CSP Magazine

Kum & Go's Formula for Change

Midwest giant attempts to break the mold with new format, foodservice and local focus.

On the desk of each executive at Kum & Go L.C. sits a small triangle. It symbolizes the Greek letter delta, which in mathematics signifies change. You can also consider it the keystone of this retailer’s business strategy. “You have to be comfortable with change, which I don’t think is that unique in retail, but I think we attempt to do it at a higher-level pace than others,” says president and CEO Kyle J. Krause in an exclusive sit-down interview with CSP. “Really, it’s that strive to be the best. There are other great retailers in our space and retailers we compete against, and so the desire for us is to ask: ‘How can we be the best c-store chain in the country?’ You have to keep changing to do that.”

For West Des Moines, Iowa-based Kum & Go, a chain founded 52 years ago by Krause’s father, W.A. “Bill” Krause, and grandfather, Tony Gentle, this embrace of change has helped it grow beyond Iowa into 10 other Midwestern and Western states and the fifth-largest privately owned, company-operated c-store chain in the country. Today with more than 400 stores, 4,000 associates, 400,000 customers a day and $2.6 billion in annual sales, some may say that Kum & Go has “made it.”

But if you ask Krause and his team, it’s easy to fi nd room for improvement. One of the boldest statements is a new store format, unveiled at 20 sites with plans for 20 to 25 new locations each year. About 45% larger than the former footprint with a huge foodservice expansion, the stores are part of Kum & Go’s grand plan to capture customer loyalty and create a model that cannot be replicated.

Like many retailers, Kum & Go is also trying to learn more about its customers— not just the generic “c-store consumer,” but the married mother of three who lives in Ames, Iowa, near Route 30 and 72nd Street. Such a degree of local, the chain believes, holds the key to true differentiation.

Krause is an art lover and a soccer fan. A contrast to his father— who is tall, silver-haired, conservatively dressed, a measured speaker—he is average height, dresses with flair, speaks quickly and is constantly in movement. [See profi le on Bill Krause, CSP—Nov. ’08, p. 34.]

Indeed, when you ask him to name the biggest threat to c-stores today— competitive channels, credit-card fees, government regulation—his response is, “Complacency is the greatest threat to our channel.”

“[Kyle] understands and has a vision for the business, around where he wants to take it,” says COO Dennis Folden, a company veteran who has served the Krause family for more than 40 years. “We’re growing in specific markets as ground-ups. We’re still going to look for acquisitions, but are more selective. In doing that, it helps our future because it gets us going in the same direction, all in alignment.”

And that direction, says Krause, is to establish a degree of success at Kum & Go that makes it impossible for competitors to duplicate.

Home Away From Home

To better understand Kum & Go’s embrace of change, first it’s important to examine areas in which it refuses to completely budge.

For one, there is the uniform for store associates—one of the few, if not the only in the industry, to feature a tie and button-down white shirt. Likely more expensive and definitely more formal than the average c-store polo shirt, it is a uniform that projects professionalism.

There is also the embrace of LEED building, which began in 2008. Nice to do, some well-intentioned retailers say, but not necessary, considering the lack of a fast-enough return on investment. In fact, other chains have dabbled in building certifi ed stores only to pull back, dissuaded by the challenges and added up-front expense. Meanwhile, Kum & Go has built 20 sites to LEED standards, with three certifi ed and plans to make every new build a contender.

Finally, there’s the refusal to institute prepay at the pump—despite the fact that more than one-half of retailers now require it, according to NACS figures, with Kum & Go competitor QuikTrip one of the more recent adherents. In fact, an October story in Tulsa World, a newspaper covering Northeast Oklahoma, said that “nearly all” drive-offs that occur in Tulsa happen at Kum & Go sites.

But from Kum & Go’s perspective, despite its ability to prevent theft, prepay violates the retailer’s promise to make customers feel at home in their stores and provide a truly convenient shopping experience.

“Kyle, a few years ago, said ‘Can you really be a convenience store and be prepay?’ ” says Folden. “We have no stores today that require customers to prepay any hour of the day. How do we keep drive-offs down? The best we can. But for the 1% or less that drive off, why inconvenience the 99% that come in? It’s a cost of doing business.”

“We think about the store environment being your home for the day,” says Franci Phelan, senior vice president of grow people, Kum & Go’s human resources department. “How would you treat somebody who’s coming to your home for the day? You greet them when they show up, make sure that your restrooms are clean. You’d suggest things they can buy, things they may not know about. You’d thank them when they left.”

While there are no “sacred cows” at Kum & Go, if you examine each of these examples, you understand why none of them has been eliminated: They are fi rmly rooted in one or more of Kum & Go’s core values: passion, integrity, teamwork, caring and excellence.

Eliminating Churn

Since Krause became CEO of the company eight years ago, revenues have grown from $500 million to $2.6 billion. Within the store network, Kum & Go was opening a new store each week for much of 2011, bringing the chain total to more than 400. Meanwhile, it has pruned 430 sites within the past seven years. “Raze/ rebuild, new builds, divestments, occasional closes, so mathematically you’d say you turned the company over 100% in that period of time,” Krause says.

These moves include the sale of 22 sites to Casey’s General Stores in June 2011, and renewed expansion in central Arkansas.

“It changes how you manage,” says Krause. “I can’t know every piece of information to a level like we might have done back when I first moved into a role in the office and you just drove to the stores. You’ve got to delegate more responsibility and create more process. You try to keep the best attributes of being an entrepreneurial company and then add the process and analytics on top of that to have a healthy mix of the two.”

One example of mixing entrepreneurship with process is store tours, which Krause used to perform with his father long ago at each of the chain’s sites. As Kum & Go grew, the responsibility later shifted to a senior manager, but even this was not ideal. “It was good,” Krause says, “because it was touching the assets, but it maybe wasn’t the most effective interaction with our general managers, which is the critical reason why you’re there.”

Three years ago, Kum & Go set up three regular all-day meetings, one for each of its regions. Senior management presents updates in areas such as human resources and operations, while Krause fields Q&A with general managers. “The CEO at the mike, answering any question they ask, unfiltered for an hour—compare that with a 20-minute store visit … it became much more effective,” says Krause.

The role that general managers play at Kum & Go is critical, and keeping their turnover low is key to maintaining a happy workforce, execs believe. General-manager turnover at Kum & Go measures 15%—compared to the industry average of 20.8% for “D” size companies, according to the NACS State of the Industry Report of 2010 Data— and has been at 0% in the supervisor level in recent years.

“When you look for that retention piece and where the impact happens, you’ve got to make sure you have stability at the general-manager level,” Phelan says. “They’re the trainer, the keeper of our values. They’re the ones who create and care for that environment at the store level, so they’re key.

“If you don’t have stability at your management level, how do you build career development, a succession plan and a belief that you can have a career here?” she continues. “You can’t—there’s too much churn through the system.” Part of the key to low turnover is Kum & Go’s deliberative hiring process. For applicants to positions both at the store support center (SSC) and in stores, this includes formal interviews, a preemployment assessment in which candidates are evaluated on how well they meet Kum & Go’s values, and a tour of a store.

Some candidates participate in store tours, which are designed to evaluate how individuals interact with store associates and customers, and their feel for retail. “If they’re standing there, stiff … we’re drawing some conclusions about that,” says Phelan. “If they venture out and interact with the store associates or customers, then you’re looking at attributes of someone who’s very comfortable in that environment and the retail setting.”

“We are not confused at all about where the magic happens in our organization,” says Phelan. “We’re constantly reinforcing where the action happens, where the customer service actually takes place, and that’s in our stores.”

For example, what some may see as Kum & Go’s headquarters—a modern glass-and-steel building near an interstate highway—is referred to by the company as its “store support center.” “On my watch, we changed the name,” says Krause, “not that we changed the function, but the idea is to communicate to people … How can we support our stores and store associates the most to make their job the best?”

It’s an element of what Kum & Go execs refer to as taking care of “big C and little c”—or, the official customer and the internal customer, meaning employees, vendors or business partners. Take care of the customer and the “customer” will in turn be rewarded.

The efforts are clearly working. Kum & Go, a regular participant in the annual CSP-Service Intelligence Mystery Shop, ranked highest among all of the chains in the 2011 competition in providing a proper greeting, a parting remark and a friendly cashier interaction [CSP—Aug. ’11, p. 45].

The caring reverberates beyond the store level. Kum & Go, which donates 10% of its proceeds to charitable and educational endeavors, just wrapped up its United Way campaign in late October. It enjoyed 100% participation at the SSC level for several years—and contributions rose 45% from 2010, which was up 14% from 2009, which was up 32% from 2008.

Getting Local

While Kum & Go is fostering employee loyalty, it also continues to make efforts at grabbing a greater share of customers’ time and money. This is evident in one of its key metrics: inside sales customer count, which the retailer tracks on a daily basis and breaks out in different ways— such as gas or inside only.

“The inside-sales customer count,” says Krause, “tells me: Are you still staying relevant with that shopper stopping in the store?”

For the past three years, Kum & Go has been collecting and tracking another metric to gauge its relevance: the Net Promoter Score, a system created by Satmetrix Systems Inc., Bain & Co. and loyalty expert Fred Reichheld. It asks the “ultimate question”: On a scale of one to 10, how likely are you to recommend a company (or brand) to a colleague or friend?

Based on their responses, customers are then divided up by level of enthusiasm. “Promoters” score the company a 9 or 10, “passives” score at 7 or 8, and “detractors” will score a company between zero and 6. To calculate the NPS, the percentage of customers who are “detractors” are subtracted from those who are “promoters.” (For more, see sidebar, left.)

Each month, Kum & Go surveys 10,000 to 30,000 customers about their shopping preferences and to ask the NPS question. The company is proud that its most recent score—78%—is close to that of Harley-Davidson and Apple Computer. But Folden points out that they are still early in the process.

“We’ve been looking at that information, and just trying to figure out what it means,” he says.

Two additional areas where Kum & Go is trying to nail down good metrics: Understanding the c-store consumer and their purchases, and how to best parse the data by transaction type: cash, debit or credit, for example. It’s part of a greater effort to explore what the customer wants, and tailoring the retail approach down to the local level.

“It used to be 10 years ago, you did one store set and hope you got 80% [of consumers],” says Folden. “I think all retailers today understand one size doesn’t fit all. If a neighborhood around a store has a Latino base, we’re accommodating the Latino customer that comes in. If it’s more affluent, maybe in a business section downtown, we are accommodating the type of lunch that customer may want. The first step is always to make sure you have the definition right, so we know what we’re doing.”

Kum & Go has taken this focus on locality seriously, crafting 360 coldvault sets and more than 100 floor plan-o-grams. The high number is partly because of legacy sites, but also because the chain factors in fuel offering. For example, if a site offers diesel, its automotive set will be different than a nondiesel location.

“Early on in the business, it was easier; there wasn’t as much competition, as many alternatives for people to go to,” says Folden. “Today you have Walgreens as a c-store, Starbucks is offering more convenient types of products, so we need to offer what the customer truly wants when they walk in the door. If we can do that, it differentiates our chain.”

Making of a Model 

The development of Kum & Go’s latest format began with the employees. The company polled store associates, general managers and category managers about what features they would like to see in the store design.

Based on that feedback, the company built three mock-ups in a Des Moines warehouse, complete with cooler doors, equipment and plywood counters. Next, store associates, supervisors and SSC personnel toured the mock-ups.

“It was a great learning for us to be able to see how everything flows,” says Niki DePhillips, senior vice president of store development. “What is the spacing between the cash wrap and the shelving, and how big does the coffee island really need to be? You can measure the equipment, but to really get the feel from a customers’ and associates’ standpoint, it really helps to build it.” Based on additional feedback, DePhillips’ team tweaked the design and had everyone return for a final say. The end product is a store just under 5,000 square feet—compared to the former Kum & Go average of 3,400— with an expanded foodservice section, complete with an in-house kitchen. This is serving up offerings from Kum & Go’s new Go Fresh Market foodservice program: freshly made pizza, cold and hot sandwiches, subs, wraps and baked goods. The Go Fresh Market program will be included with all new and remodeled Kum & Go sites that have full-service kitchens.

The site also features a larger and separated coffee and fountain area for better traffic flow, more cooler doors and a checkout moved from the side to the center of the store. “The associate can see everything that’s going on,” says DePhillips. Perhaps most important, “The first thing you see when you walk in the store is the store associate, that friendly face, so we’re able to greet them right away.”

Then there is the “big C” portion of the design: building the customer’s needs into the format. Kum & Go added open-air coolers for milk to make graband- go easy. It made room for more cups and lids at the coffee bar and fountain so they ran out less often, and so associates could refill them more easily. In addition, thanks to customer input, the restrooms are entirely touch-free. Entry doors have been replaced by long, twisting hallways, and sensor-driven sinks, toilets and hand dryers are standard.

This will be the format Kum & Go expands with in 2012 and beyond, with central Arkansas in the queue for many new stores. The chain will announce a new market for expansion in January. It is focused mainly on midsize urban cities; development in rural areas is limited, although Kum & Go is rebuilding some sites in these markets, and, in the case of the Casey’s transaction, selling.

“The Casey’s transaction made sense for us because the stores we sold were not on our target growth list,” says DePhillips. “They were stores they wanted to buy and seemed to work for them. Most of the stores were older stores—I think the average age was 30 to 35 years old— so they weren’t necessarily on a list to sell. It was just a transaction that made sense for both parties.”

Krause says that any plans for growth must be tied closely to the likelihood of development. “Where is growth, where is the demographics we want, where’s the opportunity, where can we get development done?” he asks. “You can choose a city and not get development done in that city. Boulder is a good example.” There, local politics and restrictions have so far quashed Kum & Go’s efforts and building its footprint in the market.

But this does not deter Kum & Go; if anything, it refocuses the chain on finding an even greater opportunity.

“Every change you undertake may not create improvement,” says Krause, “but to improve, you must change.” 

Kum & Go L.C.

West Des Moines, Iowa No. of stores: More than 400 States of operation: 11 2011 revenue (estimated): $2.6 billion Revenue increase vs. 2010: 26%  

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