience Store Foodservice Consumer Trend Report:
When asked why consumers didn’t visit c-stores specifically to purchase lunch or dinner, for the lunch day-part, 46% said they never think of it, while 23% said the prices are too high; for dinner, 51% said they never think of it, while 19% said prices are too high.
When asked what c-stores could offer to encourage more foodservice purchases, the majority (41%) chose higher-quality food as their top answer, followed by better overall value (36%), healthier options (36%), more affordable items (36%) and food that tastes better (35%).
Embrace ‘Fast Failure’
Rip the bandage off. All three of the panelists in the session “20/20 Hindsight: Learning From Successes and Mistakes” agreed that getting out of a failing business or program quickly is better than watching it die a slow death (and losing a lot of money in the process).
Jeff Miller, president of Norfolk, Va.-based Miller Oil, tried two loyalty programs in his stores in the past decade that just didn’t work. The first one merely stole margins from the chain’s top customers, and none of the employees (including Miller) was passionate about the second one. Both programs lasted a few years— too long, Miller said. He lost at least $1 million.
What He Learned: A program has to be integrated into a store’s culture. “If your people don’t believe and you don’t believe, you’re destined for failure,” he said.
Before he realized that his company is better off with proprietary food, Greg Parker, president and CEO of Savannah, Ga.-based Parker Cos., opened two co-branded QSRs. Multiple problems arose: Another franchise opened between the two Parker locations, and his c-stores’ 79-cent fountain- drink program competed with that of the QSRs. He had to admit defeat, and he advised others to do the same—quickly. “Adhere to a culture of ‘fast failure,’ ” he said.
What He Learned: “The data will lead you to where the successes and failures are,” he said.
Leo Vercollone, owner and president of Verc Enterprises, Duxbury, Mass., opened a coffee chain called Quickava that was designed to take business from Northeast stalwart Dunkin’ Donuts. It didn’t. “It was four years of agony,” Vercollone said. That agony stemmed from no brand appeal in the Boston market, a weak franchisor and ineffective advertising. He lost $600,000 before the sites closed.
What He Learned: Ask yourself— and answer honestly: “Does your customer base want this product or service?” He also advised getting out of a bad business even if you don’t know what you’ll put in its locations yet. As Parker said, “Set a goal, measure the goal—and be willing to say, ‘We can’t meet that goal,’ and move on.”
Marketing the Most of Petroleum
At several standing-room only sessions based on petroleum, fuel retailers were most concerned with making the most of the forecourt to drive outside and inside sales, and fuel alternatives. To make the most of contracts and inside sales, several tips emerged: _ Read your fuel contract and update it. Bob Gough of Gaithersburg, Md.-based OPIS, suggests consistently reviewing contracts. He cautioned that a contract might not even specify the proper fuel to be delivered, if it’s 11 years old: “Are you working off a contract that you got handed by the guy who had the job before? … You have to look at these things every two or three years.” Also review what benchmarks or cost basis are being used, par ticularly with recent volatility meaning more benchmarks to choose from.
Before investing a lot of time and effort in third-party loyalty programs, make sure you know everything the program entails. “Do you want a big box to know every single one of your customers, how many gallons they buy, what grades they buy, what’s the proximity of their house to your location?” asked Pat Lewis, partner with Oasis Stop N Go LLC.
Tie fuel purchases to retail messages. At Wawa locations, fuel operations manager Norman Turiano says the Wawa, Pa.-based company mixes music with messaging at the forecourt. He said studies have shown that one in four customers will leave the pumps and head inside for a purchase, “so our goal is to drive that number up, and make them want to come in.” The company offers free coffee to drive that traffic. While the “free” offering gets customers in the store, the ultimate goal is keeping the customers coming in and seeing Wawa’s foodservice offer. Wawa also places coupons on the back of the fuel receipt tapes to get them to try some of the store’s products.
Much is being said today about alternative fuels. Workshops also revealed some tips for handling upcoming efforts:
Keep an eye on legislation. Steve Loehr, vice president of operations for La Crosse, Wis.-based Kwik Trip Inc., says his company sold 80 million gallons of ethanol last year. He said there are “inherent problems” in the EPA’s recent decision to allow E15 usage, because the EPA seems to be rushing into it. He said one problem could arise from customer error, with the company already experiencing problems with customers putting diesel in nondiesel vehicles—and with Kwik Trip’s guarantee on all of its fuel. “I don’t see us selling E15 right at the start, because of all of the inherent problems with it,” he said.
Understand electric-vehicle challenges. As manufacturers prepare to begin offering electric vehicles, two environmental challenges are facing them, according to Julie Becker, vice president of environmental affairs for the Alliance of Auto Manufacturers. The first is obtaining local permitting for overnight home charging at 250 volts in the garage. Another big concern is how to account for upstream emissions. “Environmental organizations don’t want to see a move to electric vehicles that result in a jump in demand for coal-fired electricity,” Becker said.