Company News

Focus on The Pantry, Part 1 of 2: A Change of Strategy

New leader downplays growth, emphasizes foodservice, store image, technology
[This is the first in a two-part series featuring the goals and strategies of the new president and CEO of The Pantry, Terrance Marks.] CARY, N.C. -- While not ruling out acquisitions by any means, The Pantry's new president and CEO outlined a new strategy for the convenience store company yesterday that is much more focused on in-store development than previous leader Peter Sodini ever discussed with investors.

"The clearest investment opportunity before us today is our own stores, to improve their ability to meet consumer needs and drive sustainable shareholder [image-nocss] returns over time," Terrance Marks said on a quarterly earnings call yesterday. (See related story in today's CSP Daily News for details of The Pantry's quarterly earnings.)

Marks, who took over for the now-retired Sodini in September, identified three major areas of focus at The Pantry that he expects will better "serve our customers and create value for our shareholders": information systems, on-the-go meals, and capital allocation.

Information Systems

"We see this as a foundational, enabling capability that supports every aspect of our business," Marks said in reporting that The Pantry is implementing a wide-area network across its store base, is rolling out a new point-of-sale (POS) system to all stores and, in November, established the position of chief information officer, hiring experienced IS tech Paul Lemerise for the position.

"Insight into individual SKU performance across a wide variety of dimensions is a key enabler to driving improved performance," Marks said. "Today we have limited insight at this level of granularity. A related constraint is a current inability to differentiate pricing on a meaningful level as well. Overcoming these limitations is critical and will require a series of investments over time."

Currently 400 of The Pantry's 1,650 stores have the new POS system, and the Cary, N.C.-based company budgeted $20 million to continue the information systems projects in fiscal 2010.

On-the-Go Meals

"Overall, it's fair to say that many of our stores could use a refresh. However, we believe a refresh is not enough," Marks said in introducing his plans for the company's stores and specifically foodservice.

"Our convenient locations present us the unique opportunity to meet the needs of our increasingly time-starved customers by developing more comprehensive, on-the-go meal solutions focused on specific occasions, such as breakfast, lunch and snacks," he said. Frankly, we're doing a poor job of capitalizing on this opportunity."

Marks plans two initiatives to overcome this shortcoming. First, over the next year, the chain will add 25 new nationally branded foodservice locations to its store base. "Subway will comprise the majority of these additions," he said. "This represents a significant acceleration from last year, during which we added 10 new locations to existing stores."

Second, The Pantry will develop store reimaging concepts that feature broader foodservice offerings. "We will pilot, monitor consumer response and refine accordingly," Marks said. "Once comfortable that we have a winning formula, we will move quickly to commercialize [and expand the offer]."

He added that convenience, value and variety will drive the development of the new food options.

"Consumers...don't want to have to choose between convenience and something that's good for them. The other variable that's come into play recently...is the whole value aspect," Marks said. "So our principal focus area initially is going to be around things like sandwiches, wraps, fruit, fruit plates, things that don't require a lot of additional in-store labor. "We're looking to do this across the overwhelming majority of our store base."

These products will likely be self-branded and work as an addition to The Pantry's current nationally branded programs. The company has budgeted $50 million in 2010 for store maintenance.

Capital Allocation

For a company that became known over the past decade for its aggressive acquisition strategy under Sodini, just where Marks would place priority for spending money was a key question.

"New stores, both through acquisition and new construction will continue to play an important role in our long-term growth and we will be disciplined in our approach," Marks said. "We believe, however, that the clearest investment opportunity before us today is our own stores, to improve their ability to meet consumer needs and drive sustainable shareholder returns over time."

In practice, that added up to the company planning to open only one new store in fiscal 2010. "We've budgeted down significantly what we've been spending on new stores," said CFO Frank Paci.

"There's no question we face a challenging environment and we have some work to do," Marks summed up. "However, I am absolutely convinced that a disciplined focus and better meeting our customers' needs will result in the superior long-term growth and financial returns our shareholders deserve."

Terrance Marks came to The Pantry in September after several years as a supplier with Coca-Cola Enterprises. In tomorrow's second part of this series, he offers his thoughts on The Pantry's strengths and weaknesses, specifically, and those of the c-store industry in general.

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