The Pantry: Finding Its Place
It is easy to reflect on our mistakes, to punish ourselves for decisions that made sense at the time.
It is easy to reflect on the tenure of Pete Sodini, the contrarian executive who built The Pantry into the Southeast’s largest independent c-store chain.
It is easy to casually and caustically dismiss as presumptuous an approach founded on high gasoline and cigarette margins as a practical business model. And yet, to a great extent, that is what Sodini did—and did well.
I was the first business trade reporter to interview the mercurial Sodini 15 years ago and since have written dozens of features and online stories about The Pantry’s ascent, successful IPO, stock surge to $70 a share, its decline to nearly a penny stock, and its multiple machinations and leadership fluctuations over the past few years. And I am privileged in this issue of CSP to share a byline with senior editor Samantha Oller on our cover feature about The Pantry’s newest leadership team.
It is easy to parody the past and sympathize with the plight Dennis Hatchel confronts today. Yet I am pulled back to a story I wrote a decade ago, a profile of an operator that like many of its contemporaries inhaled the easy cash of the mid-’90s and exhaled massive debt in a buying binge that, frankly, was fun and exploited a gaping opportunity for consolidating much of our industry’s fragmentation.
Of these high rollers, including Clark Retail Enterprises, Swifty Serve and ConvenienceUSA, only The Pantry survived.“The reason The Pantry continues to outperform their peers … is because of Sodini,” David Maura, a First Albany analyst who had tracked the chain since the mid-’90s, told me in 2003. “That managerial team is, in my opinion, the best in the business.”
And, from a certain perspective, they were. Sodini told me in 1998 that his hope was to play in the c-store arena for five to seven years, to successfully leverage The Pantry’s scale and ability to close deals with alacrity at reasonable multiples.
But Sodini’s plan—though well intended and well thought-out—failed. The economy changed, and the marketplace grew intensely competitive. Channels blurred, lending tightened, margins thinned. Tobacco discounts diminished and fuel margins swung wildly. And then in 2008, The Pantry gambled and lost. Big. It hedged—normally a wise move for a company of its scale. But the gasoline markets soured when they were supposed to sweeten. The company lost millions. And The Pantry lost its mojo.
Sodini was not interested in retailing, but of acquisitions. His was not a temperament of re-sorting inventory, of streamlining the company’s convoluted point-of-sale systems, of replacing its more than two-dozen brands with a single moniker that actually stood for something.
That’s where Terry Marks and his team enjoyed some success and where I expect Hatchell and crew to bring further improvement. Hatchell is a sound retailer who understands marketing, brand assortment and customer behavior. He appreciates The Pantry’s motley portfolio and is attempting to make the best of a challenging situation, harnessing what he can of stores of varying shapes, sizes and offerings across 13 states.
Yet there is a reality. My longtime financial mentor, Dick Meyer, loves to say, “What are the metrics? What does the financial picture tell you?”
The Pantry’s picture ain’t pretty. It faces a debt of $500 million and owns little real estate. Its debt-to-equity ratio places it well behind other publicly traded companies such as Susser Holdings, Alimentation Couche-Tard and Casey’s. While The Pantry fields a talented team of category managers, it has failed to leverage its forecourt, which delivers nearly four-fifths of total company revenues. It is remodeling sites and presenting a quality store, but the pace is insufficient, and its growing competition in the Carolinas and Florida is too intense.
I expect The Pantry to survive, but not thrive. Its options are few: It has too much debt and a lack of major stakeholders to go private, be acquired or engage in major acquisition growth. Its stores remain profitable on a per-unit basis and its market share suggests a business that is average to slightly above average. It is not QuikTrip Wawa. Nor is it Swifty Serve or Dairy Mart, whose massive debt crushed them long ago.
Much like its name, The Pantry should remain a steady player, well stocked and offering few surprises.