Laredo Lowdown

Susser Holdings converting former Town & Country sites to Mexican-food offer
CORPUS CHRISTI, Texas -- In the less than 10 years since Susser Holdings Corp. introduced its Laredo Taco Co. foodservice offering, restaurant contributions to the company's gross profits has risen from less than 2% to more than 17%, and that's for a concept that currently is in only 294 of the company's 513 retail sites. "Compare that to cigarettes, which is now down (from 18.5% in 2000) to just under 9%, and we sell cigarettes at all of our stores," said CFO Mary Sullivan during the 13th annual Burkenroad Reports Investment Conference.

Hosted by Tulane University's Freeman [image-nocss] School of Business, Sullivan outlined the company's current economic status and focused on foodservice, among other aspects of the business, as a growth engine.

"With the [ongoing] decline in cigarettes, our board saw that, long term, cigarettes is not really where we want to be focused," Sullivan said. "In the early 2000s, they challenged us to find something to replace the cigarettes. That's when we really developed our foodservice concept. It took us a couple of years to get it right before it really started growing in about 2001, 2002 and 2003, and we've seen it doing great progress since then."

She said that foodservice businessmainly epitomized by the Laredo Taco Co. sites in Stripes stores, but also including the Country Cookin' restaurants in the Town & Country Food Stores Susser Holdings bought in 2007has helped offset the decline in cigarette margins, "and we've actually been able to hold and even grow our merchandise gross profit."

Laredo Taco Co. is a proprietary restaurant, serving "authentic" Mexican food. "It's made from scratch right there in the store. It's not commissary," Sullivan said.

A big part of establishing that business, she added was recognizing that "most people don't wake up in the morning thinking, 'I'm going to go to a convenience store and have breakfast or have lunch.' So we thought when we can get people in the store, [we need our food to be where] you can see it, you can smell it, you can hear the cooking. And once you taste it, we've got you hooked. The customers can see that it's fresh and that's really been the key to being able to grow this business."

The Stripes retail chain now sells more than 140,000 foodservice items per day in its Laredo Taco Co. locations, primarily in South Texas.

"We love the foodservice business. It's got higher margins that your average merchandise does, but in addition to that, it drives other purchases," said Sullivan. "About 70% of the time if a customer buys a foodservice item, they're also going to buy something else, and that's usually a drink or a snack, which are also nice margin items. So it's been a very big win for us these past few years."

And the company's goal from the startto offer great food at a great pricehas helped the company more recently.

"We want to be sensitive to the demographics of our area, which is lower income. So our breakfast taco is a great big, fat breakfast taco for 99 cents," said Sullivan. "We also have great values on lunch tacos or lunch plates. Or if you want to take home a whole rotisserie chicken with three side items, you can do that for $10. It's a very good value, and we think that's serving us well through these current economic times."

In 2008, Susser Holdings rebranded three Town & Country stores to Stripes on a pilot basis, converting the Country Cookin' restaurants to Laredo Taco Co. "We are pleased with the results, and we are making plans for more brand conversions beginning in the second quarter," Steve DeSutter, president and CEO of retail, said on a quarterly earnings conference call in February.

As a result, rather than continue to retrofit Stripes stores with Laredo Taco Co. kitchens, Susser Holdings intends to convert about half of the 160 Town& Country sites to Stripes and Laredo Taco this year. Only two or three Stripes sites will be retrofitted.

As a further sign of Susser Holding's commitment to foodservice, the company recently hired Ken Frazier as vice president of foodservice. Frazier spent more than 30 years at Yum Brandshome of KFC, Taco Bell and Pizza Hut, among othersin franchise and company-owned operations. He joined Susser Holdings from Quiznos, where he was a vice president of operations.

Corpus Christi, Texas-based Susser Holdings Corp. is a third-generation, family-led business that operates 513 c-stores in Texas, New Mexico and Oklahoma under the Stripes and Town & Country banners. Restaurant service is available in more than 290 of its stores, primarily under the proprietary Laredo Taco Co. and Country Cookin' brands. The company also supplies branded motor fuel to approximately 370 independent dealers through its wholesale fuel division.

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